POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934, as amended
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EDnet, INC.
(Name of Small Business Issuer in its charter)
Colorado 84-1273795
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Union Street, San Francisco, California 94111
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (415) 274-8800
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be registered: each class is to be registered:
NONE NOT APPLICABLE
Securities to be registered under Section 12(g) of the Act:
Common Stock ($.001 par value per share)
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(Title of Class)
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This Form 10-SB includes forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from management expectations
as discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, the following: risks associated with
fundraising and the Company's ability to secure resources necessary to remain
viable as a going concern; business conditions in the telecommunications,
entertainment and advertising industries, and the general economy; competitive
factors such as rival networking technology, competing products and competitive
pricing; risks associated with the development, introduction and acceptance of
new products; the Company's ability to manage its rapid growth and attract and
retain key employees; and other risk factors. See "Part I - Item 6. Description
of Business - Plan of Operation" below).
PART I
ALTERNATIVE 2
ITEM 6 (OF MODEL B OF FORM 1-A). DESCRIPTION OF BUSINESS
Summary of Business
EDnet, Inc., a Colorado corporation (the "Company"), develops and
markets integrated systems for the delivery, storage and management of
professional-quality digital communications for media-based applications,
including audio and video production for the U.S. advertising and entertainment
industry. The Company has established a private wide-area network through
strategic alliances with long distance carriers, regional telephone companies,
satellite operators and independent fiber optic telecommunications providers,
which enables the exchange of high quality audio, compressed video and
multimedia data communications. The Company provides engineering services,
application-specific technical advice, audio, video and networking hardware and
software as part of its business. Additionally, the Company provides Internet
web site development, hosting services and proprietary software to businesses
conducting Internet commerce.
Industry Overview
The digital communications industry originated in the 1970's based on
the ability of digital technology to support new and advanced communication
capabilities. Digital data can be compressed, enabling data-dense applications
such as the instantaneous exchange of large amounts of data and high-quality
concurrent (or "real-time") interactive communication over any distance. The
Company's primary expertise is in systems integration using digital networking
technology.
Business of the Company
Principal Markets. The Company sells its services to the advertising
and entertainment industry, including production and post-production companies,
advertisers, producers, directors
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and actors. The Company's networking technology makes it possible for producers,
directors and actors to interact in real time, with less interruption of their
schedules, despite being in separate locations. The Company's management
("Management") believes that this is of growing importance in the entertainment
industry because while the production of audio and video entertainment is
inherently a creative process requiring the collaboration of many parties,
increasingly, the participants in this process are in separate locations.
Traditionally, this fact has accounted for frequent travel and delay being a
necessary element of the audio and video production process. The Company's
technology is designed to address this situation by allowing the collaborative
process to go forward despite physical separation.
The Company has established a "network" of recording studios; to join
this network a studio generally enters into an agreement with the Company to
become part of the network for a term of three years. Being part of the
Company's network allows a studio (which the Company refers to as an "affiliate
studio") to establish a link with, and therefore transmit audio and video
information to, any other affiliate studio. An affiliate studio may also
participate in joint promotional and advertising activities describing the
Company's network of affiliate studios, has access to certain technical support
described below and a software directory of affiliate studios. Affiliate Studios
also are charged lower "link-up" rates than those charged to non-affiliate
studios to connect to studios with incompatible equipment. Currently, the
network is composed of over 300 studios across North America, with major
concentrations in California, Seattle, St. Louis, Chicago, Minneapolis, Atlanta
and on the East Coast from Washington, D.C. to New York and Boston. By granting
access to its network, the Company earns one-time fees from customers for the
sale and installation of its equipment and ongoing fees for the use of the
network.
Audio and Video Network System Development Process. The Company has
standardized its process for developing audio and video network communications
systems for its customers. At the time that the Company contracts with a new
audio or video network customer, the Company's personnel obtain and determine
technical information and specifications regarding the customer's existing
facility, equipment and communications requirements. Based on those
specifications, the Company determines the configuration of the new system,
selects the appropriate equipment components, makes necessary modifications to
the software and/or hardware and performs final quality control procedures. The
Company then packages and ships the system to the customer. Installation of the
system can usually be performed by affiliated technicians with telephonic
support from Company engineers. Upon installation of the system, the Company's
technical personnel typically perform a routine series of system checks and
diagnostics from its headquarters facilities via the remote network connection
to ensure that the newly-installed equipment functions properly.
Technical Support. As part of a customer's monthly network connection
fee, the Company maintains a staff of technical support personnel to respond to
customer inquiries during business hours. For emergency support during
non-business hours, domestic customers can contact Company personnel through a
toll-free 800 number, while a special direct-dial telephone number is available
for international customers. The Company generally can resolve the vast majority
of technical support issues directly through its network connection, which
enables
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Company personnel to perform remote diagnostics directly on a customer's
equipment. In the event that the Company is unable to diagnose and service a
hardware or software problem via the remote network connection, a customer can
ship equipment to the Company for on-site, or "bench," diagnostics and service.
Key Suppliers and Alliances. The Company functions as a systems
integrator by acquiring other companies' technologies and combining them into an
effective communications solution. The Company does not manufacture any of the
components used in its network, but rather purchases digital communications
equipment components directly from their manufacturers, including Dolby Labs,
Telos and APT, Inc. The Company performs installation services and further
equipment integration. Because the individual components used in the Company's
systems are available from more than one reliable source or manufacturer,
Management believes the risk of an adverse impact to the Company's business from
an interruption in supply from any single supplier is minimal. The Company also
maintains an ongoing inventory of all of the components of its various
communications products. Most of the Company's suppliers have offices and/or
distribution points near the Company's San Francisco headquarters. In the event
that the Company does not have sufficient inventory on-hand to fulfill a system
hardware order, the Company can usually order and receive additional inventory
with turnaround times of as little as twenty-four hours and generally no more
than four weeks.
Marketing. The Company markets its services through a combination of
employing a direct sales staff of four full-time employees and by appearing at
industry trade shows.
Description of Current and Developing Products
Audio Media Networking Services. The Company develops integrated system
solutions (its "Audio Media Communications Service") which provide compression
and transmission of studio quality audio signals over fiber optic lines (i.e.,
telephone digital data lines) between separate studios. The audio data can also
be accompanied by time codes so that operators at the different studios can
synchronize the audio to film projectors or VCR machines in order to allow the
"real time" editing of movies and video. Upon installation of an audio media
communications system and the requisite sound equipment, a studio becomes an
affiliate studio,"equipped with a device to compress, send, receive and
decompress analog audio media (known as a "codec"). In addition, the studio
becomes a part of the Company's network of media production and post production
studios. Outside customers (non-affiliates) seeking to access media production
facilities or otherwise review or edit an audio clip with the assistance of a
person in a different location can do so through these affiliate studios. By
using the Company's Electronic Directory Software, someone in an affiliate
studio can determine whether that studio, or another affiliate studio, operates
equipment that is compatible with the needs of the customer. Once the
appropriate affiliate studio is chosen, the customer can schedule an appointment
to use the network. If nearby studios do not have compatible equipment, the
Company's personnel in San Francisco can digitally "bridge" the studios
together. The customer then pays a network access fee to the Company. The
purchase price of these audio media communications systems ranges from $5,250 to
$18,000. The Company pays local telephone
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service providers telephone connection installation charges (depending upon
bandwidth requirements, from $250 to $1,000) and monthly recurring connection
charges (from $50 to $1,200), most of which is reimbursed to the Company by its
customers. The primary market for the Audio Media Communications Service are
radio and television advertisers, motion picture and television program
production companies and music recording companies.
The Company recently announced a network application which is designed
especially for the music recording industry. The Company's "ZeroC" (for zero
compression) technology provides fiber-optic transmission of real-time,
uncompressed digital audio, using the true CD standard of 44.1 Khz sampling at
16 bits. The system relays, in real playback time, the audio bits of an AES/EBU
digital audio datastream with no re-sampling or rate adaption.
Video Media Networking Services. The Company is currently developing a
video communications service (its "Fast Forward Delivery System") which is
similar to its Audio Media Communications Service. Through the use of similar
equipment located at affiliate studios, the Company manages the transmission of
approval-quality video segments between studios. The Fast Forward Delivery
System transmits information on a 128 kilobit ("ISDN") data line, which has
dial-up capability, and operates on the same principle as the Audio Media
Communications Service except that the transmission does not happen in "real
time." However, using this technology, video media producers and their customers
can efficiently and effectively transmit edits, approvals, or modifications to
video and other types of media, including special effects media and graphic
media (including prints and logos). Management believes its system is similar to
e.mail for video and, compared to conventional methods of transmitting video,
i.e., mail or physical travel, can significantly increase the speed and
efficiency of the video editing process, and anticipates spending approximately
$200,000 in the current year in developing the Fast Forward Delivery System and
installing the necessary equipment in affiliate studios.
As with the Company's Audio Networking Services, outside customers
(non-affiliates) seeking to access media production facilities or otherwise
review or edit video with the assistance of a person in a different location can
do so by paying a fee to use an affiliate studio. The customer also pays a
network access fee to the Company. The purchase price of the Fast Forward
Delivery System ranges from $15,000 to $50,000. The Company pays local telephone
service providers telephone connection installation charges (depending upon
bandwidth requirements, from $250 to $1,000) and monthly recurring connection
charges (from $50 to $1,200), most of which is reimbursed to the Company by its
customers. The primary market for the Fast Forward Delivery System are
television advertisers, motion picture and television series production
companies and other corporate video users.
Currently, six Fast Forward Delivery Systems are in use by several
television series projects in Australia, Canada and Hollywood, California.
Internet WebSite Development and Hosting Services. The Company is also
in the Internet services marketplace. In June 1996, in order to increase its
potential to deliver high-quality audio and other media over the Internet, the
Company consummated a transaction whereby Internet Worldwide Business Solutions,
a California corporation, dba Internet Business
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Solutions ("IBS"), an Internet services provider specializing in the development
and hosting of web sites for companies doing business on the Internet, merged
with and into a subsidiary of the Company. The Company thus improved its ability
to integrate numerous technologies to yield cost-effective media communications
solutions. IBS provides interactive web site development services, specializing
in complex database access and professional graphic appearance for its corporate
customers. Web site development services are sought by businesses that wish to
pursue on-line commerce on the Internet. Management believes that a key feature
of the Company's web site service is the Company's ability to provide
interactive, graphically appealing web pages, while many of the web sites
developed by competitors are static and plain. In addition to web site
development, the Company offers the following Internet related services:
catalog-based search engines for custom or existing databases; electronic forms
for customer and query information capture; specialized on-line ordering
systems; and comprehensive Internet networking, integration and consulting.
