Exhibit 2
Cove Hill Consulting, Inc.
Xxx Xxx Xxxxx Xxxx
Xxxxxxxx 0, Xxx 0X
Xxxx Xxxxxxx, XX 00000
Telephone: (603) 643 - 8880 * Fax: (603) 643 - 9778
Xxxxx 00, 0000
Xxxxx Xxxxxxxxxx
Xxxxxx Direct Financial Holdings, Inc.
Xxxxx 0000-00, 00 Xxxxxxxx
Xxx Xxxx, XX 00000
Re: Consulting Engagement Agreement
Dear Xxxxx,
This letter shall serve to confirm the engagement by Dupont Direct Financial
Holdings, Inc, its affiliates or designees, ("Client") of Cove Hill Consulting,
Inc. or its designees ("CHC") as a service provider to Client in connection with
Client's desire to facilitate Client's growth and development, to build
awareness of Client in the financial, investor and business communities and gain
investor recognition and acceptance. Client has requested that CHC provide a
variety of services described below under "Scope of Services" and CHC has agreed
to do so. Client's principal operating subsidiary is in business as a
broker-dealer.
1. Scope of Services. CHC will perform such of the following services as
Client may reasonably request:
1.1 Assist Client in the drafting and distribution of news releases
relating to actions and events within Client's business that are
newsworthy and require public disclosure.
1.2 Advise Client on various means by which news and publicity about Client
can be disseminated to bring Client to the attention of prospective
investors.
1.3 Introduce Client to various financing options that may enable Client to
further its growth and development.
1.4 Introduce specific products or services to Client that might enable
Client to better profit from its existing or prospective business
activities.
1.5 Become familiar to the extent CHC deems appropriate with the business,
operations, financial condition and prospects of Client.
2. Confidentiality. With respect to confidentiality, CHC and Client agree
as follows:
2.1 CHC agrees not to, without Client's consent: (i) use "Confidential
Information" (defined below) for CHC's own use or for any purpose
except to perform the services contemplated by this Agreement; and (ii)
disclose Confidential Information to any third parties. CHC agrees to:
(x) protect the confidentiality of, and take all reasonable steps to
prevent unauthorized disclosure or use of, the Confidential Information
and to prevent it from falling into the public domain or the possession
of unauthorized persons; (y) take not less than the same steps, and use
not less than the same methods, to prevent the unauthorized use or
disclosure of the Confidential Information as CHC takes to protect its
own confidential and proprietary information; and (z) promptly notify
Client of any misappropriation or misuse by any person of Confidential
Information that may come to CHC's attention. "Confidential
Information" means any information, materials, technical data, market
information, business plans, drawings, strategies or know-how, of
Client, which is disclosed in writing, via electronic media, orally
communicated, or in any other way communicated to CHC during the term
of this Agreement. Confidential Information also includes information
regarding Client's business associates and customers, the nature of
Client's relationship to or technology developed with those business
associates or customers, and any information described above that may
originate from Client's business associates or customers. Confidential
Information shall not include information, materials, technical data or
know-how which (1) is in CHC's possession at the time of disclosure as
shown by, among other things, CHC's files and written records
immediately prior to the time of disclosure; (2) prior to or after the
time of disclosure becomes public knowledge or part of public
literature, not as a result of any inaction or action of CHC; (3) is
disclosed to CHC by a third party having the right to disclose such
information without any violation of any rights of or obligations to
Client; or (4) is approved for release by written authorization of
Client.
2.2 Client agrees that any advice rendered by CHC during the course of the
engagement in meetings with Client's management and Client's Board of
Directors, and any written materials provided, by CHC, will be solely
for the confidential use of Client's management and Board of Directors
and will not be reproduced, summarized, described or referred to or
given to any person for any purpose without CHC's prior written
consent.
2.3 CHC and Client agree to consult with each other before issuing any
press release with respect to this Agreement or the transactions
contemplated by the letter of intent between the parties of even date
herewith.
