-----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, HZfVXAfVaS1JqhfYCSNzDsPYMmvZRbbOZwqIWpi4wJS1Q84xY4QX1/JpsaSbKBm6 aZUrCUXXzd5cezBjAGMYFw== /in/edgar/work/20000801/0001092388-00-000447/0001092388-00-000447.txt : 20000921 0001092388-00-000447.hdr.sgml : 20000921 ACCESSION NUMBER: 0001092388-00-000447 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20000430 FILED AS OF DATE: 20000801 FILER: COMPANY DATA: COMPANY CONFORMED NAME: E-NET FINANCIAL COM CORP CENTRAL INDEX KEY: 0000926844 STANDARD INDUSTRIAL CLASSIFICATION: [6199 ] IRS NUMBER: 841273503 STATE OF INCORPORATION: NV FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: SEC FILE NUMBER: 000-24512 FILM NUMBER: 683104 BUSINESS ADDRESS: STREET 1: 3200 BRISTOL STREET STREET 2: SUITE 710 CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7145572222 MAIL ADDRESS: STREET 1: 2102 BUSINESS CENTER DRIVE STREET 2: 115E CITY: IRVINE STATE: CA ZIP: 92612 FORMER COMPANY: FORMER CONFORMED NAME: E-NET COM CORP DATE OF NAME CHANGE: 20000127 FORMER COMPANY: FORMER CONFORMED NAME: E NET FINANCIAL CORP DATE OF NAME CHANGE: 19990920 FORMER COMPANY: FORMER CONFORMED NAME: E NET CORP/NV DATE OF NAME CHANGE: 19990513 10KSB40 1 0001.txt FORM 10-KSB40 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB [ X ] Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended April 30, 2000 [ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ___________ to ____________. Commission File Number: 0-24512 E-NET FINANCIAL.COM CORPORATION (Name of small business issuer in its charter) NEVADA 84-1273503 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3200 BRISTOL STREET, SUITE 700, COSTA MESA, CALIFORNIA 92626 (Address of principal executive offices) Issuer's telephone number: (714) 557-2222 Securities registered under Section 12(b) of the Exchange Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED N/A N/A Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.001 par value Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ] The issuer's revenues for its most recent fiscal year: $4,689,170 The aggregate market value of voting stock held by non-affiliates of the registrant as of July 28, 2000: Common stock, $.001 par value: $13,098,716 The number of shares of the registrant's common stock outstanding as of July 25, 2000: 21,035,484 shares Documents incorporated by reference: Certain exhibits to the Form 10-KSB for the fiscal years ended April 30, 1997 and April 30, 1999 and amendments thereto of the registrant are incorporated herein by reference. Transitional Small Business Disclosure Format: Yes No X ------- ------- PART I ITEM 1. DESCRIPTION OF BUSINESS. General e-Net Financial.Com Corporation (the "Company") was incorporated as Solutions, Incorporated on August 18, 1988, under the laws of the State of Nevada to engage in any lawful corporate undertaking. On July 11, 1994, the Company filed a Registration Statement on Form 10-SB with the Securities and Exchange Commission, which was declared effective on December 22, 1994. At that time, the Company became a reporting company under Section 12(g) of the Securities Exchange Act of 1934, as amended. On August 16, 1996, the Company changed its name to Suarro Communications, Inc., and on February 12, 1999, May 12, 1999 and on January 18, 2000, the Company changed its name to e-Net Corporation, e-Net Financial Corporation and e-Net.Com Corporation, respectively. On February 2, 2000, the Company changed its name to e-Net Financial.Com Corporation. In November of 1999, the Company split its Common Stock on a two-for-one basis. All references in this Annual Report reflect such forward split. Recent Changes in Business Strategy and Change in Control Effective March 1, 1999, the Company acquired E-Net Mortgage Corporation, a Nevada corporation ("E-Net Mortgage"), and City Pacific International, U.S.A., Inc., a Nevada corporation ("City Pacific"). Pursuant to the Share Exchange Agreement and Plan of Reorganization, dated March 1, 1999, regarding E-Net Mortgage, its shareholders received 2,000,000 shares of Common Stock of the Company in exchange for all of the issued and outstanding stock of E-Net Mortgage, which became a wholly owned subsidiary of the Company. Pursuant to the Share Exchange Agreement and Plan of Reorganization, dated March 1, 1999, regarding City Pacific, its shareholders received 500,000 shares of Common Stock of the Company in exchange for all of the issued and outstanding stock of City Pacific, which became a wholly owned subsidiary of the Company. Effective as of that date, new directors and executive officers, of the Company were elected. On November 29, 1999, the Company issued Paul Stevens 250,000 shares of its Common Stock in exchange for Mr. Stevens' transfer to the Company of 500,000 shares of Common Stock of EMB Corporation ("EMB") that he owned (the "Stevens' EMB Shares"). On December 21, 1999, and in connection with that exchange, the Company entered into agreements with Digital Integrated Systems, Inc. ("DIS"), and EMB to acquire their respective 50% interests in VPN.COM JV Partners, a Nevada joint venture ("VPN Partners") involved in vertically integrated communications systems. In consideration of the purchase of the interests, the Company issued its one-year promissory note to DIS in the amount of $145,000 (the "DIS Note") and tendered to EMB the Stevens' EMB Shares. At the time of such transactions, Mr. Stevens was the sole owner of DIS and the President and Chief Executive Officer of VPN Partners. Upon the closing of the acquisitions, VPN Partners was integrated with VPNCOM.Net, Inc. (previously known as City Pacific), the other communications entity then owned by the Company. On March 1, 2000, the Company sold VPNCOM.Net, Inc., to E. G. Marchi, its President. The sales consideration consisted of his 30-day promissory note in the principal amount of $250,000 (paid in full on April 15, 2000), the assumption of the DIS Note, and the return of 250,000 shares of Company Common Stock owned by him. 2 On January 12, 2000, as revised on April 12, 2000, the Company entered into an agreement (the "Amended and Restated Purchase Agreement") with EMB to acquire two of its wholly owned subsidiaries, i.e., American Residential Funding, Inc., a Nevada corporation ("AMRES"), and Bravo Real Estate, Inc., a California corporation ("Brave Real Estate"). The Company also acquired all of EMB's rights to acquire Titus Real Estate LLC, a California limited liability company ("Titus")from its record owners. Titus is the management company for Titus Capital Corp., Inc., a California real estate investment trust (the "Titus REIT"). On April 12, 2000, the Company acquired AMRES and Bravo Real Estate. Pursuant to the Amended and Restated Purchase Agreement, the Company issued 7.5 million shares of Common Stock to EMB, paid $1,595,000, and issued its promissory note in the initial amount of $2,405,000, and AMRES and Bravo Real Estate became wholly owned subsidiaries of the Company. As of July 28, 2000, the remaining principal balance of the promissory note was $1,066,022. On February 11, 2000, the Company executed a Membership Interest purchase agreement (the "Titus Purchase Agreement") for the acquisition of Titus and issued 100,000 shares of its Class B Convertible Preferred Stock (the "B Preferred") to AMRES Holdings LLC ("AMRES Holdings"), a company controlled by Vincent Rinehart, and 300,000 shares of its Common Stock to Scott A. Presta, in their capacities as the owner-members of Titus. Upon closing, Titus became a wholly owned subsidiary of the Company. On April 12, 2000, in accordance the provisions of the Certificate of Designations, Preferences and Rights of Class B Convertible Preferred Stock, AMRES Holdings demanded that its B Preferred be repurchased by the Company for an aggregate of one million dollars. On April 20, 2000, the Company, AMRES Holdings, and Mr. Presta amended the Titus Purchase Agreement to provide for a potential return of certain of the Company's capital stock issued to AMRES Holdings and Mr. Presta upon the occurrence of certain events. See Note 3 to the Audited Consolidated Financial Statements for the ten months ended April 30, 2000, the year ended June 30, 1999 and the period from Inception to June 30, 1998 for further discussion. On April 12, 2000, James E. Shipley was elected Chairman of the Board of Directors of the Company and Vincent Rinehart was elected a Director, President, and Chief Executive Officer. Mr. Rinehart also serves as President of AMRES and Bravo Real Estate and an executive officer and director of Titus. On May 24, 2000, Michael Roth and Jean Oliver, the sole remaining officers and directors of prior management, resigned their remaining positions with the Company. On that date, Mr. Presta, an executive officer and director of Titus, was elected a Director and Secretary of the Company and James M. Cunningham, President of LoanNet Mortgage, Inc., a Kentucky corporation ("LoanNet"), was elected a Director of the Company. On June 26, 2000, Kevin Gadawski was elected Acting Chief Financial Officer of the Company. The Company and Mr. Gadawski, an independent consultant, expect that he will become an employee of the Company on or before August 31, 2000. On February 14, 2000, the Company acquired all of the common stock of LoanNet , a mortgage broker with offices in Kentucky and Indiana. Pursuant to the Stock Purchase Agreement, dated February 14, 2000, the Company issued 250,000 shares of its Common Stock to the selling shareholders of LoanNet, which became a subsidiary of the Company. As of the closing of the transaction, LoanNet also had 400 3 shares outstanding of 8% non-cumulative, non-convertible preferred stock, the ownership of which has not changed. The preferred stock is redeemable for $100,000. On March 17, 2000, the Company acquired all of the common stock of ExpiDoc.com, Inc., a California corporation ("ExpiDoc"). ExpiDoc is an Internet-based, nationwide notary service, with over 6,500 affiliated notaries, that provides document signing services for various mortgage companies. Pursuant to the Stock Purchase Agreement, dated February 14, 2000, the Company issued 24,000 shares of Common Stock of the Company to the selling shareholders of ExpiDoc, which became a wholly owned subsidiary of the Company. As of the closing of the acquisition, the Company entered into management and consulting agreements with ExpiDoc's owners and management, including Messrs. Rinehart and Presta. Operations as a Residential Mortgage Lender GENERAL. The Company, through its wholly owned subsidiary, E-Net Mortgage, had, since 1999, engaged in business as a retail mortgage broker. However, E-Net Mortgage was not capitalized to the level that permitted it to expand its operations outside of its offices in San Jose, and Costa Mesa, California, and Las Vegas, Nevada. With the pending acquisition of AMRES, E-Net Mortgage stopped conducting business in the fourth quarter of the fiscal year ended April 30, 2000. With the completion of the acquisition of AMRES, AMRES has become the principal operating mortgage subsidiary of the Company. It is the intent of the Company for AMRES to operate primarily as a mortgage banker and mortgage broker through an expansion of its existing company-owned and Net Branch operations. In addition, LoanNet will operate as a retail mortgage broker in the central and southern regions of the United States. LOAN STANDARDS. Mortgage loans made by AMRES or LoanNet are loans with fixed or adjustable rates of interest, secured by first mortgages, deeds of trust or security deeds on residential properties with original principal balances that, generally, do not exceed 95% of the value of the mortgaged properties, unless such loans are FHA-insured or VA-guaranteed. Generally, each mortgage loan having a loan-to-value ratio, as of the date of the loan, in excess of 80%, or which is secured by a second or vacation home, will be covered by a Mortgage Insurance Policy, FHA Insurance Policy or VA Guaranty insuring against default of all or a specified portion of the principal amount thereof. The mortgage loans are "one- to four-family" mortgage loans, which means permanent loans (as opposed to construction or land development loans) secured by mortgages on non-farm properties, including attached or detached single-family or second/vacation homes, one- to four-family primary residences and condominiums or other attached dwelling units, including individual condominiums, row houses, townhouses and other separate dwelling units even when located in buildings containing five or more such units. Each mortgage loan must be secured by an owner occupied primary residence or second/vacation home, or by a non-owner occupied residence. The mortgaged property may not be a mobile home. 4 In general, no mortgage loan is expected to have an original principal balance less than $30,000. While most loans will be less than $700,000, loans of up to $2,000,000 may be funded through their own wholesale credit lines or by brokering such loans to unaffiliated third-party mortgage lenders. Fixed rate mortgage loans must be repayable in equal monthly installments which reduce the principal balance of the loans to zero at the end of the term. CREDIT, APPRAISAL AND UNDERWRITING STANDARDS. Each mortgage loan must (i) be an FHA-insured or VA-guaranteed loan meeting the credit and underwriting requirements of such agency, or (ii) meet the credit, appraisal and underwriting standards established by the Company. For certain mortgage loans which may be subject to a mortgage pool insurance policy, the Company may delegate to the issuer of the mortgage pool insurance policy the responsibility of underwriting such mortgage loans, in accordance with the Company's credit appraisal and underwriting standards. In addition, the Company may delegate to one or more lenders the responsibility of underwriting mortgage loans offered to the Company by such lenders, in accordance with the Company's credit, appraisal and underwriting loans. The Company's underwriting standards are intended to evaluate the prospective mortgagor's credit standing and repayment ability, and the value and adequacy of the proposed mortgaged property as collateral. In the loan application process, prospective mortgagors will be required to provide information regarding such factors as their assets, liabilities, income, credit history, employment history and other related items. Each prospective mortgagor will also provide an authorization to apply for a credit report which summarizes the mortgagor's credit history. With respect to establishing the prospective mortgagor's ability to make timely payments, the Company will require evidence regarding the mortgagor's employment and income, and of the amount of deposits made to financial institutions where the mortgagor maintains demand or savings accounts. In some instances, mortgage loans may be made by the Company under a Limited Documentation Origination Program. For a mortgage loan to qualify for the Limited Documentation Origination Program, the prospective mortgagor must have a good credit history and be financially capable of making a larger cash down payment in a purchase, or be willing to finance less of the appraised value, in a refinancing, than would otherwise be required by the Company. Currently, only mortgage loans with certain loan-to-value ratios will qualify for the Limited Documentation Origination Program. If the mortgage loan qualifies, the Company waives some of its documentation requirements and eliminates verification of income and employment for the prospective mortgagor. The Limited Documentation Origination Program has been implemented relatively recently and accordingly its impact, if any, on the rates of delinquencies and losses experienced on the mortgage loans so originated cannot be determined at this time. The Company's underwriting standards generally follow guidelines acceptable to FNMA ("Fannie Mae") and FHLMC ("Freddie Mac"). The Company's underwriting policies may be varied in appropriate cases. In determining the adequacy of the property as collateral, an independent appraisal is made of each property considered for financing. The appraiser is required to inspect the property and verify that it is in good condition and that construction, if new, has been completed. The appraisal is based on the appraiser's judgment of values, giving appropriate weight to both the market value of comparable homes and the cost of replacing the property. 5 Certain states where the mortgaged properties may be located are "anti-deficiency" states, where, in general, lenders providing credit on one to four-family properties must look solely to the property for repayment in the event of foreclosure. See "Certain Legal Aspects of the Mortgage Loans-Anti-Deficiency Legislation and Other Limitations on Lenders". The Company's underwriting standards in all states (including anti-deficiency states) require that the underwriting officers be satisfied that the value of the property being financed, as indicated by the independent appraisal, currently supports and is anticipated to support in the future the outstanding loan balance, and provides sufficient value to mitigate the effects of adverse shifts in real estate values. Each mortgage broker agrees to indemnify the Company against any loss or liability incurred by the Company on account of any breach of any representation or warranty made by the borrower, any failure to disclose any matter that makes any such representation and warranty misleading, or any inaccuracy in information furnished by the borrower to the Company. Upon the breach of any misrepresentation or warranty made by a borrower, the Company may require the mortgage broker to repurchase the related mortgage loan. TITLE INSURANCE POLICIES. The Company will usually require that, at the time of the origination of the mortgage loans and continuously thereafter, a title insurance policy be in effect on each of the mortgaged properties and that such title insurance policy contain no coverage exceptions, except those permitted pursuant to the guidelines established by FNMA. Certain Legal Aspects of Mortgage Loans GENERAL. The mortgages originated by the Company and its licensed affiliates are either mortgages or deeds of trust, depending upon the prevailing practice in the state in which the property subject to a mortgage loan is located. A mortgage creates a lien upon the real property encumbered by the mortgage. It does not, generally, have priority over liens for real estate taxes and assessments. Priority between mortgages depends on their terms and generally on the order of filing with a state or county office. There are two parties to a mortgage, the mortgagor, who is the borrower and homeowner (the "Mortgagor"), and the mortgagee, who is the lender. Under the mortgage instrument, the Mortgagor delivers to the mortgagee a note or bond and the mortgage. Although a deed of trust is similar to a mortgage, a deed of trust formally has three parties, the borrower-homeowner called the trustor (similar to a Mortgagor), a lender (similar to a mortgagee) called the beneficiary, and a third-party grantee called the Trustee. Under a deed of trust, the borrower grants the property, irrevocably until the debt is paid, in trust, generally with a power of sale, to the Trustee to secure payment of the obligation. The Trustee's authority under a deed of trust and the mortgagee's authority under a mortgage are governed by law, the express provisions of the deed of trust or mortgage, and, in some cases, the directions of the beneficiary. FORECLOSURE. Foreclosure of a deed of trust is generally accomplished by a non-judicial Trustee's sale under a specific provision in the deed of trust which authorizes the Trustee to sell the property to 6 a third party upon any default by the borrower under the terms of the note or deed of trust. In some states, the Trustee must record a notice of default and send a copy to the borrower-trustor and to any person who has recorded a requests for a copy of a notice of default and notice of sale. In addition, the Trustee must provide notice in some states to any other individual having an interest in the real property, including any "junior lienholders". The borrower, or any other person having a junior encumbrance on the real estate, may, during a reinstatement period, cure the default by paying the entire amount in arrears, plus the costs and expenses incurred in enforcing the obligation. Generally, state laws require that a copy of the notice of sale be posted on the property and sent to all parties having an interest in the real property. Foreclosure of a mortgage is generally accomplished by judicial action. The action is initiated by the service of legal pleadings upon all parties having an interest in the real property. Delays in completion of the foreclosure may occasionally result from difficulties in locating necessary parties. Judicial foreclosure proceedings are often not contested by any of the parties. However, even when the mortgagee's right to foreclose is contested, the court generally issues a judgment of foreclosure and appoints a referee or other court officer to conduct the sale of the property. In the case of foreclosure under either a mortgage or a deed of trust, the sale by the referee or other designated officer or by the Trustee is a public sale. However, because of the difficulty a potential buyer at the sale would have in determining the exact status of title and because the physical condition of the property may have deteriorated during the foreclosure proceedings, it is uncommon for a third party to purchase the property at the foreclosure sale. Rather, it is common for the lender to purchase the property from the Trustee or referee for an amount equal to the principal amount of the mortgage or deed of trust, accrued and unpaid interest and the expense of foreclosure. Thereafter, the lender will assume the burdens of ownership, including obtaining casualty insurance and making such repairs at its own expense as are necessary to render the property suitable for sale. The lender will commonly obtain the services of a real estate broker and pay the broker's commission in connection with the sale of the property. Depending upon market conditions, the ultimate proceeds of the property may not equal the lender's investment in the property. Any loss may be reduced by the receipt of any mortgage insurance proceeds. RIGHTS OF REDEMPTION. In some states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the borrower and foreclosed junior lienors are given a statutory period in which to "redeem" the property from the foreclosure sale. In some states, redemption may occur only upon a payment of the entire principal balance of the loan, accrued interest and expenses of foreclosure. In other states, redemption may be authorized if the former borrower pays only a portion of the sums due. The effect of a statutory right of redemption is to diminish the ability of the lender to sell the foreclosed property. The rights of redemption would defeat the title of any purchaser from the lender subsequent to foreclosure or sale under a deed of trust. Consequently, the practical effort of the redemption right is to force the lender to retain the property and pay the expenses of ownership until the redemption period has expired. 7 ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS. Certain states have imposed statutory prohibitions which limit the remedies of a beneficiary under a deed of trust or a mortgage. In some states, statutes limit the right of the beneficiary or mortgagee to obtain a deficiency judgment against the borrower following foreclosure or sale under a deed of trust. A deficiency judgment would be a personal judgment against the former borrower equal in most cases to the difference between the net amount realized upon the public sale of the real property and the amount due to the lender. Other statutes require the beneficiary or mortgagee to exhaust the security afforded under a deed of trust or mortgage by foreclosure in an attempt to satisfy the full debt before bringing a personal action against the borrower. Finally, other statutory provisions limit any deficiency judgment against the former borrower following a judicial sale to the excess of the outstanding debt over the fair market value of the property at the time of the public sale. The purpose of these statutes is generally to prevent a beneficiary or a mortgagee from obtaining a large deficiency judgment against the former borrower as a result of low or no bids at the judicial sale. In addition to laws limiting or prohibiting deficiency judgments, numerous other statutory provisions, including the federal bankruptcy laws and state laws affording relief to debtors, may interfere with or affect the ability of a secured mortgage lender to realize upon collateral and/or enforce a deficiency judgment. For example, with respect to federal bankruptcy law, a court with federal bankruptcy jurisdiction may permit a debtor through his or her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in respect of a mortgage loan on a debtor's residence by paying arrears within a reasonable time period and reinstating the original mortgage loan payment schedule even though the lender accelerated the mortgage loan and final judgment of foreclosure had been entered in state court (provided no sale of the residence had yet occurred) prior to the filing of a debtor's petition. Some courts with federal bankruptcy jurisdiction have approved plans based on the particular facts of the reorganization case, that effected the curing of a mortgage loan default by paying arrearages over a number of years. Courts with federal bankruptcy jurisdiction have also indicated that the terms of a mortgage loan secured by property of the debtor may be modified. These courts have suggested that such modification may include reducing the amount of each monthly payment, changing the rate of interest, altering the repayment schedule, and reducing the lender's security interest to the value of the residence, thus leaving the lender a general unsecured creditor for the difference between the value of the residence and the outstanding balance of the loan. The Internal Revenue Code of 1986, as amended, provides priority to certain tax liens over the lien of a mortgage. In addition, substantive requirements are imposed upon mortgage lenders in connection with the origination and the servicing of mortgage loans by numerous Federal and some state consumer protection laws. These laws include the federal Truth-In-Lending Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act, and related statutes. These federal laws impose specific statutory liabilities upon lenders who originate mortgage loans and who fail to comply with the provisions of the law. In some cases, this liability may affect assignees of the mortgage loans. ENFORCEABILITY OF CERTAIN PROVISIONS. Certain of the mortgage loans contain due-on-sale clauses. These clauses permit the lender to accelerate the maturity of the loan if the borrower sells, transfer or conveys the property. The enforceability of these clauses has been the subject of legislation and litigation in 8 many states, and in some cases the clauses have been upheld, while in other cases their enforceability has been limited or denied. Upon foreclosure, courts have imposed general equitable principles. These equitable principles are generally designed to relieve the borrower from the legal effect of a default under the loan documents. Examples of judicial remedies that have been fashioned include judicial requirements that the lender undertake affirmative and expensive actions to determine the causes for the borrower's default and the likelihood that the borrower will be able to reinstate the loan. In some cases, courts have substituted their judgment for the lender's judgment and have required that lenders reinstate loans or recast payment schedules in order to accommodate borrowers who are suffering from temporary financial disability. In other cases, courts have limited the right of the lender to foreclose if the default under the mortgage instrument is not monetary, such as the borrower failing to maintain the property adequately or the borrower executing a second mortgage or deed of trust affecting the property. Finally, some courts have been faced with the issue of whether federal or state constitutional provisions reflecting due process concerns for adequate notice require that borrowers under deeds of trust or mortgages receive notices in addition to the statutorily-prescribed minimum. For the most part, these cases have upheld the notice provision as being reasonable or have found that the sale by a trustee under a deed of trust, or under a mortgage having a power of sale, does not involve sufficient state action to afford constitutional protections to the borrowers. APPLICABILITY OF USURY LAWS. Title V of the Depository Institutions Deregulation and Monetary Control Act of 1980 ("Title V"), provides that state usury limitations do not apply to certain types of residential first mortgage loans originated by certain lenders after March 31, 1980. The Federal Home Loan Bank Board is authorized to issue rules and regulations and to publish interpretations governing implementation of Title V, the statute authorizes any state to reimpose interest rate limits by adopting a law or constitutional provision which expressly rejects application of the federal law. In addition, even where Title V is not so rejected, any state is authorized by the law to adopt a provision limiting discount points or other charges on mortgage loans covered by Title V. As of the date hereof, certain states have taken action to reimpose interest rate limits and/or to limit discount points or other charges. Mortgage Software and Technology AMRES currently uses loan origination software developed by an independent third party, which is accessible by its Company-owned offices and at Net Branch offices through an Intranet system. This software can quickly review the underwriting guidelines for a vast number of loan products, including those offered by Fannie Mae and Freddie Mac and select the appropriate loan product for the borrower. The software then allows the routing of pertinent information to the automated underwriting systems employed by Fannie Mae and Freddie Mac, the primary secondary-market purchasers of mortgages, and the automated systems of independent lenders such as IndyMac. Thus, in less than one hour, a borrower can receive loan approval, subject only to verification of financial information and appraisal of the subject property. The software also permits the contemporaneous ordering and review of preliminary title reports and escrow instructions. 9 The AMRES Intranet system allows Net Branch offices around-the-clock access to the system. Loan officers can also access the AMRES Intranet utilizing Intel(R) Corporation's ProShare(R) video conferencing system which permits the loan officer or borrower to see and talk directly to an underwriting staff member or other individuals involved in the mortgage loan transaction. CUSTOMER SERVICE AND SUPPORT. The Company's customer service and support organization provides Net Branch owners with on-line technical support, training, consulting and implementation services. These services consist of the following: CUSTOMER EDUCATION AND TRAINING. The Company offers training courses designed to meet the needs of end users, integration experts and system administrators. The Company also trains customer personnel who in turn may train end-users in larger deployments. Training classes are provided at the customers' offices or on-line with an on-line tutorial. No fees are charged the to Net Branch for these services. SYSTEM MAINTENANCE AND SUPPORT. The Company offers telephone, electronic mail and facsimile customer support through its central technical support staff at the Company's headquarters. The Company also provides customers with product documentation and release notes that describe features in new products, known problems and workarounds, and application notes. Nationwide Notary Services ExpiDoc is an Internet-based nationwide notary service that specializes in providing mortgage brokers with a solution to assist with the final step of the loan process: notarizing signatures of the loan documents. This is accomplished through ExpiDoc's automation of the process, its knowledgeable, experienced staff, and proprietary technology. ExpiDoc provides its clients with real-time access to the status of their documents, 24 hours a day. ExpiDoc's proprietary software executes both the front office notary coordination and the back office administration. Sales and Marketing As of July 28, 2000, the Company marketed and sold its mortgage banking services primarily through a direct sales force based in Costa Mesa, California. The Company's sales and marketing organization consisted of approximately 35 employees as of April 30, 2000. The Company markets its mortgage loan products through its four Company-owned offices in Southern California and approximately 83 Net Branch offices in California, Georgia, Oklahoma, Nevada, Tennessee, Washington, Arizona and Florida. LoanNet also maintains offices in Bowling Green, Kentucky, Louisville, Kentucky and Indianapolis, Indiana. The sales efforts of the Company to market its Net Branch opportunities are located primarily in the Company's Costa Mesa, California headquarters office. 10 Competition The Company faces intense competition in the origination, acquisition and liquidation of its mortgage loans. Such competition can be expected from banks, savings and loan associations and other entities, including real estate investment trusts. Many of the Company's competitors have greater financial resources than the Company. Proprietary Rights and Licensing The Company's success is dependent, to a degree, upon proprietary technology. The Company may rely on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions with its employees, consultants and business partners to protect its proprietary rights. The Company may seek to protect its electronic mortgage product delivery systems, documentation and other written materials under trade secret and copyright laws, which afford only limited protection. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company's systems or to obtain and use information that the Company regards as proprietary. While the Company is not aware that any of its systems infringe upon the proprietary rights of third parties, there can be no assurance that third parties will not claim infringement by the Company with respect to current or future products. Certain components of the electronic mortgage products delivery system currently employed by the Company are not proprietary to the Company and other competitors may acquire such components and develop similar or enhanced systems for the electronic delivery of mortgage products to mortgage brokers and borrowers. In addition, the Company relies on certain software that it licenses from third parties, including software which is used in conjunction with the Company's mortgage products delivery systems. There can be no assurance that such firms will remain in business, that they will continue to support their products or that their products will otherwise continue to be available to the Company on commercially reasonable terms. The loss or inability to maintain any of these software or data licenses could result in delays or cancellations in of contracts with Net Branch operations until equivalent software can be identified and licensed or developed and integrated with the Company's product offerings. Any such delay or cancellation could materially adversely affect the Company's business, financial condition or results of operations. Environmental Matters The Company has not been required to perform any investigation or clean up activities, nor has it been subject to any environmental claims. There can be no assurance, however, that this will remain the case in the future. In the course of its business, the Company may acquire properties securing loans that are in default. Although the Company primarily lends to owners of residential properties, there is a risk that the Company could be required to investigate and clean up hazardous or toxic substances or chemical releases at such properties after acquisition by the Company, and may be held liable to a governmental entity or to third parties for property damage, personal injury and investigation and cleanup costs incurred by such parties in connection with the contamination. In addition, the owner or former owners of a contaminated site may be subject to common law 11 claims by third parties based on damages and costs resulting from environmental contamination emanating from such property. Trade Names and Service Marks The Company intends to file various applications to register its service marks on the principal register of the United States Patent and Trademark Office. The Company intends to register its service marks in such states as it deems necessary and desirable. The Company will devote substantial time, effort and expense toward developing name recognition and goodwill for its trade names for its operations. The Company intends to maintain the integrity of its trade names, service marks and other proprietary names against unauthorized use and to protect the licensees' use against claims of infringement and unfair competition where circumstances warrant. Failure to defend and protect such trade name and other proprietary names and marks could adversely affect the Company's sales of licenses under such trade name and other proprietary names and marks. The Company knows of no current materially infringing uses. Employees As of April 30, 2000, the Company employed a total of 79 persons. Of the total, seven officers and employees were employed at the principal executive offices of the Company in Costa Mesa, California, of whom one was engaged in sales and marketing, one was in investor relations and compliance, and five were in finance and administration. There were 72 employees of the Company's subsidiaries, of whom 34 were engaged in sales and marketing and 38 in finance and administration. None of the Company's employees is represented by a labor union with respect to his or her employment by the Company. ITEM 2. DESCRIPTION OF PROPERTY. Our principal place of business is in Costa Mesa, California, where we lease an approximately 4,500 square foot facility for $126,000 per annum (subject to usual and customary adjustments). This location houses our corporate finance and administration functions. ExpiDoc and the Costa Mesa office of AMRES also lease space at this facility on a month-to-month basis for $1,000 and $4,000, respectively. We are currently negotiating a new lease at this facility. AMRES leases additional facilities: Long Beach, California (month-to-month, $3,450 per month); Menifee, California (month-to-month, $2,236 per month); Palmdale, California (month-to-month, $ 1,911 per month), and Riverside, California (term expiring in 2003, $2,117 per month). LoanNet leases three facilities on month-to-month terms: Bowling Green, Kentucky ($2,000 per month); Louisville, Kentucky ($2,538 per month), and Indianapolis, Indiana ($1,925 per month). We believe that our current facilities will be adequate to meet our needs, and that we will be able to obtain additional or alternative space when and as needed on acceptable terms. The Company may also hold real estate for sale from time to time as a result of its foreclosure on mortgage loans that may become in default. 12 ITEM 3. LEGAL PROCEEDINGS. The Company is not engaged in any legal proceedings other than routine litigation in the ordinary course of business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) Special Meeting of Stockholders The Company held a Special Meeting of Stockholders on February 29, 2000 at the Marriott Suites Hotel, at 500 Anton Blvd., Costa Mesa, California, at 2:30 p.m., PST. (b) Not applicable. (c) Items Voted Upon by Stockholders of the Registrant. The following matters were voted upon by the stockholders of the Company. The number of votes cast for and against are set forth below (as well as abstentions and broker non-votes): Votes Against Broker Subject Votes For or Withheld Abstentions Non-Votes - ------------------------------------------------------------------------------ Increase in number Of authorized Shares of Common Stock from 20,000,000 to 100,000,000 5,781,653 2,100 -0- 4,437,784 Ratification of a 3:2 Stock split 117,394 5,666,359 -0- 4,437,784 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Market for Common Equity The Common Stock of the Company is currently quoted on the OTC Bulletin Board, under the symbol "ENNT". When the trading price of the Company's Common Stock is below $5.00 per share, the Common Stock is considered to be "penny stock" that are subject to rules promulgated by the Securities and Exchange Commission (Rule 15g-1 through 15g-9) under the Securities Exchange Act of 1934. These rules impose significant requirements on brokers under these circumstances, including: (a) delivering to customers the Commission's standardized risk disclosure document; 13 (b) providing to customers current bid and offers; (c) disclosing to customers the brokers-dealer and sales representatives compensation; and (d) providing to customers monthly account statements. For several years prior to March of 1999, the market price of the Common Stock of the Company was either nominal or non-existent because the Company had no substantial assets and had little or no operations. However, after the Company entered into an acquisition agreement regarding the purchase of certain assets of e-Net Mortgage and City Pacific in March 1999, the Common Stock of the Company began trading. Following the execution of the initial agreement with EMB to acquire certain of its assets, in January 2000, more active trading of the Company's Common Stock commenced. The following table sets forth the range of high and low closing bid prices per share of the Common Stock as reported by National Quotation Bureau, L.L.C., for the periods indicated. High Low Fiscal Year Ended April, 1999: - ----------------------------- 1st Quarter ............................. $ .01 $ .01 2nd Quarter ............................. $ .01 $ .01 3rd Quarter ............................. $ .02 $ .01 4th Quarter ............................. $ 6.00 $ .02 Fiscal Year Ended April 30, 2000: - -------------------------------- 1st Quarter ............................. $ 7.50 $ 2.00 2nd Quarter ............................. $ 7.00 $ 1.19 3rd Quarter ............................. $12.88 $ 1.00 4th Quarter ............................. $14.50 $ 3.25 The Company is unaware of the factors which resulted in the significant fluctuations in the bid prices per share during the periods being presented, although it is aware that there is a thin market for the Common Stock, that there are frequently few shares being traded and that any sales significantly impact the market. On July 28, 2000, the closing bid and asked prices of the Common Stock of the Company were $1.63 and $1.69 per share, respectively. The foregoing prices represent inter-dealer quotations without retail mark-up, mark-down, or commission, and may not necessarily represent actual transactions. As of July 28, 2000, there were 21,035,484 shares of Common Stock issued and outstanding which were held by approximately 65 holders of record and approximately 1,100 beneficial holders. As of July 28, 2000, there were no shares of Class A Convertible Preferred Stock or Class B Convertible Preferred Stock outstanding and 20,000 shares of Series C Convertible Preferred Stock. Dividends The Company has not paid any dividends on its Common Stock and does not expect to do so in the foreseeable future. The Company intends to apply its earnings, if any, in expanding its 14 operations and related activities. The payment of cash dividends in the future will be at the discretion of the Board of Directors and will depend upon such factors as earnings levels, capital requirements, the Company's financial condition and other factors deemed relevant by the Board of Directors, and is subject to the dividend rights of the Series C Convertible Preferred Stock. In addition, the Company's ability to pay dividends may be limited under future loan agreements of the Company which restrict or prohibit the payment of dividends. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. Except for historical information, the materials contained in this Management's Discussion and Analysis are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) and involve a number of risks and uncertainties. These include the Company's historical losses, the need to manage its growth, general economic downturns, intense competition in the financial services and mortgage banking industries, seasonality of quarterly results, and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. Although forward-looking statements in this Annual Report reflect the good faith judgment of management, such statements can only be based on facts and factors currently known by the Company. Consequently, forward-looking statements are inherently subject to risks and uncertainties, actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by the Company in this Annual Report, as an attempt to advise interested parties of the risks and factors that may affect the Company's business, financial condition, and results of operations and prospects. Results of Operations The consolidated statement of operations for the ten months ended April 30, 2000, includes the operating results of Titus, LoanNet, and ExpiDoc from the dates of acquisition, and the Company from April 12, 2000. TEN MONTHS ENDED APRIL 30, 2000, COMPARED TO THE YEAR ENDED JUNE 30, 1999. REVENUE. Revenue increased by $1.11 million or 31% to $4.69 million during the ten months ended April 30, 2000, from $3.55 million during the year ended June 30, 1999, primarily due to the development and growth of the "net branch" program of AMRES. Revenues from Titus, ExpiDoc, and LoanNet amounted to less than 10% of total revenues. At the start of fiscal 1999, AMRES operated branch offices in Long Beach and Colton, California. In January of 1999, the Menifee, California, office was opened and in April of 1999, the Costa Mesa, California, office was opened. The addition of these two branch offices has helped expand the volume of loans closed each month from approximately an average of 55 loans per month in 1999 to an average of 80 loans per month in 2000. This growth is expected to continue as evidenced by the closing of over 130 loans in the month of June 2000. 15 The establishment and growth of the net branch program has also positively impacted revenues. From its inception to the date of this filing, the net branch program has steadily grown to its current count of 83 net branches. Management believes that the net branch operations will continue to be a viable growth vehicle in the future. Another reason that revenues have increased relates to the inclusion of additional states in which AMRES is licensed to conduct business. AMRES has steadily increased the number of states in which it is licensed to conduct business (23 states, as of April 30, 2000, in comparison with one state, as of the start of the 1999 fiscal year). COST OF REVENUE AND GROSS PROFIT. The cost of revenue increased by $1.11 million or 48% to $3.41 million during the ten months ended April 30, 2000, from $2.30 million during the year ended June 30, 1999. The cost of revenue as a percentage of revenue increased by nearly 8% to approximately 72% during the ten months ended April 30, 2000, in comparison with the 1999 fiscal year. This increase in costs, or reduction in gross profit percentage from 35% to approximately 27%, is directly attributable to the increased volume of transactions closed with the advent of the net branch program. AMRES earns an average net commission, based on loan value, of approximately 0.6% for loans funded by its company-owned branches. Under the net branch arrangement, AMRES earns a lower percentage commission on the loan value, typically 0.38%. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses totaled $3.06 million and $1.30 million for the ten months ended April 30, 2000, and the year ended June 30, 1999, respectively. Included in selling, general and administrative expense for the ten months ended April 30, 2000, is a nonrecurring charge in connection with the conversion of the B Preferred into Common Stock for the incremental value of $1.0 million, based on the difference between the carrying value of the B Preferred and the fair value of the Common Stock of $2.0 million, since the holders are key management of the ongoing operations. Also included in selling, general and administrative expense during the ten months ended April 30, 2000, are the operating results of the newly acquired businesses for which selling, general and administrative expenses totaled $0.4 million. As a percentage of revenue, selling, general and administrative expenses increased by 28.5% to 65.2% for the ten months ended April 30, 2000 from 36.7% for the year ended June 30, 1999. YEAR ENDED JUNE 30, 1999, COMPARED TO THE PERIOD FROM MARCH 13, 1998 (INCEPTION), THROUGH JUNE 30, 1998. REVENUE AND COST OF REVENUE. There was no revenue and, as such, no cost of revenue for the period from Inception through June 30, 1998. During this period, the Company incurred minimal costs associated with its incorporation and start-up. For the year ended June 30, 1999, revenue and cost of revenue were $3.5 million and $2.3 million, respectively. 16 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were minimal during the period from Inception through June 30, 1998 and were associated with the Company's incorporation and start-up. During the year ended June 30, 1999, selling, general and administrative expenses totaled $1.30 million and related primarily to costs of opening and maintaining the four branch offices, the commencement of the net branch operations in January of 1999, and the costs associated with employee compensation. Liquidity and Capital Resources At April 30, 2000, the Company had a working capital deficit of $2.8 million, compared to a deficiency of $80,000 at June 30, 1999. On May 2, 2000, we completed a private placement raising a total of $2.0 million, less costs of $300,000. These funds were used to finance our current operations and reduce our indebtedness to EMB to approximately $2.4 million (as of July 31, 2000, $1.066 million). We require financing to meet its cash requirements to service our obligations and fund future operating cash flow deficiencies. These factors raise substantial doubt about our ability to continue as a going concern and no adjustments have been made to these consolidated financial statements as a result of these uncertainties. The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern. Our cash requirements depend on several factors, including, but not limited to, the following: o The pace at which all subsidiaries continue to grow, become self supporting, and begin to generate positive cash flow; o The cash portion of future acquisition transactions, if any; and o The ability to obtain additional market share for our services. Management is seeking one or more additional private placements under Regulation D of the Securities Act of 1933 totaling three million dollars to repay its current obligations and $1.5 million to provide working capital for operations. If capital requirements vary materially from those currently planned, we may require additional financing sooner than anticipated. We have no commitments for any additional financing, and there can be no assurance that any such commitment can be obtained on favorable terms, if at all. No adjustments have been made to the carrying value of assets or liabilities as a result of the uncertainty about obtaining cash required to obligations as they become due. If capital requirements vary materially from those currently planned, we may require additional financing sooner than anticipated. We have no commitments for any additional financing, and there can be no assurance that any such commitment can be obtained on favorable terms, if at all. Any additional equity financing may be dilutive to our stockholders, and debt financing, if available, may involve restrictive covenants with respect to dividends, raising capital and other financial and operational matters, which could restrict our operations or finances. If we are unable to obtain additional financing as needed, we may be required to reduce the scope of our operations or our anticipated expansion, which could have a material adverse effect on our financial condition, results of operations, and cash flows. 17 As we continue our growth plan into the next fiscal year, we will require significant cash demands and aggressive cash management. In meeting our objectives in the past, we raised significant funds through a combination of issuances of common stock, preferred stock, and debt placements with affiliates. Cash and cash equivalents were $285,583 at April 30, 2000, compared to $105,317 at June 30, 1999. Cash outflows from operating activities for the ten months ended April 30, 2000, totaled $702,248, compared to cash outflows of $26,792 for the year ended June 30, 1999, and were due to the operating loss caused by higher selling, general and administrative expenses. Cash flows from operating activities for the period from Inception to June 30, 1998, were not significant. Cash inflows from investing activities for the ten months ended April 30, 2000, totaled $178,188, compared with cash outflows from investing activities of $119,321 for the year ended June 30, 1999. This increase was primarily due to cash received with our purchases of Titus, LoanNet, ExpiDoc, and AMRES resulting in a total of $160,419. See Note 3 to the Audited Consolidated Financial Statements for the ten months ended April 30, 2000, the year ended June 30, 1999, and the period from Inception to June 30, 1998 for further discussion. Cash generated from financing activities totaled $704,326 during the ten months ended April 30, 2000, compared to $160,000 for the year ended June 30, 1999, and $95,000 for the period from Inception to June 30, 1998. The increases during the earlier periods were due to proceeds received from related parties. The increase during the ten months ended April 30, 2000, was primarily due to the issuance of Series C Convertible Preferred Stock for total net proceeds of approximately $1.7 million. Additionally, we received $459,326 from related parties. These increases were offset by payments on notes to related parties of approximately $1.53 million. Inflation Inflation rates in the United States have not had a significant impact on the Company's operating results for the three years ended April 30, 2000. Income Taxes As of April 30, 2000, we had approximately $1.9 million and $930,000 of Federal and state net operating loss carryforwards, respectively, available to offset future taxable income. The net deferred tax assets at April 30, 2000, and 1999, before considering the effects of the Company's valuation allowance amounted to approximately $710,000 and $25,000, respectively. We have provided an allowance for substantially all the net deferred tax assets as management has not been able to determine that it is more likely than not that the deferred tax asset will be realized through future operations. In addition, included in the net operating loss carryforwards are approximately $471,000 acquired in the acquisitions discussed above. The Federal and state tax codes provide for restrictive limitations on the annual utilization of net operating loss carryforwards to offset taxable income when the stock ownership of a company significantly changes. In light of the Company's significant stock activity, certain of the net operating loss carryforwards are subject to such annual limitations. 18 ITEM 7. FINANCIAL STATEMENTS. Information with respect to this Item is set forth in "Index to Financial Statements." ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. On March 1, 2000, the Company dismissed its independent accountants, Cacciamatta Accountancy Corporation. The report of Cacciamatta Accountancy Corporation for the fiscal year ended April 30, 1999 contained no adverse opinion, disclaimers of opinion nor was it modified as to uncertainty, audit scope or accounting principles. The decision to dismiss the firm of Cacciamatta Accountancy Corporation was made by the Board of Directors of the Company. At no time during the engagement of Cacciamatta Accountancy Corporation as independent accountants for the Company were there any disagreements, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure or auditing scope of procedure. Disclosure of this dismissal was first contained in the Current Report on Form 8-K dated March 1, 2000, which was filed by the Company with the Securities and Exchange Commission on March 8, 2000. On March 1, 2000, the Company, as required by Item 304(a)(3) of Regulation S-B, advised Cacciamatta Accountancy Corporation of this disclosure. On March 24, 2000, the Company filed a Current Report on Form 8-K/A with the Securities and Exchange Commission. Attached as an exhibit to that filing was the response of Cacciamatta Accountancy Corporation, dated March 8, 2000, concerning its dismissal as the Company's principal accountant. On March 1, 2000, the Company engaged the firm of McKennon Wilson & Morgan LLP, of Irvine, California, as independent accountants for the Company. Prior to March 1, 2000, neither the Company, nor anyone on its behalf, had consulted with McKennon Wilson & Morgan LLP concerning the accounting principles of any specific completed or contemplated transaction, any type of audit opinion on the Company's financial statements nor any other material factor which might be considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue. Disclosure of this engagement was first contained in the Current Report on Form 8-K dated March 1, 2000, which was filed by the Company with the Securities and Exchange Commission on March 8, 2000. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. Directors and Executive Officers NAME(1)(2) AGE POSITION - ---------- --- -------- James M. Cunningham 57 Director Kevin Gadawski 32 Principal Accounting and Acting Chief Financial Officer Scott A. Presta 28 Director and Secretary Vincent Rinehart 50 Director, President, and Chief Executive Officer James E. Shipley 64 Chairman of the Board of Directors 19 (1) The Company presently has no executive committee, nominating committee or audit committee of the Board of Directors. (2) The officers of the Company hold office until their successors are elected and qualified, or until their death, resignation or removal. There are no family relationships between any directors or executive officers of the Company. The background and principal occupations of each director and executive officer of the Company are as follows: Mr. Cunningham has been a director of the Company since May 24, 2000. He held the position of Vice Chairman of the Board of Mercantile Banc and Trust, President of FSA Holdings, and CEO of Mercantile Bank in Dallas, Texas. In addition, Mr. Cunningham has served in the capacity as an advisory director and President and Director on the Boards of several financial and mortgage banking entities. He received a Bachelor of Science Commerce Degree from St. Louis University with majors in Finance and Accounting and attended the Stanford University Mortgage Banking School through the Mortgage Bankers Association. Mr. Gadawski has been the Acting Chief Financial Officer since June 26, 2000. From May of 1995 to June of 2000, he held various financial management positions at both the corporate and divisional levels of Huffy Corporation, a public company in Miamisburg, Ohio. Mr. Gadawski, a Certified Public Accountant, was employed for four years in the audit practice of KPMG Peat Marwick, LLP, in Cincinnati, Ohio. Mr. Presta has been a director and the Secretary of the Company since April 12, 2000. A former member of the National Association of Securities Dealers, Inc., he was the licensed General Securities Principal of Pacific Coast Financial Services, Inc., ("Pacific Coast"), a brokerage firm in Long Beach, California, from October of 1993 through November of 1995. Following his tenure with the brokerage firm, Mr. Presta formed a series of companies that were involved in the real estate and oil and gas industries, one of which, Titus, was acquired by the Company. Mr. Presta attended California State University Long Beach from 1989 through Spring of 1992, when he became employeed by Pacific Coast. Mr. Rinehart has been a director and the President and Chief Executive Officer of the Company since April 12, 2000. He also serves in the following capacities: Chairman of the Board of AMRES (commencing in 1997); Chief Executive Officer of Firstline Mortgage, Inc., a HUD-approved originator of FHA, VA, and Title 1 loans (commencing in 1985); and Chairman of the Board of Firstline Relocation Services, Inc., a three office enterprise that provides real estate sales, financing, destination, and departure services to Fortume 500 companies (commencing in 1995). Mr. Rinehart received his B.A. in Business Administration from California State University at Long Beach in 1972. Mr. Shipley has been a director and Chairman of the Board of the Company since April 12, 2000. Until June 21, 2000, he served as a director of EMB (commencing January 15, 1996), as President and Chief Executive Officer (commencing April 29, 1996), and as Principal Financial and Accounting Officer (commencing March 1, 1999). From 1993 to July 2, 1998, Mr. Shipley was a director and President of Sterling Alliance Group, Ltd., an affiliate of EMB, which sold substantially all of its assets and operations to EMB in exchange for shares of its common stock. He was the Managing Director of EMB Mortgage Corporation from October of 1993 to April of 1996. Mr. Shipley has served as the Managing Director of ERA Sterling Real Estate, a real estate brokerage firm, from 1987 to 1998. He received a Bachelor of Science degree from Eastern Illinois University in 1960. 20 Compliance with Section 16(a) of Securities Exchange Act of 1934 To the best of the knowledge of the Company, its directors, officers and 10% beneficial owners have filed all reports in compliance with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 during the fiscal year ended April 30, 2000. ITEM 10. EXECUTIVE COMPENSATION The following table sets forth all compensation received for services rendered to the Company in all capacities, for the last three fiscal years ended April 30, 2000, by (i) the Company's former and current Chief Executive Officers, and (ii) all other executive officers whose aggregate compensation during fiscal 2000 exceeded $100,000: SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS --------------- ANNUAL COMPENSATION NUMBER OF ------------------------------------------- SECURITIES OTHER UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS/SARS - ------------------------------------- -------- --------- --------- ------------- --------------- Michael Roth (1) 2000 $26,600 -0- $221,408 100,000 former Chief Executive Officer 1999 -0- -0- -0- -0- 1998 N/A N/A -0- N/A Vincent Rinehart (2) 2000 $127,444 -0- $11,907 -0- Chief Executive Officer and President 1999 N/A N/A N/A N/A 1998 N/A N/A N/A N/A Jean Oliver (3) 2000 $39,188 -0- $126,103 50,000 former Secretary/Treasurer and Controller 1999 -0- -0- -0- -0- 1998 N/A N/A N/A N/A Theodore Bohrer (4) 2000 $22,500 -0- $167,966 75,000 former Vice President 1999 -0- -0- -0- -0- 1998 N/A N/A N/A N/A
- -------------------- (1) In March of 1999, Mr. Roth was appointed Chief Executive Officer and President of the Company. Other compensation consists of the fair market value of the 138,381 shares of the Company's Common Stock issued to Mr. Roth during the fiscal year indicated. In July of 1999, Mr. Roth was granted options to purchase up to 100,000 shares of the Company's Common Stock at an exercise price of $1.50 per share, which options were cancelled in connection with the issuance of such 138,381 shares. (2) In April of 2000, Mr. Rinehart was appointed Chief Executive Officer and President of the Company. The compensation referenced in the above chart relates to compensation earned during the relevant year as chief Executive Officer of AMRES and includes non-salary compensation of $11,907. (3) In April of 1999, Ms. Oliver was appointed Secretary/Treasurer and Controller of the Company. Other compensation consists of the fair market value of the 65,364 shares of the Company's Common Stock issued to Ms. Oliver during the fiscal year indicated. In connection with her appointment, she was granted options to purchase up to 50,000 shares of the Company's Common Stock at an exercise price of $1.50 per share, which options were cancelled in connection with the issuance of such 65,364 shares. (4) In April of 1999, Mr. Bohrer was appointed Vice President of the Company. Other compensation consists of the fair market value of the 103,940 shares of the Company's Common Stock issued to Mr. Bohrer during the fiscal year indicated. In connection with his appointment, he was granted options to purchase up to 75,000 shares of the Company's Common Stock at an exercise price of $1.50 per share, which options were cancelled in connection with the issuance of such 103,940 shares. 21 2000 Stock Compensation Program The Company has reserved shares of Common Stock for issuance under its 2000 Stock Compensation Program (the "Plan"), as amended. At April 30, 2000, no options or stock bonuses covering shares of Common Stock had been granted and issued under the Plan to any employees, officers or directors. During fiscal year 2000, the Company issued 687,908 shares of common stock as compensation and stock bonuses to employees and in consideration of various consulting agreements with third parties. These shares were issued pursuant to that certain Registration Statement on Form S-8, as amended, which became effective on January 26, 2000. Board Compensation Directors of the Company receive no compensation as a Director but they are entitled to reimbursement for their travel expenses. The Company does not pay additional amounts for committee participation or special assignments of the Board of Directors. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information known to the Company regarding the beneficial ownership of the Company's Common Stock as of July 25, 2000, by (a) each beneficial owner of more than five percent of the Company's Common Stock, (b) each director of the Company, and (c) all directors and executive officers of the Company as a group. Except as otherwise indicated, each person has sole voting and investment power with respect to all shares shown as beneficially owned, subject to community property laws where applicable.