Internet services for web site development range from $5,000 to $75,000
depending on the content and complexity of the web site. Web site host fees
collected by the Company this year average approximately $249 per month. The
primary market for these services are large and small corporate businesses.
Description of Possible Products
The Company is also exploring the development of additional products
which are not yet in the production phase to enable the Company to participate
in the Internet services marketplace, which products could provide enhancements
to the Company's Audio Media Communications Service and Fast Forward Delivery
System. Management believes that there is a market for the products listed
below, but there is no assurance that the Company will be able to raise funds
sufficient to develop these products, that such products will be successfully
developed and produced, or if developed and produced, that they will be
profitable for the Company.
Media Asset Management Systems. The Company anticipates providing a new
service (its "Media Asset Management System") for the collection, indexing and
storage of media assets for corporate customers. Media assets include any audio,
video, special effects or print media that have been developed by, and are
considered the property of, the developing company. Examples include radio and
TV commercials and product or background still photography. Management believes
that the Media Asset Management System would enable customers to access their
media assets by fiber optic lines, which would allow them to easily save,
archive and retrieve previously produced media assets for reuse (or
"re-purposing") at a later time for a different application. For example, an
advertising agency may be able to retrieve a previously used photograph of the
Golden Gate Bridge or a product package and make minor changes to the image for
use in a new advertisement, saving both time and money. The Company anticipates
that the pricing for this service would include one-time and ongoing charges and
be based on the specific operational needs of each customer. The primary market
for the Media Asset Management System could be corporate advertisers and
advertising agencies. The details of the Media Asset Management System have not
yet been finalized, nor have marketing plans for the Media Asset Management
System been developed.
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Internet Software Development Tools. The Company's subsidiary IBS is
developing new web site development software which would allow businesses to
develop their own database-oriented web sites. With built-in interfaces to the
newest web programming languages, businesses would be able to develop
graphically appealing web sites that provide numerous functions including
database access and interactive information gathering. The primary market for
these services would be companies who manage and provide Internet access to
their primary databases.
Internet WebSite Development and Hosting Services. The Company is
exploring the expansion of its host/server site service for maintaining its
customers' web sites to develop an "Intranet" or closed access network for the
entertainment industry while using the Internet as the main "backbone" or
communications path.
Competition
Audio and Video Networking. Competition in the audio and video
networking business is based on the ability to provide systems compatibility and
proprietary off-the-shelf codecs. Due to the difficulty and expense of
developing and maintaining private digital networks, Management believes that
the number of competitors is, and will remain, small.
The Company's principal competitor in audio networking is the 3D2
("3D2") division of Keystone Communications, Inc. Until March 31, 1995, 3D2 was
the exclusive North American distributor of apt-X codecs manufactured by Audio
Processing Technology ("APT"), which were in demand in the radio voice-over
market. In April 1995, the Company became one of APT's few distributors and
through aggressive marketing, within six months became APT's largest worldwide
distributor. Management believes that the Company was able to use its position
as a distributor of apt-X codecs to attract studios to its network because
studios grew increasingly confident in the Company's ability as a network
service provider as a result of its position as an apt-X codecs distributor.
Management estimates that, between July 1995 and June 1996, as a result of
distributing apt-X codecs, approximately 120 studios joined the network.
The Company's primary video networking competitors are VYVX, a division
of Williams Co., and Sprint through its DRUMS products. These companies offer
their video networking services utilizing higher-bandwidth fiber connections,
which, because they do not have dial-up capability, require scheduling and are
considerably more expensive. Because the Fast Forward Delivery System is
primarily ISDN-based, and has dial-up capability, it is generally less expensive
than sending video materials between studios by courier.
Patents & Trademarks
The Company does not own any patents and relies instead on a
combination of statutory and common law copyright, trademark and trade secret
laws to protect its rights in its proprietary technologies. The Company has
registered "EDnet" and "Entertainment Digital Network" as trademarks with the
U.S. Patent and Trademark Office and has applied to register "ZeroC" as a
trademark with the U.S. Patent and Trademark Office.
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Research and Development.
During the last two fiscal years, the Company spent a total of
approximately $42,000 on research and development. During each of the last two
fiscal years, the Company did not spend any funds on material customer-sponsored
research and development. During the current fiscal year, assuming the Company
is able to raise sufficient capital, Management anticipates that the Company
will spend a total of approximately $900,000 on research and development.
Governmental Approvals and Regulation
The Company's networking services are currently not subject to
regulation by any government agency or regulatory body.
History and Organization
Background. Prior to founding the Company, most of Management was
employed by Skywalker Sound ("Skywalker"), the post production division of
LucasArts/Lucasfilm Ltd. ("LucasArts"). In 1991, while at Skywalker, they made a
breakthrough in the application of digital communications technology. They were
able to send four channels of compressed, professional-quality digital audio
over T-1 fiber-optic telephone lines (individual DSOs or channels over a single
line) from a Skywalker studio in Northern California to a Skywalker studio in
Southern California. The group thereafter sent the audio mix for the movie
Backdraft, then under production, between the two studios on a daily basis. The
result was that Backdraft was the first film in which the director reviewed
movie audio from a remote studio on the same day it was produced.
Based upon this success (and with the acknowledgement of LucasArts),
the Company's management organized Entertainment Digital Network ("EDN")) as a
Nevada corporation on June 26, 1992, and set up a trial network of seven studios
and developed other proprietary technology to market T-1 digital communications
to the music, movie and television industries. On January 25, 1993, EDN was
re-incorporated in the State of California.
Effective August 27, 1993, EDN acquired the assets of Digital Patch
Systems ("Digital Patch"), an unrelated networking service provider, for 235,000
shares of EDN common stock and 140,000 shares of EDN preferred stock. At that
time, Digital used MPEG-based, audio-compression, switched 56 and ISDN data
lines, which the Company has since adopted as its primary technology. Management
believed that ISDN, which had become the standard in the telecommunications
industry in Europe, Japan and many parts of the Pacific Rim, would likewise
become the standard in the U.S. Currently, ISDN is common in most areas of the
world. EDN also obtained non-competition agreements from the two shareholders of
Digital Patch which prohibited these individuals from competing with EDN for a
period of five years in areas where Digital Patch had operated before the
transaction. Following this transaction, Bert Berdis, who owned 50% of the
outstanding shares of Digital Patch, became a Director of the Company (see "Part
I - Item 8. Directors, Executive Officers and Significant Employees" below).
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Merger With AP Office Equipment. On or about September 20, 1995, EDN's
management determined that it was in EDN's best interests to effect a business
combination with a company whose shares were publicly-traded in order to access
the public capital markets. Toward this end, EDN, its seven largest shareholders
and AP Office Equipment, Inc. ("AP"), an unrelated company, entered into a Stock
Purchase Agreement pursuant to which such shareholders exchanged their EDN
common and preferred stock for 1,275,818 shares of AP common stock, par value
$.001 per share (the "Common Stock"). In addition, (a) outstanding non-qualified
options to purchase an aggregate of 263,420 shares of EDN common stock at an
exercise price of $.10 per share were converted into options to purchase an
aggregate of 230,479 shares of Common Stock at an exercise price of $.11 per
share, and (b) outstanding warrants to purchase an aggregate of 347,343 shares
of EDN common stock at $2.625 per share, which terminated as of October 31,
1996, were converted into warrants to purchase an aggregate of 303,908 shares of
Common Stock at an exercise price of $3.00 per share. The closing of these
transactions was contingent upon the successful completion by AP of a sale of
1,500,000 shares of Common Stock at a price of $0.665 per share.
By means of an Amendment of Articles of Incorporation which was filed
with the Colorado Secretary of State on September 29, 1995, AP changed its name
to "EDnet, Inc."
Finally, pursuant to a Stock Purchase Agreement executed by the Company
(formerly AP) and the remaining shareholders of EDN, dated as of October 18,
1995, such shareholders sold their EDN common stock to the Company in exchange
for 243,720 shares of Common Stock. The result was that EDN became, and remains,
a wholly-owned subsidiary of the Company.
IBS Transaction. Pursuant to an Agreement and Plan of Reorganization
dated as of June 24, 1996 (the "IBS Agreement"), the Company acquired all of the
outstanding shares of common stock of IBS, an unrelated internet services
provider, through a merger of IBS into a subsidiary of the Company. As
consideration for such merger, the Company delivered the following to the two
shareholders of IBS, Trevor Stout and Randall Schmitz: (i) two promissory notes
in the aggregate amount of $250,000 (the "First IBS Notes"); (ii) two promissory
notes in the aggregate amount of $250,000 (the "Second IBS Notes"); and (iii)
311,284 shares of Common Stock. The First IBS Notes were due sixty (60) days
after the closing of the IBS Agreement and were repaid by the Company in August
1996. The Second IBS Notes originally provided for interest of eight percent
(8%) and maturity on the earlier of one year from the closing under the IBS
Agreement or fifteen (15) days after the closing of a public offering by the
Company of its Common Stock. In addition, pursuant to an earn-out plan, Messrs.
Stout and Schmitz were originally entitled to receive up to an aggregate of
500,000 shares of Common Stock if IBS was to meet certain specified performance
goals during a period commencing on the effective date of the IBS Agreement and
ending 120 days after June 30, 1999 (the "Earnout"), and Messrs. Stout and
Schmitz entered into three-year employment agreements with the Company and IBS
(collectively, the "IBS Employment Agreements"). Finally, the Company granted to
three employees of IBS options to purchase an aggregate of 50,000 shares of
Common Stock under the NSO Plan (as defined below), at $1.25 per share, which
options vest over a three year period. The merger was accounted for as a
purchase. Upon the closing of the IBS
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Agreement, Mr. Stout was appointed a director of the Company and presently
serves in such capacity.