3. Compensation. CHC will be compensated for its services in the following
manner:
3.1 Beginning with the signing and dating of this letter, CHC will receive
$4,000 per month in advance commencing on the date of this letter.
Subsequent payments of $4,000 per month will continue starting 30 days
after the date of this letter.
3.2 Client will reimburse CHC for all out-of-pocket expenses incurred by
CHC for postage, communications, travel, and entertainment incurred in
connection with CHC's engagement hereunder. Such reimbursements will be
at cost.
3.3 Invoices for fees and expense reimbursements will be submitted monthly
and paid promptly upon submission by CHC of statements to Client.
4. Purchase and Sale of Restricted Common Stock. On the date hereof,
Client is issuing to CHC 750,000 shares of Client's common stock, par
value $0.01 per share ("Common Stock") for the cash purchase price of
$0.40 per share to be paid by CHC, receipt of which purchase price is
hereby acknowledged by Client. The Common Stock consists of newly
issued fully-paid and nonassessable shares of Common Stock free and
clear of all liens and encumbrances except the restrictions on transfer
set forth in this Agreement. The Common Stock will be evidenced by
certificates issued in the name of CHC.
5. Representations and Warranties of Client. The parties make the
representations and warranties to each other which are set forth in
this Section 5 and in Section 6. All such representations and
warranties and all representations and warranties which are set forth
elsewhere in this Agreement shall survive the execution and delivery of
this Agreement (and none will merge into any instrument of conveyance),
regardless of any investigation or lack of investigation by any party.
Client hereby represents and warrants to CHC that, except as set forth
on a Schedule of Exceptions (the "Schedule of Exceptions") furnished to
CHC, specifically identifying the relevant subparagraph hereof, which
exceptions shall be deemed to be representations and warranties as if
made hereunder:
5.1 Capitalization and Voting Rights. The authorized capital of Client
consists of:
(a) Preferred Stock. 1,000,000 shares of Preferred Stock, par
value $0.01 per share (the "Preferred Stock"), none of which
are outstanding.
(b) Common Stock. 25,000,000 shares of Common Stock, of which
9,101,756 shares are issued and outstanding, excluding the
shares of Common Stock referred to in Section 4.
(c) The outstanding shares of Common Stock are all duly and
validly authorized and issued, fully paid and nonassessable,
and we were issued in accordance with the registration or
qualification provisions of the Securities Act of 1933, as
amended (the "Securities Act") and any relevant state
securities laws or pursuant to valid exemptions therefrom.
5.2 Authorization. All corporate action on the part of Client, its
officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all
obligations of Client hereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Common Stock being
issued hereunder has been taken, and this Agreement constitutes the
valid and legally binding obligation of Client, enforceable in
accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights
generally, and (ii) as limited by laws relating to the availability of
specific performance, injunctive relief, or other equitable remedies.
5.3 Valid Issuance of Common Stock. The Common Stock being issued pursuant
to this Agreement is duly and validly issued, fully paid, and
nonassessable, and is free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable
state and federal securities laws.
5.4 Governmental Consents. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing
with, and federal, state or local governmental authority on the part of
Client is required in connection with the consummation of the
transactions contemplated by this Agreement, except for the filing
pursuant to SEC Form D, which filing will be effected within 15 days
following the date hereof.
5.5 Private Placement. Subject in part to the truth and accuracy of CHC's
representations set forth in Section 5 of this Agreement, the offer,
sale and issuance of the Common Stock as contemplated by this Agreement
are exempt from the registration requirements of the Act, and neither
Client nor any authorized agent acting on its behalf will take any
action hereafter that would cause the loss of such exemption. Without
limitation of the foregoing, Client represents that in connection with
this placement of Common Stock: (a) Client has engaged in no general
solicitation or advertising and has limited this placement to CHC
alone; (b) Client will cause stop-transfer instructions to be noted on
the stock transfer books for the shares of the Common Stock issued
pursuant to this Agreement; and (c) Client will place a legend on the
certificates for such Common Stock stating in substance that:
"The shares of Common Stock represented by this certificate have not
been registered under the Securities Act of 1933, as amended (the
"Act"), or any applicable state securities laws and are subject to
transfer restrictions set forth in that certain Consulting Engagement
Agreement dated March 22, 2001 between the issuer and Cove Hill
Consulting, Inc. and may not be transferred unless either (i) the
transferee agrees in writing for the benefit of the issuer to be bound
by the provisions of such agreement, or (ii) the transfer is covered by
an effective registration statement under the Act."
