-----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, Q1emI+L0bgHXM98p39h8O6Z27YIWrD/PfLIFH9I7lR1NKZ4zOZ7u45VSIcnrY574 4bGA1Cd3ozk2K3Ft5nmhEA== 0001013816-05-000452.txt : 20050909 0001013816-05-000452.hdr.sgml : 20050909 20050909150709 ACCESSION NUMBER: 0001013816-05-000452 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20050909 DATE AS OF CHANGE: 20050909 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: FACE2FACE ANIMATION INC CENTRAL INDEX KEY: 0001103316 IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 600 MOUNTAIN AVENUE CITY: MURRAY HILL STATE: NJ ZIP: 07974 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: EDENTIFY, INC. CENTRAL INDEX KEY: 0001091938 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 000000000 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-80119 FILM NUMBER: 051077565 BUSINESS ADDRESS: STREET 1: 74 WEST BROAD STREET STREET 2: SUITE 350 CITY: BETHLEHEM STATE: PA ZIP: 18018 BUSINESS PHONE: 6108146830 MAIL ADDRESS: STREET 1: 74 WEST BROAD STREET STREET 2: SUITE 350 CITY: BETHLEHEM STATE: PA ZIP: 18018 FORMER COMPANY: FORMER CONFORMED NAME: BUDGETHOTELS NETWORK INC DATE OF NAME CHANGE: 20030516 FORMER COMPANY: FORMER CONFORMED NAME: BUDGETHOTELS COM INC DATE OF NAME CHANGE: 19990728 SC 13D 1 sch13d_90805.txt SCHEDULE 13D SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 SCHEDULE 13D (RULE 13D-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) EDENTIFY, INC. (Name of Issuer) COMMON STOCK, $0.001 PAR VALUE PER SHARE (Title of Class of Securities) 279657 10 0 (CUSIP Number) JOHN P. DOROCKI FACE2FACE ANIMATION, INC. 2 KENT PLACE BOULEVARD, SUMMIT, NEW JERSEY 07901 (908) 598-7460 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) AUGUST 29, 2005 (Date of Event Which Requires Filing of This Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [ ] SCHEDULE 13D - ---------------------- -------------------------------------------- ------------ CUSIP NO. 279657 10 0 Page 2 of 6 - ---------------------- -------------------------------------------- ------------ - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS face2face animation, inc. - ------ ------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [ ] - ------ ------------------------------------------------------------------------- 3 SEC USE ONLY - ------ ------------------------------------------------------------------------- 4 SOURCE OF FUNDS 00 - ------ ------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - ------ ------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER 8,500,000 SHARES ----------- ------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER 0 OWNED BY ----------- -------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER 8,500,000 REPORTING ----------- -------------------------------------------------- PERSON WITH 10 SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,500,000 - ------ ------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] - ------ ------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 33.3% - ------ ------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON CO - ------ ------------------------------------------------------------------------- SCHEDULE 13D ITEM 1. SECURITY AND ISSUER: This statement relates to shares of common stock, $0.001 par value per share (the "Common Stock"), of Edentify, Inc. (f/k/a Budgethotels Network, Inc.), a Nevada corporation (the "Issuer"). The principal executive offices of the Issuer are located at 74 West Broad Street, Suite 350, Bethlehem, Pennsylvania 18018. ITEM 2. IDENTITY AND BACKGROUND: This statement is being filed by face2face animation, inc., a Delaware corporation (the "Reporting Person"). The principal business of the Reporting Person is the design and development of media and computer software. The business address of the Reporting Person is 2 Kent Place Boulevard, Summit, New Jersey 07901. The directors of the Reporting Person are George D. Caravias, John P. Dorocki and Jeffery S. McCormick (the "Directors"). Mr. McCormick is the director nominee of Saturn Capital, Inc., a Massachusetts corporation ("Saturn"). Mr. McCormick has advised the Reporting Person that he is in sole control of Saturn. The executive officers of the Reporting Person (the "Executive Officers") and their respective positions with the Reporting Person are as follows: John P. Dorocki Executive Chairman George D. Caravias Chief Executive Officer Dr. Eric D. Petajan Chief Scientist The business address of Messrs. Dorocki, Caravias and Petajan is c/o face2face animation, inc., 2 Kent Place Boulevard, Summit, New Jersey 07901. The business address of Mr. McCormick and Saturn is c/o Saturn Management, Inc., 75 Federal Street, Boston, Massachusetts. The principal occupation of Mr. Dorocki is Executive Chairman of the Reporting Person. The principal occupation of Mr. Caravias is Chief Executive Officer