Subsequently, the Company determined that the cost of supporting IBS in
researching, developing and marketing certain software related to the
development, operation and maintenance of world-wide web sites (the "IBS Website
Software") was, in Management's view, prohibitively expensive. Accordingly,
pursuant to an Amendment to the Agreement and Plan of Reorganization dated as of
January 31, 1997 and certain collateral documents: (i) IBS licensed the IBS
Website Software to a new entity, Breakthrough Software, Inc., a California
corporation ("Breakthrough"); (ii) the Company agreed to lend up to $250,000 to
Breakthrough to be used for specified purposes, as represented by an unsecured
promissory note made by Breakthrough in favor of the Company, payable 30 days
after demand after July 1, 1997 or upon the date that Breakthrough closes a
financing of not less than $1,000,000; (iii) Breakthrough issued to the Company
2,000,000 shares of convertible Series A Preferred Stock (the "Breakthrough
Series A Preferred Shares") representing (after conversion into Breakthrough
common stock) 40% of Breakthrough's outstanding common stock; (iv) Breakthrough
issued to Messrs. Stout and Schmitz common stock representing 60% of
Breakthrough's outstanding common stock; (v) the Company canceled the Second
Notes; (vi) the Company reduced the number of shares of Common Stock subject to
the Earnout from 500,000 to 125,000; (vii) the IBS Employment Agreements
terminated as of December 31, 1996; and (viii) Messrs. Stout and Schmitz entered
into consulting agreements with the Company to provide transition services to
IBS for a period of three months.
The Breakthrough Series A Preferred Shares have a liquidation
preference worth $605,000, which represents Management's estimate of the value
to date of the Company's capital investment in the IBS Website Software. So long
as 1,500,000 shares of Breakthrough Series A Preferred Shares remain
outstanding, the holder of the Breakthrough Series A Preferred Shares is
entitled to elect one director to the Breakthrough board of directors and the
affirmative approval of the Company is required to approve certain events,
including but not limited to, any increase or decrease in the authorized number
of shares of Breakthrough common or preferred stock, any amendment of
Breakthrough's articles of incorporation or bylaws which adversely affects the
rights of the holders of Breakthrough Series A Preferred Shares, any issuance of
securities on a parity with or senior to the Breakthrough Series A Preferred
Shares and any issuance of any additional securities to either Messrs. Stout and
Schmitz or any trust or other entity controlled by either of them. The rights,
privileges and preferences of the Breakthrough Series A Preferred Shares are
contained in the Amended and Restated Articles of Incorporation of Breakthrough,
which were filed with the California Secretary of State on January 31, 1997.
Employees
As of December 31, 1996, the Company employs 17 persons, and IBS
employs 11 persons.
Policy Regarding Related Party Transactions
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The Company's policy with regard to transactions between the Company
and related parties is to comply with all state and federal laws governing such
transactions, to make efforts to assure that such transactions are on reasonable
terms and in the best interests of the Company and its shareholders and, where
appropriate, to seek the advice of counsel with respect to such transactions.
Plan of Operation
As noted in the Report of Independent Accountants contained in this
Form 10-SB, the Company's auditors, Coopers & Lybrand L.L.P., have noted that
the Company has suffered recurring losses from operations and has a net working
capital deficiency that raises substantial doubt about the Company's ability to
continue as a going concern. Management believes that the following plan of
operation will enable the Company to satisfy its cash requirements during the
twelve month period commencing November 1, 1996:
First, as discussed more fully in "Part II - Item 4. Recent Sales of
Unregistered Securities - Private Placement of EDnet Series A Preferred Shares"
below, the Company has retained a broker to assist the Company in raising up to
$5,000,000 in a private placement to non-United States persons of EDnet Series A
Preferred Shares (as defined below). The first phase of this offering is for the
sale of $1,750,000 of Ednet Series A Preferred Stock which commenced February 3,
1997. The proceeds from this first phase will be used to finance continuing
operations and service the Senior Secured Notes and other liabilities of the
Company. Management anticipates that the second phase of this offering will
commence on or about May, 1997.
Second, Management believes that the Breakthrough transactions
discussed in IBS Transaction above will relieve the Company of making any
substantial additional funding for the research and development costs and
marketing expenses of the IBS Website Software (except for the Breakthrough
unsecured promissory note discussed above), enabling the Company to concentrate
its resources on the growth of its core networking services business during the
next twelve months.
Third, as discussed more fully in "Part II - Item 4. Recent Sales of
Unregistered Securities - Private Placement of Note Participations" below, the
Senior Secured Notes (as defined below), which originally matured on November
15, 1996, were extended to January 31, 1997. At that time, the Senior Secured
Notes converted into a term note with monthly principal payments beginning
February 15, 1997. Management believes that paying monthly payments required
under the term loan is preferable to paying off the entire balance of the Senior
Secured Notes and will enable the Company to use its capital for operations.
Fourth, as discussed more fully in "Part II - Item 4. Recent Sales of
Unregistered Securities - Private Placement of Common Stock" below, on December
31, 1996, the Company initiated a private placement of up to $5,000,000 of
Common Stock. As of February 10, 1997, the Company had raised $165,000 in this
private placement, which is being used to finance continuing operations and
service the Senior Secured Notes and other liabilities.
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Management believes that if a total of $5,000,000 in offerings is
timely raised, further financings will not be necessary during the twelve-month
period of the plan of operation. No assurance can be given that the full amounts
(or substantially all of the full amounts) of such offerings can be raised. To
the extent that the full amounts of such offerings are not raised, Management
may act to reduce the amount of the Company's spending devoted to research and
development, or take other actions to match spending to the amount of capital
raised. Management is continually monitoring the Company's cash position and the
status of these offerings.
ITEM 7 (OF MODEL B OF FORM 1-A). DESCRIPTION OF PROPERTY
The Company operates from two offices located in San Francisco and Los
Angeles, California. The San Francisco office, located at One Union Street, San
Francisco, California, is a 5,000 square foot facility that operates as
administrative headquarters and provides the centralized network hub for
electronically bridging affiliate studios, as well as overall network
management. The Company leases this facility pursuant to a Sublease dated
November 1, 1993 with Varitel Video, Inc. ("Varitel"), an unaffiliated entity.
This sublease provides for a term of five years commencing November 15, 1993
(with an option to extend for an additional five year term), with monthly lease
payments of zero during the first three months of the term, $5,653.39 during
months four through 24 of the term and $5,992.59 during months 25 through 60 of
the term (plus the Company's proportionate share of rent adjustments under the
master lease). In lieu of a security deposit, the Company has granted Varitel a
security interest in certain of the Company's equipment with an aggregate
purchase price of approximately $75,000. Varitel may terminate this sublease
upon 90 days prior written notice upon a change in the "principal ownership" of
the Company or in the event that the Company engages in a "competing type of
film or video service business like or similar to Varitel" excluding, however,
any "networking service application" which the Company engages in in connection
with its audio, video and other multimedia networking services. The Los Angeles
office, located at 3000 Olympic Blvd., Suite 2121, Santa Monica, California, is
a 4,000 square foot facility that serves as a sales and demonstration facility
and provides access to many users of the Company's services from the
entertainment industry located in Southern California. The Company leases this
facility pursuant to an Office Lease dated June 16, 1993 with Lantana Center, a
California limited partnership ("Lantana"), an unaffiliated entity. This lease
provides for a term of ten years commencing July 1, 1993, with monthly lease
payments of $7,749.50 (subject to a cost-of-living adjustment) and reimbursement
to the Company of up to $61,015 incurred for the installation of permanent
tenant improvements. As discussed in "Part I - Item 11. Interest of Management
and Others in Certain Transactions - Short-Term Loans from Officers, Directors
and Shareholders; Guaranty of Lease" below, the Company's obligations under this
lease have been guaranteed by Mr. Kobayashi, the Chairman and Chief Executive
Officer of the Company.
The IBS subsidiary operates from an office located in Mountain View,
California. The Mountain View office, located at 2083 Landings Drive, Mountain
View, California, is a 2,000 square foot facility that operates as its
administrative and operations headquarters. IBS leases this facility pursuant to
a Building Lease dated August 28, 1995, as amended by a Modification
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No. 1 dated February 13, 1996, with Landmark Investments, Limited, an entity
unaffiliated with either IBS or the Company. This lease, as amended, provides
for a term commencing September 15, 1995 and ending March 3, 1997, with monthly
lease payments from September 15, 1995 through September 30, 1995 of $707.19,
from October 1, 1995 through March 3, 1996 of $1,580.80 and from March 4, 1996
through March 3, 1997 of $4,348 (subject to a cost-of-living adjustment).
ITEM 8 (OF MODEL B OF FORM 1-A). DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT
EMPLOYEES
The following sets forth the names, ages and current positions with the
Company held by Directors, Executive Officers and Significant Employees,
together with the year such positions were assumed. Tom Kobayashi, the Chairman
and Chief Executive Officer, and David Gustafson, the President and Chief
Operating Officer, are brothers-in law. Other than as described in the preceding
sentence, there is no immediate family relationship between or among any of the
Directors, Executive Officers or Significant Employees and the Company is not
aware of any arrangement or understanding between any Director or Executive
Officer and any other person pursuant to which he was elected to his current
position.
Tom Kobayashi, age 67, has served as the Chairman and Chief Executive
Officer and a Director of the Company since 1992. From 1986 to 1993, he was Vice
President and General Manager of Skywalker. During his tenure at Skywalker, the
sending of digital audio over fiber optic telephone lines was developed and the
idea for an entertainment digital network was formulated. In 1992, with George
Lucas's approval, Mr. Kobayashi utilized the technology first developed at
Skywalker to found EDN. Previously, he was with Glen Glenn Sound, a major sound
recording studio in Hollywood. He began with Glen Glenn in 1964 as Vice
President of Finance, later served as Vice President of Business Affairs and
Executive Vice President and in 1983 was appointed President and Chief Operating
Officer. Mr. Kobayashi is a member of the American Engineering Society, the
Society of Motion Picture and Television Engineers, the Society of Professional
Audio Recording Studios (of which he has been a member of the Board of Governors
for over seven years), the Academy of Motion Picture Arts and Sciences and the
Academy of Television Arts and Sciences. Mr. Kobayashi earned a Bachelor of
Science degree at the University of Southern California.
David Gustafson, age 50, has served as the President and Chief
Operating Officer of the Company since March, 1996, and as Vice President,
Marketing and Sales, from July 1992 to March 1996. He has served as a Director
of the Company since 1992. Previously, he was President and Chief Operating
Officer of SLT, Inc., a private New York-based apparel manufacturer; Corporate
Vice President and Director of Wacoal America, Inc., a $35 million division of
the $1 billion Wacoal Corp., a multi-national consumer products company based in
Kyoto, Japan, where his responsibilities included Merchandising and Design,
Sales, Marketing and Advertising; Vice President of Marketing and Merchandising
for the Olga Company; Management Information Systems Consultant with Deloitte,
Haskins & Sells in Los Angeles; and a computer Systems Engineer and Manager at
EDS Corp., working in New York, Miami
13.
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and Dallas. Mr. Gustafson received his Bachelor's degree from Westmont College
in Santa Barbara, California and further training in Marketing and Executive
Management from the graduate business schools at both the University of
California, Los Angeles and the University of Southern California.