5.6 SEC Reports. Client has timely filed all reports and other documents
required to be filed by it with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934, as amended
("Exchange Act") from and after August 8, 2000, and Client has made
available to CHC complete and correct copies of all annual reports,
quarterly reports, proxy statements and other reports filed by Client
with the SEC under the Exchange Act from and after such date
(collectively, the "SEC Reports"). Each SEC Report was on the date of
its filing in compliance in all material respects with the requirements
of its respective report form and did not on the date of filing 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 the light of the circumstances under which they were or
will be made, not misleading, and as of the date hereof there is no
fact or facts not disclosed in the SEC Reports that relate specifically
to Client or any of its subsidiaries and which could, individually or
in the aggregate, reasonably be expected to have a material adverse
effect on Client or its subsidiaries taken as a whole.
5.7 Compliance with Other Instruments. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby and thereby will not result in any such violation
or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that
results in the creation of any lien, charge or encumbrance upon any
assets of Client or the suspension, revocation, impairment, forfeiture,
or nonrenewable of any material permit, license, authorization, or
approval applicable to Client, its business or operations or any of its
assets or properties.
5.8 Registration Rights. Except as provided in this Agreement and as
otherwise disclosed to CHC in writing, Client has not granted or agreed
to grant any registration rights, including piggyback rights, to any
person or entity.
5.9 Affiliates and Control Persons. The only (a) persons or entities which
may be an "affiliate" (as defined in Rule 405 under the Securities Act)
of the Company; or (b) persons directly or indirectly controlling, or
controlled by, the Company, or under direct or indirect common control
with the Company, are named in the Schedule of Exceptions.
6. Representatives and Warranties of CHC. CHC hereby represents and
warrants that:
6.1 Authorization. CHC has full power and authority to enter into this
Agreement and such Agreement constitutes CHC's valid and legally
binding obligation, enforceable in accordance with its terms.
6.2 Purchase Entirely for Own Account. This Agreement is made with CHC in
reliance upon CHC's representation to Client, which by CHC's execution
of this Agreement CHC hereby confirms, that the Common Stock to be
received by CHC will be acquired for investment for CHC's own account,
not as a nominee or agent, and not with a view to the distribution or
public resale of any part thereof, and that CHC has no present
intention of selling, granting any participation in, or otherwise
distributing the same except in a privately negotiated transaction to a
single accredited, sophisticated purchaser, Capacity Unlimited, Inc.,
an Oregon corporation ("CU"), in which CU will remain subject to
continuing resale restrictions, or in one or more transactions covered
by the registration statement or registration statements provided for
in the registration rights agreement referred to in Section 8. By
executing this Agreement, CHC further represents that CHC does not have
any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third
person, with respect to any of the Common Stock, and does not intend to
enter into any such arrangement except as disclosed herein.
6.3 Investment Experience. CHC is an investor in securities of companies in
the an early stage and acknowledges that it is able to fend for itself,
can bear the economic risk of its investment, and has such knowledge
and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment in the Common Stock.
CHC also represents it has not been organized for the purpose of
acquiring the Common Stock.
6.4 Accredited Investor. CHC's sole stockholder is an "accredited investor"
within the meaning of SEC Rule 501 of Regulation D, as presently in
effect.