BENEFICIAL OWNER (1) SHARES BENEFICIALLY OWNED PERCENTAGE BENEFICIALLY OWNED - -------------------- ------------------------- ----------------------------- EMB Corporation (2)........................ 7,500,000 36.0% H-Group LLC (3)............................ 1,000,000 4.8% Host Hospitality Management (3)............ 1,000,000 4.8% Kingstreet Guaranty Inc. (3)............... 1,000,000 4.8% M-Corp Financial (3)....................... 1,000,000 4.8% James M. Cunningham (4, 5)................. 71,000 * Scott A. Presta (4)........................ 244,500 1.2% Vincent Rinehart (4, 6).................... 1,067,500 5.12% James W. Shipley (4, 7).................... -0- * All directors and executive officers as a group (5 persons) (8) ................ 1,394,000 6.7%
- ---------- * Less than one percent of the outstanding shares of Common Stock. (1) Except as otherwise noted, it is believed by the Company that all persons have full voting and investment power with respect to the shares, except as otherwise specifically indicated. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a "beneficial owner" of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security which that person has the right to acquire within 60 days, such as warrants or options to purchase the Common Stock of the Company. 22 (2) Certain directors and executive officers of the Company are shareholders of EMB. Its address is: 10159 E. 11th Streeet, Suite 415, Tulsa, Oklahoma 74128. (3) This entity is solely owned by Michael Roth, fomerly a director and President of the Company. Its address is: 12851 Haster Street, #10-B, Garden Grove, California 90804. (4) The person's address is: 3200 Bristol Street, Suite 700, Costa Mesa, California 92626. (5) Does not include approximately 25,000 shares of the Company's Common Stock owned of record by EMB, which are potentially issuable to Mr. Cunningham upon a dividend distribution of 7,500,000 shares of the Company's Common Stock owned of record by EMB to its shareholders. Mr. Cunningham is a shareholder of EMB. (6) Represents shares of the Company owned by AMRES, an entity beneficially owned by Mr. Rinehart, but does not include approximately 12,555 shares of the Company's Common Stock owned of record by EMB and 207,960 shares of the Company's Common Stock owned of record by EMB, all of which are potentially issuable to AMRES, upon a dividend distribution of 7,500,000 shares of the Company's Common Stock owned of record by EMB to its shareholders. Mr. Rinehart and AMRES are shareholders of EMB. (7) Does not include approximately 12,555 shares of the Company's Common Stock owned of record by EMB, which are potentially issuable to Mr. Shipley upon a dividend distribution of 7,500,000 shares of the Company's Common Stock owned of record by EMB to its shareholders. Mr. Shipley is a shareholder of EMB. (8) Includes all of the shares of Common Stock set forth in the chart and the shares of Common Stock owned by an executive officer who is not a director of the Company. Does not include any of the excluded shares referenced in footnotes 5, 6, and 7. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Effective March 1, 1999, the Company acquired E-Net Mortgage and City Pacific. Pursuant to the Share Exchange Agreement and Plan of Reorganization, dated March 1, 1999, regarding E-Net Mortgage, its shareholders received 2,000,000 shares of Common Stock of the Company in exchange for all of the issued and outstanding stock of E-Net Mortgage, which became a wholly owned subsidiary of the Company. Pursuant to the Share Exchange Agreement and Plan of Reorganization, dated March 1, 1999, regarding City Pacific, its shareholders received 500,000 shares of Common Stock of the Company in exchange for all of the issued and outstanding stock of City Pacific, which became a wholly owned subsidiary of the Company. On November 29, 1999, the Company issued Mr. Stevens 250,000 shares of its Common Stock in exchange for his transfer to the Company of the Stevens' EMB Shares. On December 22, 1999, and in connection with that exchange, the Company entered into agreements with DIS, and EMB to acquire their respective 50% interests in VPN Partners. In consideration of the purchase of the interests, the Company issued the DIS Note and tendered to EMB the Stevens' EMB Shares. At the time of such transactions, Mr. Stevens was the sole owner of DIS and the President and Chief Executive Officer of VPN Partners. 23 On March 1, 2000, the Company sold VPNCOM.Net, Inc., to E. G. Marchi, its President. The sales consideration consisted of his 30-day promissory note in the principal amount of $250,000 (paid in full on April 15, 2000), the assumption of the DIS Note, and the return of 250,000 shares of Company Common Stock owned by him. On February 11, 2000, the Company executed the Titus Purchase Agreement for the acquisition of Titus and issued 100,000 B Preferred shares to AMRES Holdings, a company controlled by Mr. Rinehart, and 300,000 shares of its Common Stock to Mr. Presta, in their capacities as the owner-members of Titus. In April of 2000, AMRES Holdings was issued 1,000,000 shares of the Company's common Stock in exchange for the cancellation of 100,000 B Preferred shares. On February 14, 2000, the Company acquired all of the common stock of LoanNet. Pursuant to the Stock Purchase Agreement, dated February 14, 2000, the Company issued 250,000 shares of its Common Stock to the selling shareholders of LoanNet, which became a subsidiary of the Company. On March 17, 2000, the Company acquired all of the common stock of ExpiDoc. Pursuant to the Stock Purchase Agreement, dated February 14, 2000 , the Company issued 24,000 shares of Common Stock of the Company to the selling shareholders of ExpiDoc, which became a wholly owned subsidiary of the Company. As of the closing of the acquisition, the Company entered into management and consulting agreements with ExpiDoc's owners and management, including Messrs. Rinehart and Presta. On April 12, 2000, the Company acquired AMRES and Bravo Real Estate. Pursuant to the Amended and Restated Purchase Agreement, the Company issued 7.5 million shares of Common Stock to EMB, paid $1,750,000, and issued its promissory note in the initial amount of $2,250,000, and AMRES and Bravo Real Estate became wholly owned subsidiaries of the Company. On April 13, 2000, an officer loaned the Company $300,000, due April 12, 2001, together with interest at 10% per annum. Subsequent to April 30, 2000, the note, including accrued interest, was settled with the issuance of 150,000 shares of Common Stock. ITEM 13. EXHIBITS AND REPORTS ON FORM 10-KSB. (a) EXHIBITS: 2.1 Share Exchange Agreement and Plan of Reorganization dated March 1, 1999 between the Company and E-Net Mortgage Corporation is incorporated by reference to Exhibit 2.3 to the Annual Report on Form 10-KSB of the Registrant for the fiscal year ended April 30, 1999, filed on August 13, 1999 (the "1999 10-KSB"). 2.2 Share Exchange Agreement and Plan of Reorganization dated March 1, 1999 between the Company and City Pacific International, U.S.A., Inc., is incorporated by reference to Exhibit 2.4 to the 1999 10-KSB. 3.1 Certificate and Articles of Incorporation, as filed with the Nevada Secretary of State on August 18, 1988 is incorporated by reference to the Exhibits to the Registration Statement on Form 10-SB of the Registrant filed on September 1, 1994. 24 3.2 Certificate of Amendment to Articles of Incorporation, as filed with the Nevada Secretary of State on July 29, 1997, is incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-KSB of the Registrant for the fiscal year ended April 30, 1997, filed on January 4, 1999. 3.3 Certificate of Amendment to Articles of Incorporation, as filed with the Nevada Secretary of State on February 19, 1999, is incorporated by reference to Exhibit 3.4 to the 1999 10-KSB. 3.4 Certificate of Amendment to Articles of Incorporation, as filed with the Nevada Secretary of State on May 12, 1999, is incorporated by reference to Exhibit 3.5 to the 1999 10-KSB. 3.5 Certificate of Amendment to Articles of Incorporation, as filed with the Nevada Secretary of State on January 18, 2000, are incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of the Registrant filed on January 27, 2000 (the "January 8-K"). 3.6* Certificate of Amendment to Articles of Incorporation, as filed with the Nevada Secretary of State on February 2, 2000. 3.7* Certificate of Amendment to Articles of Incorporation, as filed with the Nevada Secretary of State on March 3, 2000. 3.8* Amended and Restated By-laws of the Registrant. 4.1* Certificate of Designations, Preferences and Rights of Class A Convertible Preferred Stock, as filed with the Nevada Secretary of State on April 7, 2000. 4.2* Certificate of Designations, Preferences and Rights of Class B Convertible Preferred Stock, as filed with the Nevada Secretary of State on April 7, 2000. 4.3* Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock, as filed with the Nevada Secretary of State on April 7, 2000. 10.1 Joint Venture Agreement dated February 25, 1999 between City Pacific International U.S.A., Inc., and Omnetrix International, Inc., isincorporated by reference to Exhibit 10.1 to the 1999 10-KSB. 10.2 Limited Partnership Agreement dated July 1, 1999, between the Registrant and Genesis Residential Healthcare, Inc., is incorporated by reference to Exhibit 10.2 to the 1999 10-KSB. 10.2a* Termination Notice dated November 8, 1999, between the Registrant and Genesis Residential Healthcare, Inc. 25 10.2b* Release of All Claims dated December 2, 1999, between the Registrant and Genesis Residential Healthcare, Inc. 10.3 Amended Employment Agreement dated March 1, 1999, between the Registrant and Michael Roth, is incorporated by reference to Exhibit 10.3 to the Amended Annual Report on Form 10-KSB/A of the Registrant for the fiscal year ended April 30, 1999, filed on September 22, 1999 (the "Amended 1999 10-KSB"). 10.4 Amended Employment Agreement dated March 1, 1999 between the Registrant and Theodore A. Bohrer, is incorporated by reference to Exhibit 10.4 to the Amended 1999 10-KSB/A. 10.5 Amended Employment Agreement dated March 1, 1999 between the Registrant and Jean Oliver, dated March 1, 1999, is incorporated by reference to Exhibit 10.5 to the Amended 1999 10-KSB/A. 10.6 Amended Employment Agreement dated March 1, 1999, between City Pacific International U.S.A., Inc., and E.G. Marchi, is incorporated by reference to Exhibit 10.6 to the Amended 1999 10-KSB/A. 10.7 Purchase Agreement dated December 22, 1999 between the Registrant, as purchaser, and Digital Integrated Systems, Inc., as seller, of 50% interest in VPN.COM JV Partners is incorporated by reference to Exhibit 10.1 to the January 8-K. 10.8 Purchase Agreement dated December 22, 1999 between the Registrant, as purchaser, and EMB Corporation, as seller, of 50% interest in VPN.COM JV Partners is incorporated by reference to Exhibit 10.2 to the January 8-K. 10.9* Agreement for the Purchase/Sale of Corporate Stock, dated March 1, 2000, between the Registrant and E. G. Marchi. 10.10 Membership Interest Purchase Agreement dated February 11, 2000 between the Registrant, as purchaser, and Scott Presta and AMRES Holdings LLC, as sellers, of all of the outstanding stock of Titus Real Estate LLC is incorporated by this reference to Exhibit 10.0 to the Current Report on Form 8-K of the Registrant filed on February 25, 2000 (the "February 8-K"). 10.11 Stock Purchase Agreement dated February 14, 2000 between the Registrant, as purchaser, and James M. Cunningham, Joni Baquerizo and The Mortgage Store LLC, as sellers, of all of the outstanding common stock of LoanNet Mortgage, Inc. is hereby incorporated by reference to Exhibit 10.1 to the February 8-K. 10.12 Stock Purchase Agreement dated March 17, 2000 between the Registrant, as purchaser, and Tony Tseng and Christina Lee, as sellers, of all of the outstanding stock of ExpiDoc.com, Inc., is hereby incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Registrant filed on March 31, 2000 (the "March 8-K"). 26 10.13 Employment Agreement between ExpiDoc.com, Inc., and Tony Tseng is hereby incorporated by reference to Exhibit 10.2 to the March 8-K. 10.14 Employment Agreement between ExpiDoc.com, Inc., and Christina Lee is hereby incorporated by reference to Exhibit 10.3 to the March 8-K. 10.15 Management Agreement dated March 17, 2000, between ExpiDoc.com, Inc., and Document Services Management, Inc., is hereby incorporated by reference to Exhibit 10.4 to the March 8-K. 10.16 Consulting Agreement dated March 17, 2000, between ExpiDoc.com, Inc., and Scott Presta, is hereby incorporated by reference to Exhibit 10.5 to the March 8-K. 10.17 Consulting Agreement dated March 17, 2000, between ExpiDoc.com, Inc., and Vincent Rinehart, is hereby incorporated by reference to Exhibit 10.6 to the March 8-K. 10.18 Amended and Restated Purchase Agreement dated April 12, 2000, by and between the Registrant and EMB Corporation, is hereby incorporated by this reference to Exhibit 10.1 to the Current Report on Form 8-K of the Registrant filed on April 19, 2000. 10.19 Securities Purchase Agreement, dated April 7, 2000, between the Registrant and Cranshire Capital, L.P.; The dotCom Fund, LLC; EURAM Cap Strat. "A" Fund Limited; and Keyway Investments Ltd. is hereby incorporated by this reference to Exhibit 10.1 to the Current Report on Form 8-K of the Registrant filed on April 19, 2000, (the "April 8-K"). 10.20 Warrant to Purchase Common Stock dated April 7, 2000, issued to Cranshire Capital, L. P., is hereby incorporated by reference to Exhibit 10.2 to the April 8-K. 10.21 Warrant to Purchase Common Stock dated April 7, 2000, issued to The dotCom Fund, LLC, is hereby incorporated by reference to Exhibit 10.3 to the April 8-K. 10.22 Warrant to Purchase Common Stock dated April 7, 2000, issued to EURAM Cap Strat. "A" Fund Limited is hereby incorporated by reference to Exhibit 10.4 to the April 8-K. 10.23 Warrant to Purchase Common Stock dated April 7, 2000, issued to Keyway Investments Ltd. is hereby incorporated by reference to Exhibit 10.5 to the April 8-K. 10.24 Registration Rights Agreement dated April 7, 2000 between the Registrant and Cranshire Capital, L.P.; The dotCom Fund, LLC; EURAM Cap Strat. "A" Fund Limited; and Keyway Investments Ltd., is hereby incorporated by reference to Exhibit 10.6 to the April 8-K. 27 10.25* Securities Purchase Agreement dated May 2, 2000, between the Registrant and RBSTB Nominees Limited (A/C) as Trustee of Jupiter European Special Situations Fund. 10.26* Warrant to Purchase Common Stock dated May 2, 2000, issued to RBSTB Nominees Limited (A/C) as Trustee of Jupiter European Special Situations Fund. 10.27* Registration Rights Agreement dated May 2, 2000, between the Registrant and RBSTB Nominees Limited (A/C) as Trustee of Jupiter European Special Situations Fund. 16.1 Letter from Kish, Leake & Associates, P.C., resigning as independent accountant for the Registrant is incorporated by reference to Exhibit 16 to the Current Report on Form 8-K of the Registrant filed on September 4, 1996. 16.2 Letter dated March 8, 1999 from Cacciamatta Accountancy Corporation in response to dismissal as independent accountants for the Registrant is incorporated by reference to Exhibit 1` to the Amended Current Report on Form 8-K/A of the Registrant filed on March 24, 2000. 21.1* Description of the subsidiaries of the Registrant. 27.1* Financial Data Schedule. (* denotes filed herewith) (b) REPORTS ON FORM 8-K. 1. The Company filed a Current Report on Form 8-K on February 25, 2000, reflecting the acquisition of LoanNet Mortgage, Inc., and Titus Real Estate LLC. 2. The Company filed a Current Report on Form 8-K/A on February 29, 2000, including the financial statements for the acquisition of VPN.COM JV Partners. 3. The Company filed a Current Report on Form 8-K on March 8, 2000, reflecting the change of independent accountants. 4. The Company filed an Amended Current Report on Form 8-K/A on March 24, 2000, including the response of the former independent accountants to the Form 8-K originally filed on March 8, 2000. 5. The Company filed a Current Report on Form 8-K on March 31, 2000, reflecting the acquisition of ExpiDoc.com, Inc. 6. The Company filed an Amended Current Report on Form 8-K/A on April 3, 2000, including the financial statements for the acquisition of VPN.COM JV Partners. 28 7. The Company filed a Current Report on Form 8-K on April 19, 2000, reflecting the sale of shares of Series C Convertible Preferred Stock of the Company to Cranshire Capital, L.P.; The dotCom Fund, LLC; EURAM Cap Strat. "A" Fund Limited; and Keyway Investments Ltd. 8. The Company filed an Amended Current Report on Form 8-K/A on April 19, 2000, reflecting the Amended and Restated Stock Purchase Agreement with EMB Corporation. 9. The Company filed an Amended Current Report on Form 8-K/A on April 26, 2000, including the financial statements for the acquisition of Titus Real Estate LLC. 10. The Company filed an Amended Current Report on Form 8-K/A on May 1, 2000, including the financial statements for the acquisition of LoanNet Mortgage, Inc. 11. The Company filed an Amended Current Report on Form 8-K/A on June 26, 2000, including the financial statements for the acquisition of American Residential Funding, Inc., from EMB Corporation. 29 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: e-Net Financial.Com Corporation By: /S/ VINCENT RINEHART ---------------------------- Vincent Rinehart, President In connection with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: July 31, 2000 By: /S/ JAMES E. SHIPLEY /S/ VINCENT RINEHART ----------------------------- ---------------------------------- James E. Shipley Vincent Rinehart Chairman of the Board Director, President and Chief Executive Officer By: /S/ KEVIN GADAWSKI /S/ SCOTT A. PRESTA ----------------------------- ---------------------------------- Kevin Gadawski Scott A. Presta Principal Accounting and Director and Secretary Acting Chief Financial Officer By: /S/ JAMES M. CUNNINGHAM ----------------------------- James M. Cunningham Director 30 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors F-2 Consolidated Balance Sheets as of April 30, 2000 and June 30, 1999 F-3 Consolidated Statements of Operations for the Ten Months Ended April 30, 2000, the Year Ended June 30, 1999, and the Period from March 31,1998 (Inception) to June 30, 1998 F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the Ten Months Ended April 30, 2000, the Year Ended June 30, 1999, and the Period from March 31,1998 (Inception) to June 30, 1998 F-5 Consolidated Statements of Cash Flows for the Ten Months Ended April 30, 2000, the Year Ended June 30, 1999, and the Period from March 31,1998 (Inception) to June 30, 1998 F-7 Notes to the Consolidated Financial Statements F-10
REPORT OF INDEPENDENT AUDITORS Board of Directors e-Net Financial.Com Corporation We have audited the accompanying consolidated balance sheets of e-Net Financial.Com Corporation ("e-Net") and subsidiaries (collectively, the "Company") as of April 30, 2000, and June 30, 1999, and the related statements of operations, stockholders' equity (deficit) and cash flows for the ten (10) months ended April 30, 2000, for the year ended June 30, 1999, and the period from March 13, 1998, ("Inception") to June 30, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of e-Net Financial.Com Corporation and subsidiaries as of April 30, 2000, and June 30, 1999, and the results of their operations and their cash flows for the ten months ended April 30, 2000, for the year ended June 30, 1999, and the period from Inception to June 30, 1998, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred operating losses, has a working capital deficit and tangible net worth, and other adverse financial indicators. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Notes 1 and 2, e-Net entered into a merger agreement with American Residential Funding, Inc. ("AMRES"), whereby e-Net is deemed to have been acquired by AMRES for accounting purposes. Accordingly, the accompanying consolidated financial statements have been retroactively restated to include the historical assets and liabilities, and the historical operations of AMRES for all periods presented. The operations of e-Net are included in the accompanying consolidated financial statements from the date of acquisition, April 12, 2000, to April 30, 2000. /s/ MCKENNON, WILSON & MORGAN LLP --------------------------------- Irvine, California July 21, 2000 F-2 e-NET FINANCIAL.COM CORPORATION Consolidated Balance Sheets As of April 30, 2000, and June 30, 1999
2000 1999 ---------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 285,583 $ 105,317 Accounts receivable, net of allowance for doubtful accounts of $37,436 and $0, respectively 260,438 128,325 Notes receivable from related parties (Note 4) 41,163 100,000 Prepaids and other current assets 107,509 8,525 ---------------- ---------------- Total current assets 694,693 342,167 Property and equipment, net (Note 5) 241,545 16,524 Goodwill, net of accumulated amortization of $122,749 (Note 3) 3,914,420 - Other assets 20,435 572 ---------------- ---------------- $ 4,871,093 $ 359,263 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 254,662 $ 23,517 Accrued registration and acquisition costs 175,000 - Other accrued expenses 155,389 143,839 Notes payable to related parties (Note 6) 2,788,076 255,000 Other current liabilities 127,636 - ---------------- ---------------- Total current liabilities 3,500,763 422,356 Other liabilities (Note 7) 139,649 746 ---------------- ---------------- Total liabilities 3,640,412 423,102 ---------------- ---------------- Commitments and contingencies (Note 8) Stockholders' equity (deficit) (Notes 9 and 12): Series C convertible preferred stock 1,140,697 - Common stock, $0.001 par value; 100,000,000 shares authorized; 20,053,937 and 7,500,000, respectively, issued and outstanding 19,854 7,500 Additional paid-in capital 8,269,101 - Accumulated deficit (5,868,238) (71,339) Deferred compensation (339,733) - Treasury stock, at cost (1,991,000) - ---------------- ---------------- Total stockholders' equity (deficit) 1,230,681 (63,839) ---------------- ---------------- $ 4,871,093 $ 359,263 ================ ================
See accompanying notes to these consolidated financial statements F-3 e-NET FINANCIAL.COM CORPORATION Consolidated Statements of Operations
For the For the Period From Ten-Months For the Year March 13, 1998, Ended Ended (Inception) through APRIL 30, 2000 JUNE 30, 1999 JUNE 30, 1998 ----------------- ---------------- ------------------ Revenues: Loan origination fees $ 4,647,848 $ 3,547,932 $ - Other 41,322 - - ---------------- --------------- -------------------- Total revenues 4,689,170 3,547,392 - Cost of mortgage brokerage commissions 3,411,750 2,304,100 - ---------------- --------------- ------------------- Gross profit 1,277,420 1,243,832 - Operating expenses- Selling, general and administrative (Note 8) 3,059,374 1,301,013 3,570 ---------------- --------------- ------------------- Operating loss (1,781,954) (57,181) (3,570) Other income (expense), net (14,945) (3,088) - ---------------- --------------- -------------------- Net loss $ (1,796,899) $ (60,269) $ (3,570) ================ =============== ==================== Basic and diluted loss per share $ (0.22) $ (0.01) ================ =============== Weighted average common shares outstanding 8,222,636 7,500,000 ================ ===============
See accompanying notes to these consolidated financial statements F-4 e-NET FINANCIAL.COM CORPORATION Consolidated Statements of Stockholders' Equity (Deficit) For the Period from March 13, 1998 (Inception), to June 30, 1998 the Year Ended June 30, 1999, and the Ten Months Ended April 30, 2000
Class B Convertible Series C Preferred Convertible Preferred Common Stock -------------------------- ------------------------ ------------------------- Shares Amount Shares Amount Shares Amount ----------- ----------- ----------- ----------- ----------- ----------- Common stock issued to founders of AMRES -- -- -- -- 7,500,000 $ 7,500 Net loss for the period from March 17, 1998 (inception), through June 30, 1998 -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Balances, June 30, 1998 -- -- -- -- 7,500,000 7,500 Net loss -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Balances, June 30, 1999 -- -- -- -- 7,500,000 7,500 Acquisition of Titus on February 11, 2000 100,000 1,000,000 -- -- 300,000 300 Acquisition of LoanNet on February 16, 2000 -- -- -- -- 250,000 250 Acquisition of Expidoc on March 17, 2000 -- -- -- -- 24,000 24 Shares retained by shareholders in recapitalization on April 12, 2000 -- -- -- -- 10,979,937 10,780 Dividend deemed distributed at April 12, 2000, for AMRES -- -- -- -- -- -- Issuance of Series C Convertible Preferred, net costs of $225,000 -- -- 20,000 1,775,000 -- -- Value of warrant issued in connection with Series C Convertible Preferred -- -- -- (281,362) -- -- Value of beneficial conversion feature of Series C Convertible Preferred -- -- -- (352,941) -- -- Conversion of Class B Convertible Preferred (100,000) (1,000,000) -- -- 1,000,000 1,000 Contributed capital from EMB -- -- -- -- -- -- Net loss -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Balances, April 30, 2000 -- -- 20,000 $ 1,140,697 20,053,937 $ 19,854 =========== =========== =========== =========== =========== ===========
See accompanying notes to these consolidated financial statements F-5 e-NET FINANCIAL.COM CORPORATION Consolidated Statements of Stockholders' Equity (Deficit) (continued) For the Period from March 13, 1998 (Inception), to June 30, 1998 the Year Ended June 30, 1999, and the Ten Months Ended April 30, 2000
Additional Deferred Accumulated Paid-In Capital Treasury Stock Compensation Deficit Total --------------- -------------- ------------ ------------ ------------ Common stock issued to founders of AMRES $ -- $ -- $ -- $ (7,500) $ -- Net loss for the period from March 17, 1998 (Inception), through June 30, 1998 -- -- -- (3,570) (3,570) ----------- ----------- ----------- ----------- ----------- Balances, June 30, 1998 -- -- -- (11,070) (3,570) Net loss -- -- -- (60,269) (60,269) ----------- ----------- ----------- ----------- ----------- Balances, June 30, 1999 -- -- -- (71,339) (63,839) Acquisition of Titus on February 11, 2000 599,700 -- -- -- 1,600,000 Acquisition of LoanNet on February 16, 2000 2,305,375 -- -- -- 2,305,625 Acquisition of Expidoc on March 17, 2000 196,486 -- -- -- 196,510 Shares retained by shareholders in recapitalization on April 12, 2000 2,114,881 (1,991,000) (339,733) -- (205,072) Dividend deemed distributed at April 12, 2000, for AMRES -- -- -- (4,000,000) (4,000,000) Issuance of Class C Convertible Preferred, net of costs of $225,000 -- -- -- 1,775,000 Value of warrant issued in connection with Series C Convertible Preferred 281,362 -- -- -- Value of beneficial conversion feature of Series C Convertible Preferred 352,941 -- -- -- Conversion of Class B Convertible Preferred 1,999,000 -- -- -- 1,000,000 Contributed capital from EMB 419,356 -- -- -- 419,356 Net loss -- -- -- (1,796,899) (1,796,899) ----------- ----------- ----------- ----------- ----------- Balances, April 30, 2000 $ 8,269,101 $(1,991,000) $ (339,733) $(5,868,238) $ 1,230,681 =========== =========== =========== =========== ===========
See accompanying notes to these consolidated financial statements F-6 e-NET FINANCIAL.COM CORPORATION Consolidated Statements of Cash Flows
For the Period For the From March 13, Ten Months For the Year 1998 (Inception) Ended Ended through April 30, 2000 June 30, 1999 June 30, 1998 ----------------- --------------- ---------------- Cash flows from operating activities: Net loss $ (1,796,899) $ (60,269) $ (3,570) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 132,440 2,225 - Provision for doubtful accounts 12,699 - - Compensation on conversion of B Preferred 1,000,000 - - Changes in operating assets and liabilities, net of acquisitions: Increase in accounts receivable (99,351) (128,325) - Increase in other current assets (2,946) (8,525) - Increase in accounts payable 131,789 23,517 - Increase in accrued registration and acquisition fees 100,000 - - Increase (decrease) in other accrued expenses (179,234) 143,839 - Increase (decrease) in other current liabilities (746) 746 - ----------------- --------------- --------------- Net cash used in operating activities (702,248) (26,792) (3,570) ----------------- --------------- --------------- Cash flows from investing activities: Increase in other assets (1,845) (572) - Issuance (repayment) of note receivable to related party 39,400 (100,000) - Purchase of property and equipment (19,786) (18,749) - Purchase of companies, net of cash acquired 147,970 - - Recapitalization of e-Net, net of cash acquired 12,449 - - ----------------- --------------- --------------- Net cash provided by (used in) investing activities 178,188 (119,321) - ---------------- --------------- --------------- Cash flows from financing activities: Proceeds from notes payable to related parties 459,326 240,000 130,000 Payments on notes payable to related parties (1,530,000) (80,000) (35,000) Proceeds from sale of C Preferred 1,775,000 - - ---------------- --------------- --------------- Net cash provided by financing activities 704,326 160,000 95,000 ---------------- --------------- --------------- Net increase in cash 180,266 13,887 91,430 Cash at beginning of period 105,317 91,430 - ---------------- --------------- --------------- Cash at end of period $ 285,583 $ 105,317 $ 91,430 ================ =============== ===============
See accompanying notes to these consolidated financial statements F-7 e-NET FINANCIAL.COM CORPORATION Consolidated Statements of Cash Flows (continued)
For the Period For the From March 13, Ten Months For the Year 1998 (Inception) Ended Ended through April 30, 2000 June 30, 1999 June 30, 1998 ----------------- --------------- ---------------- Cash paid for interest and income taxes was not significant during the periods presented. Supplemental disclosure of non-cash financing and investing activities: B Preferred and common stock issued for acquisition of Titus $ 1,600,000 $ - $ - ================= =============== ================ Common stock issued for acquisition of LoanNet $ 2,305,625 $ - $ - ================= =============== ================ Common stock issued for acquisition of ExpiDoc $ 196,510 $ - $ - ================= =============== ================ Dividend deemed distributed resulting from issuance of note payable $ 4,000,000 $ - $ - ================= =============== ================ Value of C Preferred beneficial conversion feature $ 281,362 $ - $ - ================= =============== ================ Value of warrants issued with issuance of C Preferred $ 352,941 $ - $ - ================= =============== ================ Issuance of common stock for conversion of B Preferred $ 1,000,000 $ - $ - ================= =============== ================ Capital contributed in satisfaction of debt $ 419,356 $ - $ - ================= =============== ================ LoanNet Acquisition, Net of Cash Acquired: Working capital deficit, other than cash acquired $ (55,776) - - Property and equipment 84,089 - - Preferred stock not acquired (100,000) - - Purchase price in excess of the net assets acquired 2,226,873 - - Capital Stock issued in acquisition (2,305,625) - - ----------------- --------------- ---------------- Net cash obtained in acquisition of LoanNet $ (150,439) $ - $ - ================= =============== ================ ExpiDoc Acquisition, Net of Cash Used: Working capital deficit, other than cash acquired $ (11,317) - - Purchase price in excess of the net assets acquired 210,296 - - Capital stock issued in acquisition (196,510) - - ----------------- --------------- ---------------- Net cash used to acquire ExpiDoc $ 2,469 $ - $ - ================= =============== ================
See accompanying notes to these consolidated financial statements F-8 e-NET FINANCIAL.COM CORPORATION Consolidated Statements of Cash Flows (continued)
For the Period For the From March 13, Ten Months For the Year 1998 (Inception) Ended Ended through April 30, 2000 June 30, 1999 June 30, 1998 ----------------- --------------- ---------------- Titus Acquisition, Net of Cash Acquired Purchase price in excess of the net assets acquired $ 1,600,000 $ - $ - Capital stock issued in acquisition (1,600,000) - - ----------------- ---------------- ----------------- $ - $ - $ - ================= ================ =================
See accompanying notes to these consolidated financial statements F-9 e-NET FINANCIAL.COM CORPORATION Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- NOTE 1 - GENERAL E-net Financial.Com Corporation ("e-Net"), a Nevada corporation, was originally incorporated on August 18, 1988, under the name of Solutions, Inc. Subsequently, its name was changed to Suarro Communications, Inc. on August 16, 1996, to e-Net Corporation on February 12, 1999, and to e-Net Financial.Com Corporation on February 2, 2000. Since inception, e-Net has had insignificant operations. Effective March 1, 1999, e-Net, e-Net Mortgage Corporation ("e-Net Mortgage") and City Pacific International, Inc. ("City Pacific") merged under a Plan of Reorganization. E-Net Mortgage, a Nevada corporation, formally known as the Hospitality Group, Inc., was formed on November 20, 1996, to engage in the business of providing retail and wholesale mortgage products and service. However, such operations did not commence. City Pacific, a Nevada corporation, was formed on July 10, 1997, to provide telecommunications products and services for commercial and residential customers, directly or through joint ventures with strategic partners. City Pacific did not achieve material operations. On December 21, 1999, e-Net completed its acquisition of VPN.COM JV Partners, a Nevada Joint Venture. VPN.COM JV Partners provides comprehensive broadband networks and connectivity. These networks facilitate customized telephone, video teleconferencing, Internet access, and data transfer. City Pacific changed its name to VPNCOM.NET, Inc. on December 23, 1999. E-Net sold VPNCOM.NET, Inc. on March 1, 2000, at a gain of approximately $1.8 million, since this business did not meet its business focus. The gain on the sale, and the historical results of the discontinued operations of VPNCOM.NET, Inc., have been excluded from the historical consolidated financial statements of e-Net due to the change in reporting entity in connection with acquisitions of new businesses as discussed below. Through a series of acquisitions of new businesses, the new management team delivers, through the Internet and through other means, mortgage loan brokerage and notary public services. E-Net acquired companies with the intent to fund and manage their business growth. On January 20, 2000, e-Net entered into, and announced, a letter of intent to acquire all the issued and outstanding common stock of American Residential Mortgage, Inc. ("AMRES") from EMB Corporation ("EMB"). Management believed the transaction was probable of being completed at the date of the announcement. Additionally, e-Net acquired Titus Real Estate, Inc., ("Titus"), LoanNet Mortgage, Inc. ("LoanNet") and Expidoc.com, Inc. ("Expidoc"), with the expectation that the AMRES acquisition would close in a reasonable time period. On April 12, 2000, e-Net acquired AMRES from EMB for 7,500,000 shares of common stock, representing approximately 40% of the outstanding voting stock of e-Net and a $4,000,000 note payable. AMRES is a Nevada corporation organized on March 13, 1998, for the purpose of originating and selling HUD-insured mortgages and conventional loans. E-Net, prior to a series of acquisitions in February and March 2000, was considered a blank-check company with limited operating history, and, accordingly, AMRES is considered the acquiror for financial reporting purposes. As such, the acquisition has been accounted for as a recapitalization of AMRES; therefore, the accompanying consolidated financial statements reflect the historical assets and liabilities and the related historical operations of AMRES, in a manner similar to a pooling of interests, for all periods presented. F-10 e-NET FINANCIAL.COM CORPORATION Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of e-Net and its wholly-owned subsidiaries, collectively, the "Company." All significant intercompany transactions and balances have been eliminated in consolidation. SIGNIFICANT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. GOING CONCERN The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company requires financing to meet its cash requirements. Management is seeking one or more initial private placement under Regulation D of the Securities Act of 1933 totaling $3.0 million to repay its current obligations and $1.5 million to provide working capital for operations. There are no assurances the Company will obtain financing on terms acceptable to management. No adjustments have been made to the carrying value of assets or liabilities as a result of this uncertainty. FISCAL YEAR END The Company has elected an April 30 fiscal year for financial and income tax reporting purposes. STOCK SPLIT During November 1999, outstanding shares of common stock were split two-for-one. All share and per share amounts have been retroactively restated for all periods presented. CASH AND CASH EQUIVALENTS The Company considers all liquid investments with a remaining maturity of three months or less to be cash equivalents. Balances in bank accounts may, from time to time, exceed federally insured limits. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets, ranging from three to seven years. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations. F-11 e-NET FINANCIAL.COM CORPORATION Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- GOODWILL Goodwill represents the excess of purchase price over the fair value of the net assets of acquired businesses. Goodwill is amortized on a straight-line basis over the expected periods to be benefited. Management estimated the periods to be benefited at seven to ten years. During the 10-months ended April 30, 2000, amortization of goodwill amounted to $122,749. IMPAIRMENT OF LONG-LIVED ASSETS The Company follows the provisions of SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." Long-lived assets, including goodwill, of the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates quarterly the recoverability of its long-lived assets based on estimated future cash flows from and the estimated liquidation value of such long-lived assets, and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived asset. The amount of impairment, if any, is measured based on fair value or discounted cash flows, and is charged to operations in the period in which such impairment is determined by management. INCOME TAXES The Company accounts for income taxes under the provisions of SFAS No. 109, "Accounting for Income Taxes," whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between bases used for financial reporting and income tax reporting purposes. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. REVENUE RECOGNITION Notary services related revenue is recognized when the services are performed. Loan origination fees are recognized when the corresponding loan has been closed and funded. REGISTRATION COSTS Direct costs to register restricted common shares (the "Registration") are accrued at the time the shares are issued. At April 30, 2000, the Company accrued $125,000 for estimated legal, accounting, and filing fees directly related to the Registration. The Company charged operations approximately $100,000 relating to the costs of registering the 7,500,000 shares of its common stock issued to acquire AMRES, since the acquisition of AMRES was accounted at historical bases in a manner similar to a pooling of interest. STOCK-BASED COMPENSATION SFAS No. 123, "Accounting for Stock-Based Compensation," defines a fair value based method of accounting for stock-based compensation. However, SFAS 123 allows an entity to continue to measure compensation cost related to stock and stock options issued to employees using the intrinsic method of accounting prescribed by Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees." Entities electing to remain with the accounting method of APB No. 25 must make F-12 e-NET FINANCIAL.COM CORPORATION Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- pro forma disclosures of net income (loss) and earnings (loss) per share, as if the fair value method of accounting defined in SFAS 123 had been applied. The Company continues to account for stock-based compensation under APB No. 25. LOSS PER COMMON SHARE The Company presents basic earnings per share ("EPS") and diluted EPS on the face of all statements of operations. Basic EPS is computed as net income (loss) divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities. Due to the net losses incurred during the ten months ended April 30, 2000, the year ended June 30, 1999, and the period from Inception to June 30, 1998, all common stock equivalents outstanding were considered anti-dilutive and were excluded from the calculations of diluted net loss per share. Anti-dilutive securities at April 30, 2000, which could be dilutive in future periods, include the C Preferred, warrants, and options convertible into approximately 763,774 shares of common stock. The incremental shares not included in the weighted average shares outstanding for dilutive EPS in 2000, are 202,349 shares. REPORTING COMPREHENSIVE INCOME SFAS No. 130, "Reporting Comprehensive Income" establishes standards for reporting the components of comprehensive income and requires that all items that are required to be recognized under accounting standards as components of comprehensive income be included in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income includes net income (loss), as well as certain non-shareholder items that are reported directly within a separate component of stockholders' equity and bypass net income (loss). The Company adopted the provisions of this statement during fiscal 1999, with no impact on the accompanying consolidated financial statements. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION SFAS No. 131, "Disclosures of an Enterprise and Related Information" requires disclosures of financial and descriptive information about an enterprise's operating segments in annual and interim financial reports issued to stockholders. The statement defines an operating segment as a component of an enterprise that engages in business activities that generate revenue and incur expense, whose operating results are reviewed by the chief operating decision-maker in the determination of resource allocation performance, and for which discrete financial information is available. At April 30, 2000, the Company, by definition, had only one segment. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends existing accounting standards and is effective for fiscal years beginning after June 15, 2000. SFAS 133 requires that all derivatives be recognized in the balance sheet at their fair market value, and the corresponding derivative gains or losses be either reported in the statement of operations or as a component of other comprehensive income depending on the type of hedge relationship that exists with respect to such derivative. The Company does not expect the adoption of SFAS 133 to have a material impact on its financial statements. F-13 e-NET FINANCIAL.COM CORPORATION Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- NOTE 3 - ACQUISITIONS TITUS REAL ESTATE, INC. On February 11, 2000, e-Net acquired all the issued and outstanding capital stock of Titus in a tax-free exchange valued at $1.6 million. Titus is an entity which retains rights to manage the operations of a Real Estate Investment Trust ("REIT") that owns certain apartment complexes consisting of 121 units. Titus and AMRES have historically had common management, and such individuals are also officers and key employees of e-Net. The purchase price consisted of 300,000 shares of common stock subject to a share-cancellation amendment dated March 1, 2000, valued at $600,000 and 100,000 shares of Class B Convertible Preferred stock (the "B Preferred") with a redemption price of $1.0 million. A portion of the common shares were subject to cancellation to the extent the value of the 300,000 common shares exceeded a fair market value of $600,000, based on the average closing price of the Company's common stock five trading days prior to June 11, 2000. The holder of the B Preferred was entitled to demand redemption of such shares for $1.0 million at any time after the completion of the acquisition of AMRES. The Board of Directors had the option to deliver ten (10) shares of common stock for each share of B Preferred upon the receipt of demand from the holder of the B Preferred in lieu of payment of cash. On April 12, 2000, the holder of the B Preferred redeemed the 100,000 shares of B Preferred for payment of $1 million. On April 20, 2000, the parties agreed to amend the original contract and satisfy the demand through the issuance of 1,000,000 shares of e-Net's common stock, subject to certain share-cancellation provisions. The amended contract dated April 20, 2000, required the holder of the 1,000,000 common shares to return a number of such shares 90 days from the amendment date (July 20, 2000) in the event the Company's common stock exceeds $2.00 per share. The shares to be returned to the Company were determined based on $2.0 million divided by the average closing bid price of the Company's common stock five (5) trading days prior to July 20, 2000, subject to a maximum number of shares to be retained of 1,000,000 shares of common stock. The average price of the Company's common stock the five trading days prior to July 20, 2000, was $1.81 per share. Since the number of shares computed exceeded 1,000,000 shares, the holder retained the entire 1,000,000 million shares. Upon the conversion of the B Preferred into common stock, the Company recorded a nonrecurring charge to the accompanying statement of operations for the incremental value of $1.0 million, based on the difference between the carrying value of the B Preferred and the fair value of the common stock of $2.0 million, since the holders are key management of the ongoing operations. Management allocated the excess of the purchase price over the fair value of the assets acquired of $1.6 million to goodwill. New management of e-Net determined the value of the REIT management contract be included in goodwill since the estimated period to be benefited for both intangible assets is estimated to be ten (10) years due to the limited operating history of Titus. LOANNET MORTGAGE, INC. On February 14, 2000, the Company acquired all the issued and outstanding common stock of LoanNet, a privately held company providing mortgage loans primarily to residential customers in three states. In connection with this acquisition, the Company issued 250,000 shares of its common stock valued at $2.3 million. The acquisition was accounted for under the purchase method of accounting with the excess of cost over the fair value of the net assets acquired of $2.2 million allocated to goodwill. Goodwill is being amortized on a straight-line basis over seven years. F-14 e-NET FINANCIAL.COM CORPORATION Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- EXPIDOC.COM, INC. On March 17, 2000, the Company acquired all the issued and outstanding capital stock of ExpiDoc, a privately held company that provides notary services, for 24,000 shares of the Company's common stock valued at $196,510. The Company was required to provide working capital of $125,000 to Expidoc. The acquisition was treated under the purchase method of accounting with the excess of cost over the fair value of the net assets acquired of $210,296 allocated to goodwill. Goodwill is being amortized on a straight-line basis over seven years. The unaudited pro forma statement of operations data for the ten months ended April 30, 2000, assuming the acquisitions of Titus, LoanNet and Expidoc occurred on July 1, 1999, are as follows: 2000 ----------- Revenues $ 4,780,305 =========== Net loss $(3,548,792) =========== Basic and dilutive net loss per share $ (0.18) =========== The data for the year ended June 30, 1999, and for the period from Inception to June 30, 1998, are not shown since the pro forma effects are not significant. The above unaudited proforma amounts for 2000 are not necessarily indicative of what the actual results might have been if the acquisitions had occurred on July 1, 1999. NOTE 4 - NOTES RECEIVABLE FROM RELATED PARTIES As of June 30, 1999, the Company had a note receivable from EMB in the amount of $100,000, interest at 12% per annum due on June 15, 2000. This note was satisfied when EMB satisfied certain notes payable of the Company (Note 6). As of April 30, 2000, the Company had amounts due from a related party of $41,163. The amount is for reimbursable expenses paid by the Company on behalf of the related party. Additionally, the Company charges this related party monthly for certain general expenses related to the use of the Company's office space, telephones, etc. NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment consists of the following as of April 30, 2000, and June 30, 1999: April 30, 2000 June 30, 1999 ----------------- --------------- Furniture and fixtures $ 97,855 $ 1,406 Equipment 177,741 17,343 ----------------- --------------- 275,596 18,749 Less: accumulated depreciation (34,051) (2,225) ----------------- --------------- $ 241,545 $ 16,524 ================= =============== F-15 e-NET FINANCIAL.COM CORPORATION Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- During the ten months ended April 30, 2000, and the year ended June 30, 1999, depreciation expense totaled $31,826 and $2,225, respectively. Depreciation expense for the period from Inception to June 30, 1998, was not significant. NOTE 6 - NOTES PAYABLE As of June 30, 1999, the Company had a note payable outstanding to a party in the amount of $255,000 with interest at 5% per annum. During the ten months ended April 30, 2000, EMB satisfied the note payable in connection with certain assets sold by EMB. The satisfaction of this obligation by EMB is reflected as a capital contribution in the accompanying consolidated statements of stockholders' equity (deficit). In connection with the acquisition of AMRES, the Company issued a note payable in the amount of $4,000,000. On April 12, 2000, the Company made a principal reduction of $1,595,000 on this note. The balance of this note is due on September 15, 2000, as extended, and bears interest at 10% per annum. At April 30, 2000, the balance due EMB Corporation was $2,405,000. Subsequent to April 30, 2000, the note was reduced to $1,066,022 through proceeds received from a private placement of the Company's common stock, see Note 9. On April 13, 2000, an officer loaned the Company $300,000, due April 12, 2001, together with interest at 10% per annum. Subsequent to April 30, 2000, the note, including accrued interest, was settled with the issuance of 150,000 shares of common stock. At April 30, 2000, the Company has two notes payable to related parties aggregating $80,235, interest at 10% per annum due on August 31, 2000. Subsequent to April 30, 2000, an aggregate of $40,118 was paid on the notes. NOTE 7 - OTHER LIABILITIES On February 9, 2000, LoanNet issued 400 shares of its preferred stock to an officer of LoanNet for $100,000. Such shares were not acquired by e-Net as part of the acquisition agreement on February 14, 2000, and accordingly, remain outstanding and included in other liabilities in the accompanying balance sheet at April 30,2000. This preferred stock has a non-cumulative preferred annual dividend of 8.0%, payable on a quarterly basis and before any payments of dividends of common stock. Additionally, LoanNet holds the right to redeem the preferred stock at any time for $250 per share. Upon the liquidation or dissolution of LoanNet, the holders of preferred stock are entitled to receive $250 per share, plus any accrued but unpaid dividends. There are no voting rights associated with the preferred stock. F-16 e-NET FINANCIAL.COM CORPORATION Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- NOTE 8 - COMMITMENTS AND CONTINGENCIES CAPITAL LEASES The Company acquired equipment and furniture under capital lease obligations over 24 months. The present value of future annual minimum lease payments under capital leases are as follows: Years Ending April 30, ------------ 2001 $ 51,039 2002 40,365 ------------ 91,404 Less amount representing interest (17,277) ------------ 74,127 Less current portion (36,037) ------------ Long-term portion $ 38,090 ============ As of April 30, 2000, the Company had $82,732 of equipment and furniture under capital leases, at cost. OPERATING LEASES The Company leases its corporate office located in Costa Mesa, California under an operating lease from unrelated third parties that expires on March 31, 2002. The Company also has various equipment leases that expire at various dates ranging from one to five years. Rental expense for ten month period ended April 30, 2000, and the year ended June 30, 1999, was $186,322 and $125,660, respectively. Rent expense for the period ended June 30, 1998, was not significant. Minimum future annual rental payments under the lease agreements with a term in excess of one year at April 30, 2000, are as follows: Years Ending April 30, ------------ 2001 $ 304,485 2002 315,544 2003 164,857 2004 12,913 2005 547 --------------- $ 798,346 ================ LITIGATION The Company is subject to a limited number of claims and actions, which arise in the ordinary course of business. The litigation process is inherently uncertain, and it is possible that the resolution of the company's existing and future litigation may adversely affect the Company. Management is unaware of any matters that may have material impact on the Company's consolidated financial position, results of operations or cash flows. F-17 e-NET FINANCIAL.COM CORPORATION Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- EMPLOYMENT AGREEMENTS In February 2000, the Company entered into employment agreements with six individuals. The agreements provided for a term of one year, annual base salaries ranging from $30,000 to $78,000, and are renewable automatically each year unless terminated by either party with 30-days written notice. The agreements also provided for participation in the 2000 Plan (see Note 10). INVESTMENT BANKING AGREEMENT On May 27, 1999, the Company entered into an agreement with an investment banker to seek debt financing through public or private offerings or debt or equity securities and in seeking merger and acquisition candidates. Per the agreement, the Company granted the investment banker options to purchase 200,000 shares of the Company's common stock at an exercise price of $0.13, expiring on May 31, 2001. Additionally, the Company was required to pay $60,000 for the initial twelve months. In addition, the agreement specified that the investment banker will receive a percentage of consideration received in a merger, acquisition, joint venture, debt or lease placement and similar transactions through May 31, 2001. In April 2000, the parties agreed to amend the agreement to eliminate the fee based on a percentage of the consideration of a transaction. NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIT) GENERAL In March 2000, the Company amended its Articles of Incorporation to change the authorized number of shares of its $0.001 par value common stock from 20,000,000 to 100,000,000. Additionally, the Board of Directors authorized the issuance of 1,000,000 shares of preferred stock. The preferred stock may be divided into and issued in one or more series. CLASS B CONVERTIBLE PREFERRED STOCK In connection with the acquisition of Titus Real Estate Inc. the Company issued 100,000 shares of B Preferred. The note was CONVERTED into 2,000,000 shares of common stock on April 20, 2000, subject to certain cancellation provisions. See Note 3 for further discussion of the Company's B Preferred. SERIES C CONVERTIBLE PREFERRED STOCK In April 2000, the Company issued 20,000 shares of Series C Convertible Preferred Stock, (the "C Preferred") for $1,775,000, net of fees of $225,000 in a private placement. As additional consideration, the Company issued warrants to purchase 151,351 shares of the Company's common stock at an initial exercise price of $6.73 per share. The C Preferred has a liquidation value of $2,000,000 and the holder is entitled to receive cumulative dividends at an annual rate of $7.00 per share (7% per annum), payable semi-annually. The C Preferred is convertible, at any time at the option of the holder, into shares of the Company's common stock at a price equal to the lesser of (a) $6.91 per share or (b) 95% of the average closing bid price of the Company's common stock during the five trading days preceding the conversion after 150 days to 85% of the average closing bid price of the common stock during the five trading days immediately preceding such conversion after 240 days. The longer the C Preferred is held the greater discount on conversion into common stock. In the event the holders of C Preferred have not elected to convert at the time of mandatory conversion, the C Preferred will convert at an amount equal to 85% of the purchase price of the holder's C Preferred plus an amount equal to accrued and unpaid dividends, if F-18 e-NET FINANCIAL.COM CORPORATION Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- any, up to and including the date fixed for redemption, whether or not earned or declared. As of April 30, 2000, no shares of C Preferred have been converted into common stock. TRANSACTIONS EFFECTED PRIOR TO RECAPITALIZATION The following table presents the number of shares issued by e-Net, and the related amounts of common stock and additional paid-in capital prior to its change in accounting as a result of the reverse acquisition:
Common Stock and Additional Paid-in Capital ------------------------------ Shares Value ---------- ---------------- Outstanding as of April 30, 1999 9,000,000 $ 49,675 Common stock issuances: Private placements 177,900 128,600 Satisfaction of debt 644,129 572,770 Exercise of stock options 162,336 385,912 Compensation 525,572 827,644 Acquisition of VPNCOM.NET 250,000 250,000 Services rendered and to be rendered 220,000 627,200 ---------- ---------------- Shares retained by e-Net stockholders in recapitalization 10,979,937 $ 2,841,801 ========== ================
At various dates from September 1999 through February 2000, the Company issued a total of 177,900 shares of common stock at prices ranging from $1.00 to $3.00 per share in private placements held pursuant to Regulation D Rule 144 of the Securities Act of 1933. Total proceeds received by the Company were $128,600. Certain officers and their affiliates of e-Net made loans to e-Net for various cash flow requirements. These loans were unsecured interest-bearing notes with interest rates ranging from 10%-12%. On October 31, 1999, and January 31, 2000, e-Net issued 150,000 and 344,129 shares of restricted common stock, respectively, at $0.69 and $1.25 per share, respectively, in satisfaction of $572,770 of these notes. Pursuant to the 2000 Stock Compensation Program, the Company issued 162,336 shares of common stock upon the exercise of stock options by employees and non-employees at $1.00 per share. On July 6, 1999, the Company executed stock purchase option agreements with certain individuals granting them options to purchase a total of up to 475,000 shares of restricted common stock at a price of $1.50 per share. Subsequently, on January 7, 2000, the stock purchase option agreements were terminated upon the effectiveness of a stock bonus agreement with these same individuals. Pursuant to the stock bonus agreement, the Company issued a total of 475,000 shares of common stock registered pursuant to Regulation S-8 of the Securities Exchange Act of 1933. The fair value of the shares was $1.25 per share on the date of issuance. On November 29, 1999, the Company entered into a stock purchase agreement with an unaffiliated company whereby it issued 250,000 shares of restricted common stock at $1.00 per share in exchange for 500,000 shares of common stock of EMB held by the unaffiliated company. Subsequently, on December 21, 1999, the Company exchanged the 500,000 shares in connection with the purchase of VPN discussed further in Note 1. F-19 e-NET FINANCIAL.COM CORPORATION Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- In February and March 2000, the Company issued a total of 20,000 shares of restricted common stock at prices ranging from $7.31 to $9.38 per share for certain outside services performed by three individuals. The total value of the services received was $164,685. Additionally, in connection with the Company's investment banking arrangement (see Note 8), the Company has a legal obligation to issue 200,000 shares of common stock at total value of $627,200 or $3.14 per share. COMMON STOCK On February 14, 2000, the Company issued 250,000 shares of restricted common stock valued at $2,305,625 or $9.22 per share in exchange for all the outstanding common stock of LoanNet in a transaction accounted for under the purchase method of accounting. See Note 3 for further discussion. On March 17, 2000, the Company issued 24,000 shares of restricted common stock valued at $196,510 or $8.19 per share in exchange for all the outstanding common stock of ExpiDoc in a transaction accounted for under the purchase method of accounting. See Note 3 for further discussion. In connection with the reverse acquisition of AMRES, the shares totaling 10,779,937 retained by the shareholders of e-Net are considered as issued in connection with the recapitalization in the accompanying consolidated statements of stockholders' equity (deficit). STOCK OPTIONS On July 6, 1999, the Company executed stock purchase option agreements with five employees and two consultants. The agreements granted the individuals options to purchase a total of up to 475,000 shares of restricted common stock at a price of $1.50 per share. No options pursuant to these agreements were exercised. On January 7, 2000, the stock purchase option agreements dated July 6, 1999, were terminated upon the effectiveness of a stock bonus agreement with these individuals. See discussion above regarding "Transactions Effected Prior to Recapitalization". Effective December 16, 1999, the Board of Directors adopted the 2000 Stock Compensation Program (the "2000 Plan"). The 2000 Plan is composed of a Stock Bonus Plan ("Bonus Plan") and a Stock Deferral Plan ("Deferral Plan") and the maximum aggregate number of shares of common stock subject to the 2000 Plan is 1,000,000 shares. Under the Bonus Plan, shares of common stock may be granted to key employees and consultants as a bonus for performing duties essential to the growth of the Company. Under the Deferral Plan, participants may elect to defer up to one-third of their gross quarterly compensation and receive options to purchase shares of common stock at $1.00 per share. During the week after the close of the calendar quarter, participants must choose to convert the deferred amount into shares of common stock or receive cash. Eligible participants include all officers, employees, directors, consultants or advisors and independent contractors or agents of the Company or its subsidiaries. The 2000 Plan will remain in effect for five years or earlier at the discretion of the Board of Directors. During fiscal 2000, the Company granted options to purchase 162,336 shares of common stock. The options were vested and converted on the date granted. The Company recorded compensation expense for the difference between the grant price of $1.00 and the fair market value on the date of the grant. F-20 e-NET FINANCIAL.COM CORPORATION Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Stock option and warrant activity during the ten months ended April 30, 2000, was as follows:
Weighted Weighted Range of Average Average Exercise Exercise Fair Value of Options Prices Price Options Granted ------------- ------------- --------- --------------- Outstanding, June 30, 1999 - - - - Granted 788,687 $1.00 - $6.73 $2.40 $2.84 Canceled (475,000) $1.50 $1.50 - Exercised (162,336) $1.00 $1.00 - ------------ Outstanding, April 30, 2000 151,351 $6.73 $6.73 - ============
The options and warrants outstanding and exercisable at April 30, 2000, expire in April 2005. No options or warrants were granted prior to June 30, 1999. Pro forma effects of options granted to employees are not significant. NOTE 10 - INCOME TAXES At April 30, 2000, the Company had net operating loss carry-forwards for federal and state income tax purposes totaling approximately $1,860,000 and $930,000, respectively, which for federal reporting purposes, begin to expire in 2018 and fully expire in 2020. For state purposes, the net operating loss carry-forwards begin to expire in 2003 and fully expire in 2005. The utilization of these net operating losses may be substantially limited by the occurrence of certain events, including changes in ownership. The net deferred tax assets at April 30, 2000 and 1999, before considering the effects of the Company's valuation allowance amounted to approximately $710,000 and $25,000, respectively. The Company provided an allowance for substantially all its net deferred tax assets since they are unlikely to be realized through future operations. The valuation allowance for net deferred tax assets increased approximately $685,000 and $25,000 during the years ended April 30, 2000 and 1999, respectively. The Company's provision for income taxes differs from the benefit that would have been recorded, assuming the federal rate of 34%, due to the valuation allowance for net deferred tax assets. NOTE 11 - RELATED PARTY TRANSACTIONS See Notes 4, 6 and 9 for a description of related party transactions. NOTE 12 - SUBSEQUENT EVENTS On May 2, 2000, the Company sold 666,667 shares of common stock for $1,699,973, net of fees and commissions of $300,027 in a private placement. As additional consideration, the Company issued warrants to purchase 333,334 shares of the Company's common stock at an exercise price of $3.00 per share. In May 2000, the Company entered into certain leases for computers and other office equipment. The leases require aggregate monthly payments of $1,781 expiring in 24 months. In addition, the Company entered into a lease for certain office space over 39 months at a rate of $2,118 per month. F-21 e-NET FINANCIAL.COM CORPORATION Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Subsequent to April 30, 2000, the Company issued 223,250 shares of common stock, valued at $464,182 to various consultants. These consultants perform general accounting and financial services, and legal and professional services. Additionally, 65,000 shares of common stock valued at $130,000 were issued to employees of the Company for services rendered. For an additional subsequent event see Note 6. F-22 EXHIBIT INDEX 3.6 Certificate of Amendment to Articles of Incorporation, as filed with the Nevada Secretary of State on February 2, 2000. 3.7 Certificate of Amendment to Articles of Incorporation, as filed with the Nevada Secretary of State on March 3, 2000. 3.8 Amended and Restated By-laws of the Registrant. 4.1 Certificate of Designations, Preferences and Rights of Class A Convertible Preferred Stock, as filed with the Nevada Secretary of State on April 7, 2000. 4.2 Certificate of Designations, Preferences and Rights of Class B Convertible Preferred Stock, as filed with the Nevada Secretary of State on April 7, 2000. 4.3 Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock, as filed with the Nevada Secretary of State on April 7, 2000. 10.2a Termination Notice dated November 8, 1999, between the Registrant and Genesis Residential Healthcare, Inc. 10.2b Release of All Claims dated December 2, 1999, between the Registrant and Genesis Residential Healthcare, Inc. 10.9 Agreement for the Purchase/Sale of Corporate Stock, dated March 1, 2000, between the Registrant and E. G. Marchi. 10.25 Securities Purchase Agreement dated May 2, 2000, between the Registrant and RBSTB Nominees Limited (A/C) as Trustee of Jupiter European Special Situations Fund. 10.26 Warrant to Purchase Common Stock dated May 2, 2000, issued to RBSTB Nominees Limited (A/C) as Trustee of Jupiter European Special Situations Fund. 10.27 Registration Rights Agreement dated May 2, 2000, between the Registrant and RBSTB Nominees Limited (A/C) as Trustee of Jupiter European Special Situations Fund. 21.1 Description of the subsidiaries of the Registrant. 27.1 Financial Data Schedule. EX-3.6 2 0002.txt EXHIBIT 3.6 EXHIBIT 3.6 DEAN HELLER STATE OF NEVADA TELEPHONE 702.687.5203 SECRETARY OF STATE OFFICE OF THE SECRETARY OF STATE FAX 702.687.3471 101 N. CARSON ST., STE. 3 WEB SITE CARSON CITY, NEVADA 89701-4786 HTTP://SOS.STATE.NV.US FILING FEE: CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION FOR PROFIT NEVADA CORPORATIONS (PURSUANT TO NRS 78.385 AND 78.390 - AFTER ISSUANCE OF STOCK) -REMIT IN DUPLICATE- 1. Name of corporation: e-Net Financial.Com Corporation -------------------------------------------------------- - ------------------------------------------------------------------------------- 2. The articles have been amended as follows (provide article numbers, if available): Article V Authorized Shares - ------------------------------------------------------------------------------- A. This corporation is authorized to issue two (2) classes of shares which - ------------------------------------------------------------------------------- shall be designated as "Common Shares" and "Preferred Shares." the aggregate - ------------------------------------------------------------------------------- number of these shares which the corporation shall have the authority to issue - ------------------------------------------------------------------------------- is as follows: - ------------------------------------------------------------------------------- 1. 100,000,000 Common Shares, par value $.001 - ------------------------------------------------------------------------------- 2. 1,000,000 Preferred Shares, no par value - ------------------------------------------------------------------------------- 3. Sales to Officers and Employees This section omitted - ------------------------------------------------------------------------------- 3. The vote by which the stockholders holding shares in the corporation entitling them to exercise at least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation have voted in favor of the amendment is: * ------------------. 4. Signatures: /s/ Michael P. Roth /s/ Jean Oliver - ----------------------- ------------------------------- PRESIDENT OR VICE PRESIDENT SECRETARY OR ASST. SECRETARY (acknowledgement required) (acknowledgement not required) State of: --------------------------- County of: --------------------------- This instrument was acknowledged before me on , 19 , by - ----------------------------- ----- as (Name of Person) ------------------------- as --------------------------------------- as designated to sign in this Certificate of ------------------------------------------- (name on behalf of whom instrument was executed) - -------------------------------------------- Notary Public Signature *If any proposed amendment would alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required, of the holders of shares representing a majority of the voting power of each class of series affected by the amendment of limitations or restrictions on the voting power thereof. IMPORTANT: Failure to include any of the above information and remit the proper fees may cause this filing to be rejected. EX-3.7 3 0003.txt EXHIBIT 3.7 EXHIBIT 3.7 DEAN HELLER STATE OF NEVADA TELEPHONE 702.687.5203 SECRETARY OF STATE OFFICE OF THE SECRETARY OF STATE FAX 702.687.3471 101 N. CARSON ST., STE. 3 WEB SITE CARSON CITY, NEVADA 89701-4786 HTTP://SOS.STATE.NV.US FILING FEE: CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION FOR PROFIT NEVADA CORPORATIONS (PURSUANT TO NRS 78.385 AND 78.390 - AFTER ISSUANCE OF STOCK) -REMIT IN DUPLICATE- 1. Name of corporation: e-Net.Com Corporation -------------------------------------------------------- - ------------------------------------------------------------------------------- 2. The articles have been amended as follows (provide article numbers, if available): Article II is hereby amended to read as follows: - ------------------------------------------------------------------------------- The name of this corporation is - ------------------------------------------------------------------------------- e-Net Financial.Com Corporation - ------------------------------------------------------------------------------- 3. The vote by which the stockholders holding shares in the corporation entitling them to exercise at least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation have voted in favor of the amendment is: ------------------.* 4. Signatures: /s/ Michael P. Roth /s/ Jean Oliver - ----------------------- ------------------------------- PRESIDENT OR VICE PRESIDENT SECRETARY OR ASST. SECRETARY (acknowledgement required) (acknowledgement not required) State of: --------------------------- County of: --------------------------- This instrument was acknowledged before me on , 19 , by - ----------------------------- ----- (Name of Person) - ---------------------------- as --------------------------------------- as designated to sign this Certificate of ------------------------------------------- (name on behalf of whom instrument was executed) - -------------------------------------------- Notary Public Signature *If any proposed amendment would alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required, of the holders of shares representing a majority of the voting power of each class or series affected by the amendment regardless of limitations or restrictions on the voting power thereof. IMPORTANT: Failure to include any of the above information and remit the proper fees may cause this filing to be rejected. EX-3.8 4 0004.txt EXHIBIT 3.8 EXHIBIT 3.8 AMENDED AND RESTATED BYLAWS OF E-NET FINANCIAL.COM CORPORATION (A Nevada Corporation) ARTICLE I. OFFICE. The principal office of the Corporation in the State of Nevada is at 202 S. Minnesota Street, Carson City, Nevada 89703. The executive office of the Corporation is at 3200 Bristol Street, Suite 710, Costa Mesa, California 92626. ARTICLE II. STOCKHOLDERS' MEETINGS. Section 1. Annual Meetings. (a) The annual meeting of the stockholders of the Corporation, commencing with the year 2000 shall be held at the principal office of the Corporation in the State of Nevada or at any other place within or without the State of Nevada as may be determined by the Board of Directors and as may be designated in the notice of that meeting. The meeting shall be held on the 15th day of December of each year. If that day is a legal holiday, the meeting shall be held on the next succeeding day not a legal holiday. The business to be transacted at the meeting shall be the election of directors and such other business as properly brought before the meeting. (b) If the election of directors shall not be held on the day herein designated for any annual meeting, or at any adjournment of that meeting, the Board of Directors shall call a special meeting of the stockholders as soon as possible thereafter. At this meeting the election of directors shall take place, and the election and any other business transacted shall have the same force and effect as at an annual meeting duly called and held. (c) No change in the time or place for a meeting for the election of directors shall be made within 20 days preceding the day on which the election is to be held. Written notice of any change shall be given each stockholder 1 at least 20 days before the election is held, either in person or by letter mailed to the stockholder at the address last shown on the books of the Corporation. (d) In the event the annual meeting is not held at the time prescribed in Article II, Section I(a) above, and if the Board of Directors shall not call a special meeting as prescribed in Article II, Section l(b) above within three months after the date prescribed for the annual meeting, then any stockholder may call that meeting, and at that meeting the stockholders may elect the directors and transact other business with the same force and effect as at an annual meeting duly called and held. Section 2. Special Meetings. Special meetings of the stockholders may be called by the President or by the holders of at least 33% of the stock entitled to vote at that meeting. At any time, upon the written request of any person or persons entitled to call a special meeting, it shall be the duty of the Secretary to send out notices of the meeting, to be held within or without the State of Nevada and at such time, but not less than 10 days nor more than 60 days after receipt of the request, as may be fixed by the Board of Directors. If the Board of Directors fails to fix a time or place, the meeting shall be held at the principal office of the Corporation at a time as shall be fixed by the Secretary within the above limits. Section 3. Notice and Purpose of Meetings; Waiver. Each stockholder of record entitled to vote at any meeting shall be given in person, or by mail, or by prepaid telegram, written or printed notice of the purpose or purposes, and the time and place within or outside the State of Nevada of every meeting of stockholders. This notice shall be delivered not less than 10 days nor more than 60 days before the meeting. If mailed or telegraphed, it should be directed to the stockholder at the address last shown on the books of the Corporation. No publication of the notice of meeting shall be required. A stockholder may waive the notice of meeting by attendance, either in person or by proxy, at the meeting, or by so stating in writing, either before or after the meeting. Attendance at a meeting for the express purpose of objecting that the meeting was not lawfully called or convened shall not, however, constitute a waiver of notice. Except where otherwise required by law, notice need not be given of any adjourned meeting of the stockholders. Section 4. Quorum. 2 Except as otherwise provided by law, a quorum at all meetings of stockholders shall consist of the holders of record of a majority of the shares entitled to vote present in person or by proxy. Section 5. Closing of Transfer Books; Record Date. (a) In order to determine the holders of record of the Corporation's stock who are entitled to notice of meetings, to vote at a meeting or its adjournment, to receive payment of any dividend, or to make a determination of the stockholders of record for any other proper purpose, the Board of Directors of the Corporation may order that the Stock Transfer Books be closed for a period not to exceed sixty days. If the purpose of this closing is to determine who is entitled to notice of a meeting and to vote at such meeting, the Stock Transfer Books shall be closed for at least thirty days preceding such meeting. (b) In lieu of closing the Stock Transfer Books, the Board of Directors may fix a date as the record date for the determination of stockholders. This date shall be no more than sixty days prior to the date of the action which requires the determination, nor, in the case of a stockholders' meeting, shall it be less than thirty days in advance of such meeting. (c) If the Stock Transfer Books are not closed and no record date is fixed for the determination of the stockholders of record, the date of which notice of the meeting is mailed, or on which the resolution of the Board of Directors declaring a dividend is adopted, as the case may be, shall be the record date for the determination of stockholders. (d) When a determination of stockholders entitled to vote at any meeting has been made as provided in this section, this determination shall apply to any adjournment of the meeting, except when the determination has been made by the closing of the Stock Transfer Books and the stated period of closing has expired. Section 6. Presiding Officer; Order of Business. (a) Meetings of the stockholders shall be presided over by the Chairman of the Board, or, if he or she is not present, by the Chief Executive Officer, or if not present, by the President, or if he or she is not present, by a Vice-President, or if neither the Chairman of the Board nor the Chief Executive Officer nor the President nor a Vice-President is present, by a chairman to be chosen by a majority of the stockholders entitled to vote 3 at the meeting who are present in person or by proxy. The Secretary of the Corporation, or, in her or his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the stockholders present at the meeting shall choose any person present to act as secretary of the meeting. (b) The order of business shall be as follows: 1. Call of meeting to order. 2. Proof of notice of meeting. 3. Reading of minutes of last previous annual meeting. 4. Reports of officers. 5. Reports of committees. 6. Election of directors. 7. Miscellaneous business. Section 7. Voting. (a) Except in the election of directors, at which time the stockholders shall be entitled to cumulate their votes, and except as otherwise provided in the Articles of Incorporation, the Bylaws, or the laws of the State of Nevada at every meeting of the stockholders, each stockholder of the Corporation entitled to vote at the meeting shall have, as to each matter submitted to a vote, one vote in person or by proxy for each share of stock having voting rights registered in his or her name on the books of the Corporation. A stockholder may vote his or her shares through a proxy appointed by a written instrument signed by the stockholder or by a duly authorized attorney-in-fact and delivered to the secretary of the meeting. No proxy shall be valid after three months from the date of its execution unless a longer period is expressly provided. (b) A majority vote of those shares entitled to vote and represented at the meeting, a quorum being present, shall be the act of the meeting except that in electing directors a plurality of the votes cast shall elect. (c) At all elections of directors, the voting shall be by ballot. Section 8. List of Stockholders. (a) A complete list of the stockholders of the Corporation entitled to vote at the ensuing meeting, arranged in alphabetical order, and showing the address of, and number of shares owned by, each stockholder shall be prepared by the Secretary, or other officer of the Corporation having 4 charge of the Stock Transfer Books. This list shall be kept on file for a period of at least ten days prior to the meeting at the principal office of the Corporation and shall be subject to inspection during the usual business hours of such period by any stockholder. This list shall also be available at the meeting and shall be open to inspection by any stockholder at any time during the meeting. (b) The original Stock Transfer Books shall be prima facie evidence as to who are the stockholders entitled to examine the list or to vote at any meeting of the stockholders. (c) Failure to comply with the requirements of this section shall not affect the validity of any action taken at any meetings of the stockholders. ARTICLE III. DIRECTORS. Section 1. Number, Qualification, Term, Quorum, and Vacancies. (a) The property, affairs and business of the Corporation shall be managed by a Board of Directors. The number of such directors shall be fixed from time to time by resolution of the board of directors. Except as provided, directors shall be elected at the annual meeting of the stockholders and each director shall serve for one year and/or until his or her successor shall be elected and qualify. (b) The number of directors may be increased or decreased from time to time by an amendment to these Bylaws. Any increased number of directors shall be elected by the stockholders at the next regular annual meeting or at a special meeting called for that purpose. The number of directors shall never be less than one. (c) Directors need not be stockholders of the Corporation. (d) A majority of the directors in office shall be necessary to constitute a quorum for the transaction of business. If, at any meeting of the Board of Directors, there shall be less than a quorum present, a majority of those present may adjourn the meeting, without further notice, from time to time until a quorum shall have been obtained. In case there are vacancies on the Board of Directors, other than vacancies created by the removal of a director or directors by the stockholders or by an increase in the number of directors, the remaining directors, although less than a quorum, may by a majority vote elect a successor or successors for the 5 unexpired term or terms. Section 2. Meetings. Meetings of the Board of Directors may be held either within or without the State of Nevada. Meetings of the Board of Directors shall be held at those times as are fixed from time to time by resolution of the Board. Special meetings may be held at any time upon call of the Chairman of the Board, the Chief Executive Officer, the President, or a Vice-President, or a majority of directors, upon written or telegraphic notice deposited in the U.S. mail or delivered to the telegraph company at least thirty days prior to the day of the meetings. A meeting of the Board of Directors may be held without notice immediately following the annual meeting of the stockholders. Notice need not be given of regular meetings of the Board of Directors held at times fixed by resolution of the Board of Directors nor need notice be given of adjourned meetings. Meetings may be held at any time without notice if all the directors are present or if, before the meeting, those not present waive such notice in writing. Notice of a meeting of the Board of Directors need not state the purpose of, nor the business to be transacted at, any meeting. Section 3. Removal. (a) At any meeting of the stockholders, any director or directors may be removed from office, without assignment of any reason, by a majority vote of the shares or class of shares, as the case may be, which elected the director or directors to be removed, provided, however, that if less than all the directors are to be removed, no individual director shall be removed if the number of votes cast against her or his removal would be sufficient, if cumulatively voted at an election of the entire board, to elect one or more directors. (b) When any director or directors are removed, new directors may be elected at the same meeting of the stockholders for the unexpired term of the director or directors removed. If the stockholders fail to elect persons to fill the unexpired term or terms of the director or directors removed, these unexpired terms shall be considered vacancies on the board to be filled by the remaining directors. Section 4. Indemnification. (a) The Corporation shall indemnify each of its directors, officers, and employees whether or not then in service as such (and his or her 6 executor, administrator and heirs), against all reasonable expenses actually and necessarily incurred by him or her in connection with the defense of any litigation to which the individual may have been made a party because he or she is or was a director, officer or employee of the Corporation. The individual shall have no right to reimbursement, however, in relation to matters as to which he or she has been adjudged liable to the Corporation for negligence or misconduct in the performance of his or her duties, or was derelict in the performance of his or her duty as director, officer or employee by reason of willful misconduct, bad faith, gross negligence or reckless disregard of the duties of his or her office or employment. The right to indemnity for expenses shall also apply to the expenses of suits which are compromised or settled if the court having jurisdiction of the matter shall approve such settlement. (b) The foregoing right of indemnification shall be in addition to, and not exclusive of, all other rights to that such director, officer or employee may be entitled. Section 5. Compensation. Directors, and members of any committee of the Board of Directors, shall be entitled to any reasonable compensation for their services as directors and members of any committee as shall be fixed from time to time by resolution of the Board of Directors, and shall also be entitled to reimbursement for any reasonable expense incurred in attending those meetings. The compensation of directors may be on any basis as determined in the resolution of the Board of Directors. Any director receiving compensation under these provisions shall not be barred from serving the Corporation in any other capacity and receiving reasonable compensation for such other services. Section 6. Committees. (a) The Board of Directors, by a resolution or resolutions adopted by a majority of the members of the whole Board, may appoint an Executive Committee, an Audit Committee, and any other committees as it may deem appropriate. Each committee shall consist of at least three members of the Board of Directors. Each committee shall have and may exercise any and all powers as are conferred or authorized by the resolution appointing it. A majority of each committee may determine its action and may fix the time and place of its meetings, unless provided otherwise by the Board of Directors. The Board of Directors shall have the power at any time to fill vacancies in, to change the size of 7 membership of, and to discharge any committee. (b) Each committee shall keep a written record of its acts and proceedings and shall submit that record to the Board of Directors at each regular meeting and at any other times as requested by the Board of Directors. Failure to submit the record, or failure of the Board to approve any action indicated therein will not, however, invalidate the action to the extent it has been carried out by the Corporation prior to the time the record of such action was, or should have been, submitted to the Board of Directors as provided. Section 7. Dividends. Subject always to the provisions of law and the Articles of Incorporation, the Board of Directors shall have full power to determine whether any, and, if so, what part, of the funds legally available for the payment of dividends shall be declared in dividends and paid to the stockholders of the Corporation. The Board of Directors may fix a sum which may be set aside or reserved over and above the paid-in capital of the Corporation for working capital or as a reserve for any proper purpose, and from time to time may increase, diminish, and vary this fund in the Board's absolute judgment and discretion. ARTICLE IV. OFFICERS. Section 1. Number. The officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer, a President, one or more Vice-Presidents, a Treasurer, a Controller, a Secretary, and one or more Assistant Secretaries. In addition, there may be such subordinate officers as the Board of Directors may deem necessary. Any person may hold two, but no more than two, offices. Section 2. Term of Office. The principal officers shall be chosen annually by the Board of Directors at the first meeting of the Board following the stockholders' annual meeting, or as soon as is conveniently possible. Subordinate officers may be elected from time to time. Each officer shall serve until his or her successor shall have been chosen and qualified, or until his, death, resignation, or removal. Section 3. Removal. 8 Any officer may be removed from office with or without cause, at any time by the affirmative vote of a majority of the Board of Directors then in office. Such removal shall not prejudice the contract rights, if any, of the person so removed. Section 4. Vacancies. Any vacancy in any office from any cause may be filled for the unexpired portion of the term by the Board of Directors. Section 5. Duties. (a) The Chairman of the Board shall preside at all meetings of the stockholders and the Board of Directors. Except where, by law, the signature of the President is required, the Chairman shall possess the same power as the President to sign all certificates, contracts, and other instruments of the Corporation which may be authorized by the Board of Directors. (b) The Chief Executive Officer shall have general active management of the business of the corporation, and in the absence of the Chairman of the Board, shall preside at all meetings of the shareholders and the Board of Directors; and shall see that all orders and resolutions of the Board of Directors are carried into effect. (c) The President, in the absence of the Chairman of the Board, and Chief Executive Officer shall preside at all meetings of the stockholders and the Board of Directors. She or he shall have general supervision of the affairs of the Corporation, shall sign or countersign all certificates, contracts, or other instruments of the Corporation as authorized by the Board of Directors, shall make reports to the Board of Directors and stockholders, and shall perform any and all other duties as are incident to her or his office or are properly required of him or her by the Board of Directors. (d) The Vice-Presidents, in the order designated by the Board of Directors, shall exercise the functions of the President during the absence or disability of the President. Each Vice-President shall have any other duties as are assigned from time to time by the Board of Directors. (e) The Secretary, the Treasurer, and the Controller shall perform those duties as are incident to their offices, or are properly required of them by the Board of Directors, or are assigned to them by the Articles of 9 Incorporation or these Bylaws. The Assistant Secretaries, in the order of their seniority, shall, in the absence of the Secretary, perform the duties and exercise the powers of the Secretary, and shall perform any other duties as may be assigned by the Board of Directors. (f) Other subordinate officers appointed by the Board of Directors shall exercise any powers and perform any duties as may be delegated to them by the resolutions appointing them, or by subsequent resolutions adopted from time to time. (g) In case of the absence or disability of any officer of the Corporation and of any person authorized to act in his or her place during such period of absence or disability, the Board of Directors may from time to time delegate the powers and duties of that officer to any other officer, or any director, or any other person whom it may select. Section 6. Salaries. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. No officer shall be ineligible to receive such salary by reason of the fact that he is also a Director of the Corporation and receiving compensation therefor. ARTICLE V. CERTIFICATES OF STOCK. Section 1. Form. (a) The interest of each stockholder of the Corporation shall be evidenced by certificates for shares of stock, certifying the number of shares represented thereby and in such form not inconsistent with the Articles of Incorporation as the Board of Directors may from time to time prescribe. (b) The certificates of stock shall be signed by the President or a Vice-President and by the Secretary or an Assistant Secretary or the Treasurer, and sealed with the seal of the corporation. This seal may be a facsimile, engraved or printed. Where any certificate is manually signed by a transfer agent or a transfer clerk and by a registrar, the signatures of the President, Vice-President, Secretary, Assistant Secretary, or Treasurer upon that certificate may be facsimiles, engraved or printed. In case any officer who has signed or whose facsimile signature has been placed upon any certificate shall have ceased to be 10 an officer before the certificate is issued, it may be issued by the corporation with the same effect as if that officer had not ceased to be so at the time of its issue. Section 2. Subscriptions for Shares. Unless the subscription agreement provides otherwise, subscriptions for shares, regardless of the time when they are made, shall be paid in full at that time, or in installments and at any periods, as shall be specified by the Board of Directors. All calls for payments on subscriptions shall carry the same terms with regard to all shares of the time class. Section 3. Transfers. (a) Transfers of shares of the capital stock of the Corporation shall be made only on the books of the Corporation by the registered owner, or by his or her duly authorized attorney, with a transfer clerk or transfer agent appointed as provided in Section 5 of this Article of the Bylaws, and on surrender of the certificate or certificates for those shares properly endorsed with all taxes paid. (b) The person in whose name shares of stock stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. However, if any transfer of shares is made only for the purpose of furnishing collateral security, and that fact is made known to the Secretary of the Corporation, or to the Corporation's transfer clerk or transfer agent, the entry of the transfer may record that fact. Section 4. Lost, Destroyed, or Stolen Certificates. No certificate for shares of stock in the Corporation shall be issued in place of any certificate alleged to have been lost, destroyed, or stolen except on production of evidence, satisfactory to the Board of Directors, of that loss, destruction or theft, and, if the Board of Directors so requires, upon the furnishing of an indemnity bond in such amount (but not to exceed twice the value of the shares represented by the certificate) and with such terms and surety as the Board of Directors, if any, in its discretion, require. Section 5. Transfer Agent and Registrar. The Board of Directors may appoint one or more transfer agents or transfer clerks and one or more registrars, and may require all certificates for shares to 11 bear the signature or signatures of any of them. ARTICLE VI. CORPORATE ACTIONS. Section 1. Deposits. The Board of Directors shall select banks, trust companies, or other depositories in which all funds of the Corporation not otherwise employed shall, from time to time, be deposited to the credit of the Corporation. Section 2. Voting Securities Held by the Corporation. Unless otherwise ordered by the Board of Directors, the President shall have full power and authority on behalf of the Corporation to attend, act, and vote at any meeting of security holders of other corporations in which the Corporation may hold securities. At that meeting the President shall possess and may exercise any and all rights and powers incident to the ownership of those securities which the corporation might have possessed and exercised if it had been present. The Board of Directors may, from time to time, confer like powers upon any other person or persons. ARTICLE VII. CORPORATE SEAL. The corporate seal of the Corporation shall consist of two concentric circles, between which shall be the name of the Corporation, and in the center of which shall be inscribed the year of its incorporation and the words "Corporate Seal, State of Nevada ARTICLE VIII. AMENDMENT OF BYLAWS. The Board of Directors shall have the power to amend, alter or repeal these Bylaws, and to adopt new Bylaws, from time to time, by an affirmative vote of a majority of the whole Board as then constituted, provided that notice of the proposal to make, alter, amend, or repeal the Bylaws was included in the notice of the directors' meeting at which such action takes place. At the next stockholders' meeting following any action by the Board of Directors, the stockholders, by a majority vote of those present and entitled to vote, shall have the power to alter or repeal Bylaws newly adopted by the Board of Directors, or to restore to their original status Bylaws which the Board may have altered or repealed, and the notice of such stockholders' meeting shall include notice that the stockholders will be called on to ratify the action taken by the Board of Directors with regard to the Bylaws. 