Thomas Scott, age 53, has served as the Vice President-Chief Technology
Officer of the Company since 1992. From 1985 to 1992, he was Chief Engineer for
Skywalker Sound, the post production division of LucasArts/Lucasfilm Ltd.
Previously, he was Chief Engineer of The Record Plant and eventually worked in
film sound on the picture Apocalypse Now. Mr. Scott has been involved with
motion pictures since then, being employed at American Zoetrope, Dolby
Laboratories and LucasArts as Director of Engineering. During this period Mr.
Scott received two Oscar Academy Awards for Best Sound on the films The Right
Stuff and Amadeus. His last LucasArts project was the supervision of the
EditDroid and SoundDroid -- revolutionary computer-based picture and sound
editing equipment. Previously, he was Chief Engineer and Director of Remote
Operations at Wally Heider Recording, one of the first independent recording
studios, and an engineer with the Peace Corps in Venezuela. Mr. Scott is active
in numerous professional organizations and standards committees, including the
American Engineering Society, Society of Motion Picture and Television
Engineers, the Society of Professional Audio Recording Studios, the National
Academy of Recording Arts and Sciences and the Academy of Motion Picture Arts
and Sciences. Mr. Scott earned his Bachelor of Science degree from the
Massachusetts Institute of Technology.
Alan Geddes, age 47, has served as the Vice President and Chief
Financial Officer of the Company since July, 1996. From 1986 to 1996, he was the
Chief Financial Officer of IMAR Corporation and Oncogenetics, Inc., both
emerging companies in medical technology, in addition to founding his own
company, California Pacific Leasing, Inc. Previously, he served in corporate
management at Bio-Rad Laboratories, as Corporate Controller at Fiberplastics,
Inc., was a Financial Analyst with Litton Industries and a Plant Controller with
Abbott Laboratories. Mr. Geddes has a Masters in Business Administration in
Finance from Utah State University.
Ray Mussato, age 53, has served as the Vice President, Marketing of the
Company since July 1996. From 1993 to 1996, he ran his own management consultant
company, specializing primarily in marketing and sales assignments to small
high-tech companies in the start-up stage. From 1992 to 1993, he was the
Executive Vice President and Chief Operating Officer at MicroSpeed. From 1990 to
1992, he was the Chief Executive Officer of Artificial Linguistics, a
Texas-based software start-up company whose technology was later acquired by
Oracle. Previously, he was the Executive Vice President, Chief Operating
Officer, Senior Vice President, International Sales and Operations and Executive
Director, Worldwide OEM Sales for Wordstar International Corporation.
Mark L. Wallin, age 27, has served as the President of IBS since
February 1, 1997. Previously, he served as the Technical Director of Web
Services from June 1996 to February 1, 1997. From 1992 to 1996, he was a Project
Manager, Technical Team Leader and Application Integrator for IBM. He graduated
from Stanford University in 1993 with a degree in Computer Systems Engineering.
14.
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Trevor Stout, age 26, has served as a Director of the Company since
August 1996. He is currently the Chief Executive Officer for Breakthrough.
Previously, he served as the President and Chief Technical Officer of IBS from
1995 to December 31, 1996. Prior to co-founding IBS, from 1989 to 1995, he was a
project manager at IBM. He pioneered the development of IBM's website and was
the manager and lead architect of IBMLink, IBM's web system for customer support
and sales information. Mr. Stout graduated magna cum laude from the University
of California, Los Angeles, in Computer Engineering.
Robert J. Wussler, age 59, has served as a Director of the Company
since 1995. From 1994 to the present, he has been the President and Chief
Executive Officer of Affiliate Enterprises, Inc., the company formed by ABC
Television affiliates to pursue new business opportunities, including emerging
technology applications. From 1990 to 1993, he was President and Chief Executive
Officer of COMSAT Video Enterprises, where he managed the acquisition of the NBA
Denver Nuggets. Previously, from 1980 to 1990, he was Senior Vice President of
Turner Broadcasting, where he oversaw the launch of CNN, Headline News and TNT,
in addition to serving as President of SuperStation TBS, and from 1974 to 1978,
he was the President of the CBS Television Network and CBS Sports.
Avi A. Fogel, age 42, has served as a Director of the Company since
1995. From 1995 to the present, he has been the Vice President of Global
Marketing for Digital Equipment Corporation in the Network Division. Mr. Fogel
recently initiated a $330 million acquisition of Lannet Data Communications by
Madge Networks. From 1987 to 1995, he served in various roles at Lannet Data
Communications, first as Sales and Marketing Manager, then as President and
Chief Executive Officer of Lannet North America and finally as Executive Vice
President - Global Marketing and Business Development, where he guided the
development of international and North American sales and marketing
organizations, and established customer and partnership relationships with
Wellfleet Communications, AT&T, Mitel, Data General, Fore Systems, Swiss Bank
Corp., Sprint and General Motors.
Jack Kraft, age 54, has served as a Director of the Company since 1996.
He is a director of Ballas Engineering, Gameplan, Inc. and Argus Plastics, Inc.
and is currently retained as a consultant to several advertising and technology
firms. From 1993 to 1995, he was a senior executive with Young and Rubicam, Inc.
Prior to taking early retirement in 1993, he was the Chief Operating Officer and
Vice Chairman of Chicago-based Leo Burnett USA, one of the world's largest and
best known advertising agencies. During Mr. Kraft's tenure, he made significant
contributions to that agency's strategic direction and deployment as revenues
increased from $325 million to $4.3 billion.
Phil Ramone, age 56, has served as a Director of the Company since
1995. Mr. Ramone is acknowledged as one of the top producers in the recording
industry. Mr. Ramone's career has embraced virtually every aspect of the music
industry. By 1961, he had acquired his own independent studio, A & R Recording,
in New York. He has produced award-winning albums for such legends as Barbra
Streisand and Frank Sinatra, as well as for Liza Minelli, Elton John and Paul
McCartney. The recording he made with Billy Joel, The Stranger, was the first
Compact Disc ever cut. He is also the moving force behind a group of relative
newcomers,
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such stars as Gloria Estefan, Jon Secada and Sinead O'Connor. On the technical
side, Phil Ramone is responsible for innovations that have changed the very face
of the recording industry. It was Ramone, for example, who was responsible for
the first use of the solid-state console for recording and mastering for Solid
State Records; of Dolby four-track discrete sound, with the 1976 motion picture
A Star is Born, of Dolby optical surround sound for the motion picture One Trick
Pony; and of digital remote recording for Songs in the Attic, paving the way for
the technology that led to the Compact Disc. Mr. Ramone has received eight
Grammy Awards, fifteen Grammy Nominations, one Emmy Award, has served as
President of the New York Chapter of the National Academy of Recording Arts and
Sciences (NARAS), was elected to the TBC Hall of Fame in 1992 and Hollywood's
Rock Walk and is the recipient of the Platinum Music Award, the 3M Visionary
Award and the Eyes On New York Award.
Bert Berdis, age 57, has served as a Director of the Company since
1993. In 1992, he founded Bert Berdis & Company. From 1965 to the present, he
has been the President and owner of Waves Sound Recorders in Hollywood. He also
founded his own commercial radio production company, Dick & Bert, with
voice-actor Dick Orkin. Their campaigns for Time Magazine earned them a
permanent place in the Museum of Television and Radio. Mr. Berdis has won over
100 awards from Clio, The London International, One Show, Addy's, International
Broadcasting Association and the $100,000 Mercury Awards. The Radio Advertising
Bureau recently issued its "Orson Welles Lifetime Achievement Award" to Mr.
Berdis. Previously, he was in the advertising business, including being Vice
President Creative Director of Grey Advertising in Detroit, Michigan, being with
DDB Needham Chicago, Ketchum in Pittsburgh, Pennsylvania and serving as a
writer/producer for the advertising agency McCann Erickson.
The directors named above have been elected for one-year terms at the
most recent annual shareholders' meeting.
ITEM 9 (OF MODEL B OF FORM 1-A). REMUNERATION OF DIRECTORS AND OFFICERS
The following table sets forth information concerning all annual
compensation paid to each of the three highest paid persons who are officers or
directors of the Company for the fiscal year ended June 30, 1996:
Capacities in
Name of individual which remunera- Aggregate
or identity of group tion was received remuneration
Tom Kobayashi Chairman and Chief $131,000(1)
Executive Officer and
Director
David Gustafson President and Chief $131,000(2)
Operating Officer and
Director
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Tom Scott Vice President and $ 90,000
Chief Technical Officer
Total of above $352,000
- -----------
(1) Mr. Kobayashi has an Employment Agreement with the Company which
provides for a five-year term expiring December 31, 2000, with a base
salary of $10,416 per month from September 1, 1995 to February 28,
1996, with an increase to "market rate" at March 1, 1996 and every year
thereafter.
(2) Mr. Gustafson has an Employment Agreement with the Company which
provides for a five-year term expiring December 31, 2000, with a base
salary of $10,416 per month from September 1, 1995 to February 28,
1996, with an increase to "market rate" at March 1, 1996 and every year
thereafter.
Directors of the Company do not receive any compensation for their
services as directors other than reimbursement by the Company of reasonable
out-of-pocket travel expenses incurred in connection with attending director
meetings in person.
As more fully disclosed in "Part I - Item 10 - Security Ownership of
Management and Certain Securityholders" below, the Company maintains the
1995-1996 Nonstatutory Stock Option Plan (the "NSO Plan"). The NSO Plan is
administered by a committee appointed by the board of directors, consisting of
two members. The NSO Plan reserves a total of 565,000 shares of Common Stock for
option grants to key employees and consultants (including directors) of the
Company and its subsidiaries and provides that the option price may be equal to
or less than the fair market value of the Common Stock on the grant date,
provided, however, in the event that the option price is less than 85% of the
then current market value of the Common Stock, the Board of Directors must
approve such option grant. In addition, the NSO Plan provides that no option be
granted after December 31, 1996 and requires that no option period exceed five
(5) years after the grant date. As of September 30, 1996, options to purchase
372,000 shares of Common Stock had been issued under the NSO Plan. The NSO Plan
was approved by the Board of Directors on November 10, 1995. In addition, in
connection with the merger with AP, non-qualified options to purchase an
aggregate of 263,420 shares of EDN common stock at an exercise price of $.10 per
share issued under EDN's 1993 Flexible Stock Incentive Plan (the "EDN Option
Plan") were converted into options to purchase an aggregate of 230,479 shares of
Common Stock at an exercise price of $.11 per share, which options are fully
vested. Other than as discussed herein, the Company does not have any pension,
profit-sharing, stock bonus, or other benefit plans. In addition, the Company
makes available certain non-monetary benefits to its executive officers with a
view to acquiring and retaining qualified personnel and facilitating job
performance. The Company considers such benefits to be ordinary and incidental
business costs and expenses.