of the Reporting Person. The principal occupation of Mr. Petajan is Chief Scientist of the Reporting Person. The principal occupation of Mr. McCormick is President of Saturn. The business of Saturn is investment banking and venture capital. Neither the Reporting Person nor any of the Directors, Executive Officers or Saturn has been convicted, during the last five years, in a criminal proceeding (excluding traffic violations or similar misdemeanors). -3- Neither the Reporting Person nor any of the Directors, Executive Officers or Saturn has been, during the last five years, a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, Federal or State securities laws or finding any violation with respect to such laws. Each of the Directors and Executive Officers is a citizen of the United States. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION: Pursuant to the terms of a Share and Warrant Issuance Agreement, dated as of May 27, 2005, between the Issuer and the Reporting Person (the "Issuance Agreement"), the Issuer issued to the Reporting Person, as of August 29, 2005, 7,500,000 shares of Common Stock and a warrant to purchase 1,000,000 shares of Common Stock (the "Warrant") in consideration of the Reporting Person's execution and delivery of a Patent and Technology License Agreement, dated as of May 27, 2005 (the "License Agreement"), and a Development Agreement, dated as of May 27, 2005 (the "Development Agreement"), and the grant to the Issuer of the rights thereunder. Pursuant to the License Agreement, the Reporting Person, among other things, provided to the Issuer an exclusive license to use the Licensed Technology for Security Applications (each as defined in the License Agreement). 5,000,000 of the 7,500,000 shares of Common Stock are held in escrow by the Issuer until certain conditions set forth in the Issuance Agreement have been fulfilled or waived. During the escrow period, the Reporting Person has the right to vote such shares and to own any dividends issued with respect thereto. ITEM 4. PURPOSE OF TRANSACTION: The Reporting Person has acquired the Common Stock and Warrant as consideration for its execution and delivery of the License Agreement and the Development Agreement. Although the Reporting Person acquired approximately 33.3% of the Issuer's outstanding shares of Common Stock, the Reporting Person does not currently intend to exercise any control over the Issuer. The Reporting Person, however, may engage in communications with management, directors or other shareholders of the Issuer from time to time to discuss the affairs of the Issuer. The Reporting Person may also engage in communications with potential customers of the Issuer who want to sublicense the Issuer's technology and with suppliers who will be integrating with the Issuer's technology. The Reporting Person intends to monitor the business and affairs of the Issuer, including its financial performance, and depending upon these factors, market conditions and other factors, may acquire additional shares of Common Stock as it deems appropriate, in open market purchases, privately negotiated transactions or otherwise. Alternatively, the Reporting Person may dispose of some or all of the shares of Common Stock in the open market, in privately negotiated transactions or otherwise. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER: As indicated in Item 3 of this Schedule 13D, 5,000,000 of the 7,500,000 shares of Common Stock are held in escrow with the Reporting Person having sole voting power over 7,500,000 shares and sole dispositive power over 2,500,000 shares. Therefore, the Reporting Person beneficially owned in the aggregate 7,500,000 shares of Common Stock and the Warrant to purchase 1,000,000 shares of Common Stock, as of August 29, 2005. As such, the Reporting -4- Person beneficially owned, as of such date, approximately 33.3% of the outstanding Common Stock. The number of outstanding shares of Common Stock is based on information provided to the Reporting Person by the Issuer on September 8, 2005. The Warrant, with terms set forth in a Common Stock Purchase Warrant, is exercisable for five years commencing August 29, 2005 at an exercise price of $1.00 per share. The Directors may be deemed to have: o shared voting power over the 7,500,000 shares of Common Stock held by the Reporting Person o shared dispositive power over the 2,500,000 shares of Common Stock held by the Reporting Person and o shared voting and dispositive power over the 1,000,000 shares of Common Stock issuable upon exercise of the Warrant. None of the Directors, Executive Officers or Saturn own any shares of Common Stock. Neither the Reporting Person nor any of the Directors, Executive Officers or Saturn has effected any transactions in the Common Stock during the past 60 days. No person other than the Reporting Person has any right to receive or the power to direct the receipt of dividends from, or the proceeds of the sale of, any of the Common Stock beneficially owned by the Reporting Person. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER: The information set forth in Item 3 and in Item 5 (with respect to the Common Stock Purchase Warrant) of this Schedule 13D is incorporated herein by reference. Other than the Issuance Agreement and the Common Stock Purchase Warrant, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the Reporting Person or between such persons and any other person with respect to any securities of the Issuer, including but not limited to transfer or voting of any such securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS: Exhibit 1 Issuance Agreement Exhibit 2 Common Stock Purchase Warrant -5- SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: September 9, 2005 FACE2FACE ANIMATION, INC. By: /s/ John P. Dorocki -------------------------- John P. Dorocki Executive Chairman -6- EX-99 2 sch13d_90805ex1.txt EXH. 1 SHARE ISSUANCE AGREEMENT Exhibit 1 Execution Copy SHARE AND WARRANT ISSUANCE AGREEMENT Share and Warrant Issuance Agreement (this "Agreement") dated as of May 27, 2005 by and between BUDGETHOTELS NETWORK INC., a Nevada corporation, which shall be renamed Edentify, Inc. ("Issuer"), and FACE2FACE ANIMATION, INC., a Delaware corporation ("Licensor"). W I T N E S S E T H : WHEREAS, Issuer is the sole shareholder of Edentify, Inc. (a Delaware corporation), which is the sole shareholder of InMotion Biometrics, Inc.("InMotion"); WHEREAS, Edentify, InMotion, and Licensor, are parties to that certain Patent and Technology License Agreement dated as of the date hereof (the "License Agreement"), pursuant to which, among other things, Licensor is providing to Issuer an exclusive license (the "License") to the Technology and Patents (as defined therein) and that certain Development Agreement dated as of the date hereof (the "Development Agreement"), pursuant to which, among other things, Licensor is developing for Issuer certain Deliverables (as defined therein), each on the terms set forth therein; WHEREAS, it is a condition precedent to each of the License Agreement and Development Agreement that Licensor and Issuer enter into this Agreement; WHEREAS, Issuer desires to issue to the Licensor (i) seven million five hundred thousand (7,500,000) shares (the "Shares") of the common stock, par value $.0001 per share, of Issuer (the "Common Stock") and (ii) warrants exercisable for one million (1,000,000) shares of Common Stock of Issuer in substantially the form attached hereto as Exhibit A (the "Warrants," and together with the Shares, the "Securities"), and the Licensor agrees to accept the Securities from Issuer in consideration for the grant of the License and the entering into of the Development Agreement, upon the terms and conditions hereinafter set forth; and WHEREAS, Issuer shall not have sufficient shares to issue to Licensor until such time as Issuer has completed a 1-for-10 reverse split of its Common Stock. NOW, THEREFORE, in consideration of the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. ISSUANCE OF THE SECURITIES. In consideration of Licensor's execution and delivery of the License Agreement and Development Agreement, and the grant to Issuer of the rights provided thereunder, Issuer hereby issues and grants the Securities to Licensor, with the delivery of the Securities to Licensor as follows: a. At Closing (as hereinafter defined), Issuer shall deliver to Licensor one or more stock certificates representing two million five hundred thousand (2,500,000) shares of Common Stock (the "Closing Shares"); b. At Closing, Issuer shall deliver to Licensor the Warrants; c. Upon acceptance of the Product by Issuer pursuant to the Development Agreement (which acceptance shall not be unreasonably withheld), Issuer shall promptly deliver or cause to be delivered to Licensor one or more stock certificates representing two million five hundred thousand (2,500,000) shares of Common Stock; and d. Upon the closing of a sublicense or other agreement between Issuer and a customer relating to the Product, Issuer shall promptly deliver or cause to be delivered to Licensor one or more stock certificates representing two million five hundred thousand (2,500,000) shares of Common Stock. 