12 I hereby certify that the foregoing is a full, true and correct copy of the Bylaws of E-NET FINANCIAL.COM CORPORATION, a corporation of the State of Nevada, as in effect on the date hereof. WITNESS my hand and the seal of the corporation this 26th day of July, 2000. /s/ Scott A. Presta ----------------------------- Scott A. Presta, Secretary of E-NET FINANCIAL.COM CORPORATION (SEAL) 13 EX-4.1 5 0005.txt EXHIBIT 4.1 EXHIBIT 4.1 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF CLASS A CONVERTIBLE PREFERRED STOCK OF E-NET FINANCIAL.COM CORPORATION. e-Net Financial.com Corporation (the "COMPANY"), a corporation organized and existing under the General Corporation Law of the State of Nevada, does hereby certify that, pursuant to authority conferred upon the Board of Directors of the Company by the Articles of Incorporation, as amended, of the Company, and pursuant to Section 78.195 of the General Corporation Law of the State of Nevada, the Board of Directors of the Company at a meeting duly held, adopted resolutions (i) authorizing a Class and Series of the Company's previously authorized preferred stock, no par value per share, and (ii) providing for the designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of One Hundred Thousand (100,000) shares of Class A Preferred Stock -Series 1 of the Company, as follows: RESOLVED, that the Company is authorized to issue 100,000 shares of Class A Preferred Stock- Series 1 (the "PREFERRED SHARES"), no par value per share, which shall have the following powers, designations, preferences and other special rights: (1) DIVIDENDS. (a) PARTICIPATING DIVIDENDS. A "HOLDER" and, collectively, (the "HOLDERS") of the Preferred Shares shall be entitled to participate in the earnings and dividends of the Company prorated on the basis of one preferred share having the participation rights of ten Common Shares. In the event any dividend or other distribution payable in cash or other property is declared on the Common Stock (defined below), each Holder on the record date for such dividend or distribution shall be entitled to receive per Preferred Share on the date of payment or distribution of such dividend or other distribution the amount of cash or property ("PARTICIPATING DIVIDENDS") equal to the cash or property which would be received by the Holders of the number of shares of Common Stock into which such Preferred Share would be converted pursuant to Section 2 hereof immediately prior to such record date; PROVIDED, HOWEVER, that in lieu of paying such dividends in cash or property, each Holder may, at its sole discretion, at the time of conversion of any or all Preferred Shares held by such Holder, receive such dividends by increasing the Transaction Value of each Preferred Share by the amount of Participating Dividends which have accrued on such Preferred Share but have not been paid by the Company. (b) GENERAL PAYMENT PROVISIONS. All payments made by the Company with respect to any Preferred Share shall be made in lawful money of the United States of America by wire transfer of immediately available funds to such account as the Holder may from time to time designate by written notice to the Company in accordance with the provisions of this Certificate of Designations. Whenever any amount expressed to be due by the terms of this Certificate of Designations is due on any day that is 1 not a Business Day (as defined below), the same shall instead be due on the next succeeding day which is a Business Day. (2) CONVERSION OF PREFERRED SHARES. Class A Preferred Stock -Series 1 Shares shall be convertible into cash or shares of the Company's common stock, par value $ 0.001 per share (the "COMMON STOCK"), at the election of the holder subject to the following conditions being met by the company, as set forth in this Section 2. (a) CERTAIN DEFINED TERMS. For purposes of this Certificate of Designations, the following terms shall have the following meanings: (i) "BUSINESS DAY" means any day in which the Principal Market is open for business. (ii) "CLOSING DATE" has the same meaning as the term is defined in any specific agreement for purchase of Class A Preferred Stock, entered into by and between the Company and the Holders of the Class A Preferred Shares. Such specific agreement or series of agreements made from time to time by the Company with purchasers shall be attached herto as Exhibits, and incorporate the terms and conditions hereof by reference. (iii) "CONVERSION CONDITIONS" TO BE MET as conditions precedent to the election of Holders are as follows: a. Converts to common shares at the rate of ten (10) shares of common stock for each share of preferred at the election of the holder, if (1) a period of one year has passed since issuance, or if (2) Company files a registration statement with the Securities and Exchange Commission registering its common shares for sale. b. "CONVERSION RATE" shall be the number of shares of Common Stock issuable upon conversion of each Preferred Stock pursuant to Section 2(a)(iii) above. This rate shall be ten common shares for each share of Class A Preferred Shares of Series 1 (the "Conversion Rate"); and at the rate of ten (10) shares of Common for each share of Preferred. Such shares so converted shall be included in ay registration statement filed by the Company with the Securities and Exchange Commission registering its common shares for sale within a one year period of said conversion. (iv) "ISSUANCE DATE" means, with respect to each Class A Preferred Share, the date of issuance of the applicable Class A Preferred Share. (v) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. (vi) "PRINCIPAL MARKET" means the Nasdaq National Market, the Nasdaq Small-Cap Market or the OTC Electronic Bulletin Board. (b) LIMITATION ON BENEFICIAL OWNERSHIP. The Company shall not effect any conversion of any Class A Preferred Share and no holder of any Preferred Share shall have the right to convert any Preferred Share pursuant to Section 2(b) to the extent that after giving effect to such conversion such Person (together with such Person's affiliates) (A) would beneficially own in excess of 4.9% of the outstanding shares of the Common Stock following such conversion and (B) would have acquired, through conversion of any Preferred Share or otherwise (including without limitation, exercise of any warrant issued 2 pursuant to the Securities Purchase Agreement), in excess of 4.9% of the outstanding shares of the Common Stock following such conversion during the 60-day period ending on and including such Conversion Date (defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by a Person and its affiliates or acquired by a Person and its affiliates, as the case may be, shall include the number of shares of Common Stock issuable upon conversion of the Preferred Shares with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted Preferred Shares beneficially owned by such Person and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by such Person and its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the contrary contained herein, each Conversion Notice (defined below) shall constitute a representation by the holder submitting such Conversion Notice that, after giving effect to such Conversion Notice, (A) the holder will not beneficially own (as determined in accordance with this Section 2(d)) and (B) during the 60-day period ending on and including such Conversion Date, the holder will not have acquired, through conversion of any Preferred Share or otherwise (including without limitation, exercise or any Warrant), a number of shares of Common Stock in excess of 4.9% of the outstanding shares of Common Stock as reflected in the Company's most recent Form 10-Q or Form 10-K, as the case may be, or more recent public press release or other public notice by the Company setting forth the number of shares of Common Stock outstanding, but after giving effect to conversions of any Preferred Share by such holder since the date as of which such number of outstanding shares of Common Stock was reported. (c) MECHANICS OF CONVERSION. The conversion of Preferred Shares shall be conducted in the following manner: (i) HOLDER'S DELIVERY REQUIREMENTS. To convert Preferred Shares into shares of Common Stock on any date (the "CONVERSION DATE"), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., Central Time on such date, a copy of a fully executed notice of conversion in the form attached hereto as EXHIBIT I (the "CONVERSION NOTICE") to the Company's designated transfer agent (the "TRANSFER AGENT") with a copy thereof to the Company and (B) surrender to a common carrier for delivery to the Transfer Agent as soon as practicable following such date the original certificates representing the Preferred Shares being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the "PREFERRED STOCK CERTIFICATES"). (ii) COMPANY'S RESPONSE. Upon receipt by the Company of a copy of a Conversion Notice, the Company shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to such Holder and the Transfer Agent, which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein. Upon receipt by the Transfer Agent of the Preferred Stock Certificates to be converted pursuant to a Conversion Notice, the Transfer Agent shall, on the next business day following the date of receipt (or the second business day following the date of receipt if received after 11:00 a.m. local time of the Transfer Agent), (A) issue and surrender to a common carrier for overnight delivery to the address as specified in the Conversion Notice, a certificate, registered in the name 3 of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled, or (B) provided the Transfer Agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system. If the number of Preferred Shares represented by the Preferred Stock Certificate(s) submitted for conversion is greater than the number of Preferred Shares being converted, then the Transfer Agent shall, as soon as practicable and in no event later than three (3) Business Days after receipt of the Preferred Stock Certificate(s) and at its own expense, issue and deliver to the Holder a new Preferred Stock Certificate representing the number of Preferred Shares not converted. (iii) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the arithmetic calculation of the Conversion Rate, the Company shall instruct the Transfer Agent to issue to the Holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the Holder via facsimile within one (1) Business Day of receipt of such Holder's Conversion Notice. If such Holder and the Company are unable to agree upon the determination of the arithmetic calculation of the Conversion Rate within one (1) Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall within one (1) Business Day submit via facsimile the disputed arithmetic calculation of the Conversion Rate to an independent, reputable investment bank or accountant selected by the affected Holders and approved by the Company. The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than forty-eight (48) hours from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent manifest error and the Company shall be liable and responsible for paying such investment bank or accountant fees and expenses. (iv) RECORD HOLDER. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of Preferred Shares shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. 4 (v) COMPANY'S FAILURE TO TIMELY CONVERT. (A) CASH DAMAGES. If within five (5) Business Days after the Transfer Agent's receipt of the Preferred Stock Certificates to be converted and a copy of the Conversion Notice (the "SHARE DELIVERY PERIOD") the Transfer Agent shall fail to issue a certificate to a Holder or credit such Holder's balance account with The Depository Trust Company for the number of shares of Common Stock to which such Holder is entitled upon such Holder's conversion of Preferred Shares or to issue a new Preferred Stock Certificate representing the number of Preferred Shares to which such Holder is entitled pursuant to Section 2(e)(ii) (a "CONVERSION FAILURE"), in addition to all other available remedies which such Holder may pursue hereunder and under the Membership Interest Purchase Agreement(including indemnification pursuant to the provisions thereof), the Company shall pay additional damages to such Holder on each date after such third (3rd) Business Day such conversion is not timely effected and/or such Preferred Stock Certificate is not delivered in an amount equal to 1.0% of the product of (I) the sum of the number of shares of Common Stock not issued to the Holder on a timely basis and to which such Holder is entitled and, in the event the Company has failed to deliver a Preferred Stock Certificate to the Holder on a timely basis, the number of shares of Common Stock issuable upon conversion of the Preferred Shares represented by such Preferred Stock Certificate, as of the last possible date which the Company could have issued such Preferred Stock Certificate to such Holder, and (II) the Closing Sale Price of the Common Stock on the last possible date which the Company could have issued such Common Stock or such Preferred Stock Certificate, as the case may be, to such Holder. (B) VOID CONVERSION NOTICE; ADJUSTMENT TO CONVERSION PRICE. If for any reason a Holder has not received all of the shares of Common Stock prior to the tenth (10th) Business Day after the expiration of the Share Delivery Period with respect to a conversion of Preferred Shares, then the Holder, upon written notice to the Transfer Agent, with a copy to the Company, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, any Preferred Shares that have not been converted pursuant to such Holder's Conversion Notice; provided that the voiding of a Holder's Conversion Notice shall not effect the Company's obligations to make any payments which have accrued prior to the date of such notice pursuant to Section 2(e)(v)(A) or otherwise. (vi) PRO RATA CONVERSION AND REDEMPTION. In the event the Company receives a Conversion Notice from more than one Holder of Preferred Shares for the same Conversion Date and the Company can convert some, but not all, of such Preferred Shares, the Company shall convert from each Holder of Preferred Shares electing to have Preferred Shares converted at such time a pro rata amount of such Holder's Preferred Shares submitted for conversion based on the number of Preferred Shares submitted for conversion on such date by such Holder relative to the number of Preferred Shares submitted for conversion on such date. (d) TAXES. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Common Stock upon the conversion of Preferred Shares. (e) Adjustment of Fixed Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Rate in effect immediately prior to such 5 subdivision will be proportionately reduced. If the Company at any time combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Fixed Conversion Price in effect immediately prior to such combination will be proportionately increased. (f) OTHER EVENTS. If any event occurs of the type contemplated by the provisions of this Section 2(e) 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 Conversion Rate so as to protect the rights of the Holders of the Preferred Shares; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 2(e). (g) NOTICES. (A) Immediately upon any adjustment of the Conversion Rate, the Company will give written notice thereof to each Holder of Preferred Shares, setting forth in reasonable detail, and certifying, the calculation of such adjustment. (B) The Company will give written notice to each Holder of Preferred Shares at least twenty (20) days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock or (III) for determining rights to vote with respect to any Organic Change (as defined above), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such Holder. (C) The Company will also give written notice to each Holder of Preferred Shares at least twenty (20) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such Holder. (3) REDEMPTION AT OPTION OF HOLDERS. (a) REDEMPTION OPTION UPON MAJOR TRANSACTION. In addition to all other rights of the Holders of Preferred Shares contained herein, upon the consummation of a Major Transaction (as defined below), each Holder of Preferred Shares shall have the right, at such Holder's option, to require the Company to redeem all or a portion of such Holder's Preferred Shares at a price per Preferred Share equal to the greater of (i) 120% of the Transaction Value of such Preferred Share and (ii) the product of (A) the Conversion Rate in effect at such time as such Holder delivers a Notice of Redemption at Option of Buyer Upon Major Transaction (as defined below) and (B) the Closing Sale Price of the Common Stock on the date immediately preceding such Major Transaction on which the Principal Market, or the market or exchange where the Common Stock is then traded, is open for trading ("MAJOR TRANSACTION REDEMPTION PRICE"). (b) REDEMPTION OPTION UPON TRIGGERING EVENT. In addition to all other rights of the Holders of Preferred Shares contained herein, after a Triggering Event (as defined below), each Holder of Preferred Shares shall have the right, at such Holder's option, to require the 6 Company to redeem all or a portion of such Holder's Preferred Shares at a price per Preferred Share equal to the greater of (i) 120% of the Transaction Value and (ii) the product of (A) the Conversion Rate in effect at such time as such Holder delivers a Notice of Redemption at Option of Buyer Upon a Triggering Event (as defined below) and (B) the Closing Sale Price of the Common Stock on the date immediately preceding such Triggering Event on which the Principal Market, or the market or exchange where the Common Stock is then traded, is open for trading ("TRIGGERING EVENT REDEMPTION PRICE" and, collectively with "MAJOR TRANSACTION REDEMPTION PRICE," the "REDEMPTION PRICE"). (c) "MAJOR TRANSACTION". A "MAJOR TRANSACTION" shall be deemed to have occurred at such time as any of the following events: (i) the consolidation, merger or other business combination of the Company with or into another Person (other than pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company) involving the issuance, exchange or sale of more than 30% of the shares of Common Stock then outstanding; (ii) the sale or transfer of all or substantially all of the Company's assets; or (iii) a purchase, tender or exchange offer made to the holders of more than 30% of the outstanding shares of Common Stock. (d) "TRIGGERING EVENT". A "TRIGGERING EVENT" shall be deemed to have occurred at such time as any of the following events: (i) while the Registration Statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, the effectiveness of the Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to the Holder of the Preferred Shares for sale of all of the Registrable Securities (as defined in the Registration Rights Agreement) in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a period of five (5) consecutive trading days, provided that the cause of such lapse or unavailability is not due to factors solely within the control of such Holder of Preferred Shares; (ii) the suspension from trading or failure of the Common Stock to be listed on the Nasdaq National Market, the Nasdaq Small-Cap Market, the OTC Electronic Bulletin Board, The New York Stock Exchange, Inc. or The American Stock Exchange, Inc. for a period of five (5) consecutive trading days or for more than an aggregate of ten (10) trading days in any 365-day period (provided that such failure shall not constitute a Triggering Event if caused by Holders of Preferred Shares pursuant to Section 4(c) below); (iii) the Company's or the Transfer Agent's notice to any Holder of Preferred Shares, including by way of public announcement, at any time, of its intention not to comply with a request for conversion of any Preferred Shares into shares of Common Stock that is tendered in accordance with the provisions of this Certificate of Designations, or the failure of the Transfer Agent to comply with a Conversion Notice tendered in accordance with the provisions of this Certificate of Designations within ten (10) Business Days after the receipt by the Transfer Agent of the Conversion Notice; 7 (iv) upon the Company's receipt of a Conversion Notice, the Company is not obligated to issue the Conversion Shares due to the provisions of Section 12 herein below; or (v) the Company breaches any material representation, warranty, covenant or other term or condition of the Securities Purchase Agreement, the Registration Rights Agreement, this Certificate of Designations or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby and hereby. (e) MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON MAJOR TRANSACTION. No sooner than 15 days nor later than 10 days prior to the consummation of a Major Transaction, the Company shall deliver written notice thereof via facsimile and overnight courier ("NOTICE OF MAJOR TRANSACTION") to each Holder of Preferred Shares, which notice shall include the date by which a Holder receiving a Notice of Major Transaction must provide the Company with notice of its intent to exercise its redemption rights hereunder (which date shall not be sooner than five business days after the date of the Notice of Major Transaction (the "MAJOR TRANSACTION RESPONSE DATE")). The Company shall publicly disclose the material facts of such Major Transaction prior to or concurrently with providing the Notice of Major Transaction, such public disclosure to be made not later than 10 days prior to the consummation of such Major Transaction. At any time after receipt of a Notice of Major Transaction and prior to the Major Transaction Response Date (or, in the event a Notice of Major Transaction is not delivered at least 10 days prior to a Major Transaction, at any time prior to the consummation of a Major Transaction) any Holder of Preferred Shares then outstanding may require the Company to redeem all of the Holder's Preferred Shares then outstanding by delivering written notice thereof via facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF BUYER UPON MAJOR TRANSACTION") to the Company, which Notice of Redemption at Option of Buyer Upon Major Transaction shall indicate (i) the number of Preferred Shares that such Holder is electing to redeem and (ii) the applicable Major Transaction Redemption Price, as calculated pursuant to Section 3(a). (f) MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON TRIGGERING EVENT. Within one (1) day after the occurrence of a Triggering Event, the Company shall deliver written notice thereof via facsimile and overnight courier ("NOTICE OF TRIGGERING EVENT") to each Holder of Preferred Shares. At any time after the earlier of a Holder's receipt of a Notice of Triggering Event and such Holder becoming aware of a Triggering Event, any Holder of Preferred Shares then outstanding may require the Company to redeem all of the Preferred Shares by delivering written notice thereof via facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF BUYER UPON TRIGGERING EVENT") to the Company, which Notice of Redemption at Option of Buyer Upon Triggering Event shall indicate (i) the number of Preferred Shares that such Holder is electing to redeem and (ii) the applicable Triggering Event Redemption Price, as calculated pursuant to Section 3(b) above. (g) PAYMENT OF REDEMPTION PRICE. Upon the Company's receipt of a Notice(s) of Redemption at Option of Buyer Upon Major Transaction or a Notice(s) of Redemption at Option of Buyer Upon Triggering Event, as the case may be, from any Holder of Preferred Shares, the Company shall immediately notify each Holder of Preferred Shares by facsimile of the Company's receipt of such notices and each Holder which has sent such a notice shall promptly submit to the Transfer Agent such Holder's Preferred Stock Certificates which such Holder has elected to have redeemed. The Company shall deliver the applicable Redemption Price to such Holder 8 within five (5) Business Days after the Company's receipt of a Notice of Redemption at Option of Buyer Upon Triggering Event or Notice of Redemption at Option of Buyer Upon Major Transaction; provided that a Holder's Preferred Stock Certificates shall have been so delivered to the Transfer Agent. If the Company is unable to redeem all of the Preferred Shares submitted for redemption, the Company shall (i) redeem a pro rata amount from each Holder of Preferred Shares based on the number of Preferred Shares submitted for redemption by such Holder relative to the total number of Preferred Shares submitted for redemption by all Holders of Preferred Shares and (ii) in addition to any remedy such Holder of Preferred Shares may have under this Certificate of Designations and the Securities Purchase Agreement, pay to each Holder interest at the rate of 2.5% per month (prorated for partial months) in respect of each unredeemed Preferred Share until paid in full. (h) VOID REDEMPTION. In the event that the Company does not pay the Redemption Price within the time period set forth in Section 3(g), at any time thereafter and until the Company pays such unpaid applicable Redemption Price in full, a Holder of Preferred Shares shall have the option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu of redemption, require the Company to promptly return to such Holder any or all of the Preferred Shares that were submitted for redemption by such Holder under this Section 3 and for which the applicable Redemption Price (together with any interest thereon) has not been paid, by sending written notice thereof to the Company via facsimile (the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the Company's receipt of such Void Optional Redemption Notice, (i) the Notice of Redemption at Option of Buyer Upon Triggering Event or the Notice of Redemption at Option of Buyer Upon Major Transaction, as the case may be, shall be null and void with respect to those Preferred Shares subject to the Void Optional Redemption Notice, (ii) the Company shall immediately return any Preferred Shares subject to the Void Optional Redemption Notice, (iii) the Fixed Conversion Price of such returned Preferred Shares shall be adjusted to the lesser of (A) the Fixed Conversion Price as in effect on the date on which the Void Optional Redemption Notice is delivered to the Company and (B) the lowest Closing Bid Price during the period beginning on the date on which the Notice of Redemption at Option of Buyer Upon Major Transaction or the Notice of Redemption at Option of Buyer Upon Triggering event, as the case may be, is delivered to the Company and ending on the date on which the Void Optional Redemption Notice is delivered to the Company, and (iv) the Conversion Price in effect at such time shall be reduced by the percentage equal to the product of (A) .25 and (B) the number of days in the period beginning on the date which is five business days after the date on which the Notice of Redemption at Option of Buyer Upon Major Transaction or the Notice of Redemption at Option of Buyer Upon Triggering Event, as the case may be, is delivered to the Company and ending on the date on which the Void Optional Redemption Notice is delivered to the Company. (i) DISPUTES; MISCELLANEOUS. In the event of a dispute as to the determination of the Closing Bid Price, the Closing Sale Price or the arithmetic calculation of the Redemption Price, such dispute shall be resolved pursuant to Section 2(e)(iii) above with the term "Closing Bid Price" and/or "Closing Sale Price", as the case may be, being substituted for the term "Conversion Rate" and the term "Redemption Price" being substituted for the term "Conversion Rate". A Holder's delivery of a Void Optional Redemption Notice and exercise of its rights following such notice shall not effect the Company's obligations to make any payments which have accrued prior to the date of such notice. Payments provided for in this Section 3 shall have priority to payments to other stockholders in connection with a Major Transaction. In the event of a redemption pursuant to this Section 3 of less than all of the Preferred Shares represented by a particular Preferred Stock Certificate, the 9 Company shall promptly cause to be issued and delivered to the Holder of such Preferred Shares a preferred stock certificate representing the remaining Preferred Shares which have not been redeemed. (4) OTHER RIGHTS OF HOLDERS. (a) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "ORGANIC CHANGE". Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "ACQUIRING ENTITY") a written agreement (in form and substance satisfactory to the Holders of a majority of the Preferred Shares then outstanding) to deliver to each Holder of Preferred Shares in exchange for such shares, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to the Preferred Shares, including, without limitation, having a Transaction Value and liquidation preference equal to the Transaction Value and the Liquidation Preference of the Preferred Shares held by such Holder, and satisfactory to the Holders of a majority of the Preferred Shares then outstanding. Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Holders of a majority of the Preferred Shares then outstanding) to insure that each of the Holders of the Preferred Shares will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the conversion of such Holder's Preferred Shares such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock which would have been acquirable and receivable upon the conversion of such Holder's Preferred Shares as of the date of such Organic Change (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares). (b) PURCHASE RIGHTS. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holders of Preferred Shares will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of the Preferred Shares (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record Holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (c) FORCED DELISTING. If a redemption voided pursuant to Section 3(h) was caused by a Triggering Event involving the Company's inability to issue Conversion Shares because of the Primary Exchange Cap (as defined in Section 12), and if so directed by the Holders of at least two-thirds (2/3) of the Preferred Shares then outstanding, including shares of Preferred Shares submitted for redemption pursuant to Section 3 10 with respect to which the applicable Redemption Price has not been paid, in a Void Mandatory Redemption Notice, the Company shall immediately delist the Common Stock from exchange or automated quotation system on which the Common Stock is traded and have the Common Stock, at such Holders' option, traded on the OTC Electronic Bulletin Board or the "pink sheets". (5) RESERVATION OF SHARES. (a) AUTHORIZED AND RESERVED AMOUNT. The Company shall, at all times so long as any of the Preferred Shares are outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, such number of shares (the "RESERVED AMOUNT") of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Preferred Shares then outstanding; provided that the number of shares of Common Stock so reserved shall at no time be less than two hundred percent (200%) of the number of shares of Common Stock for which the Preferred Shares are at any time convertible (including but not limited to any accrued but unpaid Regular Dividends, assuming any such accrued but unpaid Regular Dividends are paid on such date by delivery of shares of Common Stock if the Company elected to pay such Regular Dividends in Common Stock) (the "MINIMUM AMOUNT"). The initial number of shares of Common Stock reserved for conversions of the Preferred Shares and each increase in the number of shares so reserved shall be allocated pro rata among the Holders of the Preferred Shares based on the number of Preferred Shares held by each Holder at the time of issuance of the Preferred Shares or increase in the number of reserved shares, as the case may be. In the event a Holder shall sell or otherwise transfer any of such Holder's Preferred Shares, each transferee shall be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for such transferor. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Preferred Shares shall be allocated to the remaining Holders of Preferred Shares, pro rata based on the number of Preferred Shares then held by such Holders. (b) INCREASES TO RESERVED AMOUNT. Without limiting any other provision of this Section 6, if the Reserved Amount for any three (3) consecutive trading days (the last of such three (3) trading days being the "RESERVATION TRIGGER DATE") shall be less than two hundred percent (200%) of the number of shares of Common Stock issuable upon conversion of the Preferred Shares and Warrant Shares issuable upon exercise of the related Warrants on such trading days (a "SHARE AUTHORIZATION FAILURE"), the Company shall immediately notify all Holders of such occurrence and shall take action as soon as possible, but in any event within thirty (30) days after a Reservation Trigger Date (including, if necessary, seeking shareholder approval to authorize the issuance of additional shares of Common Stock) to increase the Reserved Amount to two hundred percent (200%) of the number of shares of Common Stock then issuable upon conversion of the Preferred Shares. (5) VOTING RIGHTS. Holders of Preferred Shares shall have no voting rights, except as required by law, including but not limited to the General Corporation Law of the State of Nevada, and as expressly provided in this Certificate of Designations. (6) LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the Holders of the Preferred Shares shall be entitled to receive in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its stockholders (the "LIQUIDATION FUNDS"), before any amount shall be paid to the holders of any of the 11 capital stock of the Company of any class junior in rank to the Preferred Shares in respect of the preferences as to the distributions and payments on the liquidation, dissolution and winding up of the Company, an amount per Preferred Share equal to $100 and any accrued but unpaid Regular Dividends and Participating Dividends (such sum being referred to as the "LIQUIDATION PREFERENCE"); provided that, if the Liquidation Funds are insufficient to pay the full amount due to the Holders of Preferred Shares and holders of shares of other classes or series of preferred stock of the Company that are of equal rank with the Preferred Shares as to payments of Liquidation Funds (the "PARI PASSU SHARES"), then each Holder of Preferred Shares and Pari Passu Shares shall receive a percentage of the Liquidation Funds equal to the full amount of Liquidation Funds payable to such Holder as a liquidation preference, in accordance with their respective Certificate of Designations, Preferences and Rights, as a percentage of the full amount of Liquidation Funds payable to all Holders of Preferred Shares and holders of Pari Passu Shares. In addition to the receipt of the Liquidation Preference, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the Holders of the Preferred Shares shall be entitled to receive Liquidation Funds distributed to holders of Common Stock, after the Liquidation Preference has been paid, to the same extent as if such Holders of Preferred Shares had converted the Preferred Shares into Common Stock (without regard to any limitations on conversions herein or elsewhere) and had held such shares of Common Stock on the record date for such distribution of the remaining Liquidation Funds. The purchase or redemption by the Company of stock of any class, in any manner permitted by law, shall not, for the purposes hereof, be regarded as a liquidation, dissolution or winding up of the Company. Neither the consolidation or merger of the Company with or into any other Person, nor the sale or transfer by the Company of less than substantially all of its assets, shall, for the purposes hereof, be deemed to be a liquidation, dissolution or winding up of the Company. No Holder of Preferred Shares shall be entitled to receive any amounts with respect thereto upon any liquidation, dissolution or winding up of the Company other than the amounts provided for herein; provided that a Holder of Preferred Shares shall be entitled to all amounts previously accrued with respect to amounts owed hereunder. (7) PREFERRED RANK. All shares of Common Stock shall be of junior rank to all Preferred Shares in respect to the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Company. The rights of the shares of Common Stock shall be subject to the preferences and relative rights of the Preferred Shares. (10) Notwithstanding anything else to the contrary contained herein, the Company shall have the right hereafter to authorize or issue additional or other capital stock that is of senior or equal rank to the Preferred Shares in respect of the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Company. In the event of the merger or consolidation of the Company with or into another corporation, the Preferred Shares shall maintain their relative powers, designations and preferences provided for herein and no merger shall result inconsistent therewith. (81) PARTICIPATION. Subject to the rights of the Holders, if any, of the Pari Passu Shares, the Holders of the Preferred Shares shall, as Holders of Preferred Stock, be entitled to such dividends paid and distributions made to the holders of Common Stock to the same extent as if such Holders of Preferred Shares had converted the Preferred Shares into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence 12 shall be made concurrently with the dividend or distribution to the holders of Common Stock. (9) LIMITATION ON NUMBER OF CONVERSION SHARES. The Company shall not be obligated to issue any shares of Common Stock upon conversion of the Preferred Shares if the issuance of such shares of Common Stock would exceed that number of shares of Common Stock which the Company may issue upon Conversion of the Preferred Shares (the "EXCHANGE CAP") without breaching the Company's obligations under the rules or regulations of the Principal Market, or the market or exchange where the Common Stock is then traded, except that such limitation shall not apply in the event that the Company (a) obtains the approval of its stockholders as required by the applicable rules of the Principal Market, or the market or exchange where the Common Stock is then traded, (or any successor rule or regulation) for issuances of Common Stock in excess of such amount or (b) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the Holders of a majority of the Preferred Shares then outstanding. Until such approval or written opinion is obtained, no purchaser of Preferred Shares pursuant to the Membership Interest Purchase Agreement(the "PURCHASERS") shall be issued, upon conversion of Preferred Shares, shares of Common Stock in an amount greater than the product of (i) the Exchange Cap amount multiplied by (ii) a fraction, the numerator of which is the number of Preferred Shares issued to such Purchaser pursuant to the Membership Interest Purchase Agreementand the denominator of which is the aggregate amount of all the Preferred Shares issued to the Purchasers pursuant to the Membership Interest Purchase Agreement(the "CAP ALLOCATION AMOUNT"). In the event that any Purchaser shall sell or otherwise transfer any of such Purchaser's Preferred Shares, the transferee shall be allocated a pro rata portion of such Purchaser's Cap Allocation Amount. In the event that any Holder of Preferred Shares shall convert all of such Holder's Preferred Shares into a number of shares of Common Stock which, in the aggregate, is less than such Holder's Cap Allocation Amount, then the difference between such Holder's Cap Allocation Amount and the number of shares of Common Stock actually issued to such Holder shall be allocated to the respective Cap Allocation Amounts of the remaining Holders of Preferred Shares on a pro rata basis in proportion to the number of Preferred Shares then held by each such Holder. (10) VOTE TO CHANGE THE TERMS OF PREFERRED SHARES. The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting, of the Holders of not less than two-thirds (2/3) of the then outstanding Class A Preferred Shares, shall be required for any change to this Certificate of Designations or the Company's [CERTIFICATE OF INCORPORATION] which would amend, alter, change or repeal any of the powers, designations, preferences and rights of the Class A Preferred Shares. (11) LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the Preferred Shares, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date; provided, however, the Company shall not be obligated to re-issue preferred stock certificates if the Holder contemporaneously requests the Company to convert such Preferred Shares into Common Stock. (12) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Certificate of Designations shall be cumulative and in addition to all other remedies 13 available under this Certificate of Designations, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a Holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designations. The Company covenants to each Holder of Preferred Shares that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holders of the Preferred Shares and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holders of the Preferred Shares shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. (13) SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific provision contained in this Certificate of Designations shall limit or modify any more general provision contained herein. This Certificate of Designations shall be deemed to be jointly drafted by the Company and all Buyers and shall not be construed against any person as the drafter hereof. (14) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of a Holder of Preferred Shares in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. [Signature Page Follows] 14 IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to be signed by Michael P. Roth, its President, as of the 11th day of February 2000. E-NET FINANCIAL.COM CORPORATION By: /s/ Michael P. Roth -------------------------------- Name: Michael P. Roth Title: President 15 EXHIBIT I CONVERSION NOTICE Reference is made to the Certificate of Designations, Preferences and Rights (the "CERTIFICATE OF DESIGNATIONS") of e-Net Financial.com Corporation (the "COMPANY"). In accordance with and pursuant to the Certificate of Designations, the undersigned hereby elects to convert the number of shares of Series B Preferred Stock, no par value per share (the "PREFERRED SHARES"), of the Company indicated below into shares of Common Stock, par value $ 0.001 per share (the "COMMON STOCK"), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below. Date of Conversion: ------------------------------------------------------- Number of Preferred Shares to be converted: ------------------------------ Stock certificate no(s). of Preferred Shares to be converted: ------------- Please confirm the following information: Conversion Price: ------------------------------------------------------ Number of shares of Common Stock to be issued: - ------- Is the alternative New Variable Formula being relied on pursuant to Section 2(g)(iv) of the Certificate of Designations? (check one) YES No ---- ---- Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address: Issue to: ----------------------------------------------- ----------------------------------------------- ----------------------------------------------- Facsimile Number: ----------------------------------------------- Authorization: - ------- By: ------------------------------------------ Title: --------------------------------------- Dated: - ------- Account Number: (if electronic book entry transfer): ------------------------------- Transaction Code Number (if electronic book entry transfer): ------------------------------- EX-4.2 6 0006.txt EXHIBIT 4.2 EXHIBIT 4.2 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF CLASS B CONVERTIBLE PREFERRED STOCK OF E-NET FINANCIAL.COM CORPORATION. e-Net Financial.com Corporation (the "COMPANY"), a corporation organized and existing under the General Corporation Law of the State of Nevada, does hereby certify that, pursuant to authority conferred upon the Board of Directors of the Company by the Articles of Incorporation, as amended, of the Company, and pursuant to Section 78.195 of the General Corporation Law of the State of Nevada, the Board of Directors of the Company at a meeting duly held, adopted resolutions (i) authorizing a Class and Series of the Company's previously authorized preferred stock, no par value per share, and (ii) providing for the designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of One Hundred Thousand (100,000) shares of Class B Preferred Stock -Series 1 of the Company, as follows: RESOLVED, that the Company is authorized to issue 100,000 shares of Class B Preferred Stock- Series 1 (the "PREFERRED SHARES"), no par value per share, which shall have the following powers, designations, preferences and other special rights: (1) DIVIDENDS. (a) PARTICIPATING DIVIDENDS. A "HOLDER" and, collectively, (the "HOLDERS") of the Preferred Shares shall be entitled to participate in the earnings and dividends of the Company prorated on the basis of one preferred share having the participation rights of ten Common Shares. In the event any dividend or other distribution payable in cash or other property is declared on the Common Stock (defined below), each Holder on the record date for such dividend or distribution shall be entitled to receive per Preferred Share on the date of payment or distribution of such dividend or other distribution the amount of cash or property ("PARTICIPATING DIVIDENDS") equal to the cash or property which would be received by the Holders of the number of shares of Common Stock into which such Preferred Share would be converted pursuant to Section 2 hereof immediately prior to such record date; PROVIDED, HOWEVER, that in lieu of paying such dividends in cash or property, each Holder may, at its sole discretion, at the time of conversion of any or all Preferred Shares held by such Holder, receive such dividends by increasing the Transaction Value of each Preferred Share by the amount of Participating Dividends which have accrued on such Preferred Share but have not been paid by the Company. (b) GENERAL PAYMENT PROVISIONS. All payments made by the Company with respect to any Preferred Share shall be made in lawful money of the United States of America by wire transfer of immediately available funds to such account as the Holder may from time to time designate by written notice to the Company in accordance with the provisions of this Certificate of Designations. Whenever any amount expressed to be due by the terms of this Certificate of Designations is due on any day that is 1 not a Business Day (as defined below), the same shall instead be due on the next succeeding day which is a Business Day. (2) CONVERSION OF PREFERRED SHARES. Class B Preferred -Series 1 Shares shall be convertible into cash or shares of the Company's common stock, par value $ 0.001 per share (the "COMMON STOCK"), at the election of the holder subject to the following conditions being met by the company, as set forth in this Section 2. (a) CERTAIN DEFINED TERMS. For purposes of this Certificate of Designations, the following terms shall have the following meanings: (i) "BUSINESS DAY" means any day in which the Principal Market is open for business. (ii) "CLOSING DATE" has the same meaning as the term is defined in the Membership Interest Purchase Agreement(the "MEMBERSHIP INTEREST PURCHASE AGREEMENT"), entered into by and between the Company and the Holders of the Class B Preferred Shares, dated February 11, 2000. (iii) "CONVERSION CONDITIONS" TO BE MET as conditions precedent to the election of Holders are as follows: a. If the terms and conditions of that certain contract to acquire EMB Assets, dated January 12,2000 are not specifically fulfilled in their entirety as scheduled therein, at the option of the Holder, the Holder may elect to call upon Company to repurchase immediately upon demand the 100,000 shares of Class B Preferred Shares for the sum of $1,000,000 in cash; or b. If the company cannot redeem the Class B Preferred Shares as required in the preceding paragraph, in the alternative the Holder has the right to call upon the Company to convert all of the Class B Preferred Shares to common shares of the Company as provided below prior to registration. This conversion to common shares shall at the option of the holder. c. CONVERSION RATE shall be the number of shares of Common Stock issuable upon conversion of each Preferred Share pursuant to Section 2(a)(iii)b.above. This rate shall be ten common shares for each share of Class B Preferred shares of Series 1(the "CONVERSION RATE"): , and at the rate of ten (10) shares of common for each share of preferred. Such shares so converted shall be included in any registration statement filed by the Company with the Securities and Exchange Commission registering its common shares for sale within a one year period of said conversion. (iv) "ISSUANCE DATE" means, with respect to each Class B Preferred Share, the date of issuance of the applicable Class B Preferred Share. (v) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. (vi) "PRINCIPAL MARKET" means the Nasdaq National Market, the Nasdaq Small-Cap Market or the OTC Electronic Bulletin Board. (b) LIMITATION ON BENEFICIAL OWNERSHIP. The Company shall not effect any conversion of any Class B Preferred Share and no holder of any Preferred Share shall have the right to convert any Preferred Share pursuant to Section 2(b) to the extent that after giving 2 effect to such conversion such Person (together with such Person's affiliates) (A) would beneficially own in excess of 4.9% of the outstanding shares of the Common Stock following such conversion and (B) would have acquired, through conversion of any Preferred Share or otherwise (including without limitation, exercise of any warrant issued pursuant to the Securities Purchase Agreement), in excess of 4.9% of the outstanding shares of the Common Stock following such conversion during the 60-day period ending on and including such Conversion Date (defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by a Person and its affiliates or acquired by a Person and its affiliates, as the case may be, shall include the number of shares of Common Stock issuable upon conversion of the Preferred Shares with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted Preferred Shares beneficially owned by such Person and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by such Person and its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the contrary contained herein, each Conversion Notice (defined below) shall constitute a representation by the holder submitting such Conversion Notice that, after giving effect to such Conversion Notice, (A) the holder will not beneficially own (as determined in accordance with this Section 2(d)) and (B) during the 60-day period ending on and including such Conversion Date, the holder will not have acquired, through conversion of any Preferred Share or otherwise (including without limitation, exercise or any Warrant), a number of shares of Common Stock in excess of 4.9% of the outstanding shares of Common Stock as reflected in the Company's most recent Form 10-Q or Form 10-K, as the case may be, or more recent public press release or other public notice by the Company setting forth the number of shares of Common Stock outstanding, but after giving effect to conversions of any Preferred Share by such holder since the date as of which such number of outstanding shares of Common Stock was reported. (c) MECHANICS OF CONVERSION. The conversion of Preferred Shares shall be conducted in the following manner: (i) HOLDER'S DELIVERY REQUIREMENTS. To convert Preferred Shares into shares of Common Stock on any date (the "CONVERSION DATE"), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., Central Time on such date, a copy of a fully executed notice of conversion in the form attached hereto as EXHIBIT I (the "CONVERSION NOTICE") to the Company's designated transfer agent (the "TRANSFER AGENT") with a copy thereof to the Company and (B) surrender to a common carrier for delivery to the Transfer Agent as soon as practicable following such date the original certificates representing the Preferred Shares being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the "PREFERRED STOCK CERTIFICATES"). (ii) COMPANY'S RESPONSE. Upon receipt by the Company of a copy of a Conversion Notice, the Company shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to such Holder and the Transfer Agent, which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein. Upon receipt by the Transfer Agent of the Preferred Stock Certificates to be converted pursuant to a Conversion 3 Notice, the Transfer Agent shall, on the next business day following the date of receipt (or the second business day following the date of receipt if received after 11:00 a.m. local time of the Transfer Agent), (A) issue and surrender to a common carrier for overnight delivery to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled, or (B) provided the Transfer Agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system. If the number of Preferred Shares represented by the Preferred Stock Certificate(s) submitted for conversion is greater than the number of Preferred Shares being converted, then the Transfer Agent shall, as soon as practicable and in no event later than three (3) Business Days after receipt of the Preferred Stock Certificate(s) and at its own expense, issue and deliver to the Holder a new Preferred Stock Certificate representing the number of Preferred Shares not converted. (iii) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the arithmetic calculation of the Conversion Rate, the Company shall instruct the Transfer Agent to issue to the Holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the Holder via facsimile within one (1) Business Day of receipt of such Holder's Conversion Notice. If such Holder and the Company are unable to agree upon the determination of the arithmetic calculation of the Conversion Rate within one (1) Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall within one (1) Business Day submit via facsimile the disputed arithmetic calculation of the Conversion Rate to an independent, reputable investment bank or accountant selected by the affected Holders and approved by the Company. The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than forty-eight (48) hours from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent manifest error and the Company shall be liable and responsible for paying such investment bank or accountant fees and expenses. (iv) RECORD HOLDER. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of Preferred Shares shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. 4 (v) COMPANY'S FAILURE TO TIMELY CONVERT. (A) CASH DAMAGES. If within five (5) Business Days after the Transfer Agent's receipt of the Preferred Stock Certificates to be converted and a copy of the Conversion Notice (the "SHARE DELIVERY PERIOD") the Transfer Agent shall fail to issue a certificate to a Holder or credit such Holder's balance account with The Depository Trust Company for the number of shares of Common Stock to which such Holder is entitled upon such Holder's conversion of Preferred Shares or to issue a new Preferred Stock Certificate representing the number of Preferred Shares to which such Holder is entitled pursuant to Section 2(e)(ii) (a "CONVERSION FAILURE"), in addition to all other available remedies which such Holder may pursue hereunder and under the Membership Interest Purchase Agreement(including indemnification pursuant to the provisions thereof), the Company shall pay additional damages to such Holder on each date after such third (3rd) Business Day such conversion is not timely effected and/or such Preferred Stock Certificate is not delivered in an amount equal to 1.0% of the product of (I) the sum of the number of shares of Common Stock not issued to the Holder on a timely basis and to which such Holder is entitled and, in the event the Company has failed to deliver a Preferred Stock Certificate to the Holder on a timely basis, the number of shares of Common Stock issuable upon conversion of the Preferred Shares represented by such Preferred Stock Certificate, as of the last possible date which the Company could have issued such Preferred Stock Certificate to such Holder, and (II) the Closing Sale Price of the Common Stock on the last possible date which the Company could have issued such Common Stock or such Preferred Stock Certificate, as the case may be, to such Holder. (B) VOID CONVERSION NOTICE; ADJUSTMENT TO CONVERSION PRICE. If for any reason a Holder has not received all of the shares of Common Stock prior to the tenth (10th) Business Day after the expiration of the Share Delivery Period with respect to a conversion of Preferred Shares, then the Holder, upon written notice to the Transfer Agent, with a copy to the Company, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, any Preferred Shares that have not been converted pursuant to such Holder's Conversion Notice; provided that the voiding of a Holder's Conversion Notice shall not effect the Company's obligations to make any payments which have accrued prior to the date of such notice pursuant to Section 2(e)(v)(A) or otherwise. (vi) PRO RATA CONVERSION AND REDEMPTION. In the event the Company receives a Conversion Notice from more than one Holder of Preferred Shares for the same Conversion Date and the Company can convert some, but not all, of such Preferred Shares, the Company shall convert from each Holder of Preferred Shares electing to have Preferred Shares converted at such time a pro rata amount of such Holder's Preferred Shares submitted for conversion based on the number of Preferred Shares submitted for conversion on such date by such Holder relative to the number of Preferred Shares submitted for conversion on such date. (d) TAXES. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Common Stock upon the conversion of Preferred Shares. (e) Adjustment of Fixed Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Rate in effect immediately prior to such 5 subdivision will be proportionately reduced. If the Company at any time combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Fixed Conversion Price in effect immediately prior to such combination will be proportionately increased. (f) OTHER EVENTS. If any event occurs of the type contemplated by the provisions of this Section 2(e) 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 Conversion Rate so as to protect the rights of the Holders of the Preferred Shares; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 2(e). (g) NOTICES. (A) Immediately upon any adjustment of the Conversion Rate, the Company will give written notice thereof to each Holder of Preferred Shares, setting forth in reasonable detail, and certifying, the calculation of such adjustment. (B) The Company will give written notice to each Holder of Preferred Shares at least twenty (20) days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock or (III) for determining rights to vote with respect to any Organic Change (as defined above), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such Holder. (C) The Company will also give written notice to each Holder of Preferred Shares at least twenty (20) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such Holder. (3) REDEMPTION AT OPTION OF HOLDERS. (a) REDEMPTION OPTION UPON MAJOR TRANSACTION. In addition to all other rights of the Holders of Preferred Shares contained herein, upon the consummation of a Major Transaction (as defined below), each Holder of Preferred Shares shall have the right, at such Holder's option, to require the Company to redeem all or a portion of such Holder's Preferred Shares at a price per Preferred Share equal to the greater of (i) 120% of the Transaction Value of such Preferred Share and (ii) the product of (A) the Conversion Rate in effect at such time as such Holder delivers a Notice of Redemption at Option of Buyer Upon Major Transaction (as defined below) and (B) the Closing Sale Price of the Common Stock on the date immediately preceding such Major Transaction on which the Principal Market, or the market or exchange where the Common Stock is then traded, is open for trading ("MAJOR TRANSACTION REDEMPTION PRICE"). (b) REDEMPTION OPTION UPON TRIGGERING EVENT. In addition to all other rights of the Holders of Preferred Shares contained herein, after a Triggering Event (as defined below), each Holder of Preferred Shares shall have the right, at such Holder's option, to require the 6 Company to redeem all or a portion of such Holder's Preferred Shares at a price per Preferred Share equal to the greater of (i) 120% of the Transaction Value and (ii) the product of (A) the Conversion Rate in effect at such time as such Holder delivers a Notice of Redemption at Option of Buyer Upon a Triggering Event (as defined below) and (B) the Closing Sale Price of the Common Stock on the date immediately preceding such Triggering Event on which the Principal Market, or the market or exchange where the Common Stock is then traded, is open for trading ("TRIGGERING EVENT REDEMPTION PRICE" and, collectively with "MAJOR TRANSACTION REDEMPTION PRICE," the "REDEMPTION PRICE"). (c) "MAJOR TRANSACTION". A "MAJOR TRANSACTION" shall be deemed to have occurred at such time as any of the following events: (i) the consolidation, merger or other business combination of the Company with or into another Person (other than pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company) involving the issuance, exchange or sale of more than 30% of the shares of Common Stock then outstanding; (ii) the sale or transfer of all or substantially all of the Company's assets; or (iii) a purchase, tender or exchange offer made to the holders of more than 30% of the outstanding shares of Common Stock. (d) "TRIGGERING EVENT". A "TRIGGERING EVENT" shall be deemed to have occurred at such time as any of the following events: (i) while the Registration Statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, the effectiveness of the Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to the Holder of the Preferred Shares for sale of all of the Registrable Securities (as defined in the Registration Rights Agreement) in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a period of five (5) consecutive trading days, provided that the cause of such lapse or unavailability is not due to factors solely within the control of such Holder of Preferred Shares; (ii) the suspension from trading or failure of the Common Stock to be listed on the Nasdaq National Market, the Nasdaq Small-Cap Market, the OTC Electronic Bulletin Board, The New York Stock Exchange, Inc. or The American Stock Exchange, Inc. for a period of five (5) consecutive trading days or for more than an aggregate of ten (10) trading days in any 365-day period (provided that such failure shall not constitute a Triggering Event if caused by Holders of Preferred Shares pursuant to Section 4(c) below); (iii) the Company's or the Transfer Agent's notice to any Holder of Preferred Shares, including by way of public announcement, at any time, of its intention not to comply with a request for conversion of any Preferred Shares into shares of Common Stock that is tendered in accordance with the provisions of this Certificate of Designations, or the failure of the Transfer Agent to comply with a Conversion Notice tendered in accordance with the provisions of this Certificate of Designations within ten (10) Business Days after the receipt by the Transfer Agent of the Conversion Notice; 7 (iv) upon the Company's receipt of a Conversion Notice, the Company is not obligated to issue the Conversion Shares due to the provisions of Section 12 herein below; or (v) the Company breaches any material representation, warranty, covenant or other term or condition of the Securities Purchase Agreement, the Registration Rights Agreement, this Certificate of Designations or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby and hereby. (e) MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON MAJOR TRANSACTION. No sooner than 15 days nor later than 10 days prior to the consummation of a Major Transaction, the Company shall deliver written notice thereof via facsimile and overnight courier ("NOTICE OF MAJOR TRANSACTION") to each Holder of Preferred Shares, which notice shall include the date by which a Holder receiving a Notice of Major Transaction must provide the Company with notice of its intent to exercise its redemption rights hereunder (which date shall not be sooner than five business days after the date of the Notice of Major Transaction (the "MAJOR TRANSACTION RESPONSE DATE")). The Company shall publicly disclose the material facts of such Major Transaction prior to or concurrently with providing the Notice of Major Transaction, such public disclosure to be made not later than 10 days prior to the consummation of such Major Transaction. At any time after receipt of a Notice of Major Transaction and prior to the Major Transaction Response Date (or, in the event a Notice of Major Transaction is not delivered at least 10 days prior to a Major Transaction, at any time prior to the consummation of a Major Transaction) any Holder of Preferred Shares then outstanding may require the Company to redeem all of the Holder's Preferred Shares then outstanding by delivering written notice thereof via facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF BUYER UPON MAJOR TRANSACTION") to the Company, which Notice of Redemption at Option of Buyer Upon Major Transaction shall indicate (i) the number of Preferred Shares that such Holder is electing to redeem and (ii) the applicable Major Transaction Redemption Price, as calculated pursuant to Section 3(a). (f) MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON TRIGGERING EVENT. Within one (1) day after the occurrence of a Triggering Event, the Company shall deliver written notice thereof via facsimile and overnight courier ("NOTICE OF TRIGGERING EVENT") to each Holder of Preferred Shares. At any time after the earlier of a Holder's receipt of a Notice of Triggering Event and such Holder becoming aware of a Triggering Event, any Holder of Preferred Shares then outstanding may require the Company to redeem all of the Preferred Shares by delivering written notice thereof via facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF BUYER UPON TRIGGERING EVENT") to the Company, which Notice of Redemption at Option of Buyer Upon Triggering Event shall indicate (i) the number of Preferred Shares that such Holder is electing to redeem and (ii) the applicable Triggering Event Redemption Price, as calculated pursuant to Section 3(b) above. (g) PAYMENT OF REDEMPTION PRICE. Upon the Company's receipt of a Notice(s) of Redemption at Option of Buyer Upon Major Transaction or a Notice(s) of Redemption at Option of Buyer Upon Triggering Event, as the case may be, from any Holder of Preferred Shares, the Company shall immediately notify each Holder of Preferred Shares by facsimile of the Company's receipt of such notices and each Holder which has sent such a notice shall promptly submit to the Transfer Agent such Holder's Preferred Stock Certificates which such Holder has elected to have redeemed. The Company shall deliver the applicable Redemption Price to such Holder 8 within five (5) Business Days after the Company's receipt of a Notice of Redemption at Option of Buyer Upon Triggering Event or Notice of Redemption at Option of Buyer Upon Major Transaction; provided that a Holder's Preferred Stock Certificates shall have been so delivered to the Transfer Agent. If the Company is unable to redeem all of the Preferred Shares submitted for redemption, the Company shall (i) redeem a pro rata amount from each Holder of Preferred Shares based on the number of Preferred Shares submitted for redemption by such Holder relative to the total number of Preferred Shares submitted for redemption by all Holders of Preferred Shares and (ii) in addition to any remedy such Holder of Preferred Shares may have under this Certificate of Designations and the Securities Purchase Agreement, pay to each Holder interest at the rate of 2.5% per month (prorated for partial months) in respect of each unredeemed Preferred Share until paid in full. (h) VOID REDEMPTION. In the event that the Company does not pay the Redemption Price within the time period set forth in Section 3(g), at any time thereafter and until the Company pays such unpaid applicable Redemption Price in full, a Holder of Preferred Shares shall have the option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu of redemption, require the Company to promptly return to such Holder any or all of the Preferred Shares that were submitted for redemption by such Holder under this Section 3 and for which the applicable Redemption Price (together with any interest thereon) has not been paid, by sending written notice thereof to the Company via facsimile (the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the Company's receipt of such Void Optional Redemption Notice, (i) the Notice of Redemption at Option of Buyer Upon Triggering Event or the Notice of Redemption at Option of Buyer Upon Major Transaction, as the case may be, shall be null and void with respect to those Preferred Shares subject to the Void Optional Redemption Notice, (ii) the Company shall immediately return any Preferred Shares subject to the Void Optional Redemption Notice, (iii) the Fixed Conversion Price of such returned Preferred Shares shall be adjusted to the lesser of (A) the Fixed Conversion Price as in effect on the date on which the Void Optional Redemption Notice is delivered to the Company and (B) the lowest Closing Bid Price during the period beginning on the date on which the Notice of Redemption at Option of Buyer Upon Major Transaction or the Notice of Redemption at Option of Buyer Upon Triggering event, as the case may be, is delivered to the Company and ending on the date on which the Void Optional Redemption Notice is delivered to the Company, and (iv) the Conversion Price in effect at such time shall be reduced by the percentage equal to the product of (A) .25 and (B) the number of days in the period beginning on the date which is five business days after the date on which the Notice of Redemption at Option of Buyer Upon Major Transaction or the Notice of Redemption at Option of Buyer Upon Triggering Event, as the case may be, is delivered to the Company and ending on the date on which the Void Optional Redemption Notice is delivered to the Company. (i) DISPUTES; MISCELLANEOUS. In the event of a dispute as to the determination of the Closing Bid Price, the Closing Sale Price or the arithmetic calculation of the Redemption Price, such dispute shall be resolved pursuant to Section 2(e)(iii) above with the term "Closing Bid Price" and/or "Closing Sale Price", as the case may be, being substituted for the term "Conversion Rate" and the term "Redemption Price" being substituted for the term "Conversion Rate". A Holder's delivery of a Void Optional Redemption Notice and exercise of its rights following such notice shall not effect the Company's obligations to make any payments which have accrued prior to the date of such notice. Payments provided for in this Section 3 shall have priority to payments to other stockholders in connection with a Major Transaction. In the event of a redemption pursuant to this Section 3 of less than all of the Preferred Shares represented by a particular Preferred Stock Certificate, the 9 Company shall promptly cause to be issued and delivered to the Holder of such Preferred Shares a preferred stock certificate representing the remaining Preferred Shares which have not been redeemed. (4) OTHER RIGHTS OF HOLDERS. (a) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "ORGANIC CHANGE". Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "ACQUIRING ENTITY") a written agreement (in form and substance satisfactory to the Holders of a majority of the Preferred Shares then outstanding) to deliver to each Holder of Preferred Shares in exchange for such shares, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to the Preferred Shares, including, without limitation, having a Transaction Value and liquidation preference equal to the Transaction Value and the Liquidation Preference of the Preferred Shares held by such Holder, and satisfactory to the Holders of a majority of the Preferred Shares then outstanding. Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Holders of a majority of the Preferred Shares then outstanding) to insure that each of the Holders of the Preferred Shares will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the conversion of such Holder's Preferred Shares such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock which would have been acquirable and receivable upon the conversion of such Holder's Preferred Shares as of the date of such Organic Change (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares). (b) PURCHASE RIGHTS. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holders of Preferred Shares will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of the Preferred Shares (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record Holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (c) FORCED DELISTING. If a redemption voided pursuant to Section 3(h) was caused by a Triggering Event involving the Company's inability to issue Conversion Shares because of the Primary Exchange Cap (as defined in Section 12), and if so directed by the Holders of at least two-thirds (2/3) of the Preferred Shares then outstanding, including shares of Preferred Shares submitted for redemption pursuant to Section 3 10 with respect to which the applicable Redemption Price has not been paid, in a Void Mandatory Redemption Notice, the Company shall immediately delist the Common Stock from exchange or automated quotation system on which the Common Stock is traded and have the Common Stock, at such Holders' option, traded on the OTC Electronic Bulletin Board or the "pink sheets". (5) RESERVATION OF SHARES. (a) AUTHORIZED AND RESERVED AMOUNT. The Company shall, at all times so long as any of the Preferred Shares are outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, such number of shares (the "RESERVED AMOUNT") of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Preferred Shares then outstanding; provided that the number of shares of Common Stock so reserved shall at no time be less than two hundred percent (200%) of the number of shares of Common Stock for which the Preferred Shares are at any time convertible (including but not limited to any accrued but unpaid Regular Dividends, assuming any such accrued but unpaid Regular Dividends are paid on such date by delivery of shares of Common Stock if the Company elected to pay such Regular Dividends in Common Stock) (the "MINIMUM AMOUNT"). The initial number of shares of Common Stock reserved for conversions of the Preferred Shares and each increase in the number of shares so reserved shall be allocated pro rata among the Holders of the Preferred Shares based on the number of Preferred Shares held by each Holder at the time of issuance of the Preferred Shares or increase in the number of reserved shares, as the case may be. In the event a Holder shall sell or otherwise transfer any of such Holder's Preferred Shares, each transferee shall be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for such transferor. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Preferred Shares shall be allocated to the remaining Holders of Preferred Shares, pro rata based on the number of Preferred Shares then held by such Holders. (b) INCREASES TO RESERVED AMOUNT. Without limiting any other provision of this Section 6, if the Reserved Amount for any three (3) consecutive trading days (the last of such three (3) trading days being the "RESERVATION TRIGGER DATE") shall be less than two hundred percent (200%) of the number of shares of Common Stock issuable upon conversion of the Preferred Shares and Warrant Shares issuable upon exercise of the related Warrants on such trading days (a "SHARE AUTHORIZATION FAILURE"), the Company shall immediately notify all Holders of such occurrence and shall take action as soon as possible, but in any event within thirty (30) days after a Reservation Trigger Date (including, if necessary, seeking shareholder approval to authorize the issuance of additional shares of Common Stock) to increase the Reserved Amount to two hundred percent (200%) of the number of shares of Common Stock then issuable upon conversion of the Preferred Shares. (5) VOTING RIGHTS. Holders of Preferred Shares shall have no voting rights, except as required by law, including but not limited to the General Corporation Law of the State of Nevada, and as expressly provided in this Certificate of Designations. (6) LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the Holders of the Preferred Shares shall be entitled to receive in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its stockholders (the "LIQUIDATION FUNDS"), before any amount shall be paid to the holders of any of the 11 capital stock of the Company of any class junior in rank to the Preferred Shares in respect of the preferences as to the distributions and payments on the liquidation, dissolution and winding up of the Company, an amount per Preferred Share equal to $100 and any accrued but unpaid Regular Dividends and Participating Dividends (such sum being referred to as the "LIQUIDATION PREFERENCE"); provided that, if the Liquidation Funds are insufficient to pay the full amount due to the Holders of Preferred Shares and holders of shares of other classes or series of preferred stock of the Company that are of equal rank with the Preferred Shares as to payments of Liquidation Funds (the "PARI PASSU SHARES"), then each Holder of Preferred Shares and Pari Passu Shares shall receive a percentage of the Liquidation Funds equal to the full amount of Liquidation Funds payable to such Holder as a liquidation preference, in accordance with their respective Certificate of Designations, Preferences and Rights, as a percentage of the full amount of Liquidation Funds payable to all Holders of Preferred Shares and holders of Pari Passu Shares. In addition to the receipt of the Liquidation Preference, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the Holders of the Preferred Shares shall be entitled to receive Liquidation Funds distributed to holders of Common Stock, after the Liquidation Preference has been paid, to the same extent as if such Holders of Preferred Shares had converted the Preferred Shares into Common Stock (without regard to any limitations on conversions herein or elsewhere) and had held such shares of Common Stock on the record date for such distribution of the remaining Liquidation Funds. The purchase or redemption by the Company of stock of any class, in any manner permitted by law, shall not, for the purposes hereof, be regarded as a liquidation, dissolution or winding up of the Company. Neither the consolidation or merger of the Company with or into any other Person, nor the sale or transfer by the Company of less than substantially all of its assets, shall, for the purposes hereof, be deemed to be a liquidation, dissolution or winding up of the Company. No Holder of Preferred Shares shall be entitled to receive any amounts with respect thereto upon any liquidation, dissolution or winding up of the Company other than the amounts provided for herein; provided that a Holder of Preferred Shares shall be entitled to all amounts previously accrued with respect to amounts owed hereunder. (7) PREFERRED RANK. All shares of Common Stock shall be of junior rank to all Preferred Shares in respect to the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Company. The rights of the shares of Common Stock shall be subject to the preferences and relative rights of the Preferred Shares. (10) Notwithstanding anything else to the contrary contained herein, the Company shall have the right hereafter to authorize or issue additional or other capital stock that is of senior or equal rank to the Preferred Shares in respect of the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Company. In the event of the merger or consolidation of the Company with or into another corporation, the Preferred Shares shall maintain their relative powers, designations and preferences provided for herein and no merger shall result inconsistent therewith. (81) PARTICIPATION. Subject to the rights of the Holders, if any, of the Pari Passu Shares, the Holders of the Preferred Shares shall, as Holders of Preferred Stock, be entitled to such dividends paid and distributions made to the holders of Common Stock to the same extent as if such Holders of Preferred Shares had converted the Preferred Shares into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence 12 shall be made concurrently with the dividend or distribution to the holders of Common Stock. (9) LIMITATION ON NUMBER OF CONVERSION SHARES. The Company shall not be obligated to issue any shares of Common Stock upon conversion of the Preferred Shares if the issuance of such shares of Common Stock would exceed that number of shares of Common Stock which the Company may issue upon Conversion of the Preferred Shares (the "EXCHANGE CAP") without breaching the Company's obligations under the rules or regulations of the Principal Market, or the market or exchange where the Common Stock is then traded, except that such limitation shall not apply in the event that the Company (a) obtains the approval of its stockholders as required by the applicable rules of the Principal Market, or the market or exchange where the Common Stock is then traded, (or any successor rule or regulation) for issuances of Common Stock in excess of such amount or (b) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the Holders of a majority of the Preferred Shares then outstanding. Until such approval or written opinion is obtained, no purchaser of Preferred Shares pursuant to the Membership Interest Purchase Agreement(the "PURCHASERS") shall be issued, upon conversion of Preferred Shares, shares of Common Stock in an amount greater than the product of (i) the Exchange Cap amount multiplied by (ii) a fraction, the numerator of which is the number of Preferred Shares issued to such Purchaser pursuant to the Membership Interest Purchase Agreementand the denominator of which is the aggregate amount of all the Preferred Shares issued to the Purchasers pursuant to the Membership Interest Purchase Agreement(the "CAP ALLOCATION AMOUNT"). In the event that any Purchaser shall sell or otherwise transfer any of such Purchaser's Preferred Shares, the transferee shall be allocated a pro rata portion of such Purchaser's Cap Allocation Amount. In the event that any Holder of Preferred Shares shall convert all of such Holder's Preferred Shares into a number of shares of Common Stock which, in the aggregate, is less than such Holder's Cap Allocation Amount, then the difference between such Holder's Cap Allocation Amount and the number of shares of Common Stock actually issued to such Holder shall be allocated to the respective Cap Allocation Amounts of the remaining Holders of Preferred Shares on a pro rata basis in proportion to the number of Preferred Shares then held by each such Holder. (10) VOTE TO CHANGE THE TERMS OF PREFERRED SHARES. The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting, of the Holders of not less than two-thirds (2/3) of the then outstanding Class B Preferred Shares, shall be required for any change to this Certificate of Designations or the Company's [CERTIFICATE OF INCORPORATION] which would amend, alter, change or repeal any of the powers, designations, preferences and rights of the Class B Preferred Shares. (11) LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the Preferred Shares, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date; provided, however, the Company shall not be obligated to re-issue preferred stock certificates if the Holder contemporaneously requests the Company to convert such Preferred Shares into Common Stock. (12) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Certificate of Designations shall be cumulative and in addition to all other remedies 13 available under this Certificate of Designations, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a Holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designations. The Company covenants to each Holder of Preferred Shares that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holders of the Preferred Shares and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holders of the Preferred Shares shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. (13) SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific provision contained in this Certificate of Designations shall limit or modify any more general provision contained herein. This Certificate of Designations shall be deemed to be jointly drafted by the Company and all Buyers and shall not be construed against any person as the drafter hereof. (14) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of a Holder of Preferred Shares in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. [Signature Page Follows] 14 IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to be signed by Michael P. Roth, its President, as of the 11th day of February 2000. E-NET FINANCIAL.COM CORPORATION By: ------------------------------------ Name: Michael P. Roth Title: President 15 EXHIBIT I CONVERSION NOTICE Reference is made to the Certificate of Designations, Preferences and Rights (the "CERTIFICATE OF DESIGNATIONS") of e-Net Financial.com Corporation (the "COMPANY"). In accordance with and pursuant to the Certificate of Designations, the undersigned hereby elects to convert the number of shares of Series B Preferred Stock, no par value per share (the "PREFERRED SHARES"), of the Company indicated below into shares of Common Stock, par value $ 0.001 per share (the "COMMON STOCK"), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below. Date of Conversion: ------------------------------------------------------- Number of Preferred Shares to be converted: ------------------------------- Stock certificate no(s). of Preferred Shares to be converted: ------------- Please confirm the following information: Conversion Price: --------------------------------------------------------- Number of shares of Common Stock to be issued: - ----- Is the alternative New Variable Formula being relied on pursuant to Section 2(g)(iv) of the Certificate of Designations? (check one) YES No ---- ---- Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address: Issue to: --------------------------------------- --------------------------------------- --------------------------------------- Facsimile Number: --------------------------------------- Authorization: - ----- By: ------------------------------------ Title: --------------------------------- Dated: - ----- Account Number: (if electronic book entry transfer): ------------------------------------ Transaction Code Number (if electronic book entry transfer): ------------------------------------ EX-4.3 7 0007.txt EXHIBIT 4.3 EXHIBIT 4.3 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES C CONVERTIBLE PREFERRED STOCK OF E-NET FINANCIAL.COM CORPORATION e-Net Financial.com Corporation (the "COMPANY"), a corporation organized and existing under the General Corporation Law of the State of Nevada, does hereby certify that, pursuant to authority conferred upon the Board of Directors of the Company by the Articles of Incorporation, as amended, of the Company, and pursuant to the General Corporation Law of the State of Nevada, the Board of Directors of the Company at a meeting duly held, adopted resolutions (i) authorizing a series of the Company's previously authorized preferred stock, no par value per share, and (ii) providing for the designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of twenty thousand (20,000) shares of Series C Preferred Stock of the Company, as follows: RESOLVED, that the Company is authorized to issue 20,000 shares of Series C Preferred Stock (the "PREFERRED Shares"), no par value per share, which shall have the following powers, designations, preferences and other special rights: (1) DIVIDENDS. (a) REGULAR DIVIDENDS. Each holder (a "HOLDER" and, collectively, the "HOLDERS") of the Preferred Shares shall be entitled to receive on each April 7 and October 7, or if such date is not a Business Day, the immediately subsequent Business Day, commencing October 7, 2000 (each, a "DIVIDEND PAYMENT DATE"), dividends ("REGULAR DIVIDENDS") at a rate of seven percent (7%) per annum, computed on the basis of $100.00 per Preferred Share. Such dividends shall be cumulative from (and including) such Preferred Share's Issuance Date (as defined below) and shall accrue daily, whether or not earned or declared, thereafter until paid and be calculated on the basis of a 360 day year. Dividends shall be payable in cash; PROVIDED, HOWEVER that in lieu of paying such dividends in cash, the Company may, at its option, at the time of conversion of any or all Preferred Shares held by any Holder, increase the Transaction Value (defined below) of each Preferred Share by the amount of Regular Dividends which have accrued on such Preferred Share but have not been paid by the Company. (b) PARTICIPATING DIVIDENDS. In the event any dividend or other distribution payable in cash or other property is declared on the Common Stock (defined below), each Holder on the record date for such dividend or distribution shall be entitled to 1 receive per Preferred Share on the date of payment or distribution of such dividend or other distribution the amount of cash or property ("PARTICIPATING DIVIDENDS") equal to the cash or property which would be received by the Holders of the number of shares of Common Stock into which such Preferred Share would be converted pursuant to Section 2 hereof immediately prior to such record date; PROVIDED, HOWEVER, that in lieu of paying such dividends in cash or property, each Holder may, at its sole discretion, at the time of conversion of any or all Preferred Shares held by such Holder, receive such dividends by increasing the Transaction Value of each Preferred Share by the amount of Participating Dividends which have accrued on such Preferred Share but have not been paid by the Company. (c) GENERAL PAYMENT PROVISIONS. All payments made by the Company with respect to any Preferred Share shall be made in lawful money of the United States of America by wire transfer of immediately available funds to such account as the Holder may from time to time designate by written notice to the Company in accordance with the provisions of this Certificate of Designations. Whenever any amount expressed to be due by the terms of this Certificate of Designations is due on any day which is not a Business Day (as defined below), the same shall instead be due on the next succeeding day which is a Business Day. (2) CONVERSION OF PREFERRED SHARES. Preferred Shares shall be convertible into shares of the Company's common stock, par value $ 0.001 per share (the "COMMON STOCK"), on the terms and conditions set forth in this Section 2. (a) CERTAIN DEFINED TERMS. For purposes of this Certificate of Designations, the following terms shall have the following meanings: (i) "BUSINESS DAY" means any day in which the Principal Market is open for business. (ii) "CLOSING BID PRICE" means, for any security as of any date, the last closing bid price for such security on the Principal Market (as defined below) as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if the Principal Market is not the principal securities exchange or 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 on the OTC 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 of 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, LLC. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holders of Preferred Shares. If the Company and the Holders of Preferred Shares are unable to agree upon the fair market value of the Common Stock, then 2 such dispute shall be resolved pursuant to Section 2(e)(iii) below with the term "Closing Bid Price" being substituted for the term "Conversion Rate." (All such determinations to be appropriately adjusted for any stock dividend, stock split or other similar transaction during such period). (iii) "CLOSING DATE" has the same meaning as the term isdefined in the Securities Purchase Agreement (the "SECURITIES PURCHASE AGREEMENT"), entered into by and between the Company and the initial Holders of the Preferred Shares, dated April 7, 2000. (iv) "CONVERSION PRICE" means, as of any Conversion Date (asdefined below) or other date of determination, the lower of (A) the Fixed Conversion Price and (B) the Floating Conversion Price, each in effect as of such date and subject to adjustment as provided herein. (v) "CONVERSION PERCENTAGE" shall be determined as follows: (A) if the period of time, with respect to such Preferred Share, commencing on the Issuance Date and ending on the Conversion Date is less than one hundred fifty (150) calendar days, then the Conversion Percentage shall be one hundred percent (100%); (B) if the period of time, with respect to such Preferred Share, commencing on the Issuance Date and ending on the Conversion Date is equal to or greater than one hundred fifty (150) calendar days, but less than or equal to one hundred eighty (180) calendar days, then the Conversion Percentage shall be ninety-one and one-quarter percent (91.25%); (C) if the period of time, with respect to such Preferred Share, commencing on the Issuance Date and ending on the Conversion Date is equal to or greater than one hundred eighty-one (181) calendar days, but less than or equal to two hundred ten (210) calendar days, then the Conversion Percentage shall be eighty-eight and thirty-four hundredths percent (88.34%); (D) if the period of time, with respect to such Preferred Share, commencing on the Issuance Date and ending on the Conversion Date is equal to or greater than two hundred eleven (211) calendar days, but less than or equal to two hundred forty (240) calendar days, then the Conversion Percentage shall be eighty-five and forty-two hundredths percent (85.42%); and (E) if the period of time, with respect to such Preferred Share, commencing on the Issuance Date and ending on the Conversion Date is equal to or greater than two hundred forty-one (241) calendar days, then the Conversion Percentage shall be eighty-two and one-half percent (82.50%); 3 PROVIDED, HOWEVER, that in each case the Conversion Percentage is subject to adjustment as provided herein. (vi) "FIXED CONVERSION PRICE" means $6.7275, subject to adjustment as provided herein. (vii) "FLOATING CONVERSION PRICE" means as of any date of determination, the amount determined by multiplying (i) the Market Price of the Company Common Stock by (ii) the Conversion Percentage in effect as of such date, subject to adjustment as provided herein. (viii) "MARKET PRICE" means, with respect to any security for any period, that price which shall be computed as the equally-weighted arithmetic average of the three (3) lowest Closing Bid Prices for such security during the ten (10) consecutive trading day period immediately preceding such date of determination. (All such determinations to be appropriately adjusted for any stock dividend, stock split or other similar transaction during such period). (ix) "CLOSING SALE PRICE" means, for any security as of any date, the last closing trade price for such security on the Principal Market (as defined below) as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing trade 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 trade price of such security in the OTC Electronic Bulletin Board for such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the last closing ask price of such security as reported by Bloomberg, or, if no last closing ask price is reported for such security by Bloomberg, the average of the ask prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, LLC. If the Closing Sale Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holders of Preferred Shares. If the Company and the Holders of Preferred Shares are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved pursuant to Section 2(e)(iii) below with the term "Closing Sale Price" being substituted for the term "Conversion Rate." (All such determinations to be appropriately adjusted for any stock dividend, stock split or other similar transaction during such period). (x) "ISSUANCE DATE" means, with respect to each Preferred Share, the date of issuance of the applicable Preferred Share. (xi) "MANDATORY CONVERSION DATE" means, with respect to any Preferred Share, the date which is three (3) years after the Issuance Date. 4 (xii) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. (xiii) "PRINCIPAL MARKET" means the Nasdaq National Market, the Nasdaq Small-Cap Market or the OTC Electronic Bulletin Board. (xiv) "REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights Agreement entered into by and between the Company and certain investors, dated as of April 7, 2000. (xv) "TRANSACTION VALUE" means the sum of (A) $100.00, (B) accrued and unpaid Regular Dividends, if so included at the Company's sole discretion and (C) accrued and unpaid Participating Dividends, if so included at the Holder's sole discretion, subject to adjustment as provided herein. (b) HOLDER'S CONVERSION RIGHT; MANDATORY CONVERSION. Subject to the provisions of Section 2(d) below, at any time or times on or after the Issuance Date, any Holder of Preferred Shares shall be entitled to convert any whole number of Preferred Shares into fully paid and nonassessable shares of Common Stock in accordance with Section 2(e), at the Conversion Rate (as defined below). If any Preferred Shares remain outstanding on the Mandatory Conversion Date, then, subject to Section 2(d) below, such Preferred Shares shall be converted at the Conversion Rate as of such date in accordance with Section 2(e) below. The Company shall not issue any fraction of a share of Common Stock upon any conversion. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one Preferred Share by a Holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of a fraction of a share of Common Stock. If, after the aforementioned aggregation, the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. (c) CONVERSION RATE. The number of shares of Common Stock issuable upon conversion of each Preferred Share pursuant to Section 2(b) shall be determined according to the following formula (the "CONVERSION RATE"): Transaction Value ------------------ Conversion Price (d) LIMITATION ON BENEFICIAL OWNERSHIP. The Company shall not effect any conversion of any Preferred Share and no holder of any Preferred Share shall have the right to convert any Preferred Share pursuant to Section 2(b) to the extent that after giving effect to such conversion such Person (together with such Person's affiliates) (A) would beneficially own in excess of 4.9% of the outstanding shares of the Common Stock following such conversion and (B) would have acquired, through conversion of any Preferred Share or otherwise (including without limitation, exercise of any warrant issued 5 pursuant to the Securities Purchase Agreement), in excess of 4.9% of the outstanding shares of the Common Stock following such conversion during the 60-day period ending on and including such Conversion Date (defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by a Person and its affiliates or acquired by a Person and its affiliates, as the case may be, shall include the number of shares of Common Stock issuable upon conversion of the Preferred Shares with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted Preferred Shares beneficially owned by such Person and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by such Person and its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the contrary contained herein, each Conversion Notice (defined below) shall constitute a representation by the holder submitting such Conversion Notice that, after giving effect to such Conversion Notice, (A) the holder will not beneficially own (as determined in accordance with this Section 2(d)) and (B) during the 60-day period ending on and including such Conversion Date, the holder will not have acquired, through conversion of any Preferred Share or otherwise (including without limitation, exercise or any Warrant), a number of shares of Common Stock in excess of 4.9% of the outstanding shares of Common Stock as reflected in the Company's most recent Form 10-Q or Form 10-K, as the case may be, or more recent public press release or other public notice by the Company setting forth the number of shares of Common Stock outstanding, but after giving effect to conversions of any Preferred Share by such holder since the date as of which such number of outstanding shares of Common Stock was reported. (e) MECHANICS OF CONVERSION. The conversion of Preferred Shares shall be conducted in the following manner: (i) HOLDER'S DELIVERY REQUIREMENTS. To convert Preferred Shares into shares of Common Stock on any date (the "CONVERSION DATE"), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., Central Time on such date, a copy of a fully executed notice of conversion in the form attached hereto as EXHIBIT I (the "CONVERSION NOTICE") to the Company's designated transfer agent (the "TRANSFER AGENT") with a copy thereof to the Company and (B) surrender to a common carrier for delivery to the Transfer Agent as soon as practicable following such date the original certificates representing the Preferred Shares being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the "PREFERRED STOCK CERTIFICATES"). (ii) COMPANY'S RESPONSE. Upon receipt by the Company of a copy of a Conversion Notice, the Company shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to such Holder and the Transfer Agent, 6 which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein. Upon receipt by the Transfer Agent of the Preferred Stock Certificates to be converted pursuant to a Conversion Notice, the Transfer Agent shall, on the next business day following the date of receipt (or the second business day following the date of receipt if received after 11:00 a.m. local time of the Transfer Agent), (A) issue and surrender to a common carrier for overnight delivery to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled, or (B) provided the Transfer Agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system. If the number of Preferred Shares represented by the Preferred Stock Certificate(s) submitted for conversion is greater than the number of Preferred Shares being converted, then the Transfer Agent shall, as soon as practicable and in no event later than three (3) Business Days after receipt of the Preferred Stock Certificate(s) and at its own expense, issue and deliver to the Holder a new Preferred Stock Certificate representing the number of Preferred Shares not converted. (iii) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the arithmetic calculation of the Conversion Rate, the Company shall instruct the Transfer Agent to issue to the Holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the Holder via facsimile within one (1) Business Day of receipt of such Holder's Conversion Notice. If such Holder and the Company are unable to agree upon the determination of the arithmetic calculation of the Conversion Rate within one (1) Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall within one (1) Business Day submit via facsimile the disputed arithmetic calculation of the Conversion Rate to an independent, reputable investment bank or accountant selected by the affected Holders and approved by the Company. The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than forty-eight (48) hours from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent manifest error and the Company shall be liable and responsible for paying such investment bank or accountant fees and expenses. (iv) RECORD HOLDER. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of Preferred Shares shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. 7 (v) COMPANY'S FAILURE TO TIMELY CONVERT. (A) CASH DAMAGES. If within five (5) Business Days after the Transfer Agent's receipt of the Preferred Stock Certificates to be converted and a copy of the Conversion Notice (the "SHARE DELIVERY PERIOD") the Transfer Agent shall fail to issue a certificate to a Holder or credit such Holder's balance account with The Depository Trust Company for the number of shares of Common Stock to which such Holder is entitled upon such Holder's conversion of Preferred Shares or to issue a new Preferred Stock Certificate representing the number of Preferred Shares to which such Holder is entitled pursuant to Section 2(e)(ii) (a "CONVERSION FAILURE"), in addition to all other available remedies which such Holder may pursue hereunder and under the Securities Purchase Agreement (including indemnification pursuant to the provisions thereof), the Company shall pay additional damages to such Holder on each date after such third (3rd) Business Day such conversion is not timely effected and/or such Preferred Stock Certificate is not delivered in an amount equal to 1.0% of the product of (I) the sum of the number of shares of Common Stock not issued to the Holder on a timely basis pursuant to Section 2(e)(ii) and to which such Holder is entitled and, in the event the Company has failed to deliver a Preferred Stock Certificate to the Holder on a timely basis pursuant to Section 2(e)(ii), the number of shares of Common Stock issuable upon conversion of the Preferred Shares represented by such Preferred Stock Certificate, as of the last possible date which the Company could have issued such Preferred Stock Certificate to such Holder without violating Section 2(e)(ii) and (II) the Closing Sale Price of the Common Stock on the last possible date which the Company could have issued such Common Stock or such Preferred Stock Certificate, as the case may be, to such Holder without violating Section 2(e)(ii). If the Company fails to pay the additional damages set forth in this Section 2(e)(v) within five (5) Business Days of the date incurred, then the Holder entitled to such payments shall have the right at any time, so long as the Company continues to fail to make such payments, to require the Company, upon written notice, to immediately issue, in lieu of such cash damages, the number of shares of Common Stock equal to the quotient of (X) the aggregate amount of the damages payments described herein divided by (Y) the Conversion Price in effect on such Conversion Date as specified by the Holder in the Conversion Notice and such shares of Common Stock shall be considered Registrable Securities pursuant to the Registration Rights Agreements and shall have the respective registration rights thereunder. (B) VOID CONVERSION NOTICE; ADJUSTMENT TO CONVERSION PRICE. If for any reason a Holder has not received all of the shares of Common Stock prior to the tenth (10th) Business Day after the expiration of the Share Delivery Period with respect to a conversion of Preferred Shares, then the Holder, upon written notice to the Transfer Agent, with a copy to the Company, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, any Preferred Shares that have not been converted pursuant to such Holder's Conversion Notice; provided that the voiding of a Holder's Conversion Notice shall not effect the Company's obligations to make any payments which have accrued 8 prior to the date of such notice pursuant to Section 2(e)(v)(A) or otherwise. Thereafter, the Fixed Conversion Price of any Preferred Shares returned or retained by the Holder for failure to timely convert shall be adjusted to the lesser of (I) the Fixed Conversion Price in effect as on the date on which the Holder voided the Conversion Notice and (II) the lowest Closing Bid Price during the period beginning on the Conversion Date and ending on the date such Holder voided the Conversion Notice. (vi) PRO RATA CONVERSION AND REDEMPTION. In the event the Company receives a Conversion Notice from more than one Holder of Preferred Shares for the same Conversion Date and the Company can convert some, but not all, of such Preferred Shares, the Company shall convert from each Holder of Preferred Shares electing to have Preferred Shares converted at such time a pro rata amount of such Holder's Preferred Shares submitted for conversion based on the number of Preferred Shares submitted for conversion on such date by such Holder relative to the number of Preferred Shares submitted for conversion on such date. (vii) MECHANICS OF MANDATORY CONVERSION. Subject to Section 2(d) above, on the Mandatory Conversion Date, all Holders of Preferred Shares shall surrender all Preferred Shares to the Transfer Agent and all Preferred Shares shall be converted as of such date as if the Holders of such Preferred Shares had given the Conversion Notice for all such Preferred Shares on the Mandatory Conversion Date; provided that the Mandatory Conversion Date shall be extended for any Preferred Shares, at the sole discretion of the Holders of a majority of the Preferred Shares then outstanding (determined by reference to principal balance) for as long as (A) a Triggering Event (defined below) shall have occurred and be continuing, (B) any event shall have occurred and be continuing which with the passage of time and the failure to cure would result in a Triggering Event or (C) in any such Holder's determination, Section 2(d) would apply to any such conversion. (f) TAXES. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Common Stock upon the conversion of Preferred Shares. (g) ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price will be subject to adjustment from time to time as provided in this Section 2(g). (i) ADJUSTMENT OF FIXED CONVERSION PRICE UPON ISSUANCE OF COMMON STOCK. If and whenever on or after the date of issuance of the Preferred Shares, the Company issues or sells, or in accordance with this Section 2(g) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued by the Company in connection with an Approved Stock Plan (as defined below) or upon conversion of the Preferred Shares) for a consideration per share less than the Fixed Conversion Price in effect immediately prior to such time (the "APPLICABLE PRICE"), then immediately after such issue or sale, the Fixed 9 Conversion Price then in effect shall be reduced to an amount equal to ninety percent (90%) of the consideration per Common Stock share, if any, received by the Company upon such issue or sale. For purposes of determining the adjusted Fixed Conversion Price under this Section 2(g)(i), the following shall be applicable: (A) ISSUANCE OF OPTIONS. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange of any Convertible Securities issuable upon exercise of such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 2(g)(i)(A), the "lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange of any Convertible Securities issuable upon exercise of such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion or exchange of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Fixed Conversion Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (B) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance of sale of such Convertible Securities for such price per share. For the purposes of this Section 2(g)(i)(B), the "price per share for which one share of Common Stock is issuable upon such conversion or exchange" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion or exchange of such Convertible Security. No further adjustment of the Fixed Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Fixed Conversion Price had been or are to be made pursuant to other provisions of this Section 2(g)(i), no further adjustment of the Fixed Conversion Price shall be made by reason of such issue or sale. (C) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the purchase price provided for in any Options, the additional consideration, if any, 10 payable upon the issue, conversion or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock changes at any time, the Fixed Conversion Price in effect at the time of such change shall be adjusted to the Fixed Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 2(g)(i)(C), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of the Preferred Shares are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Fixed Conversion Price then in effect. (D) CALCULATION OF CONSIDERATION RECEIVED. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01. If any Common Stock, Options or 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, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash 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 fair market value of such securities on the date of receipt. If any Common Stock, Options or 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, Options or 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 Holders of a majority of the Preferred Shares then outstanding. If such parties are unable to reach agreement within 10 days after the occurrence of an event requiring valuation (the "VALUATION EVENT"), the fair value of such consideration will be determined within five business days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holders of a majority of the Preferred Shares then outstanding. The determination of such appraiser shall be deemed binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company. (E) RECORD DATE. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a 11 dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (2) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue 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. (F) CERTAIN DEFINITIONS. For purposes of this Section 2(g)(i), the following terms have the respective meanings set forth below: (I) "APPROVED STOCK PLAN" shall mean any employee benefit plan which has been approved by the Board of Directors of the Company and meets the qualifications and requirements of Section 401(a) of the Internal Revenue Code of 1986, as amended, pursuant to which the Company's securities may be issued to any employee, officer, director, consultant or other service provider for services provided to the Company. (II) "OPTIONS" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. (III) "CONVERTIBLE SECURITIES" means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable for Common Stock. (ii) ADJUSTMENT OF FIXED CONVERSION PRICE UPON SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Fixed Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Fixed Conversion Price in effect immediately prior to such combination will be proportionately increased. (iii) ADJUSTMENT OF FIXED CONVERSION PRICE UPON MAJOR CORPORATE EVENT ANNOUNCEMENT. In the event (A) the Company makes a public announcement that it intends to consolidate or merge with or into another Person or engage in a business combination involving the issuance or exchange of more than 30% of the Company's outstanding Common Stock, (B) the Company makes a public announcement that it intends to sell or transfer all or substantially all of the Company's assets, or (C) any Person (including the Company) publicly announces a purchase, tender or exchange offer for more than 30% of the Company's outstanding Common Stock (the transactions described in clauses (A), (B) and (C) above are hereinafter referred to as "MAJOR CORPORATE EVENTS" and the date of the announcement referred to in clause (A), (B) or (C) is hereinafter referred to as the "ANNOUNCEMENT DATE"), then the Fixed Conversion Price shall, effective 12 upon the Announcement Date and continuing through and including the Adjusted Conversion Price Termination Date (as defined below), be equal to the Conversion Price which would have been applicable for a conversion by the Holder on the Announcement Date. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in Section 2(c). For purposes hereof, "ADJUSTED CONVERSION PRICE TERMINATION DATE" shall mean, with respect to any proposed Major Corporate Event for which a public announcement as contemplated by this Section 2(g)(iii) has been made, the date upon which the Company or other Person (in the case of clause (C) above) consummates or publicly announces the termination or abandonment of the proposed Major Corporate Event which was the subject of the previous public announcement. (iv) HOLDER'S RIGHT OF ALTERNATIVE CONVERSION PRICE FOLLOWING ISSUANCE OF CONVERTIBLE SECURITIES OR OPTIONS. If the Company in any manner issues or sells Convertible Securities or Options that are convertible into, exchangeable for or exercisable into Common Stock at a price which varies with the market price of the Common Stock (the formulation for such variable price being herein referred to as, the "VARIABLE PRICE"), the Company shall provide written notice thereof via facsimile and overnight courier to each Holder of the Preferred Shares ("VARIABLE NOTICE") on the date of issuance of such Convertible Securities or Options. From and after the date the Company issues any such Convertible Securities or Options with a Variable Price, a Holder of Preferred Shares shall have the right, but not the obligation, in its sole discretion to substitute the New Variable Formula (defined below) for the Conversion Price upon conversion of any Preferred Shares by designating in the Conversion Notice delivered upon conversion of such Preferred Shares that solely for purposes of such conversion the Holder is relying on the New Variable Formula rather than the Conversion Price then in effect. The New Variable Formula shall be equal to ninety percent (90%) of the Variable Price. A Holder's election to rely on a New Variable Formula for a particular conversion of Preferred Shares shall not obligate the Holder to rely on a New Variable Formula for any future conversions of Preferred Shares. (v) OTHER EVENTS. If any event occurs of the type contemplated by the provisions of this Section 2(e) 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 Conversion Price so as to protect the rights of the Holders of the Preferred Shares; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 2(e). (vi) NOTICES. (A) Immediately upon any adjustment of the Conversion Price, the Company will give written notice thereof to each Holder of Preferred Shares, setting forth in reasonable detail, and certifying, the calculation of such adjustment. 13 (B) The Company will give written notice to each Holder of Preferred Shares at least twenty (20) days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock or (III) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such Holder. (C) The Company will also give written notice to each Holder of Preferred Shares at least twenty (20) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such Holder. (3) REDEMPTION AT OPTION OF HOLDERS. (a) REDEMPTION OPTION UPON MAJOR TRANSACTION. In addition to all other rights of the Holders of Preferred Shares contained herein, upon the consummation of a Major Transaction (as defined below), each Holder of Preferred Shares shall have the right, at such Holder's option, to require the Company to redeem all or a portion of such Holder's Preferred Shares at a price per Preferred Share equal to the greater of (i) 120% of the Transaction Value of such Preferred Share and (ii) the product of (A) the Conversion Rate in effect at such time as such Holder delivers a Notice of Redemption at Option of Buyer Upon Major Transaction (as defined below) and (B) the Closing Sale Price of the Common Stock on the date immediately preceding such Major Transaction on which the Principal Market, or the market or exchange where the Common Stock is then traded, is open for trading ("MAJOR TRANSACTION REDEMPTION PRICE"). (b) REDEMPTION OPTION UPON TRIGGERING EVENT. In addition to all other rights of the Holders of Preferred Shares contained herein, after a Triggering Event (as defined below), each Holder of Preferred Shares shall have the right, at such Holder's option, to require the Company to redeem all or a portion of such Holder's Preferred Shares at a price per Preferred Share equal to the greater of (i) 120% of the Transaction Value and (ii) the product of (A) the Conversion Rate in effect at such time as such Holder delivers a Notice of Redemption at Option of Buyer Upon a Triggering Event (as defined below) and (B) the Closing Sale Price of the Common Stock on the date immediately preceding such Triggering Event on which the Principal Market, or the market or exchange where the Common Stock is then traded, is open for trading ("TRIGGERING EVENT REDEMPTION PRICE" and, collectively with "MAJOR TRANSACTION REDEMPTION PRICE," the "REDEMPTION PRICE"). (c) "MAJOR TRANSACTION". A "MAJOR TRANSACTION" shall be deemed to have occurred at such time as any of the following events: 14 (i) the consolidation, merger or other business combination of the Company with or into another Person (other than pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company) involving the issuance, exchange or sale of more than 30% of the shares of Common Stock then outstanding; (ii) the sale or transfer of all or substantially all of the Company's assets; or (iii) a purchase, tender or exchange offer made to the holders of more than 30% of the outstanding shares of Common Stock. (d) "TRIGGERING EVENT". A "TRIGGERING EVENT" shall be deemed to have occurred at such time as any of the following events: (i) while the Registration Statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, the effectiveness of the Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to the Holder of the Preferred Shares for sale of all of the Registrable Securities (as defined in the Registration Rights Agreement) in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a period of five (5) consecutive trading days, provided that the cause of such lapse or unavailability is not due to factors solely within the control of such Holder of Preferred Shares; (ii) the suspension from trading or failure of the Common Stock to be listed on the Nasdaq National Market, the Nasdaq Small-Cap Market, the OTC Electronic Bulletin Board, The New York Stock Exchange, Inc. or The American Stock Exchange, Inc. for a period of five (5) consecutive trading days or for more than an aggregate of ten (10) trading days in any 365-day period (provided that such failure shall not constitute a Triggering Event if caused by Holders of Preferred Shares pursuant to Section 4(c) below); (iii) the Company's or the Transfer Agent's notice to any Holder of Preferred Shares, including by way of public announcement, at any time, of its intention not to comply with a request for conversion of any Preferred Shares into shares of Common Stock that is tendered in accordance with the provisions of this Certificate of Designations, or the failure of the Transfer Agent to comply with a Conversion Notice tendered in accordance with the provisions of this Certificate of Designations within ten (10) Business Days after the receipt by the Transfer Agent of the Conversion Notice; (iv) upon the Company's receipt of a Conversion Notice, the Company is not obligated to issue the Conversion Shares due to the provisions of Section 12; or 15 (v) the Company breaches any material representation, warranty, covenant or other term or condition of the Securities Purchase Agreement, the Registration Rights Agreement, this Certificate of Designations or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby and hereby. (e) MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON MAJOR TRANSACTION. No sooner than 15 days nor later than 10 days prior to the consummation of a Major Transaction, the Company shall deliver written notice thereof via facsimile and overnight courier ("NOTICE OF MAJOR TRANSACTION") to each Holder of Preferred Shares, which notice shall include the date by which a Holder receiving a Notice of Major Transaction must provide the Company with notice of its intent to exercise its redemption rights hereunder (which date shall not be sooner than five business days after the date of the Notice of Major Transaction (the "MAJOR TRANSACTION RESPONSE DATE")). The Company shall publicly disclose the material facts of such Major Transaction prior to or concurrently with providing the Notice of Major Transaction, such public disclosure to be made not later than 10 days prior to the consummation of such Major Transaction. At any time after receipt of a Notice of Major Transaction and prior to the Major Transaction Response Date (or, in the event a Notice of Major Transaction is not delivered at least 10 days prior to a Major Transaction, at any time prior to the consummation of a Major Transaction) any Holder of Preferred Shares then outstanding may require the Company to redeem all of the Holder's Preferred Shares then outstanding by delivering written notice thereof via facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF BUYER UPON MAJOR TRANSACTION") to the Company, which Notice of Redemption at Option of Buyer Upon Major Transaction shall indicate (i) the number of Preferred Shares that such Holder is electing to redeem and (ii) the applicable Major Transaction Redemption Price, as calculated pursuant to Section 3(a). (f) MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON TRIGGERING EVENT. Within one (1) day after the occurrence of a Triggering Event, the Company shall deliver written notice thereof via facsimile and overnight courier ("NOTICE OF TRIGGERING EVENT") to each Holder of Preferred Shares. At any time after the earlier of a Holder's receipt of a Notice of Triggering Event and such Holder becoming aware of a Triggering Event, any Holder of Preferred Shares then outstanding may require the Company to redeem all of the Preferred Shares by delivering written notice thereof via facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF BUYER UPON TRIGGERING EVENT") to the Company, which Notice of Redemption at Option of Buyer Upon Triggering Event shall indicate (i) the number of Preferred Shares that such Holder is electing to redeem and (ii) the applicable Triggering Event Redemption Price, as calculated pursuant to Section 3(b) above. (g) PAYMENT OF REDEMPTION PRICE. Upon the Company's receipt of a Notice(s) of Redemption at Option of Buyer Upon Major Transaction or a Notice(s) of Redemption at Option of Buyer Upon Triggering Event, as the case may be, from any Holder of Preferred Shares, the Company shall immediately notify each Holder of Preferred Shares by facsimile of the Company's receipt of such notices and each Holder 16 which has sent such a notice shall promptly submit to the Transfer Agent such Holder's Preferred Stock Certificates which such Holder has elected to have redeemed. The Company shall deliver the applicable Redemption Price to such Holder within five (5) Business Days after the Company's receipt of a Notice of Redemption at Option of Buyer Upon Triggering Event or Notice of Redemption at Option of Buyer Upon Major Transaction; provided that a Holder's Preferred Stock Certificates shall have been so delivered to the Transfer Agent. If the Company is unable to redeem all of the Preferred Shares submitted for redemption, the Company shall (i) redeem a pro rata amount from each Holder of Preferred Shares based on the number of Preferred Shares submitted for redemption by such Holder relative to the total number of Preferred Shares submitted for redemption by all Holders of Preferred Shares and (ii) in addition to any remedy such Holder of Preferred Shares may have under this Certificate of Designations and the Securities Purchase Agreement, pay to each Holder interest at the rate of 2.5% per month (prorated for partial months) in respect of each unredeemed Preferred Share until paid in full. (h) VOID REDEMPTION. In the event that the Company does not pay the Redemption Price within the time period set forth in Section 3(g), at any time thereafter and until the Company pays such unpaid applicable Redemption Price in full, a Holder of Preferred Shares shall have the option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu of redemption, require the Company to promptly return to such Holder any or all of the Preferred Shares that were submitted for redemption by such Holder under this Section 3 and for which the applicable Redemption Price (together with any interest thereon) has not been paid, by sending written notice thereof to the Company via facsimile (the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the Company's receipt of such Void Optional Redemption Notice, (i) the Notice of Redemption at Option of Buyer Upon Triggering Event or the Notice of Redemption at Option of Buyer Upon Major Transaction, as the case may be, shall be null and void with respect to those Preferred Shares subject to the Void Optional Redemption Notice, (ii) the Company shall immediately return any Preferred Shares subject to the Void Optional Redemption Notice, (iii) the Fixed Conversion Price of such returned Preferred Shares shall be adjusted to the lesser of (A) the Fixed Conversion Price as in effect on the date on which the Void Optional Redemption Notice is delivered to the Company and (B) the lowest Closing Bid Price during the period beginning on the date on which the Notice of Redemption at Option of Buyer Upon Major Transaction or the Notice of Redemption at Option of Buyer Upon Triggering event, as the case may be, is delivered to the Company and ending on the date on which the Void Optional Redemption Notice is delivered to the Company, and (iv) the Conversion Price in effect at such time shall be reduced by the percentage equal to the product of (A) .25 and (B) the number of days in the period beginning on the date which is five business days after the date on which the Notice of Redemption at Option of Buyer Upon Major Transaction or the Notice of Redemption at Option of Buyer Upon Triggering Event, as the case may be, is delivered to the Company and ending on the date on which the Void Optional Redemption Notice is delivered to the Company. (i) DISPUTES; MISCELLANEOUS. In the event of a dispute as to the determination of the Closing Bid Price, the Closing Sale Price or the arithmetic calculation 17 of the Redemption Price, such dispute shall be resolved pursuant to Section 2(e)(iii) above with the term "Closing Bid Price" and/or "Closing Sale Price", as the case may be, being substituted for the term "Conversion Rate" and the term "Redemption Price" being substituted for the term "Conversion Rate". A Holder's delivery of a Void Optional Redemption Notice and exercise of its rights following such notice shall not effect the Company's obligations to make any payments which have accrued prior to the date of such notice. Payments provided for in this Section 3 shall have priority to payments to other stockholders in connection with a Major Transaction. In the event of a redemption pursuant to this Section 3 of less than all of the Preferred Shares represented by a particular Preferred Stock Certificate, the Company shall promptly cause to be issued and delivered to the Holder of such Preferred Shares a preferred stock certificate representing the remaining Preferred Shares which have not been redeemed. (4) OTHER RIGHTS OF HOLDERS. (a) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "ORGANIC CHANGE". Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "ACQUIRING ENTITY") a written agreement (in form and substance satisfactory to the Holders of a majority of the Preferred Shares then outstanding) to deliver to each Holder of Preferred Shares in exchange for such shares, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to the Preferred Shares, including, without limitation, having a stated value and liquidation preference equal to the Transaction Value and the Liquidation Preference of the Preferred Shares held by such Holder, and satisfactory to the Holders of a majority of the Preferred Shares then outstanding. Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Holders of a majority of the Preferred Shares then outstanding) to insure that each of the Holders of the Preferred Shares will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the conversion of such Holder's Preferred Shares such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock which would have been acquirable and receivable upon the conversion of such Holder's Preferred Shares as of the date of such Organic Change (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares). (b) PURCHASE RIGHTS. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or 18 other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holders of Preferred Shares will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of the Preferred Shares (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record Holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (c) FORCED DELISTING. If a redemption voided pursuant to Section 3(h) was caused by a Triggering Event involving the Company's inability to issue Conversion Shares because of the Primary Exchange Cap (as defined in Section 12), and if so directed by the Holders of at least two-thirds (2/3) of the Preferred Shares then outstanding, including shares of Preferred Shares submitted for redemption pursuant to Section 3 with respect to which the applicable Redemption Price has not been paid, in a Void Mandatory Redemption Notice, the Company shall immediately delist the Common Stock from exchange or automated quotation system on which the Common Stock is traded and have the Common Stock, at such Holders' option, traded on the OTC Electronic Bulletin Board or the "pink sheets". (5) COMPANY REDEMPTION. (a) COMPANY'S RIGHT TO REDEEM AT ITS ELECTION. Subject to Sections 5(d) and 5(e) below, on the date which is 180 calendar days after the Issuance Date, the Company shall have the right, in its sole discretion, to redeem ("REDEMPTION AT THE COMPANY'S ELECTION"), from time to time, any or all of the Preferred Shares at the Redemption Price at the Company's Election (as defined below). If the Company elects to redeem some, but not all, of the Preferred Shares, the Company shall redeem a pro rata amount from each holder of Preferred Shares based on the number of Preferred Shares held by such holder relative to the number of Preferred Shares outstanding. (i) REDEMPTION PRICE AT THE COMPANY'S ELECTION. The "REDEMPTION PRICE AT THE COMPANY'S ELECTION" shall be an amount per Preferred Share equal to the sum of (A) the then Transaction Value and (B) any accrued but unpaid Regular Dividends and Participating Dividends. (b) MECHANICS OF REDEMPTION AT THE COMPANY'S ELECTION. The Company shall effect each such redemption no earlier than twenty (20) trading days and no later than forty (40) trading days after delivering written notice of its Redemption at the Company's Election via facsimile and overnight courier ("NOTICE OF COMPANY REDEMPTION") to (A) each holder of the Preferred Shares and (B) the Transfer Agent. Such Notice of Company Redemption shall indicate (I) the number of Preferred Shares that have been selected for redemption, (II) the date that such redemption is to become effective (the "DATE OF COMPANY REDEMPTION") and (III) the applicable Redemption Price at the Company's Election. Notwithstanding anything to the contrary above, any Holder may convert into 19 Company Common Stock pursuant to Section 2, on or prior to the date immediately preceding the Date of Company Redemption, any Preferred Shares held by such Holder including Preferred Shares that have been selected for Redemption at the Company's Election pursuant to this Section 6. (c) PAYMENT OF REDEMPTION PRICE. Each Holder submitting Preferred Shares being redeemed under this Section 6 shall send such Holder's Preferred Stock Certificates so redeemed to the Transfer Agent within five (5) Business Days before the Date of Company Redemption, and the Company shall pay the applicable redemption price to that Holder in cash within three (3) Business Days after such Holder's Preferred Stock Certificates are delivered to the Company or its Transfer Agent. If the Company shall fail to pay the applicable redemption price to such holder on a timely basis as described in this Section 5, in addition to any remedy such holder of Preferred Shares may have under this Certificate of Designations and the Securities Purchase Agreement, such unpaid amount shall bear interest at the rate of 2.5% per month until paid in full and the Conversion Percentage, or any subsequent Conversion Percentage, then in effect shall be reduced by ten (10) percentage points. Notwithstanding the foregoing, if the Company fails to pay the applicable redemption price to a holder within the time period described this Section 5 due to a dispute as to the arithmetic calculation of the redemption price, such dispute shall be resolved pursuant to Section 2(e)(iii) above with the term "applicable redemption price" being substituted for the term "Conversion Rate." (d) COMPANY MUST HAVE IMMEDIATELY AVAILABLE FUNDS OR CREDIT FACILITIES. The Company shall not be entitled to send any Notice of Company Redemption pursuant to Section 5(b) above and begin the redemption procedure under this Section 5, unless it has: (i) the full amount of the applicable redemption price in cash, available in a demand or other immediately available account in a bank or similar financial institution; (ii) credit facilities, with a bank or similar financial institutions that are immediately available and unrestricted for us in redeeming the Preferred Shares, in the full amount of the applicable redemption price; (iii) a written agreement with a standby underwriter or qualified buyer ready, willing and able to purchase from the Company a sufficient number of shares of stock to provide proceeds necessary to redeem any stock that is not converted prior to an applicable Redemption at the Company's Election; or (iv) a combination of the items set forth in the preceding clauses (i), (ii) and (iii), aggregating the full amount of the applicable redemption price. (e) CERTAIN CONDITIONS DURING NOTICE PERIOD. The Company shall not be entitled to redeem the Preferred Shares on a Date of Company Redemption, unless each of the following conditions are satisfied as of the date of the Notice of Company 20 Redemption and on each day from such date until and including the later of the Date of Company Redemption and the date on which the Company pays the applicable Redemption Price: (i) The Registration Statement shall be effective and available for the sale of no less than 200% of the sum of (I) the number of Conversion Shares (as defined in the Securities Purchase Agreement) then issuable upon the conversion of all outstanding Preferred Shares and (II) the number of Warrant Shares (as defined in the Securities Purchase Agreement) then issuable upon exercise of all outstanding Warrants and (III) the number of Conversion Shares and Warrant Shares that are then held by the holders of such shares; (ii) The Common Stock is designated for quotation on the Nasdaq National Market, Nasdaq Small-Cap Market, OTC Electronic Bulletin Board, The New York Stock Exchange, Inc. or The American Stock Exchange, Inc. and is not suspended from trading; and (iii) The Company otherwise has satisfied its obligations and is not in default under this Certificate of Designations, the Securities Purchase Agreement, the Warrants and the Registration Rights Agreement. (6) RESERVATION OF SHARES. (a) AUTHORIZED AND RESERVED AMOUNT. The Company shall, at all times so long as any of the Preferred Shares are outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, such number of shares (the "RESERVED AMOUNT") of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Preferred Shares then outstanding; provided that the number of shares of Common Stock so reserved shall at no time be less than two hundred percent (200%) of the number of shares of Common Stock for which the Preferred Shares are at any time convertible (including but not limited to any accrued but unpaid Regular Dividends, assuming any such accrued but unpaid Regular Dividends are paid on such date by delivery of shares of Common Stock if the Company elected to pay such Regular Dividends in Common Stock) (the "MINIMUM AMOUNT"). The initial number of shares of Common Stock reserved for conversions of the Preferred Shares and each increase in the number of shares so reserved shall be allocated pro rata among the Holders of the Preferred Shares based on the number of Preferred Shares held by each Holder at the time of issuance of the Preferred Shares or increase in the number of reserved shares, as the case may be. In the event a Holder shall sell or otherwise transfer any of such Holder's Preferred Shares, each transferee shall be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for such transferor. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Preferred Shares shall be allocated to the remaining Holders of Preferred Shares, pro rata based on the number of Preferred Shares then held by such Holders. 21 (b) INCREASES TO RESERVED AMOUNT. Without limiting any other provision of this Section 6, if the Reserved Amount for any three (3) consecutive trading days (the last of such three (3) trading days being the "RESERVATION TRIGGER DATE") shall be less than two hundred percent (200%) of the number of shares of Common Stock issuable upon conversion of the Preferred Shares and Warrant Shares issuable upon exercise of the related Warrants on such trading days (a "SHARE AUTHORIZATION FAILURE"), the Company shall immediately notify all Holders of such occurrence and shall take action as soon as possible, but in any event within thirty (30) days after a Reservation Trigger Date (including, if necessary, seeking shareholder approval to authorize the issuance of additional shares of Common Stock) to increase the Reserved Amount to two hundred percent (200%) of the number of shares of Common Stock then issuable upon conversion of the Preferred Shares. (7) VOTING RIGHTS. Holders of Preferred Shares shall have no voting rights, except as required by law, including but not limited to the General Corporation Law of the State of Nevada, and as expressly provided in this Certificate of Designations. (8) LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the Holders of the Preferred Shares shall be entitled to receive in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its stockholders (the "LIQUIDATION FUNDS"), before any amount shall be paid to the holders of any of the capital stock of the Company of any class junior in rank to the Preferred Shares in respect of the preferences as to the distributions and payments on the liquidation, dissolution and winding up of the Company, an amount per Preferred Share equal to $100 and any accrued but unpaid Regular Dividends and Participating Dividends (such sum being referred to as the "LIQUIDATION PREFERENCE"); provided that, if the Liquidation Funds are insufficient to pay the full amount due to the Holders of Preferred Shares and holders of shares of other classes or series of preferred stock of the Company that are of equal rank with the Preferred Shares as to payments of Liquidation Funds (the "PARI PASSU SHARES"), then each Holder of Preferred Shares and Pari Passu Shares shall receive a percentage of the Liquidation Funds equal to the full amount of Liquidation Funds payable to such Holder as a liquidation preference, in accordance with their respective Certificate of Designations, Preferences and Rights, as a percentage of the full amount of Liquidation Funds payable to all Holders of Preferred Shares and holders of Pari Passu Shares. In addition to the receipt of the Liquidation Preference, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the Holders of the Preferred Shares shall be entitled to receive Liquidation Funds distributed to holders of Common Stock, after the Liquidation Preference has been paid, to the same extent as if such Holders of Preferred Shares had converted the Preferred Shares into Common Stock (without regard to any limitations on conversions herein or elsewhere) and had held such shares of Common Stock on the record date for such distribution of the remaining Liquidation Funds. The purchase or redemption by the Company of stock of any class, in any manner permitted by law, shall not, for the purposes hereof, be regarded as a liquidation, dissolution or winding up of the Company. Neither the consolidation or merger of the Company with or into any other Person, nor the sale or transfer by the Company of less than substantially all of its 22 assets, shall, for the purposes hereof, be deemed to be a liquidation, dissolution or winding up of the Company. No Holder of Preferred Shares shall be entitled to receive any amounts with respect thereto upon any liquidation, dissolution or winding up of the Company other than the amounts provided for herein; provided that a Holder of Preferred Shares shall be entitled to all amounts previously accrued with respect to amounts owed hereunder. (9) PREFERRED RANK. All shares of Common Stock shall be of junior rank to all Preferred Shares in respect to the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Company. The rights of the shares of Common Stock shall be subject to the preferences and relative rights of the Preferred Shares. Without the prior express written consent of the Holders of not less than two-thirds (2/3) of the then outstanding Preferred Shares, the Company shall not hereafter authorize or issue additional or other capital stock that is of senior or equal rank to the Preferred Shares in respect of the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Company. Without the prior express written consent of the Holders of not less than two-thirds (2/3) of the then outstanding Preferred Shares, the Company shall not hereafter authorize or make any amendment to the Company's Articles of Incorporation or bylaws, or file any resolution of the board of directors of the Company with the Nevada Secretary of State or enter into any agreement containing any provisions, which would adversely affect or otherwise impair the rights or relative priority of the Holders of the Preferred Shares relative to the holders of the Common Stock or the holders of any other class of capital stock. In the event of the merger or consolidation of the Company with or into another corporation, the Preferred Shares shall maintain their relative powers, designations and preferences provided for herein and no merger shall result inconsistent therewith. (10) PARTICIPATION. Subject to the rights of the Holders, if any, of the Pari Passu Shares, the Holders of the Preferred Shares shall, as Holders of Preferred Stock, be entitled to such dividends paid and distributions made to the holders of Common Stock to the same extent as if such Holders of Preferred Shares had converted the Preferred Shares into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock. (11) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS. Until all of the Preferred Shares have been converted or redeemed as provided herein, the Company shall not, directly or indirectly, redeem, or declare or pay any cash dividend or distribution on, its Common Stock without the prior express written consent of the Holders of not less than two-thirds (2/3) of the then outstanding Preferred Shares. (12) LIMITATION ON NUMBER OF CONVERSION SHARES. The Company shall not be obligated to issue any shares of Common Stock upon conversion of the Preferred Shares if the issuance of such shares of Common Stock would exceed that number of shares of Common Stock which the Company may issue upon Conversion of the Preferred Shares 23 (the "EXCHANGE CAP") without breaching the Company's obligations under the rules or regulations of the Principal Market, or the market or exchange where the Common Stock is then traded, except that such limitation shall not apply in the event that the Company (a) obtains the approval of its stockholders as required by the applicable rules of the Principal Market, or the market or exchange where the Common Stock is then traded, (or any successor rule or regulation) for issuances of Common Stock in excess of such amount or (b) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the Holders of a majority of the Preferred Shares then outstanding. Until such approval or written opinion is obtained, no purchaser of Preferred Shares pursuant to the Securities Purchase Agreement (the "PURCHASERS") shall be issued, upon conversion of Preferred Shares, shares of Common Stock in an amount greater than the product of (i) the Exchange Cap amount multiplied by (ii) a fraction, the numerator of which is the number of Preferred Shares issued to such Purchaser pursuant to the Securities Purchase Agreement and the denominator of which is the aggregate amount of all the Preferred Shares issued to the Purchasers pursuant to the Securities Purchase Agreement (the "CAP ALLOCATION AMOUNT"). In the event that any Purchaser shall sell or otherwise transfer any of such Purchaser's Preferred Shares, the transferee shall be allocated a pro rata portion of such Purchaser's Cap Allocation Amount. In the event that any Holder of Preferred Shares shall convert all of such Holder's Preferred Shares into a number of shares of Common Stock which, in the aggregate, is less than such Holder's Cap Allocation Amount, then the difference between such Holder's Cap Allocation Amount and the number of shares of Common Stock actually issued to such Holder shall be allocated to the respective Cap Allocation Amounts of the remaining Holders of Preferred Shares on a pro rata basis in proportion to the number of Preferred Shares then held by each such Holder. (13) VOTE TO CHANGE THE TERMS OF PREFERRED SHARES. The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting, of the Holders of not less than two-thirds (2/3) of the then outstanding Preferred Shares, shall be required for any change to this Certificate of Designations or the Company's Articles of Incorporation which would amend, alter, change or repeal any of the powers, designations, preferences and rights of the Preferred Shares. (14) LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the Preferred Shares, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date; provided, however, the Company shall not be obligated to re-issue preferred stock certificates if the Holder contemporaneously requests the Company to convert such Preferred Shares into Common Stock. (15) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Certificate of Designations shall be cumulative and in addition to all other remedies available under this Certificate of Designations, at law or 24 in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a Holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designations. The Company covenants to each Holder of Preferred Shares that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holders of the Preferred Shares and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holders of the Preferred Shares shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. (16) SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific provision contained in this Certificate of Designations shall limit or modify any more general provision contained herein. This Certificate of Designations shall be deemed to be jointly drafted by the Company and all Buyers and shall not be construed against any person as the drafter hereof. (17) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of a Holder of Preferred Shares in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. [Signature Page Follows] 25 IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to be signed by Michael P. Roth, its President, as of the 7th day of April 2000. E-NET FINANCIAL.COM CORPORATION By: /s/ Michael P. Roth ------------------------------------ Name: Michael P. Roth Title: President 26 EXHIBIT I CONVERSION NOTICE Reference is made to the Certificate of Designations, Preferences and Rights (the "CERTIFICATE OF DESIGNATIONS") of e-Net Financial.com Corporation (the "COMPANY"). In accordance with and pursuant to the Certificate of Designations, the undersigned hereby elects to convert the number of shares of Series C Preferred Stock, no par value per share (the "PREFERRED SHARES"), of the Company indicated below into shares of Common Stock, par value $ 0.001 per share (the "COMMON STOCK"), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below. Date of Conversion: ------------------------------------------------------- Number of Preferred Shares to be converted: ------------------------------- Stock certificate no(s). of Preferred Shares to be converted: ------------- Please confirm the following information: Conversion Price: --------------------------------------------------------- Number of shares of Common Stock to be issued: ---------------------------- Is the alternative New Variable Formula being relied on pursuant to Section 2(g)(iv) of the Certificate of Designations? (check one) YES No ---- ---- Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address: Issue to: ---------------------------------- ---------------------------------- ---------------------------------- Facsimile Number: ---------------------------------- Authorization: ---------------------------------- By: ------------------------------- Title: ---------------------------- Dated: ---------------------------------- Account Number: (if electronic book entry transfer): ---------------------------------- Transaction Code Number (if electronic book entry transfer): ---------------------------------- EX-10.2(A) 8 0008.txt EXHIBIT 10.2(A) EXHIBIT 10.2(a) TERMINATION NOTICE November 8, 1999 TO: Genesis Residential Healthcare, Inc. 3200 Bristol Street, 8th Floor Costa Mesa, CA 92626 Attention: William Ashby Dear Sir: Per your request and pursuant to the terms in section sic 1(b) of the Limited Partnership Agreement dated July 1, 1999 the undersigned hereby gives notice that the undersigned resigns and terminates its participation in the Genesis Residential Healthcare Community-Perris, LTD., LP, "The Partnership", effective upon the acceptance thereof and execution of a mutual release of all claims. Note, that at the current time there are no limited partners so the need for a majority vote by them is not required. You should immediately commence to appoint another General Partner as a replacement as provided in the Agreement and the laws of the State of California. Please feel free to contact me should my assistance be required. e-Net has prepared it's resignation as General Partner and an Assignment of Interest in the General Partnership to you to be effective upon the execution of the aforesaid Mutual release of Claims. By your signature you agree to hold e-Net financial harmless from all present and future liabilities stemming from our relationship to date. Very truly yours, e-Net Financial Corporation By /s/ Michael P. Roth ----------------------- Michael P. Roth President Genesis Residential Healthcare, Inc. By: /s/ William W. Ashby ---------------------- William W. Ashby EX-10.2(B) 9 0009.txt EXHIBIT 10.2(B) EXHIBIT 10.2(b) RELEASE OF ALL CLAIMS FOR AND IN CONSIDERATION of Mutual Releases of all claims hereby acknowledged, the undersigned being of lawful age, do for Genesis Residential Healthcare, (A California Corporation) Inc., and E-Net Financial Corporation, (A Nevada Corporation) each officer and director as agents and individuals, heirs, executors, administrators and assigns, hereby fully release, acquit and forever discharge each Corporation, their attorneys, counselors at law, officers and directors, agents, insurance companies and corporations, from any and all actions, causes of action, claims, demands, damages, costs, loss of services, expenses, compensation, and unknown potential future damages or injuries resulting from or to result from or by reason of any acts or omissions on the part of said Releases occurring at any time prior hereto. It is understood and agreed that all rights under Section 1542 of the Civil Code California which provides as follows: "CERTAIN CLAIMS NOT AFFECTED BY GENERAL RELEASE... . .A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE. WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR" are hereby EXPRESSLY WAIVED. We hereby declare and represent that any damages sustained are uncertain and indefinite, and in making this Release and Agreement, it is understood and agreed that we rely wholly upon our judgement, belief and knowledge of the nature and extent of said damage, if any and that we have not been influenced to any extent whatsoever in making this Release by any representations or statements regarding said damages, or regarding any other matters, made by the Releases or by any person or persons representing them. We hereby declare and represent that the undersigned is executing this release after having been recommended to and had an opportunity to receive full legal advice as to our rights from legal counsel. This Release contains the ENTIRE AGREEMENT and understanding concerning the subject matter between the parties and supersedes and replaces all prior negotiations and proposed agreements, written or oral. Each of the parties hereto acknowledges that: no other party has made any promise, representation or warranty whatsoever, express or implied, not contained herein, concerning the subject matter hereof, to induce them to execute this Release in reliance thereon. Genesis Residential Healthcare, Inc. Dated 12/2/99 By: /s/ William W. Ashby --------- ----------------------- Releaser e-Net Financial Corporation Dated 12/2/99 By: /s/ Michael P. Roth --------- ----------------------- Releaser EX-10.9 10 0010.txt EXHIBIT 10.9 EXHIBIT 10.9 AGREEMENT FOR THE PURCHASE/SALE OF CORPORATE STOCK AGREEMENT made this 1st day of March, 2000 by and between e-Net Financial.Com Corporation, a Nevada corporation (the "Seller") and E. G. Marchi ("Purchaser"). WHEREAS, Seller is the owner of all of the outstanding shares of stock of VPNCOM.NET Inc., a Nevada corporation ("Corporation") and is desirous of selling its shares; and WHEREAS, Purchaser is desirous of purchasing all of the outstanding shares of the Corporation; NOW THEREFORE, In consideration of the mutual terms, conditions and covenants hereinafter set forth Seller and Purchaser agree as follows: 1. Seller hereby sells to the Purchaser and the Purchaser hereby purchases from the Seller all of the outstanding shares of stock of the Corporation, represented by Certificate Number 3, totaling 25,000 shares of the Common Stock of that Corporation. 2. Seller warrants and represents that it is the owner of the shares of stock referred to in paragraph 1 above; that such shares constitute all of the outstanding shares of stock of the Corporation; that it owns all of the shares of stock free and clear of all mortgages, pledges, liens, encumbrances, charges and claims; that it has the right, power and authority to enter into this Agreement, and to transfer and deliver the shares of stock heretofore owned by it to the Purchaser; and that there are no actions, suits, claims or litigation pending or threatened against or affecting the ownership by it of the shares transferred or delivered to the Purchaser. SELLER further warrants and covenants that the delivery by it of the Certificates for such shares accompanied by a Stock Power, as hereinafter provided for, is sufficient to and does transfer and convey full and clear title to all of the shares reflected by the Certificates to the Purchaser, and that it will make, execute and deliver such further instruments as may be required to confirm said transfer. 3. The purchase price for the shares shall consist of: a. $250,000.00 in the form of a 30 day Promissory Note bearing 10% annual interest, in the form and manner attached hereto as Schedule A and made part hereof by this reference. b. 250,000 shares of e-Net Financial.Com Corporation common stock, duly endorsed to SELLER. c. Assumption of any obligation of SELLER incurred by it relative to its acquisition and operation of VPNCOM.NET Inc., including but not limited to that certain promissory note payable to Paul Stevens in the face amount of $145,000.00, as well as any other direct or contingent obligation as set forth in Schedule B attached hereto and made part hereof by this reference. 4. Purchaser shall have the right, and may delegate such right to anyone of his choice, to inspect the books and records of the Corporation to verify any and all statements, financial or otherwise, upon which the purchase price was based. Said inspection shall be on 48 hours' notice and is to be conducted during normal business hours at the Corporation's place of business. 5. As a condition subsequent, Seller shall deliver to Purchaser within 15 days of the execution hereof an audited statement of financial condition of the 1 Corporation as of December 31, 1999. Seller knows of no fact which could justify or sustain the imposition of a liability on the Corporation other than the liabilities presently reflected on the Corporation's financial statements currently filed with the Securities and Exchange Commission. 