Mr. Kobayashi and Mr. Gustafson have employment agreements with the
Company, each dated September 1, 1995, which contain identical non-competition
provisions. Each provision provides for a period of three (3) years following
the date of the employment agreement, the employee will not, directly or
indirectly, within any county, city or part thereof and other areas in the
United States of America (collectively, the "Locations"), so long as the Company
continues to be engaged in the same or similar business or activity (the
"Business") in such
17.
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Location: (i) own, manage, operate, control, or be connected in any manner with
the ownership, management, operation or control of any person or entity that
engages in the same or similar type of Business as the Business or engages in a
business competitive with the Business (a "Competitive Business"), which
includes but is not limited to, acting as a director, officer, agent, employee,
consultant, partner or stockholder of a Competitive Business; (ii) engage in any
activity which is the same as, similar to or in competition with the Business;
(iii) interfere with, disrupt or attempt to disrupt the business relationship,
contractual, employment or otherwise, between the Company and any customer or
prospective customer, supplier, lessee or employee of the Company, including
without limitation the customers and suppliers of the Business prior to the date
of the employment agreement; (iv) solicit employment for or of employees of the
Company or induce any employee to leave the employ of the Company; (v) lend or
allow his name or reputation to be used by or in connection with any Competitive
Business; or (vi) otherwise allow his skill, knowledge or experience to be used
in or by any Competitive Business. Each employment agreement provides that the
employee may invest in up to 5% of the shares of any public corporation without
violating the non-competition provisions, and that such non-competition
provisions will survive the termination of the employment agreement, other than
where (a) the employee exercises his right to terminate the employment agreement
upon a sale or transfer of substantially all of the assets of the Company, or a
change in control of the Company, (b) when the Company exercises its right to
terminate the employment agreement upon 30 days written notice, or (c) the
Company breaches the employment agreement and fails to cure such breach within
thirty (30) days of receipt of written notice thereof. A court applying
California law may decline to enforce (or may partially enforce) these
non-competition provisions.
ITEM 10 (OF MODEL B OF FORM 1-A). SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
SECURITYHOLDERS
The following table sets forth information, as of December 31, 1996,
regarding shares of Common Stock held of record by: (i) each of the three
highest paid persons who are officers or directors of the Company; (ii) all
officers and directors as a group; and (iii) each shareholder who owns more than
10% of any class of the Company's securities, including those shares subject to
outstanding options and warrants. Unless expressly indicated otherwise, each
shareholder exercises sole voting and investment power with respect to the
shares owned.
Title Name and Address Percent
of Class of Owner Amount Owned of Class (1)
Common Tom Kobayashi 425,048 8.87%
One Union Street
San Francisco, CA 94111
Common David Gustafson 135,761 4.17%
One Union Street
San Francisco, CA 94111
Common Tom Scott 164,885 3.50%
One Union Street
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San Francisco, CA 94111
Common All officers and
directors as a group (2) 1,107,889 27.83%
- -----------
(1) Assumes the exercise by the holder of his outstanding options and
warrants; based upon 4,910,465 shares of Common Stock issued and
outstanding on December 31, 1996.
(2) Includes the Common Stock owned by Kobayashi, Gustafson and Scott and
218,142 shares owned by Mr. Stout and 164,053 shares owned by Mr.
Berdis.
<TABLE>
The following table sets forth information, as of December 31, 1996,
concerning outstanding options and warrants to purchase shares of Common Stock
held by: (i) each of the three highest paid persons who are officers or
directors of the Company; (ii) all officers and directors as a group; and (iii)
each shareholder who owns more than 10% of any class of the Company's
securities, including those shares subject to outstanding options and warrants.
Unless expressly indicated otherwise, each shareholder exercises sole voting and
investment power with respect to the shares beneficially owned.
<CAPTION>
Title and Amount of securities called
Name of Holder for by options, warrants or rights Exercise Price Date of Exercise
<S> <C> <C> <C>
Tom Kobayashi Options for 11,483 Shares of Common Stock $0.11 Fully Vested (1)
David Gustafson Options for 72,005 Shares of Common Stock $0.11 Fully Vested (2)
Tom Scott Options for 7,316 Shares of Common Stock $0.11 Fully Vested (3)
All officers and Options for 17,500 Shares of Common Stock $0.11 Fully Vested (4)
directors as a group Options for 150,000 Shares of Common Stock $1.25 (5)
Options for 100,000 Shares of Common Stock $1.25 (6)
Options for 90,804 Shares of Common Stock $0.11 (7)
<FN>
- -----------
(1) Mr. Kobayashi holds options issued under the EDN Option Plan to purchase
an aggregate of 11,483 shares of Common Stock at an exercise price of $.11
per share, which are fully vested (see History and Organization - Merger
With AP Office Equipment).
(2) Mr. Gustafson holds options issued under the EDN Option Plan to purchase
an aggregate of 72,005 shares of Common Stock at an exercise price of $.11
per share, which are fully vested (see History and Organization - Merger
With AP Office Equipment).
(3) Mr. Scott holds options issued under the EDN Option Plan to purchase an
aggregate of 7,316 shares of Common Stock at an exercise price of $.11 per
share, which are fully vested. (see History and Organization - Merger With
AP Office Equipment).
(4) Granted to Phil Ramone, a Director of the Company, and issued under the
EDN Option Plan.
(5) Granted to Messrs. Wussler, Fogel and Kraft, Directors of the Company (for
50,000 shares each), and issued under the NSO Plan. 75,000 currently
vested and 75,000 will vest December 31, 1997.
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(6) Granted to Messrs. Geddes and Mussato, Executive Officers of the Company
(for 50,000 shares each), and issued under the NSO Plan. One-third vested
December 31, 1996, one-third will vest December 31, 1997 and one-third
will vest December 31, 1998.
(7) Granted to Messrs. Kobayashi, Gustafson and Scott (see footnotes 1, 2 and
3 above).
</FN>
</TABLE>
ITEM 11 (OF MODEL B OF FORM 1-A). INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN
TRANSACTIONS
Investment Banking and Brokerage Services
All of the agreements described below were negotiated with unrelated third
parties on an arms-length basis.
Century Financial Partners, Inc. Pursuant to a Consulting Agreement, dated
July 31, 1995, between EDN and Century Financial Partners, Inc. ("Century"), EDN
hired Century to advise EDN with respect to a merger of EDN with an entity whose
securities were publicly traded. Such consulting agreement granted Century the
exclusive right to represent EDN, on a best efforts basis, to prospective
investors for financing and general corporate advisory services for a period of
three years, and a right of first refusal to provide investment banking services
for a period of three years. Century advised the Company with respect to the
transaction with AP (see "Part II - Item 6. Description of Business - History
and Organization - Merger with AP Office Equipment"). Century has verbally
consented to the Company's agreements with Morgan Fuller (described below). As
payment for Century's services, the Century consulting agreement provided that
EDN would grant to Mr. Irawan Onggara ("Mr. Onggara"), an investor in Century,
and a shareholder of the Company holding an aggregate of 100,000 shares of
Common Stock, an option to purchase 1,000,000 shares of the common stock of any
publicly traded entity into which EDN would merge, at $1.25 per share, which
option shares would be registered "immediately" by EDN with the SEC on Form S-8.
Management does not believe that such a registration is legally possible due to
the fact that Mr. Onggara is not an employee of the Company and plans to address
this issue more completely in the near future. The Company has had verbal
discussions with Mr. Onggara with respect to reducing the number of shares of
Common Stock subject to such option to 805,000 shares. When Mr. Onggara is
granted options and assuming the exercise of those options, he may become a
shareholder holding more than ten percent of the outstanding Common Stock.
Liviakis Financial Communications, Inc. Pursuant to a Consulting
Agreement, dated as of January 12, 1996, between the Company and Liviakis
Financial Communications, Inc., a California corporation ("Liviakis"), Liviakis
agreed to provide consulting services to the Company for a term of one year
ending on January 11, 1997. As payment for its services, Liviakis received
390,000 unregistered shares of Common Stock from the Company. At the end of the
term of the consulting agreement, Liviakis may demand that the Company use its
best efforts to register such shares with the Securities and Exchange Commission
(the "SEC"). Pursuant to an additional Consulting Agreement effective as of
January 12, 1997, between the
20.
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Company and Liviakis, Liviakis agreed to provide consulting services to the
Company for a term of one year ending on January 2, 1998. As payment for its
services, Liviakis received 490,000 unregistered shares of Common Stock from the
Company. At the end of the term of the consulting agreement, Liviakis shall have
the same demand registration rights to register such shares with the SEC as
given to investors in the December 1996 Private Placement (as defined in "Part
II - Item 4. Recent Sales of Unregistered Securities - Private Placement of
Common Stock" below.
Morgan Fuller Capital Group L.L.C. Pursuant to engagement letters dated
May 20, June 25, June 28, June 28, November 19 and November 21, 1996, the
Company retained Morgan Fuller Capital Group L.L.C. ("Morgan Fuller") to assist
the Company with a variety of financings. As discussed more fully in "Part II
Item 4. Recent Sales of Unregistered Securities" below, as of December 31, 1996,
the Company had: (i) granted Morgan Fuller 250,000 Warrants at an exercise price
of $6.37 per share for general investment advisory services; (ii) delivered the
Senior Secured Notes (as defined below) payable to Morgan Fuller in the
aggregate principal amount of $1,000,000; (iii) paid Morgan Fuller a loan fee of
five percent (5%) of the amount of the Senior Secured Notes; and (iv) granted
Morgan Fuller 39,255 warrants to purchase Common Stock ("Warrants") at an
exercise price of $4.25 and 45,205 Warrants at an exercise price of $3.69 in
connection with the sale of Participations (as defined below). The June 28, 1996
engagement letter provides that in the event that the Company fails to proceed
with a subsequent Regulation S financing, the Company is obligated to pay to
Morgan Fuller a cash fee of $140,000 and $200,000 in aggregate amount of
Warrants at an exercise price equal to the lesser of: (i) $3.00; or (ii) sixty
percent (60%) of the average closing bid price of the Common Stock during a
consecutive ten (10) day period immediately preceding the issuance date of the
Warrants. Because the Company has engaged another broker in connection with such
an offering (see "Net Financial International, Ltd." below), the Company has had
oral discussions with Morgan Fuller regarding Morgan Fuller's waiver of this
provision. In connection with the extension of the Participations, the Company
agreed to pay to Morgan Fuller a cash fee of one and one-half percent (1.5%) of
the amount of the Senior Secured Notes and granted Morgan Fuller 55,970
three-year Warrants with an exercise price of $2.68.