6.5 Restricted Securities. CHC understands that the shares of Common Stock
which CHC is acquiring are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired
from Client in a transaction not involving a public offering and that
under such laws and applicable regulations such securities may be
resold without registration under the Act, only in certain limited
circumstances. In this connection, CHC represents that it is familiar
with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
6.6 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, CHC further agrees not to make any
disposition of all or any portion of the Common Stock acquired pursuant
to this Agreement unless and until:
(a) the transferee has agreed in writing for the benefit of Client
to be bound by this Section 3, provided and to the extent this
Section is then applicable; or
(b) there is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is
made in accordance with such Registration Statement and CHC
shall have notified Client of the proposed disposition and
shall have furnished Client with a detailed statement of the
circumstances surrounding the proposed disposition. It is
agreed that Client will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual
circumstances.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be necessary for a
transfer by CHC to a shareholder of CHC.
7. Mutual Indemnification.
7.1 To the extent permitted by law, Client will indemnify and hold harmless
each of CHC and its officers, directors, employees and agents, and each
person, if any, who controls CHC within the meaning of the Securities
Act or the Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under
the Securities Act, or the Exchange Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any inaccuracy in any
of Client's representations and warranties contained in this Agreement;
and Client will pay to CHC and each such other person, as incurred, any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in
this subsection 7.1 shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such settlement
is effected without the consent of Client (which consent shall not be
unreasonably withheld), nor shall Client be liable in any such case for
any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon the gross negligence or willful
misconduct of CHC or any such other person.
7.2 To the extent permitted by law, CHC will indemnify and hold harmless
Client, each of its directors, each of its officers, directors,
employees and agents, and each person, if any, who controls Client
within the meaning of the Securities Act, or the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based
upon any inaccuracy in any of CHC's representations and warranties
contained in this Agreement; and CHC will pay to Client and each such
other person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 7.2 shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of CHC
(which consent shall not be unreasonably withheld), nor shall CHC be
liable in any such case for any such loss, claim, damage, liability, or
action to the extent that it arises out of or is based upon the gross
negligence or willful misconduct of Client or any such other person.
7.3 Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is
to be made against any indemnifying party under this Section 7, 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 the defense thereof
with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party (together with all other indemnified parties
which may be represented without conflict by one counsel) shall have
the right to retain one separate counsel, with the fees and expenses to
be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests
between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than
under this Section 7.
7.4 If the indemnification provided for in this Section 7 is held by a
court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such
loss, liability, claim, damage, or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on
the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability,
claim, damage, or expense as well as any other relevant equitable
considerations.
7.5 The obligations of Client and CHC under this Section shall survive the
purchase and sale of the Common Stock, and the termination or
expiration of the engagement, provided for in this Agreement.
8. Certain Additional Covenants.
8.1 Rule 144; Integration. As long as any Common Stock issued pursuant to
this Agreement is held by CHC, CU or its assignees, Client shall file
all reports required to be filed by it under the Securities Act and the
Exchange Act and shall take such further action as CHC or its assignees
may reasonably request, all to the extent required to enable CHC or
such assignees to sell any of the Common Stock pursuant to and in
accordance with Rule 144 under the Securities Act to the extent that a
registration statement covering resales by CHC may not then be in
effect. Such action shall include, but not be limited to, making
available adequate current public information meeting the requirements
of paragraph (c) of such Rule 144.
8.2 Web Site and Public Relations. Client will develop and maintain a
website. Included within the website will be a public relations page
and a bulletin board for tracking Client's stock price, graphing
ability for both stock price and volume and press releases. CHC will
have responsibility for recommending, and for posting, press releases,
which shall be posted only if approved by Client.
8.3 Financial Public Relations Liaison. Client will hire or designate a
financial public relations liaison responsible for generating and
clearing press releases (commencing with a press release prior to the
Signing Date announcing CHC's investment), answering public inquiries,
maintaining investor financial packets and transmitting to Client and
CHC periodic summaries of inquiries.