2. ESCROW OF SHARES; NONDELIVERY. The balance of the shares not delivered to Licensor at Closing pursuant to subparagraphs 1(c) and (d) hereof shall be held in escrow by Issuer for the benefit of Licensor until the conditions of subparagraph 1(c) and 1(d) have been fulfilled or waived; it being understood that Licensor shall have the exclusive rights during such escrow period to vote such shares and own any dividends issued with respect thereto. In the event that the conditions to delivery set forth in subparagraph 1(c) hereof are not met prior to June 30, 2007 or the conditions to delivery set forth in subparagraph 1(d) hereof are not met prior to June 30, 2007, the portion of such shares to the extent such conditions have not been satisfied shall be forfeited by Licensor. In the event Issuer does not timely deliver to Licensor any portion of the Securities as provided under Section 1 hereof, Issuer shall immediately pay to Licensor (in addition to its obligations to deliver said Securities) the sum of $100,000 in cash. In addition, in the event Issuer does not timely register any of the Securities as provided in Section 6 hereof, at the option of Licensor Issuer shall immediately issue and deliver to Licensor 1,920,000 shares of Common Stock (subject to adjustment for stock dividends and the like) provided Licensor returns to Issuer all unexercised Warrants delivered to Licensor (it being understood that to the extent any unexercised Warrants were transferred by Licensor and can no longer be returned to Issuer, said 1,920,000 shares of Common Stock shall be reduced by the amount of shares of Common Stock exercisable upon exercise of the unexercised Warrants which were transferred by Licensor, if any). 3. CLOSING. The closing on this Share and Warrant Issuance agreement (the "Closing") shall take place at the offices of Issuer on such date as the Closing Shares are available for issuance by Issuer but, in any event no later than July 31, 2005. 4. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents and warrants to the Licensor as of the date hereof and as of the Closing as follows: a. Issuer has the corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement and the issuance of the Securities contemplated hereby have been duly authorized by all necessary corporate action on the part of Issuer. This Agreement constitutes the valid and legally binding obligation of Issuer, enforceable against Issuer in accordance with its terms, except as may be limited by principles of equity or by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally. b. The Securities are duly and validly issued, fully paid and non-assessable and free and clear of all liens, encumbrances, security interests, restrictions, options or other restrictions other than those imposed upon the Securities pursuant to applicable federal and state securities laws. c. Issuer (formerly budgethotels.com, Inc.) was incorporated under the laws of the State of Nevada on November 5, 1997, as Info Center International, Inc., and, to our knowledge, is in good standing under the laws of the jurisdiction in which it was formed. d. The authorized capital of Issuer consists of 50,000,000 shares of Common Stock authorized with 50,000,000 shares of Common Stock outstanding. e. Prior to July 31, 2005, Issuer intends to complete a reverse 1-for-10 reverse split of its common stock in order to have sufficient shares of its common stock available for issuance to Licensor under this Agreement. 5. REPRESENTATIONS AND WARRANTIES OF THE LICENSOR. The Licensor hereby represents and warrants to Issuer as of the Closing as follows: a. The Licensor has the requisite power, capacity and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. All action on the part of the Licensor necessary for the authorization, execution, delivery and performance of this Agreement has been taken. b. This Agreement constitutes the valid and binding obligation of the Licensor, enforceable against the Licensor in accordance with its terms, except as may be limited by principles of equity or by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally. c. Licensor is acquiring the shares of Issuer to be received by it, for investment, for its own account, and not with a view to the distribution of the Issuer shares. In such connection, Licensor further represents and warrants that it understands that Issuer is issuing the Issuer shares that it is designated to receive, to it in reliance upon an exemption from the registration requirements pursuant to Section 5 of the Securities Act (as hereinafter defined) and the rules and regulations thereunder. Licensor agrees that the Issuer Shares (other than those shares to be registered pursuant to this paragraph following such registration) may not be sold, transferred, pledged, hypothecated, assigned or otherwise disposed of by it unless Issuer shall have been supplied with evidence reasonably satisfactory to it and its counsel that such transfer is not in violation of the Securities Act. Furthermore, Licensor understands that the certificates for the Issuer shares shall bear an appropriate restrictive legend to reflect the foregoing restrictions and that stop transfer instructions will be placed against the Issuer shares with respect thereto. Licensor consents to the placing of such legend on the certificates for the Issuer shares. d. Licensor is capable of fulfilling the requirements of the Development Agreement. 