LBC Capital Resources, Inc. Pursuant to an engagement letter dated October
17, 1996 (the "LBC Letter Agreement") between the Company and LBC Capital
Resources, Inc. ("LBC"), the Company retained LBC to advise the Company with
regard to a broad range of transactions, including without limitation, equity
and debt financing and merger and acquisitions advice. LBC would be paid fees
only upon the successful closing of any such transaction. Such fees would be
comprised of (i) a cash fee in the amount of six percent (6%) of the gross
amount of such transaction (to be paid as such proceeds are received by the
Company) and (ii) warrants as described in the next sentence. Upon the
completion of one or more transactions, for each $1,000,000 of such transaction
amount, after transactions aggregating at least $1,000,000 have been closed, LBC
would be entitled to purchase from the Company for $2,500 a seven year warrant
to purchase one hundred twenty thousand (120,000) shares of Common Stock, at an
exercise price per share equal to one hundred twenty-five percent (125%) of the
average closing price for the five (5) trading days preceding the execution of
the LBC Letter Agreement. The term of the LBC Letter Agreement is sixty (60)
days and thereafter, will remain in effect until
21.
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terminated by either party upon ten (10) days written notice. Upon execution of
the LBC Letter Agreement, the Company also paid to LBC a $2,500 non-accountable
expense allowance.
NET Financial International, Ltd. On January 31, 1997, the Company entered
into a Consulting Agreement with NET Financial International, Ltd. ("NET
Financial"), pursuant to which NET Financial agreed to act as placement agent
for the sale of up to $5,000,000 of EDnet Series A Convertible Preferred Stock
(the "EDnet Series A Preferred Shares") to non-United States persons in one or
more offerings exempt from the registration requirements of the Securities Act
pursuant to Regulation S promulgated under the Securities Act in two phases,
with the first phase commenced on February 3, 1997. For a description of this
offering, see "Part II - Item 4. Recent Sales of Unregistered Securities" below.
The Company has agreed to pay NET Financial fees equal to 10% of the total
capital raised in the financing as well as issuing to it a warrant (with
registration rights) exercisable for two years allowing the purchase of shares
of Common Stock with a value on the date of the closing equal to 6% of the
capital raised in the financing, at an exercise price equal to the closing bid
price of the Common Stock on the date of the closing of the financing. The NET
Financial consulting agreement has a term of three months and thereafter is
terminable by either party upon ten days prior written notice. In addition, in
the event that the Company seeks additional financing during the twelve month
period after the execution of the NET Financial consulting agreement, the
Company must give NET Financial the right of first refusal to obtain such
additional financing, upon the compensation terms described above.
Short-Term Loans from Officers, Directors and Shareholders; Guaranty of Lease
Several of the officers and directors of the Company have made short term
loans to the Company pursuant to promissory notes each providing for maturity
ninety days after the date thereof and simple interest of 6% on unpaid
principal. Such promissory notes are overdue. Mr. Kobayashi, the Chairman and
Chief Executive Officer of the Company, made loans in the aggregate amount of
$36,000, as evidenced by promissory notes dated from June 11, 1993 to February
10, 1994. As of September 30, 1996, unpaid principal (excluding interest) of
$24,000 was due on Mr. Kobayashi's notes. Mr. Scott, the Vice President and
Chief Technical Officer of the Company, made loans in the aggregate amount of
$43,050, as evidenced by promissory notes dated from August 6, 1993 to June 12,
1995. As of September 30, 1996, unpaid principal (excluding interest) of $16,550
was due on Mr. Scott's notes. Albert Berdis, a director of the Company, made a
loan in the amount of $15,000, as evidenced by a promissory note dated January
12, 1994. As of September 30, 1996, unpaid principal (excluding interest) of
$15,000 was due on Mr. Berdis' note. Each of these individuals has agreed not to
declare a default under these notes for an indefinite period and to accept
repayment by the Company at a future date.
Mr. Onggara has made three loans to the Company in the aggregate amount of
$425,000, pursuant to: (a) a promissory note in the principal amount of $250,000
dated February 8, 1996 with a maturity date of August 8, 1996; (b) a promissory
note in the principal amount of $100,000 dated April 18, 1996 with a maturity
date of October 18, 1996; and (c) a promissory note in the principal amount of
$75,000 dated May 20, 1996 with a maturity date of
22.
<PAGE>
November 20, 1996. All such promissory notes provide for interest of 7% on
unpaid principal and are secured by a subordinate security interest in the
accounts receivable, chattel paper, accounts and certain other assets of the
Company. In August 1996, the Company made aggregate principal payments of
$120,000 to Mr. Onggara on the first note. Mr. Onggara has verbally agreed to
extend the maturity date of such notes for an indefinite period and to accept
repayment by the Company at a future date. As of September 30, 1996, unpaid
principal (excluding interest) of $305,000 was due on Mr. Onggara's notes.
Mr. Kobayashi, the Chairman and Chief Executive Officer of the Company,
executed a Guaranty of Lease in favor of Lantana pursuant to which Mr. Kobayashi
personally guaranteed EDN's obligations under its lease for the Company's Los
Angeles office premises. Mr. Kobayashi's guaranty is limited to $48,225 for so
long as he remains the chief executive officer, and maintains voting control, of
the Company. Because Mr. Kobayashi does not currently have voting control of the
Company, his guarantee is therefore unlimited. Mr. Kobayashi has had verbal
discussions with Lantana regarding amending the Guaranty of Lease to eliminate
the voting control condition.
ITEM 12 (OF MODEL B OF FORM 1-A). SECURITIES BEING OFFERED
Pursuant to this Form 10-SB, the Company is registering its class of
Common Stock under Section 12(b) of the Act but no Common Stock is being offered
for sale. The Company's Articles of Incorporation authorize the issuance of
50,000,000 shares of Common Stock, $.001 par value per share, and 5,000,000
shares of non-voting preferred stock, $.001 par value per share. Dividends in
cash, property or shares may be paid, as and when declared by the Board of
Directors, out of funds legally available therefor. Each outstanding share of
Common Stock is entitled to one vote, and each fractional share of Common Stock
is entitled to a corresponding fractional vote, on each matter submitted to a
vote of shareholders. Each share of Common Stock is entitled to participate in
distributions upon liquidation, dissolution or winding up of the Company, when,
as and if declared by the Board of Directors from funds legally available
therefor, subject to preferences, if any, granted to holders of preferred
shares. Holders of Common Stock have no preemptive rights to purchase, subscribe
for or otherwise acquire shares of the Company's stock, rights, warrants or
options to purchase stock or securities of any kind convertible into stock of
the Company. There are no conversion rights, redemption provisions or sinking
fund provisions relating to the Common Stock. All outstanding shares of Common
Stock are fully paid and nonassessable.
Section 7-106-203(2) of the Colorado Corporation Business Act (the
"Colorado Act") provides that unless provided otherwise in a corporation's
articles of incorporation, a shareholder is not personally liable for the acts
or debts of the corporation, except that such person may become personally
liable by reason of such person's own acts or conduct. The Company's Articles of
Incorporation do not provide otherwise. See also the description of the Warrants
contained in "Part II - Item 4. Recent Sales of Unregistered Securities" below.
23.
<PAGE>
Other than the fact that the Company's shareholders are entitled to
dissenters' rights under the Colorado Act and Section 2(d) of the Company's
Bylaws, which provides that the shareholders may amend the Bylaws to provide
that the director be divided into not more than four classes whose terms of
office would expire at different times, there are no provisions in the Company's
Articles of Incorporation or Bylaws which would delay, defer or prevent a change
in control of the Company.
Commencing on February 3, 1997, the Company offered up to $1,750,000 of
EDnet Series A Preferred Shares at $1,000 per share to non-United States persons
in an offering exempt from the registration requirements of the Securities Act
pursuant to Regulation S promulgated under the Securities Act. For a detailed
description of the EDnet Series A Preferred Shares, see "Part II - Item 4.
Recent Sales of Unregistered Securities - Private Placement of EDnet Series A
Preferred Shares."
24.
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
(a) Market Information
<TABLE>
Since November 1995, the Common Stock has been trading on the National
Association of Securities Dealers Automated Quotation Bulletin Board (the
"Nasdaq Bulletin Board") under the symbol "DNET." Prior to November 1995, AP's
common stock was not traded on the Nasdaq Bulletin Board. The following table
shows the high and low bid and ask prices of the stock during the periods
indicated (which information has been obtained from the Trading and Market
Services at The Nasdaq Stock Market, Inc.): <CAPTION>
Bid Prices (1) Ask Prices
High Low High Low
<S> <C> <C> <C> <C>
Quarter ended December 31, 1996 $3.44 $1.00 $3.75 $1.06
Quarter ended September 30, 1996 $3.75 $3.00 $4.25 $3.25
Quarter ended June 30, 1996 $7.13 $4.63 $7.63 $5.00
Quarter ended March 31, 1996 $5.88 $2.00 $6.25 $2.56
Quarter ended December 31, 1995 $3.69 $2.00 $4.12 $2.88
<FN>
- -----------
(1) The bid prices reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
(b) Holders
As of December 31, 1996 there were 512 holders of record of the Common
Stock.
(c) Dividends
</FN>
</TABLE>
The Company has never paid cash dividends on the Common Stock and
intends to utilize current resources to expand its operations. Moreover, the
Warrants restrict the ability of the Company to pay dividends. Therefore, the
Company anticipates that cash dividends will not be paid on the Common Stock in
the foreseeable future.
25.
