ADDENDUM TO CONVERTIBLE DEBENTURE AND
WARRANT TO PURCHASE COMMON STOCK
This Addendum to Convertible Debenture and Warrant to Purchase Common Stock
("Addendum") is entered into as of the ____ day of November 2004 by and between
Direct Response Financial Services, Inc., a Colorado corporation ("Direct"), and
La Jolla Cove Investors, Inc., a California corporation ("LJCI").
WHEREAS, Direct and LJCI are parties to that certain 8% Convertible Debenture
dated as of January 9, 2003 ("Debenture"); and
WHEREAS, Direct and LJCI are parties to that certain Warrant to Purchase Common
Stock dated as of January 9, 2003 ("Warrant"); and
WHEREAS, the parties desire to amend the Debenture and Warrant in certain
respects.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Direct and LJCI agree as follows:
1. All terms used herein and not otherwise defined herein shall have the
definitions set forth in the Debenture.
2. Direct shall immediately commence the process to file a Registration
Statement containing at least 50,000,000 Common Shares on behalf of LJCI.
If, at anytime after the date hereof, Direct stops the filing of the
Registration Statement, Direct shall be liable to LJCI for $75,000 in
liquidated damages.
3. Direct shall immediately deliver 464,134 Direct Common Shares to LJCI for
the Debenture conversion and Warrant exercise submitted by LJCI on
September 14, 2004.
4. Direct shall immediately deliver 10,000 Direct Common Shares to LJCI to
make up the shortfall in the delivery of Common Shares for the Debenture
conversion and Warrant exercise submitted by LJCI on August 10, 2004.
5. LJCI shall advance $50,000 (less the amount of interest owed by Direct
under the Debenture) to Direct upon receiving notice that the SEC will be
conducting a limited review of the Registration Statement referred to in
section 1 above. LJCI shall advance an additional $100,000 to Direct upon
receiving notice that the Registration Statement referred to in section 1
above has been declared effective by the SEC and the underlying shares are
freely tradable. Such funds shall represent a prepayment towards the
exercise of Warrant Shares under the Warrant, the timing of which shall be
at LJCI's sole discretion. Direct shall not be able to prevent LJCI from
converting the Debenture and shall not be able to prepay the Debenture,
regardless of the price of the Stock, in connection with the Debenture
conversions associated with such Warrant prepayments. LJCI shall account
for no more than 18% of the daily volume in Direct's common stock with
sales of the Common Shares received from using such Warrant prepayment
credits.
6. Direct shall immediately deliver 20,000,000 Direct restricted Common
Shares, registered in the name of LJCI, to Xxxx X. Atlas, Esq., who shall
hold the shares in trust as a joint escrow agent for Direct and LJCI. Such
shares may only be released by Xxxx X. Atlas, Esq. pursuant to valid
Debenture conversion and Warrant exercise notices submitted by LJCI per
the terms of section 6(a) below. Such restricted Common Shares shall be
included in the Registration Statement referred to in section 2 above. As
to the terms of this section 6, Xxxx X. Atlas, Esq. shall act hereunder in
accordance with his duties and obligations as an individual attorney
licensed in the State of California, and not in his capacity as general
counsel to LJCI.
a. When LJCI desires to submit a Debenture conversion and Warrant
exercise notice, it shall do so as follows. LJCI shall submit
conversion and exercise documents in writing, via facsimile to
Direct. Upon Direct receiving the conversion and exercise documents,
Direct shall, within 24 hours, either: (1) order up the
corresponding stock certificate from Direct's stock transfer agent
for delivery to LJCI, or (2) notify LJCI's counsel, in writing, of
Direct's election to have the converted shares be distributed to
LJCI out of the shares held in trust by LJCI's counsel pursuant to
section 6 above.
7. Direct, or its nominee, shall have the option to repurchase any Common
Shares to be issued for future Debenture conversions and Warrant exercises
under the following procedure. Direct shall fax notice to LJCI indicating
the number of Direct Common Shares to be purchased, with delivery
instructions for the purchaser if the transaction is to be done off the
market. Within one business day of receiving such notice, LJCI shall
submit a Debenture conversion and Warrant exercise to obtain at least that
number of Common Shares that Direct or its nominee desires to purchase.
LJCI shall not sell the number of Common Shares that Direct or its nominee
desires to purchase for a period of two business days following submission
of the Debenture conversion and Warrant exercise, during which time LJCI
must receive the purchase price for the Common Shares in good funds. The
purchase price for the Common Shares shall be 92% of the average of the
volume weighted average price of Direct's Common Shares on the five
Trading Days prior to date that LJCI receives the notice from Direct.
8. Except as specifically amended herein, all other terms and conditions of
the Debenture and Warrant shall remain in full force and effect.
IN WINESS WHEREOF, Direct and LJCI have caused this Addendum to be signed by its
duly authorized officers on the date first set forth above.
Direct Response Financial Services, Inc. La Jolla Cove Investors, Inc.
By: __________________________ By: __________________________
Name: ________________________ Name: ________________________
Title: _______________________ Title: _______________________
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