8.4 Further Assurances. The parties shall execute such further documents,
and perform such further acts, as may be reasonably necessary to convey
the Common Stock covered hereby, on the terms herein contained, and to
otherwise comply with the terms of this Agreement and consummate the
transactions herein contemplated, in each case at the requesting
party's expense.
9. Securities Registration. At or prior to the time of issuance of the
Common Stock, Client will execute and deliver to CHC a registration
rights agreement ("Registration Rights Agreement") in form and
substance approved by CHC covering the Common Stock to be issued
pursuant to this Agreement.
10. Independent Contractors. The relationship of the parties under this
Agreement is that of independent contractors. Nothing contained in this
Agreement shall be construed as to constitute the parties as partners
or joint venturers, to constitute either party the agent of the other
or to constitute any employee or agent of either party an employee or
agent of the other party.
11. Termination. CHC's engagement hereunder may be terminated by either
Client or CHC at any time, with or without cause, upon written notice
to the other party; provided, however, that (a) no such termination
shall affect CHC's right to expense reimbursement under Section 3
hereof, and (b) if CHC and/or other investors introduced by CHC enter
into the Warrant Agreements, the engagement provided for in Sections 1
through 3 of this Agreement shall terminate no later than the 60th day
following the last exercise of the warrants issued pursuant thereto.
12. Disputes. The parties agree that any and all disputes, claims or
controversies arising out of or relating to this Agreement that are not
resolved by their mutual agreement shall be submitted to final and
binding arbitration before a single arbitrator selected in accordance
with the Commercial Arbitration Rules of the American Arbitration
Association in effect at the time of filing the demand for arbitration,
pursuant to the United States Arbitration Act, 9 U.S.C. Sec. 1 et seq.
Either party may commence the arbitration process called for in this
Agreement by filing a written demand for arbitration, with a copy to
the other party. The parties will cooperate with one another in
selecting an arbitrator from an appropriate panel of neutrals, and in
scheduling the arbitration proceedings. The parties covenant that they
will participate in the arbitration in good faith, and that they will
share equally in its costs. The provisions of this Section 12 may be
enforced by any Court of competent jurisdiction, and the party seeking
enforcement shall be entitled to an award of all costs, fees and
expenses, including attorneys fees, to be paid by the party against
whom enforcement is ordered.
13. Notices. All notices under this Agreement shall be in writing and shall
be: (a) delivered personally; (b) mailed by registered or certified
mail, postage prepaid; or (c) sent by overnight courier; or (d) sent by
facsimile or express mail to the addresses of the respective parties
set forth on page one or such substituted address as to which either
party has notified the other in accordance with this Section 13. Notice
shall be effective: (i) upon receipt if personally delivered, (ii) on
the second business day following the date of mailing if sent by
registered or certified mail; (iii) on the business day following the
date of delivery to the express mail or courier service if sent by
express mail or courier service; and (iv) on the date of transmission
if sent by facsimile; provided that receipt is confirmed electronically
and a transmission is confirmed by sending a copy promptly by first
class mail, postage prepaid. A party may change its address listed
above by sending notice to the other party in accordance with this
Section 13.
14. Interpretation, etc. The validity and interpretation of this letter
shall be governed by, and construed and enforced in accordance with,
the laws of the State of New York applicable to agreements made and to
be fully performed therein. This Agreement may not be modified or
amended except in writing executed by the parties hereto. This
Agreement constitutes the entire Agreement between the parties with
respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements or understandings with respect to such
subject matter. This letter, and any modification or amendment thereto,
may be executed in multiple counterparts, each of which shall be deemed
an original and all of which shall constitute one and the same
instrument.
If the foregoing correctly sets forth our agreement, please so indicate by
signing below and returning an executed copy to us.
Very truly yours,
COVE HILL CONSULTING, INC.
By: __________________________________
Xxxxx Xxxxxxx, Jr.,
Managing Director
ACCEPTED AND AGREED TO:
DUPONT DIRECT FINANCIAL HOLDINGS, INC.
By: ________________________
Signature
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