<PAGE>
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings
other than ordinary litigation which, in the opinion of the Management, is
incidental to the business of the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Private Placement of Units. Commencing on or about June 26, 1996, the
Company commenced a private placement of up to $3,000,000 of Units (each Unit
consisting of one share of Common Stock and one Warrant), for a price per Unit
equal to the lesser of: (i) $3.00; or (ii) the average closing bid price of the
Common Stock during a consecutive thirty (30) day period immediately preceding
the termination of the offering minus thirty percent (30%) (the "Stock Purchase
Price"). The purchase price for each Warrant is one-tenth of one cent ($0.001)
per Warrant. Each Warrant is exercisable until July 31, 1999, provided, however,
that in the event that the average closing bid price of the Common Stock exceeds
one hundred sixty percent (160%) of the Stock Purchase Price for thirty (30)
consecutive trading days, then the Company may, within three business days
following the end of such thirty (30) day period, give notice of its intent to
repurchase the Warrants at a purchase price of one-tenth of one cent ($0.001)
per Warrant, in which case Holders will have (30) days following the date of the
Company's notice to exercise the Warrants. Each Warrant entitles the holder to
purchase one share of Common Stock at an exercise price equal to the lesser of:
(i) $4.75; or (ii) the average closing bid price of the Common Stock during a
consecutive thirty (30) day period immediately preceding the termination of the
offering (subject to adjustment in certain circumstances). Holders of Common
Stock and Warrants have been granted piggyback and Form S-3 registration rights
for the Common Stock (and the Common Stock underlying the Warrants).
The Common Stock, the Warrants and the shares purchasable pursuant to
the Warrants were offered and sold only to "accredited investors" as defined in
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act") in a private placement exempt from the registration
requirements of the Securities Act under Rule 506 promulgated under the
Securities Act. The Company has agreed to pay the following fees in connection
with sales of Units: (i) to Morgan Fuller (or any other broker selling Units) a
brokerage fee of eight percent (8%) of the value of Units sold; (ii) to Morgan
Fuller a fee of five percent (5%) of the value of Units sold by any other
broker; and (iii) to Morgan Fuller that number of Warrants equal to twenty
percent (20%) of the value of Units sold by Morgan Fuller divided by the market
bid price of the Common Stock on the day the Units are sold, at such price. As
of December 31, 1996, the Company had itself sold an aggregate of $555,000 of
Units directly and has not paid any brokerage fees or issued any Warrants to
Morgan Fuller.
26.
<PAGE>
Private Placement of Note Participations. On or about July 3, 1996, the
Company delivered to Morgan Fuller $1,000,000 of Senior Secured Promissory Notes
(the "Senior Secured Notes"), made by the Company, as debtor, in favor of Morgan
Fuller, as lender. The Senior Secured Notes are secured by a broad lien on the
Company's assets and provide for interest at the rate of fourteen percent (14%)
per annum and were originally due on November 15, 1996, provided, however, that
if the principal and accrued interest was not repaid on such date, the loan
represented by the Senior Secured Notes would be converted into a term loan with
monthly principal payments of $100,000 commencing December 1, 1996 and interest
at eighteen percent (18%) per annum. Morgan Fuller offered participations
("Participations") in the Senior Secured Notes. Investors purchasing
Participations have also received that number of Warrants equal to one-sixth
(1/6) of the aggregate dollar amount of Participations purchased divided by the
exercise price (as discussed below), at exercise prices of $4.25 and $3.69. Each
Warrant is exercisable until July 31, 1999, provided, however, that in the event
that the average closing bid price of the Common Stock exceeds one hundred sixty
percent (160%) of the exercise price for thirty (30) consecutive trading days,
then the Company may, within three business days following the end of such
thirty (30) day period, give notice of its intent to repurchase the Warrants at
a purchase price of one-tenth of one cent ($0.001) per Warrant, in which case
Holders will have (30) days following the date of the Company's notice to
exercise the Warrants. Each Warrant entitles the holder to purchase one share of
Common Stock at an exercise price equal to the closing bid price of the Common
Stock on the date of the Note(s) in which the investor has purchased
Participations (subject to adjustment in certain circumstances). The purchase
price for each Warrant is one-tenth of one cent ($0.001) per Warrant. As of
September 19, 1996, Morgan Fuller has sold an aggregate of $1,000,000 of
Participations.
The Participations, the Warrants and the shares purchasable pursuant to
the Warrants have been offered and sold only to "accredited investors" as
defined in Regulation D promulgated under the Securities Act and the original
execution and delivery of the Senior Secured Notes and the offering of
Participations was a private placement of securities exempt from the
registration requirements of the Securities Act under Rule 506 promulgated under
the Securities Act. For Morgan Fuller's services in connection with the Senior
Secured Notes and selling the Participations, the Company has: (i) paid Morgan
Fuller a loan fee of five percent (5%) of the amount of the Senior Secured
Notes; and (ii) granted Morgan Fuller 39,255 Warrants to purchase Common Stock
at an exercise price of $4.25, and 45,205 Warrants at an exercise price of
$3.69. Holders of Warrants have been granted piggyback and Form S-3 registration
rights for the Common Stock underlying the Warrants.
Pursuant to that Amendment No. 1 to Senior Secured Promissory Notes
dated as of November 15, 1996, the Company and Morgan Fuller extended the term
of the Senior Secured Notes to January 31, 1997. Pursuant to an engagement
letter dated November 19, 1996, in which Morgan Fuller agreed to use its best
efforts to obtain a 75 day extension of the Participations, the Participations
were extended to January 31, 1997. On January 31, 1997, the indebtedness
represented by the Senior Secured Notes converted into a term loan with monthly
principal payments beginning February 15, 1997. In connection with the extension
of the Participations, the Company has agreed to pay to Morgan Fuller a cash fee
of one and one-half percent
27.
<PAGE>
(1.5%) of the amount of the Senior Secured Notes and granted Morgan Fuller or
its nominees 55,970 three-year Warrants with an exercise price of $2.68.
Private Placement of Common Stock. On December 31, 1996, the Company
initiated a private placement of up to $5,000,000 of Common Stock at $1.00 per
share (the "December 1996 Private Placement"). This Common Stock is being
offered and sold only to "accredited investors" as defined in Regulation D
promulgated under the Securities Act and the offering of such Common Stock was a
private placement of securities exempt from the registration requirements of the
Securities Act under Rule 506 promulgated under the Securities Act. Holders of
this Common Stock have been granted piggyback and Form S-3 registration rights.
The Company has agreed to pay to brokers selling Common Stock in this offering a
brokerage fee of eight percent (8%) of the Common Stock sold. As of February 10,
1997, the Company had raised $165,000 in this private placement.
Private Placement of EDnet Series A Preferred Shares. Commencing on
February 3, 1997, the Company commenced a private placement of up to $1,750,000
of EDnet Series A Preferred Shares at $1,000 per share to non-United States
persons in an offering exempt from the registration requirements of the
Securities Act pursuant to Regulation S promulgated under the Securities Act.
The terms of the EDnet Series A Preferred Shares are described below. The Series
A Preferred Shares are convertible into Common Stock at any time until the third
anniversary of their issuance at the lesser of 70% of: (i) the average of the
closing bid price of the Common Stock on the five trading days preceding
conversion (the "Market Price"); or (ii) the average of the closing bid prices
for the Common Stock on the five trading days preceding the closing (the
"Closing Price"), but if the Market Price or the Closing Price is less than
$1.43 per share it shall be deemed to be $1.43 per share (the "Floor"). The
Series A Preferred Shares are also subject to mandatory conversion on the third
anniversary of their issuance at the lesser of 70% of the Market Price or the
Closing Price, subject to the Floor. Upon conversion, the holders of Series A
Preferred Shares will be paid a 6% cumulative dividend measured from the
issuance date of the Series A Preferred Shares through the conversion date,
payable in Common Stock valued at the Market Price. The Series A Preferred
Shares have a liquidation preference of $1,000 per share and all other stock of
the Company are subordinate to such preference. Holders of Series A Preferred
Shares or the underlying conversion Common Stock will be granted piggyback and
Form S-3 registration rights for the underlying Common Stock. Management
anticipates that the second phase of this offering will commence on or about
May, 1997. The Company has also paid NET Financial placement fees further
described in "Part I - Item 11. Interest of Management and Others in Certain
Transactions - Investment Banking and Brokerage Services - Net Financial
International, Ltd.".
Onggara Option. As discussed further in "Part I - Item 10. Security
Ownership of Management and Certain Securityholders," the Company is obligated
to grant Mr. Onggara certain options.
Other Issuances. For a discussion of issuances of securities in
connection with other transactions, see "Part I - Item 6. Description of
Business - History and Organization Merger With AP Office Equipment; IBS
Transaction; Breakthrough" and "Part I - Item 11.
28.
<PAGE>
Interest of Management and Others in Certain Transactions - Investment Banking
and Brokerage Services" above.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 7-108-402(1) of the Colorado Corporation Business Act provides
that a corporation may, if it so provides in its articles of incorporation,
eliminate or limit the personal liability of a director to the corporation or
its shareholders for monetary damages for breach of fiduciary duty as a
director; except that any such provision shall not eliminate or limit the
liability of a director to the corporation or to its shareholders for monetary
damages for any breach of the director's duty of loyalty to the corporation or
its shareholders, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, an unlawful distribution,
or any transaction from which the director directly or indirectly derived an
improper personal benefit. Article XIII of the Company's Articles of
Incorporation provides that the Board of Director of the Company shall have the
power to indemnify its directors and officers against expenses and liabilities
they incur to defend, settle or satisfy any civil or criminal action brought
against them on account of their being or having been company directors or
officers unless, in any such action, they are adjudged to have acted with
negligence or engaged in misconduct. Insofar as indemnification for liabilities
arising under the Securities Act and the Securities Exchange Act of 1934, as
amended, (collectively, the "Acts") may be permitted to directors, officers or
controlling persons pursuant to foregoing provisions, the Company has been
informed that, in the opinion of the SEC, such indemnification is against public
policy as expressed in the Acts and is, therefore, unenforceable.
29.
<PAGE>
PART F/S
FINANCIAL STATEMENTS
Attached are audited financial statements for EDnet, Inc. and Internet
Worldwide Business Solutions for the year ended June 30, 1996. The following
financial statements are attached to this report and filed as a part thereof.
See pages F-1 through F-32.
EDnet, Inc.
1. Table of Contents
2. Report of Independent Accountants
3. Consolidated Balance Sheet
4. Consolidated Statements of Operations
5. Consolidated Statements of Stockholders' Equity
6. Consolidated Statements of Cash Flows
7. Notes to Consolidated Financial Statements
Internet Worldwide Business Solutions
1. Table of Contents
2. Report of Independent Accountants
3. Balance Sheet
4. Statement of Operations
5. Statement of Changes in Stockholders' Equity
6. Statement of Cash Flows
7. Notes to Financial Statements
The unaudited balance sheet of EDnet, Inc. and Internet Worldwide Business
Solutions as of the quarter ended December 31, 1996 and income statements and
statements of cash flows for the interim period up to such date, and income
statements for the most recent fiscal quarter are incorporated by reference
herein from the Company's Form 10-QSB filed with the Commission on February 19,
1997.