6. Seller holds harmless and indemnifies the Purchaser for and on account of any loss, damage and expense incurred by the Purchaser by reason of the assertion by the Seller or on its behalf of any claim contrary to the terms of this Agreement, any breach of any of the foregoing warranties or any misrepresentation of the foregoing facts. 7. Seller confirms that as far as it is aware, all corporate taxes have been fully paid up to and including the calendar year 1998, and there is no reason for the imposition of any additional tax or penalty other than that due for 1999. In any event, Seller will indemnify and hold Purchaser harmless against any cost, expense or liability by reason of the imposition upon the Corporation of any additional income or other taxes and penalties (including interest) for the years up to and including 1998. 8. Seller agrees to cooperate with the Purchaser for an orderly transition of the business together with the Corporation's rights to continue to occupy the office and facilities space it presently occupies, as a subtenant of Seller. Seller shall cause the transfer to Purchaser of any and all rights to trademarks, business name, phone numbers and lines, or other intangible assets as well as equipment leases or other leases presently existing for the benefit of the Corporation. Seller shall, simultaneously with the execution of this Agreement, deliver to Purchaser resignation of its appointed officers and directors of the corporation, attached hereto as Exhibits. 9. Any notices to be delivered under the terms of this Agreement shall be sent certified mail, return receipt requested to: If to Seller: 3200 S. Bristol Street Suite 710 Costa Mesa, California 92626 If to Purchaser: 3200 S. Bristol Street Suite 725 Costa Mesa, California 92626 10. This Agreement shall be binding upon the successors, heirs, executors, administrators and assigns of the parties hereto. 11. Regardless of the place of its execution it is hereby specifically agreed that this agreement shall be subject to the laws of the State of Nevada and the jurisdiction of the County of Clark therein. The parties hereby agreed that a. This Agreement and its validity, effect and performance shall be governed by and construed and enforced in accordance with, the substantive laws of the State of Nevada applicable to contracts made and to be performed entirely within said State, without reference to choice or conflict of laws principles or provisions which might otherwise be applicable or the law of any other forum without regard to the jurisdiction in which any action or special proceeding is filed; and b. The parties herby irrevocably submit and consent to the jurisdiction of any court of record of The State of Nevada and all purposes in 2 connection with arbitration, including the entry of judgment on any award rendered thereon. The parties further agree that any process or Notice of Motion or other application to either of said courts, and any paper in connection with the arbitration may be served by certified mail, return receipt requested, or by personal service, or in such other manner as may be permissible under the rules of the applicable court of arbitration tribunal provided a reasonable time for appearance is allowed. 12. No modification of this Agreement will be effective unless it is in writing and is signed by both the Buyer and Seller. This Agreement binds and benefits both the Buyer and Seller and any successors. Time is of the essence of this agreement. This document, including any attachments, is the entire agreement between the Buyer and Seller. 13. This contract is subject to Arbitration pursuant to the Federal Arbitration Act (U.S.C. Section 1, et. seq.) and/or the 1958 convention of the recognition and enforcement of Foreign Arbitral Award, 9 U.S.C. Section 201 et. seq. Any controversy or claim arising out of, or relating to any part of this provision, or breach thereof, and which is not settled between the signatories hereto themselves, shall be settled in accordance with the above written statutes, which hearings to take place in the County of Clark, State of Nevada, United States of America, and judgment upon the award to the aggrieved signatory (signatories, their heirs, assignees, and their designees) for the full amount for the remuneration, plus all court costs, attorney fees, and other charges and damages deemed fair by the Arbitrator(s). 14. The Seller warrants and represents to the Purchaser that (i) the execution, delivery and performance of this Agreement has been duly authorized by necessary corporate proceedings and that this Agreement constitutes a legal, valid and binding obligation of the Seller, enforceable against it in accordance with its terms, and (ii) it is not a party to any agreement or contract pursuant to which there is any restriction or limitation upon its entering into this Agreement or performing its obligations hereunder. 15. If any part of this Agreement is void or otherwise invalid and, hence, unenforceable, such invalid or void portion shall be deemed to be separate and severable from the other portions of this Agreement, and the other portions shall be given full force and effect as if those void and invalid portions or provisions had never been a part of this Agreement. 16. This Agreement shall inure to the benefit of, be enforceable by, and bind the parties hereto and their respective heirs, executors, successors, permitted assigns and personal representative. Purchaser may assign this Agreement to any corporation or partnership the majority of which is owned and controlled by the Purchaser without prior written notice to the Seller. 17. This Agreement together with the instruments referred to herein, contains all of the understandings and agreements of the Parties with respect to the subject matter discussed herein. All prior agreements whether written or oral are merged herein and shall be of not force or effect. 18. The several representations, warranties and covenants herein shall survive the execution hereof and shall be effective regardless of any investigation that may have been made or may be made by or on behalf of any party. Seller hereby covenants that it has not failed to disclose any material fact or circumstances to Purchaser, which if known to the Purchaser prior to or during this 3 transaction would alter the Purchaser's decision as to if or in what manner the Purchaser would acquire the subject shares from Seller. 19. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and such counterparts together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. SELLER: e-Net Financial.Com Corporation by /s/ Michael P. Roth ----------------------------- President PURCHASER: /s/ E. G. MARCHI - -------------------------------- E. G. MARCHI EX-10.25 11 0011.txt EXHIBIT 10.25 EXHIBIT 10.25 SECURITIES PURCHASE AGREEMENT This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of May 2, 2000, is entered into by and among e-Net Financial.com Corporation, a Nevada corporation, with headquarters located at 3200 Bristol Street, Suite 700, Costa Mesa, California 92626 (the "COMPANY"), and the investors listed on SCHEDULE 1 attached hereto (individually, a "BUYER" and collectively, the "BUYERS"). WHEREAS: A. The Company and the Buyers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 ACT"); B. The Buyers wish to purchase, upon the terms and conditions stated in this Agreement, an aggregate of 666,667 shares of the common stock (the "COMMON SHARES"), $.001 par value per share, in the respective amounts set forth opposite each Buyer's name on SCHEDULE 1 and warrants, in substantially the same form attached hereto as EXHIBIT A (the "WARRANTS") to acquire 333,334 Common Shares (as exercised, collectively, the "WARRANT SHARES"); and C. Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement substantially in the form attached hereto as EXHIBIT C (the "REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws. NOW THEREFORE, the Company and the Buyers hereby agree as follows: 1. PURCHASE AND SALE OF COMMON SHARES AND WARRANTS. a. PURCHASE OF COMMON SHARES AND WARRANTS. In connection with the offering (the "OFFERING") by the Company of the Common Shares and Warrants to the Buyers, and subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer and each Buyer severally agrees to purchase from the Company the respective number of Common Shares set forth opposite such Buyer's name on SCHEDULE 1, along with Warrants to acquire the respective number of Warrant Shares set forth opposite such Buyer's name on SCHEDULE 1 (the "CLOSING"). The purchase price (the "PURCHASE PRICE") of the Common Shares and the related Warrants at the Closing shall be $2,000,000. b. CLOSING DATE. The date and time of the Closing (the "CLOSING DATE") shall be 10:00 a.m. Pacific Time, within five (5) business days following the date hereof, subject to notification of satisfaction (or waiver) of the conditions to the Closing set forth in Sec- 1 tions 6 and 7 below (or such later date as is mutually agreed to by the Company and the Buyers). The Closing shall occur on the Closing Date at the offices of the nominee of the Buyers or at such other location as agreed by the Company and the Buyers. c. FORM OF PAYMENT. On the Closing Date, (i) subject to the satisfaction (or waiver) of the conditions set forth in Section 7 below, each Buyer shall pay the Purchase Price to the Company, for the Common Shares and Warrants to be issued and sold to such Buyer at the Closing, by wire transfer of immediately available funds in accordance with the Company's written wire instructions, provided that (ii) subject to the satisfaction (or waiver) of the conditions set forth in Section 6 below, the Company shall have delivered to Jupiter Unit Trust Managers Limited as the nominee of the Buyers, as the escrow agent (the "ESCROW AGENT"), on behalf of each Buyer, stock certificates (in the denominations as such Buyer shall request) (the "COMMON STOCK CERTIFICATES") representing such number of the Common Shares which such Buyer is then purchasing (as indicated opposite such Buyer's name on SCHEDULE 1) along with the Warrants such Buyer is purchasing (as indicated opposite such Buyer's name on SCHEDULE 1) hereunder, duly executed on behalf of the Company and registered in the name of such Buyer or its designee. Upon the completion of the conditions contained in Sections 6 and 7 of this Agreement, the Escrow Agent shall deliver the certificates representing the Common Shares and the Warrants to the Buyers via overnight courier after the Buyers have wired the Purchase Price to the Company. 2. BUYER'S REPRESENTATIONS AND WARRANTIES. Each Buyer represents and warrants with respect to only itself that: a. INVESTMENT PURPOSE. Such Buyer is acquiring the Common Shares and Warrants (the Common Shares and Warrants may also be referred to herein as the "SECURITIES"), for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; PROVIDED, HOWEVER, that by making the representations herein, such Buyer does not agree to hold any 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 1933 Act. b. ACCREDITED INVESTOR STATUS. Such Buyer is an "accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D. c. RELIANCE ON EXEMPTIONS. Such Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire such Securities. 2 d. INFORMATION. Such Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances, and operations of the Company and materials relating to the offer and sale of the Securities that have been requested by such Buyer. Such Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyer's right to rely on the Company's representations and warranties contained in Section 3 below. Such Buyer understands that its investment in the Securities involves a high degree of risk. Such Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. e. NO GOVERNMENTAL REVIEW. Such Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities. f. TRANSFER OR RESALE. Such Buyer understands that except as provided in the Registration Rights Agreement: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to the Company an opinion of counsel, in a generally acceptable form, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Buyer provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act, as amended (or a successor rule thereto) ("RULE 144"); and (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, and if Seller intends to utilize Rule 144 but Rule 144 is not applicable to such resale, 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 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder. g. LEGENDS. Such Buyer understands that the Common Stock Certificates and certificates or other instruments representing the Warrants and the stock certificates representing the Warrant Shares except as set forth below, shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (1) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION 3 STATEMENT FOR THE SECURITIES UNDER THE 1933 ACT OR APPLICABLE STATE SECURITIES LAWS, OR (2) IN THE ABSENCE OF AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT OR (3) UNLESS SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO RULE 144 UNDER SAID ACT. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Securities upon which it is stamped, if, unless otherwise required by state securities laws, (i) such Securities are registered for sale under the 1933 Act, (ii) in connection with a sale transaction, such holder provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a public sale, assignment or transfer of the Securities may be made without registration under the 1933 Act, or (iii) such holder provides the Company with reasonable assurances that the Securities can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold. h. VALIDITY; ENFORCEMENT. This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and is a valid and binding agreement of such Buyer enforceable against such Buyer in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. i. RESIDENCY. Such Buyer is a resident of that country and state, if applicable, specified in its address on SCHEDULE 1. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each of the Buyers that: a. ORGANIZATION AND QUALIFICATION. The Company and its "SUBSIDIARIES" (which for purposes of this Agreement means any entity in which the Company, directly or indirectly, owns a controlling position of capital stock or holds a controlling position of an equity or similar interest) are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power and authorization to own their properties and to carry on their business as now being conducted. Each of the Company and its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse effect on the business, properties, assets, operations, results or operations, financial condition or prospects of the Company and its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements and instruments to be entered 4 into inconnection herewith, or on the authority or ability of the Company to perform its obligations under the Transaction Documents (as defined below in Section 3(b)). b. AUTHORIZATION; ENFORCEMENT; VALIDITY. (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Registration Rights Agreement, the Transfer Agent Instructions (as defined in Section 5), the Warrants and the Certificate of Designations and each of the other agreements entered into by the parties hereto in connection with the transactions contemplated by this Agreement (collectively, the "TRANSACTION DOCUMENTS"), and to issue the Securities in accordance with the terms hereof and thereof, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including without limitation the issuance of the Common Shares and the Warrants and the reservation for issuance and the issuance of the Warrant Shares issuable upon exercise thereof have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders, (iii) the Transaction Documents have been duly executed and delivered by the Company, and (iv) the Transaction Documents constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies, and (v) prior to the Closing Date, the Certificate of Designations has been filed with the Secretary of State of the State of Nevada and will be in full force and effect, enforceable against the Company in accordance with its terms. c. ISSUANCE OF SECURITIES. The Securities are duly authorized and, upon issuance in accordance with the terms hereof, shall be (i) validly issued, fully paid and non-assessable and (ii) free from all taxes, liens and charges with respect to the issue thereof. The Common Shares shall be entitled to the rights and preferences set forth in the Company's Articles of Incorporation (as defined in section 3.d., below) and shall rank pari passu in all respects with the existing issued shares of the common stock of the Company. 571,500 shares of Company common stock (subject to adjustment pursuant to the Company's covenant set forth in Section 4(g) below) have been duly authorized and reserved for issuance upon exercise of the Warrants. Upon exercise in accordance with the Warrants, the Warrant Shares, respectively, will be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Company common stock. The issuance by the Company of the Securities is, and the issuance by the Company of the Warrant Shares shall be, exempt from registration under the 1933 Act. d. NO CONFLICTS. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the Company's issuance of the Securities and the reservation for issuance and issuance of the Warrant Shares) will not (i) result in a violation of the Company's charter documents, as amended and as in effect on the date hereof (the "ARTICLES OF INCORPORATION") or the Company's By-laws, as amended and as in 5 effect on the date hereof (the "BY-LAWS") or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment, or decree (including federal and state securities laws and regulations and the rules and regulations of the Principal Market (as defined in Section 4(f) below)) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. Neither the Company nor its Subsidiaries is in violation of any term of or in default under its charter documents or By-laws or their charter documents or by-laws, respectively. Neither the Company or any of its Subsidiaries is in violation of any term of or in default under any contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its Subsidiaries, except for possible conflicts, defaults, terminations, amendments which would not have a Material Adverse Effect. The business of the Company and its Subsidiaries is not being conducted, and shall not be conducted, in violation of any law, ordinance, regulation of any governmental entity, except for possible violations the sanctions for which either individually or in the aggregate would not have a Material Adverse Effect. Except as specifically contemplated by the Transaction Documents and as required under the 1933 Act, 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 or contemplated by the Transaction Documents in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain prior to Closing pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its Subsidiaries are unaware of any facts or circumstances that might give rise to any of the foregoing. The Company is not in violation of the listing requirements of the Principal Market (as defined in Section 4(f) below). e. SEC DOCUMENTS; FINANCIAL STATEMENTS. As of the Closing, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 ACT") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the "SEC DOCUMENTS"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated 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 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 generally accepted accounting principles, consistently applied, during the periods 6 involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to the Buyers which is not included in the SEC Documents, including, without limitation contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. Neither the Company nor any of its Subsidiaries or any of their officers, directors, employees, or agents has provided the Buyers with any material, nonpublic information. f. ABSENCE OF CERTAIN CHANGES. Since the most recent filing by the Company with the SEC, there has been no material adverse change and no material adverse development in the business, properties, operations, financial condition, results of operations or prospects of the Company or its Subsidiaries. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or any of its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings. g. ABSENCE OF LITIGATION. Except as set forth in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company, the Company's common stock, the Common Shares or any of the Company's Subsidiaries or any of the Company's or the Company's Subsidiaries' officers or directors in their capacities as such. h. [Reserved]. i. NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR CIRCUMSTANCES. No event, liability, development or circumstance has occurred or exists, or is contemplated to occur, with respect to the Company or its Subsidiaries or their respective business, properties, prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement filed with the SEC relating to an issuance and sale by the Company of its common stock and which has not been publicly announced. j. NO GENERAL SOLICITATION. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Securities. k. NO INTEGRATED OFFERING. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales 7 of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Securities under the 1933 Act or cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated, nor will the Company or any of its Subsidiaries take any action or steps that would require registration of any of the Securities under the 1933 Act or cause the offering of the Securities to be integrated with other offerings. l. EMPLOYEE RELATIONS. Neither the Company nor any of its Subsidiaries is involved in any union labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened. m. INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. None of the Company's trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual property rights have expired or terminated, or are expected to expire or terminate within two years from the date of this Agreement. The Company and its Subsidiaries do not have any knowledge of any infringement by the Company or its Subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others and the Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties. n. ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval. o. TITLE. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in the SEC Documents or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries. Any real property and facilities held under lease by the Company and any of its 8 Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries. p. INSURANCE. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged and the Company does not have any reason to believe it will not be able to renew its existing insurance coverage under substantially similar terms for the next two (2) years. q. REGULATORY PERMITS. The Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit. r. TAX STATUS. The Company and each of its Subsidiaries has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. s. TRANSACTIONS WITH AFFILIATES. Except as set forth in the SEC Documents filed at least ten days prior to the date hereof, none of the officers, control parties, control entities, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. t. ELIGIBILITY. The Company is currently eligible to register the resale of the Warrant Shares on a registration statement on Form SB-2 under the 1933 Act. u. COMMON STOCK OUTSTANDING. As of the date hereof, the number of shares of common stock issued and outstanding (on an as-converted basis) is 11,442,197. 9 v. As of the date hereof, the number of warrants, options, convertible shares, or other rights to subscribe for shares of common stock of the Company (whether pursuant to an employee stock option plan or otherwise) that have been granted, and have not been exercised or terminated and have not expired is 186,740, the aggregate exercise, conversion, or subscription price for which is $1,053,602.85, and the weighted average aggregate exercise, conversion, or subscription price is $5.64. w. FINANCIAL STATEMENTS. The unaudited consolidated financial statements of the Company for the three- and nine-month periods ending January 31, 2000, a true copy of which have been delivered to the Buyer and filed with the Securities and Exchange Commission as a portion of the Company's Quarterly Report on Form 10-QSB, have been carefully prepared on the basis of US GAAP (for unaudited statements, and subject to year-end adjustments) and fairly present the financial state of affairs of the Company, its assets and liabilities, and profits or losses as of the date and for the periods for which they were prepared. The unaudited consolidated balance sheet of the Company, as at April 20, 2000, a true copy of which has been delivered to the Buyer, was carefully prepared by the Company in the ordinary course of its business. 4. COVENANTS. a. BEST EFFORTS. Each party shall use its best efforts timely to satisfy each of the conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement. b. FORM D AND BLUE SKY. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable securities or "Blue Sky" laws of the states of the United States, and shall provide evidence of any such action so taken to the Buyers on or prior to the Closing Date. The Company shall make all filings and reports relating the offer and sale of the Securities required under applicable securities or "Blue Sky" laws of the states of the United States following the Closing Date. c. REPORTING STATUS. Until the earlier of (i) the date which is one year after the date as of which the Investors (as that term is defined in the Registration Rights Agreement) may sell all of the Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto), or (ii) the date on which (A) the Investors shall have sold all the Warrant Shares (the "REGISTRATION PERIOD") and (B) none of the Common Shares or Warrants is outstanding, the Company shall file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would otherwise permit such termination. d. RESERVED. 10 e. RIGHT OF FIRST REFUSAL. Subject to the exceptions described below, the Company and its Subsidiaries shall not negotiate or contract with any party for any equity financing (including any debt financing with an equity component) or issue any equity securities of the Company or any Subsidiary or securities convertible or exchangeable into or for equity securities of the Company or any Subsidiary (including debt securities with an equity component) in any form ("FUTURE OFFERINGS") during the period beginning on the date hereof and ending on, and including, the date which is 180 days after the Closing Date, unless it shall have first delivered to each Buyer or a designee appointed by such Buyer written notice (the "FUTURE OFFERING NOTICE") describing the proposed Future Offering, including the terms and conditions thereof, and providing each Buyer an option to purchase up to its Aggregate Percentage (as defined below) of the securities to be issued in such Future Offering, as of the date of delivery of the Future Offering Notice, in the Future Offering (the limitations referred to in this sentence is referred to as the "CAPITAL RAISING LIMITATIONS"). For purposes of this Section 4(e), "AGGREGATE PERCENTAGE" at any time with respect to any Buyer shall mean the percentage obtained by dividing (i) the aggregate number of the Common Shares initially issued and the Closing to such Buyer by (ii) the aggregate number of the Common Shares sold to the Buyers by the Company at the Closing in connection with the Offering. A Buyer can exercise its option to participate in a Future Offering by delivering written notice thereof to participate to the Company within fourteen (14) business days after receipt of a Future Offering Notice, which notice shall state the quantity of securities being offered in the Future Offering that such Buyer will purchase, up to its Aggregate Percentage, and that number of securities it is willing to purchase in excess of its Aggregate Percentage. In the event that one or more Buyers fail to elect to purchase up to each such Buyer's Aggregate Percentage, then each Buyer which has indicated that it is willing to purchase a number of securities in such Future Offering in excess of its Aggregate Percentage shall be entitled to purchase its pro rata portion (determined in the same manner as described in the preceding sentence) of the securities in the Future Offering which one or more of the Buyers have not elected to purchase. In the event the Buyers fail to elect to fully participate in the Future Offering within the periods described in this Section 4(e), the Company shall have 45 days thereafter to sell the securities of the Future Offering that the Buyers did not elect to purchase, upon terms and conditions, no more favorable to the purchasers thereof than specified in the Future Offering Notice. In the event the Company has not sold such securities of the Future Offering within such 45 day period, the Company shall not thereafter issue or sell such securities without first offering such securities to the Buyers in the manner provided in this Section 4(e). The Capital Raising Limitations shall not apply to (i) a loan from a commercial bank which does not have any equity feature, (ii) any transaction involving the Company's issuances of securities (A) as consideration in a merger or consolidation, or (B) as consideration for the acquisition of a business, product, license or other assets by the Company, (iii) the issuance of common stock in a firm commitment, underwritten public offering, (iv) the issuance of securities upon exercise or conversion of the Company's options, warrants or other convertible securities outstanding as of the date hereof, (v) the grant of additional options or warrants, or the issuance of additional securities, under any Company stock option plan, restricted stock plan or stock purchase plan for the benefit of the Company's employees or directors, or (vi) any non-public offerings through, facilitated by, or placed by or with either or both of Isosceles Capital or Lakeshore Capital Limited ((i) through (vi) collectively, the "EXEMPT ISSUANCES"). The Buyers shall not be required to participate or exer- 11 cise their right of first refusal with respect to a particular Future Offering in order to exercise their right of first refusal with respect to later Future Offerings. f. LISTING. The Company shall promptly secure the listing of all of the Registrable Securities (as that term is defined in the Registration Rights Agreement) upon each national securities exchange, automated quotation system or bulletin board system, if any, upon which shares of the Company's common stock are then listed (subject to official notice of issuance) and shall maintain, so long as any other shares of common stock shall be so listed, such listing of all Registrable Securities from time to time issuable under the terms of the Transaction Documents. The Company shall utilize its best efforts to cause the Company's Common Stock to be authorized for quotation on the Nasdaq National Market ("NNM") or the Nasdaq Small-Cap Market ("NSCM") and the Company shall maintain the Common Stock's authorization for quotation on the NNM, NSCM, or OTC Electronic Bulletin Board, as applicable,(the "PRINCIPAL MARKET"). Neither the Company nor any of its Subsidiaries shall take any action that would be reasonably expected to result in the delisting or suspension of Company common stock on the Principal Market. The Company shall promptly, and in no event later than the following business day, provide to each Buyer copies of any notices it receives from the Principal Market regarding the continued eligibility of Company common stock for listing on such automated quotation system or securities exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(f). g. RESERVATION OF SHARES. The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than 200% of the number of shares of Company common stock needed to provide for the issuance of the shares of Company common stock upon exercise of all outstanding Warrants. h. ISSUANCE OF WARRANT SHARES. The issuance of the Warrant Shares shall be duly authorized, and when issued in accordance with the Warrants, the Warrant Shares will be validly issued, fully paid and non-assessable and free of all taxes, liens, charges and preemptive rights with respect to the issue thereof. i. LIMITATION ON FILING REGISTRATION STATEMENTS. The Company shall not file a registration statement (other than the Registration Statement (as defined in the Registration Rights Agreement) or a registration statement on Form S-8) covering the sale or resale of shares of Company common stock with the SEC during the period beginning on the date hereof and ending on the date which is 90 days after the Registration Statement has been declared effective by the SEC. j. INDEPENDENT AUDITORS. The Company shall, until at least three (3) years after the Closing Date, maintain as its independent auditors an accounting firm authorized to practice before the SEC. k. CORPORATE EXISTENCE AND TAXES. The Company shall, until at least the later of (i) the date that is three (3) years after the Closing Date or (ii) the exercise of all Warrants purchased pursuant to this Agreement, maintain its corporate existence in good standing 12 (provided, however, that the foregoing covenant shall not prevent the Company from entering into any merger or corporate reorganization as long as the surviving entity in such transaction, if not the Company, has common stock listed for trading on the Principal Market and shall pay all its taxes when due except for taxes which the Company disputes). 5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable instructions to its transfer agent (the "TRANSFER AGENT"), and any subsequent transfer agent, substantially in the form of EXHIBIT D hereto (the "TRANSFER AGENT INSTRUCTIONS") to issue certificates, registered in the name of each Buyer or its respective nominee(s), for the Warrant Shares, in such amounts as specified from time to time by each Buyer to the Company upon exercise of the Warrants, as applicable. Prior to registration of the Warrant Shares under the 1933 Act, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that no instruction other than the Transfer Agent Instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(f) hereof will be given by the Company to its Transfer Agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Registration Rights Agreement. Nothing in this Section 5 shall affect in any way each Buyer's obligations and agreements set forth in Section 2(g) to comply with all applicable prospectus delivery requirements, if any, upon resale of the Securities. If a Buyer provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a public sale, assignment or transfer of the Securities may be made without registration under the 1933 Act or the Buyer provides the Company with reasonable assurances that the Securities can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold, the Company shall permit the transfer, and, in the case of the Warrant Shares, promptly instruct its Transfer Agent to issue one or more certificates in such name and in such denominations as specified by such Buyer and without any restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyers by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5, that the Buyers shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to issue and sell the Common Shares and Warrants to each Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof: 13 a. Such Buyer shall have executed each of the Transaction Documents, where appropriate, to which it is a party and delivered the same to the Escrow Agent for the transactions contemplated by this Agreement; b. The representations and warranties of such Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and such Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to the Closing Date; and c. Such Buyer shall have delivered to the Escrow Agent such other documents relating to the transactions contemplated by this Agreement as the Escrow Agent may reasonable request. 7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of each Buyer hereunder to purchase the Common Shares and Warrants at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Buyer's sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof: a. The Company shall have executed each of the Transaction Documents and delivered the same to the Escrow Agent; b. The Company's common stock shall be authorized for quotation on the Principal Market and trading in Company common stock shall not have been suspended by the SEC or the Principal Market; c. The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Closing Date; d. The Company shall have executed and delivered to the Escrow Agent the Common Stock Certificates and Warrants (in such denominations as such Buyer shall request) for the Common Shares and Warrants being purchased by such Buyer at the Closing; e. The Transfer Agent Instructions shall have been delivered to and acknowledged in writing by the Company's transfer agent and a copy of the executed Transfer Agent Instructions shall have been delivered to the Escrow Agent; 14 f. The Company shall have made all filings under all applicable federal and state securities laws necessary to consummate the issuance of the Securities pursuant to this Agreement in compliance with such laws; g. As of the Closing Date, the Company shall have reserved out of its authorized and unissued common stock, solely for the purpose of effecting the exercise of the Warrants, no less than 200% of the number of shares of Company common stock needed to provide for the issuance of the shares of Company common stock upon exercise of all outstanding Warrants; h. The Company shall have delivered to the Escrow Agent such other documents relating to the transactions contemplated by this Agreement as the Escrow Agent may reasonably request; i. The Board of Directors of the Company shall have adopted resolutions consistent with Section 3(b)(ii) above and in a form reasonably acceptable to such Buyer; j. The Company shall have delivered to such Buyer copies of certificates evidencing the incorporation and good standing of the Company and each Subsidiary in such corporation's state of incorporation issued by the Secretary of State of such state of incorporation as of a date within 30 days of the Closing; and k. The Company shall have delivered to such Buyer a copy of the Articles of Incorporation. 8. INDEMNIFICATION. In consideration of each Buyer's execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company's other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Buyer and each other holder of the Securities and all of their stockholders, officers, directors, employees and direct or indirect investors and any of the foregoing person's agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "INDEMNITEES") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought or whether such Indemnitee commenced such action), and including reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (c) any cause of action, suit or claim brought or made against such Indemnitee and arising out of or resulting from the 15 execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (d) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities or (e) the status of such Buyer or holder of the Securities as an investor in the Company. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law. 9. GOVERNING LAW; MISCELLANEOUS. a. GOVERNING LAW; JURISDICTION; JURY TRIAL. This Agreement shall be governed by and construed in all respects by the internal laws of the State of California (except for the proper application of the United States federal securities laws), without giving effect to any choice of law or conflict of law provision or rule (whether of the State of California or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of California. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the County of Orange. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. b. COUNTERPARTS. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. c. HEADINGS. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. d. SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other prior oral or written agreements between the Buyers, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended other than by 16 an instrument in writing signed by the Company and the Buyers (provided that the Buyers then own at least two-thirds (2/3) of the Common Shares purchased by them hereunder), and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. f. NOTICES. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: e-Net Financial.com Corporation 3200 Bristol Street, Suite 700 Costa Mesa, California 92626 Telephone: (714) 557-2222 Facsimile: (714) 557-2208 Attention: President With a copy to: Bryan Cave LLP 18881 Von Karman Avenue, Suite 1500 Irvine, California 92612 Telephone: (949) 223-7000 Facsimile: (949) 223-7100 Attention: Randolf W. Katz, Esq. If to the Transfer Agent: Holladay Stock Transfer 2939 North 67th Place Scottsdale, Arizona 85251 Telephone: (480) 481-3940 Facsimile: (480) 481-3941 Attention: Sharon Owen If to a Buyer, to it at the address and facsimile number set forth on SCHEDULE 1 with copies to such Buyer's representatives as set forth on SCHEDULE 1, or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has 17 specified by written notice given to each other party five days prior to the effectiveness of such change. g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Common Shares. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of holders of at least two-thirds (2/3) of the Common Shares then outstanding. A Buyer may assign some or all of its rights hereunder without the consent of the Company, PROVIDED, HOWEVER, that any such assignment shall not release such Buyer from its obligations hereunder unless such obligations are assumed by such assignee and the Company has consented to such assignment and assumption. h. NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. i. SURVIVAL. Unless this Agreement is terminated under Section 9(k), the agreements and covenants set forth in Sections 4, 5, and 9 and the indemnification provisions set forth in Section 8 shall survive the Closing. Each Buyer shall be responsible only for its own representations, warranties, agreements and covenants hereunder. j. FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. k. TERMINATION. In the event that the Closing shall not have occurred with respect to a Buyer on or before three (3) business days from the date hereof due to the Company's or such Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreaching party's failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party; provided, however, that if this Agreement is terminated pursuant to this Section 9(k), the Company shall remain obligated to reimburse the nonbreaching Buyers for the expenses described in Section 7(i) above. l. PLACEMENT AGENT. The Company acknowledges that it has engaged Elliot Lane & Associates as placement agent in connection with the sale of the Common Shares and Warrants, which placement agent may have formally or informally engaged other agents on its behalf. The Company shall be responsible for the payment of any placement agent's fees or broker's commissions relating to or arising out of the transactions contemplated hereby. The Company shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, attorneys' fees and out of pocket expenses) arising in connection with any such claim. 18 m. NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. n. REMEDIES. Each Buyer and each holder of the Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. o. PAYMENT SET ASIDE. To the extent that the Company makes a payment or payments to the Buyers hereunder or pursuant to the Transaction Documents or the Buyers enforce or exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first written above. COMPANY: BUYERS: E-NET FINANCIAL.COM CORPORATION JUPITER UNIT TRUST MANAGERS LIMITED, as discretionary investment manager of the Jupiter European Special Situations Fund By: By: -------------------------------------- ------------------------------------ James Shipley, Chief Executive Officer --------------------------, Director 19 SCHEDULE 1: LIST OF INVESTORS
INVESTOR ADDRESS PURCHASE NUMBER OF COMMON NUMBER OF SEND COPIES OF ALL INVESTOR'S NAME AND FACSIMILE NUMBER PRICE SHARES WARRANT SHARES COMMUNICATIONS TO - --------------------- -------------------- -------- ---------------- -------------- ------------------ RBSTB NOMINEES LIMITED 67, LOMBARD STREET, $2,000,000 666,667 333,334 JUPITER UNIT TRUST MANAGERS (A/C 7019), AS TRUSTEE LONDON EC3P 3DL LIMITED OF THE JUPITER EUROPEAN ENGLAND 1, GROSVENOR PLACE SPECIAL SITUATIONS FUND LONDON SW1X 7JJ TELEPHONE: 011-44-20-7412-0703 FAX: 011-44-20-7412-0705 ATTENTION: RICHARD P. PEASE