6. REGISTRATION RIGHTS. a. DEMAND RIGHT. For a period of one (1) year commencing no later than ninety (90) days after the Closing, Licensor shall have the right to make one demand for Issuer to file a registration statement under the Securities Act of 1933 (the "Securities Act") on Form SB-2 (or such other form as is available to Issuer) (a "Registration Statement"), as amended covering the resale of no more than five hundred thousand (500,000) (the "Registrable Shares") of the Shares in the open market and shall maintain such Registration Statement as effective for a continuous period lasting until the earlier of (i) twelve (12) months from the date of effectiveness of such registration or (ii) such time as all the Registrable Shares desired to be registered by Licensor have been sold (the "Effectiveness Period"). b. PIGGYBACK RIGHTS. In addition to the foregoing, if at any time during the Effectiveness Period there is not one or more Registration Statements covering the resale of all Shares and Issuer shall determine to prepare and file with the SEC a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than of Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then Issuer shall send to Licensor written notice of such determination at least 20 calendar days prior to the filing of such registration statement and if, within 15 calendar days after receipt of such notice Licensor shall so request in writing, Issuer shall include in such registration statement the Closing Shares requested by Licensor to be so included. c. RIGHTS WITH REGARD TO SHARES UNDERLYING WARRANTS. Licensor shall have such registration rights with respect to the shares of Common Stock underlying the Warrants as are set forth in a registration rights agreement provided to investors of Issuer in any offering of securities commenced within ninety (90) days after the Closing of this Agreement. To the extent such agreement is not entered into, Licensor shall be entitled to similar registration rights afforded to the Closing Shares. d. VOLUME RESTRICTIONS ON SALE OF REGISTERED SHARES. Licensor shall sell no more than 25% of the Registrable Shares per quarter (the "Volume Restriction") during the Effectiveness Period, provided however, that in the event Licensor sells less than the Volume Restriction in any given quarter, the percentage remaining unsold may be accumulated towards and sold in successive quarters. Notwithstanding the foregoing, Licensor may not sell more than 50% of the Registrable Shares during any given quarter unless such sale is during the fourth quarter of the Effectiveness Period. 7. SURVIVAL. All covenants, agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement. 8. FURTHER ASSURANCES. Licensor and Issuer shall execute and deliver all such other documents and instruments and take any other action as may be reasonably required by the other party to effectuate the purposes of this Agreement. 9. ASSIGNMENT. Issuer may not assign this Agreement or its rights hereunder without the prior written consent of Licensor. 10. ENTIRE AGREEMENT; AMENDMENT. This Agreement, together with the License Agreement and the Development Agreement, contain the entire agreement and understanding between the parties with respect to the subject matter hereof, and supersede any and all prior or contemporaneous agreements between them. No modification, amendment, alteration or change in the terms of this Agreement shall be effective unless same shall be in writing and signed by both of the parties hereto. 11. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware, without giving effect to principles of conflict of laws. 12. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original but both of which when taken together shall constitute one and the same instrument. 13. SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, and the parties agree to negotiate, in good faith, a legal and enforceable substitute provision which most nearly effects the parties' intent in entering into this Agreement. IN WITNESS WHEREOF, the parties have executed this Share and Warrant Issuance Agreement as of the day and year first above written. ISSUER: BUDGETHOTELS NETWORK, INC. By: /s/ T. DeFranco ----------------------------------- Name: T. DeFranco Title: CEO LICENSOR: FACE2FACE ANIMATION, INC. By: /s/ John Dorocki ----------------------------------- Name: John Dorocki Title: Executive Chairman EX-99 3 sch13d_90805ex2.txt EXH. 2 WARRANT Exhibit 2 Warrant No. CN05- - --- --- NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES COMMON STOCK PURCHASE WARRANT To Purchase Shares of Common Stock of EDENTIFY, INC. THIS COMMON STOCK PURCHASE WARRANT (the "WARRANT") certifies that, for value received, FACE2FACE ANIMATION, INC. (the "HOLDER"), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the "INITIAL EXERCISE DATE") and on or prior to the close of business on the fifth anniversary of the Initial Exercise Date (the "TERMINATION DATE") but not thereafter, to subscribe for and purchase from EDENTIFY, INC., a Nevada corporation (the "COMPANY"), of one million (1,000,000) shares of common stock, par value $.0001 of the Company (the "WARRANT SHARES"). The purchase price of one Warrant Shares under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b). This Warrant and the Warrant Shares exercisable hereunder are subject to certain registration rights as provided under that certain Share and Warrant Issuance Agreement (the "SHARE ISSUANCE AGREEMENT") dated as of May 27, 2005 by and between the Company and Holder. SECTION 1. DEFINITIONS. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Share Issuance Agreement. SECTION 2. EXERCISE. a) EXERCISE OF WARRANT. Exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company) that shall provide for the exercise of all or part of the Warrant Shares; PROVIDED, HOWEVER, within give (5) Business Days of the date said Notice of Exercise is delivered to the Company, the Holder shall have surrendered this Warrant to the Company and the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier's check drawn on a United States bank. b) EXERCISE PRICE. The exercise price of each Warrant Share under this Warrant shall be one dollar ($1.00) (the "EXERCISE PRICE"). c) MECHANICS OF EXERCISE. i. AUTHORIZATION OF WARRANT SHARES. The Company covenants that all Warrant Shares that may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. ii. DELIVERY OF CERTIFICATES UPON EXERCISE. Certificates for shares purchased hereunder shall be transmitted by the transfer agent of the Company to the Holder by crediting the account of the Holder's prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission ("DWAC") system if the Company is a participant in such system, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within three (3) Business Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant and payment of the aggregate Exercise Price as set forth above ("WARRANT SHARE DELIVERY DATE"). This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vii) prior to the issuance of such shares, have been paid. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof. iii. DELIVERY OF NEW WARRANTS UPON EXERCISE. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. iv. RESCISSION RIGHTS. If the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares pursuant to this Section 2(e)(iv) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise. v. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share that Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price. vi. CHARGES, TAXES AND EXPENSES. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; PROVIDED, HOWEVER, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. vii. CLOSING OF BOOKS. The Company will not close its stockholder books or records in any manner that prevents the timely exercise of this Warrant, pursuant to the terms hereof. SECTION 3. CERTAIN ADJUSTMENTS. a) FUNDAMENTAL TRANSACTION. If, at any time while this Warrant is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "FUNDAMENTAL TRANSACTION"), then, upon any subsequent conversion of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise absent such Fundamental Transaction, at the option of the Holder, (a) upon exercise of this Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Alternate Consideration receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event or (b) if the Company is acquired in an all cash transaction, cash equal to the value of this Warrant as determined in accordance with the Black-Scholes option pricing formula (the "ALTERNATE CONSIDERATION"). If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder's right to exercise such warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 3(a) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant with substantially the same form as this warrant and consistent with the foregoing provisions and evidencing the Holder's right to convert such warrant into Alternate Consideration. In furtherance thereof, in the event a Public Liquidity Company is not the Company, the Public Liquidity Company shall issue a new warrant in substantially the same form as this Warrant. b) VOLUNTARY ADJUSTMENT BY COMPANY. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. c) NOTICE TO HOLDERS. i. ADJUSTMENT TO EXERCISE PRICE. Whenever the Exercise Price is adjusted pursuant to this Section 3, the Company shall promptly mail to each Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. ii. NOTICE TO ALLOW EXERCISE BY HOLDER. If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder at its last addresses as it shall appear upon the Warrant Register of the Company, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; PROVIDED, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to exercise this Warrant during the 20-day period commencing the date of such notice to the effective date of the event triggering such notice. SECTION 4. TRANSFER OF WARRANT. a) TRANSFERABILITY. Subject to compliance with any applicable securities laws and the conditions set forth in Sections 5(a) and 4(d) hereof and to the provisions of Section 4.1 of the Share Issuance Agreement, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued. b) NEW WARRANTS. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer that may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. c) WARRANT REGISTER. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "Warrant Register"), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary. d) TRANSFER RESTRICTIONS. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an "accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a qualified institutional buyer as defined in Rule 144A(a) under the Securities Act. SECTION 5. MISCELLANEOUS. a) TITLE TO WARRANT. Prior to the Termination Date and subject to compliance with applicable laws and Section 4 of this Warrant, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the Holder in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. The transferee shall sign an investment letter in form and substance reasonably satisfactory to the Company. b) NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price (or by means of a cashless exercise), the Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment. c) LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. d) SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. e) AUTHORIZED SHARES. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate 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 of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Before taking any action that would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. f) JURISDICTION. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Share Issuance Agreement. g) RESTRICTIONS. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. h) NONWAIVER AND EXPENSES. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, that results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. i) NOTICES. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Share Issuance Agreement. j) LIMITATION OF LIABILITY. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant or purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. k) REMEDIES. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. l) SUCCESSORS AND ASSIGNS. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares. m) AMENDMENT. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder. n) SEVERABILITY. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. o) HEADINGS. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized. Dated: August 29, 2005 EDENTIFY, INC. By: /s/ Terrence DeFranco --------------------------------- Name: Terrence DeFranco Title: President NOTICE OF EXERCISE TO: EDENTIFY, INC. (1) The undersigned hereby elects to purchase Warrant Shares of Edentify, Inc. pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. The Warrant Subscription Allocation is $ of which $ remains outstanding. ------------- ----------- (2) Payment shall take the form of (check applicable box): [ ] in lawful money of the United States; or [ ] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c). (3) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below: ---------------------------------------- The Warrant Shares shall be delivered to the following: ---------------------------------------- ---------------------------------------- ---------------------------------------- (4) ACCREDITED INVESTOR. The undersigned is an "accredited investor" as defined in Regulation D promulgated under the Securities Act of 1933, as amended. [SIGNATURE OF HOLDER] Name of Investing Entity: ------------------------------------------------------ SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY: -------------------------- Name of Authorized Signatory: --------------------------------------------------- Title of Authorized Signatory: -------------------------------------------------- Date: -------------------------------------------------------------------------- ASSIGNMENT FORM (To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to whose address is - ----------------------------------------------- . - --------------------------------------------------------------- - --------------------------------------------------------------- Dated: , -------------- ------- Holder's Signature: ------------------------------- Holder's Address: ------------------------------- Signature Guaranteed: ------------------------------------------- NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. -----END PRIVACY-ENHANCED MESSAGE-----