EXHIBITS Exhibit A Form of Warrant Exhibit B Form of Registration Rights Agreement Exhibit C Form of Transfer Agent Instructions EX-10.26 12 0012.txt EXHIBIT 10.26 EXHIBIT 10.26 WARRANT THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE 1933 ACT, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. ANY SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH THE APPLICABLE STATE SECURITIES LAWS. E-NET FINANCIAL.COM CORPORATION WARRANT TO PURCHASE COMMON STOCK Warrant No.: 2000-J1 Number of Shares: 333,334 Date of Issuance: May 5, 2000 e-Net Financial.com Corporation, a Nevada corporation (the "COMPANY"), hereby certifies that, for Ten United States Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, RBSTB Nominees Limited (A/C 7019), as trustee of the Jupiter European Special Situations Fund, the registered holder hereof or its permitted assigns, is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant, at any time or times on or after the date hereof, but not after 11:59 P.M. Central Time on the Expiration Date (as defined herein) three hundred thirty-three thousand three hundred thirty-four (333,334) fully paid nonassessable shares of Common Stock (as defined herein) of the Company (the "WARRANT SHARES") at the purchase price per share provided in Section 1(b) below. Section 1. (a) SECURITIES PURCHASE AGREEMENT. This Warrant is one of the Warrants issued pursuant to the terms of that certain Securities Purchase Agreement dated as of May 2, 2000, among the Company and the Buyers referred to therein (the "SECURITIES PURCHASE AGREEMENT"). (b) DEFINITIONS. The following words and terms as used in this Warrant shall have the following meanings: 1 (i) "APPROVED STOCK PLAN" shall mean any employee benefit plan which has been approved by the Board of Directors of the Company and meets the qualifications and requirements of Section 401(a) of the Internal Revenue Code of 1986, as amended, pursuant to which the Company's securities may be issued to any employee, officer, director, consultant or other service provider for services provided to the Company. (ii) "COMMON STOCK" means (i) the Company's common stock, $0.001 par value per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock. (iii) "CONVERTIBLE SECURITIES" Means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable for Common Stock. (iv) "EXPIRATION DATE" means the date five (5) years from the date of this Warrant or, if such date falls on a Saturday, Sunday or other day on which banks are required or authorized to be closed in the City of Chicago or the State of Illinois or on which trading does not take place on the principal exchange or automated quotation system on which the Common Stock is traded (a "HOLIDAY"), the next date that is not a Holiday. (v) "OPTIONS" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. (vi) "OTHER SECURITIES" means (i) those warrants of the Company issued prior to, and outstanding on, the date of issuance of this Warrant, (ii) the Preferred Shares and (iii) the shares of Common Stock issued upon conversion of the Preferred Shares. (vii) "PERSON" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. (viii) "PREFERRED SHARES" means the shares of the Company's Series C Preferred Stock. (ix) "PRINCIPAL MARKET" means the Nasdaq National Market, Nasdaq Small-Cap Market, OTC Electronic Bulletin Board or the American Stock Exchange, Inc. (x) "SECURITIES ACT" means the Securities Act of 1933, as amended. (xi) "WARRANT" means this Warrant and all Warrants issued in exchange, transfer or replacement of any thereof. (xii) "WARRANT EXERCISE PRICE" Shall be $3.00, subject to adjustment as hereinafter provided. 2 Section 2. EXERCISE OF WARRANT. (a) Subject to the terms and conditions hereof (including without limitation, Section 2(e) below), this Warrant may be exercised by the holder hereof then registered on the books of the Company, in whole or in part, at any time on any Business Day on or after the opening of business on the date hereof and prior to 11:59 P.M. California Time on the Expiration Date by (i) delivery of a written notice, in the form of the subscription notice attached as EXHIBIT A hereto (the "EXERCISE NOTICE"), of such holder's election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an amount equal to the Warrant Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (plus any applicable issue or transfer taxes) (the "AGGREGATE EXERCISE PRICE") in cash or by check or wire transfer or (B) by notifying the Company that it should subtract from the number of Warrant Shares issuable to the holder upon such exercise an amount of Warrant Shares having a last reported closing bid price (as reported by Bloomberg) on the date immediately preceding the date of the subscription notice equal to the Aggregate Exercise Price of the Warrant Shares for which this Warrant is being exercised (a "CASHLESS EXERCISE"), and (iii) the surrender to a common carrier for delivery to the Company as soon as practicable following such date, this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction); provided, that if such Warrant Shares are to be issued in any name other than that of the registered holder of this Warrant, such issuance shall be deemed a transfer and the provisions of Section 7 shall be applicable. In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a), a certificate or certificates for the Warrant Shares so purchased, in such denominations as may be requested by the holder hereof and registered in the name of, or as directed by, the holder, shall be delivered at the Company's expense to, or as directed by, such holder as soon as practicable, and in no event later than two (2) Business Days after the Company's receipt of the Exercise Notice, the Aggregate Exercise Price and this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction). Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in clause (ii)(A) above or notification to the Company of a Cashless Exercise referred to in clause (ii)(B) above, the holder of this Warrant shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of this Warrant as required by clause (iii) above or the certificates evidencing such Warrant Shares. In the case of a dispute as to the determination of the Warrant Exercise Price, the Company shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the holder via facsimile within two (2) Business Days of receipt of the holder's subscription notice. If the holder and the Company are unable to agree upon the determination of the Warrant Exercise Price or arithmetic calculation of the Warrant Shares within two (2) Business Days of such disputed determination or arithmetic calculation being submitted to the holder, then the Company shall immediately submit via facsimile (i) the disputed determination of the Warrant Exercise Price to an independent, reputable investment banking firm or (ii) the disputed arithmetic calculation of the Warrant Shares to its independent, outside accountant. The Company shall cause the investment banking firm or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the holder of the results no later than forty-eight (48) hours from the time it receives the disputed determinations 3 or calculations. Such investment banking firm's or accountant's determination or calculation, as the case may be, shall be deemed conclusive absent manifest error and the Company shall be liable for the costs and expenses related to such determination or calculation. (b) Unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than five (5) Business Days after any exercise and at its own expense, issue a new Warrant identical in all respects to this Warrant exercised except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant exercised, less the number of Warrant Shares with respect to which such Warrant is exercised. (c) No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock issued upon exercise of this Warrant shall be rounded up or down to the nearest whole number. (d) If the Company shall fail for any reason or for no reason to issue to the holder on a timely basis as described in this Section 2, a certificate for the number of shares of Common Stock to which the holder is entitled upon the holder's exercise of this Warrant or a new Warrant for the number of shares of Common Stock to which such holder is entitled pursuant to Section 2(b) hereof, the Company shall, in addition to any other remedies under this Warrant or the Securities Purchase Agreement or otherwise available to such holder, including any indemnification under the Securities Purchase Agreement, pay as additional damages in cash to such holder on each day the issuance of such Common Stock certificate or new Warrant, as the case may be, is not timely effected an amount equal to .25% of the product of (A) the sum of the number of shares of Common Stock not issued to the holder on a timely basis and to which the holder is entitled and/or, the number of shares represented by the portion of this Warrant which is not being converted, as the case may be, and (B) the average of the closing bid price of the Common Stock for the three consecutive trading days immediately preceding the last possible date which the Company could have issued such Common Stock or Warrant, as the case may be, to the holder without violating this Section 2. (e) The Company shall not affect any exercise of any Warrant and no holder of any Warrant shall have the right to exercise any Warrant pursuant to Section 2 to the extent that after giving effect to such exercise such Person (together with such Person's affiliates) (A) would beneficially own in excess of 4.9% of the outstanding shares of the Common Stock following such conversion and (B) would have acquired, through exercise of any Warrant or otherwise, in excess of 4.9% of the outstanding shares of the Common Stock following such exercise during the 60-day period ending on and including such exercise date. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by a Person and its affiliates or acquired by a Person and its affiliates, as the case may be, shall include the number of shares of Common Stock issuable upon exercise of the Warrants with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercisable Warrants beneficially owned by such Person and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by such Person and its affiliates. Except as set forth in the preceding sentence, for 4 purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the contrary contained herein, each Exercise Notice shall constitute a representation by the holder submitting such Exercise Notice that, after giving effect to such Exercise Notice, (A) the holder will not beneficially own (as determined in accordance with this Section 2(e)) and (B) during the 60-day period ending on and including such exercise date, the holder will not have acquired, through exercise of any Warrant or otherwise, a number of shares of Common Stock in excess of 4.9% of the outstanding shares of Common Stock as reflected in the Company's most recent Form 10-Q or Form 10-K, as the case may be, or more recent public press release or other public notice by the Company setting forth the number of shares of Common Stock outstanding, but after giving effect to exercise of any Warrant by such holder since the date as of which such number of outstanding shares of Common Stock was reported. Section 3. COVENANTS AS TO COMMON STOCK. The Company hereby covenants and agrees as follows: (a) This Warrant is, and any Warrant issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued. (b) All Warrant Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof. (c) During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least 200% of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant and the par value of said shares will at all times be less than or equal to the applicable Warrant Exercise Price. (d) The Company shall promptly secure the listing of the shares of Common Stock issuable upon exercise of this Warrant 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 upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. (e) The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but 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 of this Warrant in order to protect the exercise privilege of the holder of this Warrant against dilution or other 5 impairment, consistent with the tenor and purpose of this Warrant will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. (f) 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. Section 4. TAXES. The Company shall pay any and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant. Section 5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, no holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the holder of this Warrant of the Warrant Shares which he or she is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on such holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the Company will provide the holder of this Warrant with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders. Section 6. REPRESENTATIONS OF HOLDER. The holder of this Warrant, by the acceptance hereof, represents that it is acquiring this Warrant and Warrant Shares for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or Warrant Shares, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, the holder does not agree to hold this Warrant or Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. The holder of this Warrant further represents, by acceptance hereof, that, as of this date, such holder is an "accredited investor" as such term is defined in Rule 501(a) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act (an "ACCREDITED INVESTOR"). Section 7. OWNERSHIP AND TRANSFER. (a) The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name any Warrant is registered on 6 the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant. (b) This Warrant and the rights granted to the holder hereof are transferable, in whole or in part, upon surrender of this Warrant, together with a properly executed warrant power in the form of EXHIBIT B attached hereto; provided, however, that any transfer or assignment shall be subject to the conditions set forth in Section 7(c) below. (c) The holder of this Warrant understands that this Warrant has not been and is not expected to be, registered under the Securities Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (a) subsequently registered thereunder, or (b) such holder shall have delivered to the Company an opinion of counsel, in generally acceptable form, to the effect that the securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration; provided that (i) any sale of such securities made in reliance on Rule 144 promulgated under the Securities Act may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of such securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the Securities and Exchange Commission thereunder; and (ii) neither the Company nor any other person is under any obligation to register the Warrants under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. (d) The Company is obligated to register the Warrant Shares for resale under the Securities Act pursuant to the Registration Rights Agreement dated May 2, 2000 by and between the Company and the Buyers listed on the signature page thereto (the "REGISTRATION RIGHTS AGREEMENT") and the initial holder of this Warrant (and certain assignees thereof) is entitled to the registration rights in respect of the Warrant Shares as set forth in the Registration Rights Agreement. Section 8. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES. The Warrant 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 WARRANT 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 in accordance with Section 8(b) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued by the Company in connection with an Approved Stock Plan or upon exercise or conversion of the Other Securities) for a consideration per share less than the Warrant Exercise Price in effect immediately prior to such time (the "APPLICABLE PRICE"), then immediately after such issue or sale the Warrant Exercise Price then in effect shall be reduced to an amount equal to ninety percent (90%) of the consideration, if any, received by the Company upon such issue or sale. Upon each such adjustment of the Warrant Exercise Price 7 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 Warrant Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment. (b) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For purposes of determining the adjusted Warrant Exercise Price under Section 8(a) above, the following shall be applicable: (i) ISSUANCE OF OPTIONS. If the Company in any manner grants any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 8(b)(i), the "lowest price per share for which one share of Common Stock is issuable upon exercise of such Options or upon conversion or exchange of such Convertible Securities" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option and upon conversion or exchange of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 8(b)(ii), the "lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion or exchange of such Convertible Security. No further adjustment of the Warrant Exercise Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Warrant Exercise Price had been or are to be made pursuant to other provisions of this Section 8(b), no further adjustment of the Warrant Exercise Price shall be made by reason of such issue or sale. (iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion or exchange of any Convertible Securities, or the rate at which any Convertible 8 Securities are convertible into or exchangeable for Common Stock changes at any time, the Warrant Exercise Price in effect at the time of such change shall be adjusted to the Warrant Exercise Price which would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold and the number of shares of Common Stock acquirable hereunder shall be correspondingly readjusted. For purposes of this Section 8(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Warrant Exercise Price then in effect. (c) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For purposes of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b), the following shall be applicable: (i) CALCULATION OF CONSIDERATION RECEIVED. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01. If any Common Stock, Options or 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, Options or 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 of such securities for the twenty (20) consecutive trading days immediately preceding the date of receipt. If any Common Stock, Options or 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, Options or 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 holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding. 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 Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding. The determination of such appraiser shall be final and binding upon all parties and the fees and expenses of such appraiser shall be borne by the Company. (ii) 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 9 payable in Common Stock, Options or in Convertible Securities or (2) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue 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. (d) ADJUSTMENT OF WARRANT EXERCISE PRICE UPON SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at any time after the date of issuance of this Warrant subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased. If the Company at any time after the date of issuance of this Warrant combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately decreased. (e) DISTRIBUTION OF ASSETS. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other transaction) (a "DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each such case: (i) the Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Closing bid price on the trading day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company's Board of Directors) applicable to one share of Common Stock, and (B) the denominator shall be the Closing bid price on the trading day immediately preceding such record date; and (ii) either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i), or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities exchange or a national automated quotation system, then the holder of this Warrant shall receive an additional warrant to purchase Common Stock, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the amount of the assets that would have been payable to the holder of this Warrant pursuant to the Distribution had the holder exercised this Warrant immediately prior 10 to such record date and with an exercise price equal to the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i). (f) CERTAIN EVENTS. If any event occurs of the type contemplated by the provisions of this Section 8 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 Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the holders of the Warrants; provided that no such adjustment will increase the Warrant Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8. (g) NOTICES. (i) Immediately upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the holder of this Warrant, setting forth in reasonable detail, and certifying, the calculation of such adjustment. (ii) The Company will give written notice to the holder of this Warrant at least twenty (20) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder. (iii) The Company will also give written notice to the holder of this Warrant at least twenty (20) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder. (h) HOLDER'S RIGHT OF ALTERNATIVE WARRANT EXERCISE PRICE FOLLOWING ISSUANCE OF CONVERTIBLE SECURITIES OR OPTIONS. If after the Closing Date the Company in any manner issues or sells Convertible Securities or Options that are convertible into, exchangeable for or exercisable into Common Stock at a price which varies with the market price of the Common Stock (the formulation for such variable price being herein referred to as, the "VARIABLE PRICE"), the Company shall provide written notice thereof via facsimile and overnight courier to the registered holder hereof ("VARIABLE NOTICE") on the date of issuance of such Convertible Securities or Options. From and after the date the Company issues any such Convertible Securities or Options with a Variable Price, the holder shall have the right, but not the obligation, in its sole discretion to substitute the New Variable Formula (defined below) for the Warrant Exercise Price upon exercise of the Warrant by designating in the Exercise Notice delivered upon exercise of the Warrant that solely for purposes of such conversion the holder is relying on the New Variable Formula rather than the Warrant Exercise Price then in effect. The New Variable Formula shall be equal to ninety percent (90%) of the Variable Price. A 11 holder's election to rely on a New Variable Formula for a particular conversion of the Warrant shall not obligate such holder to rely on a New Variable Formula for any future exercise of Warrants. Section 9. PURCHASE RIGHTS; REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. (a) In addition to any adjustments pursuant to Section 8 above, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the holder of this Warrant will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (b) Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "ACQUIRING ENTITY") written agreement (in form and substance satisfactory to the holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding) to deliver to each holder of Warrants in exchange for such Warrants, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and satisfactory to the holders of the Warrants (including, an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the Warrants, if the value so reflected is less than the Warrant Exercise Price in effect immediately prior to such consolidation, merger or sale). Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding) to insure that each of the holders of the Warrants will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the exercise of such holder's Warrants, such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock which would have been acquirable and receivable upon the exercise of such holder's Warrant as of the date of such Organic Change (without taking into account any limitations or restrictions on the exerciseability of this Warrant). 12 Section 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an indemnification undertaking, issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed. Section 11. NOTICE. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: e-Net Financial.com Corporation 3200 Bristol Street, Suite 700 Costa Mesa, CA 92626 Telephone: (714) 557-2222 Facsimile: (714) 557-2204 - Attention: President - With copy to: Bryan Cave LLP 18881 Von Karman, Suite 1500 Irvine, CA 92612 Telephone: (949) 223-7000 Facsimile: (949)223-7100 Attention: Randolf W. Katz, Esq. If to a holder of this Warrant, to it at the address and facsimile number set forth on the Schedule of Buyers to the Securities Purchase Agreement, with copies to such holder's representatives as set forth on such Schedule of Buyers, or at such other address and facsimile as shall be delivered to the Company upon the issuance or transfer of this Warrant. Each party shall provide five days' prior written notice to the other party of any change in address or facsimile number. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. 13 Section 12. AMENDMENTS. This Warrant and any term hereof may be changed, waived, discharged, or terminated only by an instrument in writing signed by the party or holder hereof against which enforcement of such change, waiver, discharge or termination is sought. Section 13. DATE. The date of this Warrant is May 5, 2000. This Warrant, in all events, shall be wholly void and of no effect after the close of business on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section 7 shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant. Section 14. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of the Warrants may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding; provided that no such action may increase the Warrant Exercise Price of the Warrants or decrease the number of shares or class of stock obtainable upon exercise of any Warrants without the written consent of the holder of such Warrant. Section 15. DESCRIPTIVE HEADINGS; GOVERNING LAW. The descriptive headings of the several Sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be governed by the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. [Signature Page Follows] 14 This Warrant has been duly executed by the Company as of the date first set forth above. E-NET FINANCIAL.COM CORPORATION By: /s/ James Shipley ------------------------------------ James Shipley, Chief Executive Officer 15 EXHIBIT A TO WARRANT SUBSCRIPTION FORM TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT E-NET FINANCIAL.COM CORPORATION The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock ("WARRANT SHARES") of e-Net Financial.com Corporation, a Nevada corporation (the "COMPANY"), evidenced by the attached Warrant (the "Warrant"). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant. 1. FORM OF WARRANT EXERCISE PRICE. The Holder intends that payment of the Warrant Exercise Price shall be made as a "CASH EXERCISE" with respect to _______________________ Warrant Shares. 2. PAYMENT OF WARRANT EXERCISE PRICE. The holder shall pay the sum of $___________________ to the Company in accordance with the terms of the Warrant. 3. DELIVERY OF WARRANT SHARES. The Company shall deliver to the holder __________ Warrant Shares in accordance with the terms of the Warrant. Date: ----------------------------------- Name of Registered Holder By: ----------------------------------- Name: ----------------------------------- Title: ----------------------------------- 16 EXHIBIT B TO WARRANT FORM OF WARRANT POWER FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to ________________, Federal Identification No. __________, a warrant to purchase ____________ shares of the capital stock of e-Net Financial.com Corporation, a Nevada corporation, represented by warrant certificate no. _____, standing in the name of the undersigned on the books of said corporation. The undersigned does hereby irrevocably constitute and appoint ______________, attorney to transfer the warrants of said corporation, with full power of substitution in the premises. Dated: _______ __, 20__ ----------------------------------------------- By: -------------------------------------------- Name: --------------------------------------- Title: ----------------------------------- EX-10.27 13 0013.txt EXHIBIT 10.27 EXHIBIT 10.27 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of May 2, 2000, is entered into by and among e-Net Financial.com Corporation, a Nevada corporation, with headquarters located at 3200 Bristol Street, Suite 700, Costa Mesa, California 92626 (the "COMPANY"), and the undersigned buyers (each, a "BUYER" and collectively, the "BUYERS"). WHEREAS: A. In connection with the Securities Purchase Agreement by and among the parties dated as of May 2, 2000 (the "SECURITIES PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the conditions of the Securities Purchase Agreement, (i) to issue and sell to the Buyers 666,666 shares of the Company's common stock, no par value per share (the "COMMON Stock") and (ii) to issue 333,334 Warrants (the "WARRANTS") which will be exercisable to purchase Company Common Stock (the "WARRANT SHARES"); and B. To induce the Buyers to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "1933 ACT"), and applicable state securities laws. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Buyers hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: a. "INVESTOR" means a Buyer, any transferee or assignee thereof to whom a Buyer assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 10 and any transferee or assignee thereof to whom a transferee or assignee assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 10. b. "PERSON" means a corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency. c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous basis ("RULE 415"), and the declaration or ordering of effectiveness of such Registration Statement(s) by the United States Securities and Exchange Commission (the "SEC"). 1 d. "REGISTRABLE SECURITIES" means the Common Stock and the Warrant Shares issued or issuable upon exercise of the Warrants and any shares of capital stock issued or issuable with respect to the Common Stock, Warrants or Warrant Shares as a result of any stock split, stock dividend, recapitalization, exchange, anti-dilution rights, liquidated damages payment or similar event or otherwise, without regard to any limitation on the exercise of the Warrants. e. "REGISTRATION STATEMENT" means a registration statement of the Company filed under the 1933 Act and pursuant to Rule 415. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement. 2. REGISTRATION. a. MANDATORY REGISTRATION. The Company shall prepare, and, as soon as practicable, but in no event later than one hundred eighty (180) calendar days after the date hereof, file with the SEC a Registration Statement or Registration Statements (as is necessary) on Form SB-2 (or if such form is unavailable, such other form as is available for registration) covering the resale of all of the Registrable Securities. The initial Registration Statement prepared pursuant hereto shall register for resale at least that number of shares of Company Common Stock equal to the product of (x) two (2) and (y) the number of Registrable Securities as of the date immediately preceding the date the Registration Statement is initially filed with the SEC, subject to adjustment as provided in Section 3(b). The Company shall use its best efforts to have the Registration Statement declared effective by the SEC as soon as practicable, but in no event later than two hundred ten (210) calendar days after the date hereof. b. PIGGY-BACK REGISTRATIONS. If at any time prior to the expiration of the Registration Period (as defined in Section 3(a)) the Company proposes to file with the SEC a Registration Statement relating to an offering for its own account or the account of others under the 1933 Act of any of its securities (other than on Form S-8 (or their equivalents at such time) relating to equity securities issuable in connection with stock option or other employee benefit plans or on Form S-4 (or their equivalents at such time) relating to equity securities issuable in connection with a business combination) the Company shall promptly send to each Investor written notice of the Company's intention to file a Registration Statement and of such Investor's rights under this Section 2(b) and, if within twenty (20) days after receipt of such notice, such Investor shall so request in writing, the Company shall include in such Registration Statement all or any part of the Registrable Securities such Investor requests to be registered, subject to the priorities set forth in Section 2(b) below. No right to registration of Registrable Securities under this Section 2(b) shall be construed to limit any registration required under Section 2(a). The obligations of the Company under this Section 2(b) may be waived by the Buyers. If an offering in connection with which an Investor is entitled to registration under this Section 2(b) is an underwritten offering, then each Investor whose Registrable Securities are included in such Registration Statement shall, unless otherwise agreed by the Company, offer and sell such Registrable Securities in an underwritten offering using the same underwriter or underwriters and, subject to the provisions of this Agreement, on the same 2 terms and conditions as other shares of Company common stock included in such underwritten offering. If a registration pursuant to this Section 2(b) is to be an underwritten public offering and the managing underwriter(s) advise the Company in writing, that in their reasonable good faith opinion, marketing or other factors dictate that a limitation on the number of shares of Company common stock which may be included in the Registration Statement is necessary to facilitate and not adversely affect the proposed offering, then the Company shall include in such registration: (1) first, all securities the Company proposes to sell for its own account, (2) second, up to the full number of securities proposed to be registered for the account of the holders of securities entitled to inclusion of their securities in the Registration Statement by reason of demand registration rights, and (3) third, the securities requested to be registered by the Investors and other holders of securities entitled to participate in the registration, as of the date hereof, drawn from them pro rata based on the number each has requested to be included in such registration. c. ALLOCATION OF REGISTRABLE SECURITIES. The initial number of Registrable Securities included in any Registration Statement and each increase in the number of Registrable Securities included therein shall be allocated pro rata among the Investors based on the number of Registrable Securities held, or which could be held, by each Investor at the time the Registration Statement covering such initial number of Registrable Securities or increase thereof is declared effective by the SEC. In the event that an Investor sells or otherwise transfers any of such Person's Registrable Securities, each transferee shall be allocated a pro rata portion of the then remaining number of Registrable Securities included in such Registration Statement for such transferor. Any shares of Common Stock included in a Registration Statement and which remain allocated to any Person which ceases to hold any Registrable Securities shall be allocated to the remaining Investors, pro rata based on the number of Registrable Securities then held by such Investors. d. LEGAL COUNSEL. Subject to Section 5 hereof, the Buyers shall have the right to select one legal counsel to review and oversee any offering pursuant to this Section 2 ("LEGAL COUNSEL"). The Company shall reasonably cooperate with Legal Counsel in performing the Company's obligations under this Agreement. e. [Reserved.] f. RULE 416. The Company and the Investors each acknowledge that each Registration Statement prepared in accordance hereunder shall include an indeterminate number of Registrable Securities pursuant to Rule 416 under the 1933 Act so as to cover any and all Registrable Securities which may become issuable (i) to prevent dilution resulting from stock splits, stock dividends or similar transactions and (ii) if permitted by law, by reason of the anti-dilution provisions contained in the Certificate of Designations and the Warrants in accordance with the terms thereof (collectively, the "RULE 416 SECURITIES"). In this regard, the Company agrees to use all reasonable efforts to ensure that the maximum number of Registrable Securities which may be registered pursuant to Rule 416 under the 1933 Act are covered by each Registration Statement and, absent guidance from the SEC or other definitive authority to the contrary, the Company shall use all reasonable efforts to affirmatively support and to not take any position adverse to the position that each Registration Statement filed hereunder covers all of the Rule 416 Securities. If the Company determines that the Registration Statement 3 filed hereunder does not cover all of the Rule 416 Securities, the Company shall immediately (i) provide to each Investor written evidence setting forth the basis for the Company's position and the authority therefor and (ii) prepare and file an amendment to such Registration Statement or a new Registration Statement in accordance with Section 2(g). g. SUFFICIENT NUMBER OF SHARES REGISTERED. In the event the number of shares available under a Registration Statement filed pursuant to Section 2(a) is insufficient to cover all of the Registrable Securities or an Investor's allocated portion of the Registrable Securities pursuant to Section 2(c) (a "DEFICIT FAILURE"), the Company shall amend the Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover at least two hundred percent (200%) of such Registrable Securities in each case, as soon as practicable, but in any event not later than fifteen (15) days after the necessity thereof arises. The Company shall use it best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. For purposes of the foregoing provision, the number of shares available under a Registration Statement shall be deemed "insufficient to cover all of the Registrable Securities" if at any time the number of Registrable Securities issued or issuable upon exercise of the Warrants is greater than the quotient determined by dividing (i) the number of shares of Common Stock available for resale under such Registration Statement by (ii) two. 3. RELATED OBLIGATIONS. Whenever an Investor has requested that any Registrable Securities be registered pursuant to Section 2(b) or at such time as the Company is obligated to file a Registration Statement with the SEC pursuant to Section 2(a) or 2(g), the Company will use its best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations: a. The Company shall promptly prepare and file (but in no event later than one hundred eighty (180) calendar days after the date hereof) with the SEC a Registration Statement with respect to the Registrable Securities for the registration of Registrable Securities pursuant to Section 2(a) and use its best efforts to cause such Registration Statement relating to the Registrable Securities to become effective as soon as possible after such filing (but in no event later than two hundred seventy (270) calendar days after the date hereof for the registration of Registrable Securities pursuant to Section 2(a)), and keep such Registration Statement effective pursuant to Rule 415 at all times until the earlier of (i) the date as of which the Investors may sell all of the Registrable Securities without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto) or (ii) the date on which (A) the Investors shall have sold all the Registrable Securities and (B) none of the Warrants is outstanding (the "REGISTRATION PERIOD"), which Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. b. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the pro- 4 spectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. c. The Company shall permit Legal Counsel to review and comment upon a Registration Statement and all amendments and supplements thereto at least seven (7) days prior to their filing with the SEC, and not file any document in a form to which Legal Counsel reasonably objects. The Company shall not submit a request for acceleration of the effectiveness of a Registration Statement or any amendment or supplement thereto without the prior approval of Legal Counsel, which consent shall not be unreasonably withheld. The Company shall furnish to Legal Counsel, without charge, (i) any correspondence from the SEC or the staff of the SEC to the Company or its representatives relating to any Registration Statement, (ii) promptly after the same is prepared and filed with the SEC, one copy of any Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits and (iii) upon the effectiveness of any Registration Statement, one copy of the prospectus included in such Registration Statement and all amendments and supplements thereto. d. The Company shall furnish to each Investor whose Registrable Securities are included in any Registration Statement, without charge, (i) promptly after the same is prepared and filed with the SEC, at least one copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits, (ii) upon the effectiveness of any Registration Statement, ten (10) copies of the prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents, including copies of any preliminary or final prospectus, as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor. e. The Company shall use 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 in the United States as Legal Counsel or any Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(e), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall 5 promptly notify Legal Counsel and each Investor who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or "blue sky" laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose. f. In the event Investors who hold a majority of the Registrable Securities being offered in the offering select underwriters for the offering, the Company shall enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation,\ customary indemnification and contribution obligations, with the underwriters of such offering. g. As promptly as practicable after becoming aware of such event, the Company shall notify Legal Counsel and each Investor in writing of the happening of any event as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver ten (10) copies of such supplement or amendment to Legal Counsel and each Investor (or such other number of copies as Legal Counsel or such Investor may reasonably request). The Company shall also promptly notify Legal Counsel and each Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to Legal Counsel and each Investor by facsimile on the same day of such effectiveness and by overnight mail), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. h. The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify Legal Counsel and each Investor who holds Registrable Securities being sold (and, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose. i. At the request of any Investor, the Company shall furnish to such Investor, on the date of the effectiveness of the Registration Statement and thereafter from time to time on such dates as an Investor may reasonably request (i) if required by an underwriter, a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration State- 6 ment, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the underwriters and the Investors. j. The Company shall make available for inspection by (i) any Investor, (ii) Legal Counsel, (iii) any underwriter participating in any disposition pursuant to a Registration Statement, (iv) one firm of accountants or other agents retained by the Investors, and (v) one firm of attorneys retained by such underwriters (collectively, the "INSPECTORS") all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the "RECORDS"), as shall be reasonably deemed necessary by each Inspector, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each Inspector shall hold in strict confidence and shall not make any disclosure (except to an Investor) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the 1933 Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement of which the Inspector has knowledge. Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. k. The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow such Investor, at the Investor's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. l. The Company shall use its best efforts either to (i) cause all the Registrable Securities covered by a Registration Statement to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) secure designation and quotation of all the Registrable Securities covered by the Registration Statement on the Nasdaq National Market System or, if, despite the Company's best efforts to satisfy the preceding clause (i) or (ii), the Company is unsuccessful in satisfying the preceding clause (i) or (ii), to secure the inclusion for quotation on The Nasdaq SmallCap Market for such Registrable Securities and, without limiting the generality of the foregoing, to arrange for 7 at least two market makers to register with the National Association of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable Securities. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(l). m. [Reserved.] n. The Company shall provide a transfer agent and registrar of all such Registrable Securities not later than the effective date of such Registration Statement. o. If requested by the managing underwriters or an Investor, the Company shall (i) immediately incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriters and the Investors agree should be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and any other terms of the underwritten (or best efforts underwritten) offering of the Registrable Securities to be sold in such offering; (ii) make all required filings of such prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any Registration Statement if requested by a shareholder or any underwriter of such Registrable Securities. p. The Company shall use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities. q. [Reserved.] r. The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder and the Company shall use its best efforts to file with the SEC in a timely manner all reports and documents required of the Company under the 1933 Act and the 1934 Act (as defined in Section 6(a)). s. Within two (2) business days after the Registration Statement which includes the Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) confirmation that the Registration Statement has been declared effective by the SEC in the form attached hereto as EXHIBIT A. t. [Reserved.] u. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investors of Registrable Securities pursuant to a Registration Statement. 8 v. Notwithstanding anything to the contrary contained in this Agreement, the Registration Statement shall register only the Registrable Securities. 4. OBLIGATIONS OF THE INVESTORS. a. At least seven (7) days prior to the first anticipated filing date of the Registration Statement, the Company shall notify each Investor in writing of the information the Company requires from each such Investor if such Investor elects to have any of such Investor's Registrable Securities included in such Registration Statement. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself and the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. b. Each Investor by such Investor's acceptance of the Registrable Securities agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from such Registration Statement. c. In the event any Investor elects to participate in an underwritten public offering pursuant to Section 2, each such Investor agrees to enter into and perform such Investor's obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities. 5. EXPENSES OF REGISTRATION. All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company and fees and disbursements of Legal Counsel, shall be paid by the Company. 6. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement: a. To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Investor who holds such Registrable Securities, the directors, officers, partners, employees, agents, representatives of, and each Person, if any, who controls any Investor within the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 ACT"), and any underwriter (as defined in the 9 1933 Act) for the Investors, and the directors and officers of, and each Person, if any, who controls, any such underwriter within the meaning of the 1933 Act or the 1934 Act (each, an "INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in settlement or expenses, joint or several, (collectively, "INDEMNIFIED DAMAGES") incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto ("CLAIMS"), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other "blue sky" laws of any jurisdiction in which Registrable Securities are offered ("BLUE SKY FILING"), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement or (iv) any material violation of this Agreement (the matters in the foregoing clauses (i) through (iv) being, collectively, "VIOLATIONS"). The Company shall reimburse the Investors and each such underwriter or controlling person, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person or underwriter for such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(d); (ii) with respect to any preliminary prospectus, shall not inure to the benefit of any such person from whom the person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected in the prospectus, as then amended or supplemented, if such prospectus was timely made available by the Company pursuant to Section 3(d), and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a violation and such Indemnified Person, notwithstanding such advice, used it; (iii) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(d); and (iv) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written 10 consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 10. b. In connection with any Registration Statement in which an Investor is participating, each such Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement, each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to which any Indemnified Party may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(d), such Investor will reimburse any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 10. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented. c. The Company shall be entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar securities industry professionals participating in any distribution, to the same extent as provided above, with respect to information such persons so furnished in writing expressly for inclusion in the Registration Statement. d. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, 11 however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Company shall pay reasonable fees for only one separate legal counsel for the Investors, and such legal counsel shall be selected by the Investors holding a majority in interest of the Registrable Securities included in the Registration Statement to which the Claim relates. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. e. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred. f. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law. 7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no seller of Registrable Securities guilty of fraudulent misrep- 12 resentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. 8. REPORTS UNDER THE 1934 ACT. With a view to making available to the Investors the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration ("RULE 144"), the Company agrees to: a. make and keep public information available, as those terms are understood and defined in Rule 144; b. file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company's obligations under Section 4(c) of the Securities Purchase Agreement) and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and c. furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the investors to sell such securities pursuant to Rule 144 without registration. 9. RESERVED. 10. ASSIGNMENT OF REGISTRATION RIGHTS. The rights under this Agreement shall be automatically assignable by the Investors to any transferee of all or any portion of Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned; (iii) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act and applicable state securities laws; provided, however, that the transferee or assignee may subsequently transfer or assign all or any portion of the Registrable Securities if an exemption from registration under the 1933 Act is applicable to such transfer or assignment; (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein; and (v) such transfer shall have been made in accordance with the applicable requirements of the Securities Purchase Agreement. 13 11. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Investors who then hold two-thirds (2/3) of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 11 shall be binding upon each Investor and the Company. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Registrable Securities. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration also is offered to all of the parties to this Agreement. 12. MISCELLANEOUS. a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. b. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: e-Net Financial.com Corporation 3200 Bristol Street, Suite 700 Costa Mesa, California 92626 Telephone: (714) 557-2222 Facsimile: (714) 557-2204 Attention: President With a copy to: (which shall not constitute notice) Bryan Cave LLP 18881 Von Karman, Suite 1500 Irvine, California 92612 Telephone: (949) 223-7000 Facsimile: (949) 223-7100 Attention: Randolf W. Katz, Esq. 14 If to a Buyer, to it at the address and facsimile number set forth on the Schedule of Buyers attached hereto, with copies to such Buyer's representatives as set forth on the Schedule of Buyers, or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five days prior to the effectiveness of such change. c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. d. This Agreement shall be governed by and construed in all respects by the internal laws of the State of California (except for the proper application of the United States federal securities laws), without giving effect to any choice of law or conflict of law provision or rule (whether of the State of California or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of California. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting the City of Chicago, for the adjudication of any dispute hereunder. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. e. This Agreement, the Securities Purchase Agreement, the Certificate of Designations and the Warrants constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Securities Purchase Agreement, and the Warrants supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. f. Subject to the requirements of Section 10, this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto. g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. h. This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. i. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry 15 out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. j. All consents and other determinations to be made by the Investors pursuant to this Agreement shall be made, unless otherwise specified in this Agreement, by Investors holding a majority of the Registrable Securities, determined as if all of the Warrants then outstanding have been converted into Registrable Securities. k. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party. l. 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. IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of day and year first above written. COMPANY: BUYERS: E-NET FINANCIAL.COM CORPORATION JUPITER UNIT TRUST MANAGERS LIMITED, as discretionary investment manager of the Jupiter European Special Situations Fund By: By: -------------------------------------- ---------------------------- James Shipley, Chief Executive Officer , Director ------------------ 16 SCHEDULE OF BUYERS Investor's Address Investor's Name and Facsimile Number - ------------------------------------- ---------------------------------- RBSTB Nominees Limited (A/C 7019), as 67, Lombard Street trustee of the Jupiter European Special Situations Fund London EC3P 3DL England with a copy to: Jupiter Unit Trust Managers Limited 1, Grosvenor Place London SW1X 7JJ Attention: Richard P. Pease Fax: 011-44-20-7412-0705 EXHIBIT A FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT [TRANSFER AGENT] Attn: ---------------------- Re: E-NET FINANCIAL.COM CORPORATION Ladies and Gentlemen: We are counsel to e-Net Financial.com Corporation, a Nevada corporation (the "COMPANY"), and have represented the Company in connection with that certain Securities Purchase Agreement (the "PURCHASE AGREEMENT") entered into by and among the Company and the buyers named therein (collectively, the "HOLDERS") pursuant to which the Company issued to the Holders shares of its common stock, par value $ 0.001 per share (the "COMMON SHARES") and Warrants exercisable into its Common Stock (the "WARRANT SHARES"). Pursuant to the Purchase Agreement, the Company also has entered into a Registration Rights Agreement with the Holders (the "REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), consisting of the Common Shares and the Warrant Shares, under the Securities Act of 1933, as amended (the "1933 ACT"). In connection with the Company's obligations under the Registration Rights Agreement, on _________, 2000, the Company filed a Registration Statement on Form [S-1] (File No. _____________) (the "REGISTRATION STATEMENT") with the Securities and Exchange Commission (the "SEC") relating to the Registrable Securities which names each of the Holders as a selling stockholder thereunder. In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement. Very truly yours, [ISSUER'S COUNSEL] By: ----------------------------------- cc: [LIST NAMES OF HOLDERS] EX-21.1 14 0014.txt EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT Titus Real Estate, Inc., a Nevada corporation (wholly owned subsidiary) Titus Real Estate, LLC, a California limited liability company (indirect wholly owned subsidiary) American Residential Funding, Inc., a Nevada corporation (wholly owned subsidiary) Bravo Real Estate, Inc., a California corporation (wholly owned subsidiary) ExpiDoc.com, Inc., a California corporation (wholly owned subsidiary) E-Net Mortgage Corporation, a Nevada corporation (wholly owned subsidiary) LoanNet Mortgage, Inc., a Kentucky corporation (majority owned subsidiary) EX-27.1 15 0015.txt EXHIBIT 27.1
5 1 10-mos Apr-30-2000 Jul-01-1999 Apr-30-2000 285,583 0 339,037 37,436 0 694,693 275,596 34,051 4,871,093 3,500,763 0 0 1,140,697 19,854 79,130 4,871,093 0 4,689,170 0 3,411,750 3,059,374 0 14,945 (1,796,899) 0 (1,796,899) 0 0 0 (1,796,899) (0.22) (0.22)
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