30.
<PAGE>
EDnet, INC.
-------------------
REPORTS ON AUDITS OF FINANCIAL STATEMENTS
as of June 30, 1996 and for the
years ended June 30, 1995 and 1996
<PAGE>
EDnet, Inc.
------------------
C O N T E N T S
Page
Report of Independent Accountants 1
Consolidated Balance Sheet 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-20
<PAGE>
Coopers & Lybrand LLP
Coopers
& Lybrand a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of EDnet, Inc.
We have audited the accompanying consolidated balance sheet of EDnet, Inc. and
subsidiaries as of June 30, 1996 and the related consolidated statements of
income, stockholders' equity, and cash flows for the years ended June 30, 1995
and 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 audit 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 the 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of EDnet, Inc. and
subsidiaries as of June 30, 1996 and the consolidated results of their
operations and their cash flows for the years ended June 30, 1995 and 1996, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
COOPERS & LYBRAND LLP
/S/ COOPERS & LYBRAND LLP
San Francisco, California
October 21, 1996
<PAGE>
<TABLE>
EDnet, Inc.
CONSOLIDATED BALANCE SHEET
June 30, 1996
-------------
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 186,875
Restricted cash 35,000
Accounts receivable, net of allowance for doubtful accounts of $33,936 478,076
Inventories 147,409
Other current assets 14,298
-----------
Total current assets 861,658
Property and equipment, net 488,943
Goodwill, net 1,088,568
Other assets 79,342
-----------
$ 2,518,511
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 659,709
Accrued expenses 390,002
Deferred revenue 69,623
Line of credit 16,638
Notes payable 990,991
Current portion of capital lease obligations 24,493
-----------
Total current liabilities 2,151,456
Capital lease obligations 43,622
-----------
Total liabilities 2,195,078
-----------
Stockholders' equity:
Common stock; $0.001 par value; 50,000,000 shares authorized;
4,468,322 shares issued and outstanding 4,468
Additional paid-in capital 2,758,644
Accumulated deficit (2,439,679)
-----------
Total stockholders' equity 323,433
-----------
$ 2,518,511
===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
2
</TABLE>
<PAGE>
EDnet, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 1995 and 1996
-------------
1995 1996
Revenues:
Equipment sales $ 351,210 $ 1,308,646
Installation and monthly fees 340,603 404,976
Usage fees 471,962 637,262
Other fees 89,561 185,374
----------- -----------
1,253,336 2,536,258
Cost of sales 1,026,867 2,126,741
----------- -----------
Gross profit 226,469 409,517
Sales and marketing 320,803 995,917
Operating expenses 302,377 532,081
----------- -----------
Loss from operations (396,711) (1,118,481)
Other income (expenses):
Interest income -- 238
Interest expense (28,898) (34,560)
Gain on sale of equipment 32,086 --
----------- -----------
Total other income (expense), net 3,188 (34,322)
Loss before provision for income taxes (393,523) (1,152,803)
Income taxes 800 1,600
----------- -----------
Net loss $ (394,323) $(1,154,403)
=========== ===========
Net loss per share $ (0.35) $ (0.36)
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
<TABLE>
EDnet, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended June 30, 1995 and 1996
-----------------
<CAPTION>
Common Stock Additional
------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Beginning balance, restated for APO merger,
July 1, 1994 1,124,310 $ 1,124 $ 672,268 $ (890,953) $ (217,561)
Net loss -- -- -- (394,323) (394,323)
--------- ----------- ----------- ------------ -----------
Balance, June 30, 1995 1,124,310 1,124 672,268 (1,285,276) (611,884)
Shares issued in lieu of payroll 395,228 395 50,607 -- 51,002
Shares issued for APO merger 747,500 748 3,527 -- 4,275
Shares issued under Regulation D offering 1,500,000 1,500 996,000 -- 997,500
Shares issued pursuant to consulting agreement 390,000 390 413,985 -- 414,375
Shares issued for acquisition of IBS 311,284 311 622,257 -- 622,568
Net loss -- -- -- (1,154,403) (1,154,403)
--------- ----------- ----------- ------------ -----------
Ending balance, June 30, 1996 4,468,322 $ 4,468 $ 2,758,644 $(2,439,679) $ 323,433
========= =========== =========== =========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
EDnet, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 1995 and 1996
----------------
<CAPTION>
1995 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (394,323) $(1,154,403)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 107,385 136,823
Gain on sale of fixed assets (32,086) --
Provision for doubtful accounts 9,383 6,142
Noncash compensation expenses -- 465,377
(Increase) decrease in assets, net of effects of IBS acquisition:
Accounts receivable (121,648) (163,237)
Inventories -- (147,409)
Prepaid expenses (1,800) (10,301)
Other assets 5,128 (62,543)
Increase (decrease) in liabilities, net of effects of IBS acquisition:
Accounts payable 40,897 92,297
Accrued expenses 40,247 (14,504)
Deferred revenue 158,814 (161,078)
----------- -----------
Net cash used in operating activities (188,003) (1,012,836)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (32,640) (81,638)
Cash from the acquisition of IBS, net of cash paid -- 113,814
Proceeds from the sale of assets 72,908 --
----------- -----------
Net cash provided by investing activities 40,268 32,176
----------- -----------
Cash flows from financing activities:
Principal payments on long-term debt (104,743) (277,825)
Payments on capital leases (297) (8,577)
Issuance of shares under Regulation D -- 997,500
Proceeds from borrowings 253,305 400,001
Subscribed shares -- 35,000
Restricted cash -- (35,000)
----------- -----------
Net cash provided by financing activities 148,265 1,111,099
----------- -----------
Net increase in cash 530 130,439
Cash at beginning of year 55,906 56,436
----------- -----------
Cash at end of year $ 56,436 $ 186,875
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 24,050 $ 14,232
=========== ===========
Cash paid during the year for taxes 800 $ --
=========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
EDnet, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
1. The Company:
Summary of Business:
EDnet, Inc. (the Company), a Colorado corporation, and its subsidiaries
develop and market integrated systems for the delivery, storage, and
management of professional-quality digital communications for
media-based applications, including audio and video production for the
U. S. entertainment industry. The Company, through strategic alliances
with long-distance carriers, regional telephone companies, satellite
operators, and independent fiber optic telecommunications providers,
has established a worldwide network that enables the exchange of high
quality audio, video, multimedia, and data communications. The Company
provides engineering services and application-specific technical
advice, audio, video, and networking hardware and software as part of
its business. Additionally, through one of its wholly owned
subsidiaries, the Company provides Internet web site development and
hosting services, utilizing proprietary software, to businesses
conducting Internet commerce.
Organization:
The Company's principal subsidiary, Entertainment Digital Network
(EDN), was originally incorporated in the state of Nevada in June 1992.
In January 1993, EDN was reincorporated in the state of California.
During September and October of 1995, EDN's stockholders exchanged 100%
of their shares of common stock for 1,519,538 shares of common stock of
AP Office Equipment (APO), a public company with no operations and no
significant assets or liabilities. At the time of the exchange, APO, a
Colorado corporation that was incorporated in May 1994, had 747,500
shares of common stock outstanding. Concurrently, APO sold 1,500,000
shares of common stock to a group of investors for $.665 per share. APO
then changed its name to EDnet, Inc. EDN became a subsidiary of the
Company as a result of this transaction. For accounting purposes, this
transaction has been treated as a recapitalization of EDN, recognizing
the issuance of shares of common stock for the net assets of the
Company. The historical financial statements prior to this transaction
are those of EDN.
Continued
6
<PAGE>
EDnet, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
1. The Company, continued:
Acquisition of Internet Worldwide Business Solutions:
On June 24, 1996, the Company acquired all the outstanding shares of
common stock of Internet Worldwide Business Solutions (IBS) in a
business combination accounted for as a purchase. IBS is primarily an
Internet service provider specializing in the development and hosting
of web sites. The results of operations of IBS are included in the
accompanying financial statements since the date of acquisition. The
purchase price of $1,162,568 included 311,284 shares of the Company's
common stock, notes payable in the aggregate amount of $500,000 (Note
5) and $40,000 of acquisition related costs. The purchase price
exceeded the estimated fair value of the net tangible assets of IBS by
$1,088,568. The excess is reflected as goodwill on the balance sheet
and is being amortized using the straight-line method over a five-year
period.
The assets and liabilities purchased in connection with the acquisition
were as follows:
Current assets $ 219,683
Property, plant and equipment, net 90,136
Other assets 2,767
Current liabilities (150,949)
Note payable to EDnet (25,000)
Deferred revenues (62,637)
---------
Net assets acquired $ 74,000
=========
In addition, the Company entered into a stock bonus plan to issue up to
an aggregate of 500,000 shares of its common stock to the two former
owners of IBS, now employees of the Company. The plan sets certain
threshold levels for revenue and profit goals to be realized in order
for the stock to be issued. If a threshold for a given time period is
exceeded, the amount in excess shall not be added to the amount in the
next time period or used to determine whether that threshold has been
met or exceeded. This agreement represents an earn-out plan and the
fair market value of any additional shares issued will be added to
goodwill when and if the goals are met.
In conjunction with the acquisition, under the terms of its
nonstatutory stock option plan, options to purchase an aggregate of
50,000 shares of common stock of the Company were granted to certain
IBS employees at $1.25 per share (see Note 9).
Continued
7
<PAGE>
EDnet, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
1. The Company, continued:
Acquisition of Internet Worldwide Business Solutions, continued:
<TABLE>
Had the acquisition occurred on October 1, 1995 (the commencement of
operations for IBS), the pro forma statement of operations for the
Company for the year ended June 30, 1996 would have been as follows:
<CAPTION>
Pro Forma
As Stated Adjustments Pro Forma
--------- ----------- ---------
<S> <C> <C> <C>
Revenues $ 2,536,258 $ 480,030 $ 3,016,288
Cost of sales 2,126,741 258,716 2,385,457
----------- ----------- -----------
Gross profit 409,517 221,314 630,831
Sales and marketing 995,917 64,679 1,060,596
General and administrative 532,081 271,083 803,164
----------- ----------- -----------
(Loss) income from operations (1,118,481) (1,144,488) (1,232,929)
Other expenses, net 34,322 832 35,154
(Loss) income before income taxes (1,152,803) (1,152,800) (1,268,083)
Income taxes 1,600 10,335 11,935
----------- ----------- -----------
Net (loss) income $(1,154,403) $(1,256,155) $(1,280,018)
=========== =========== ===========
Net (loss) per share $ (0.36) $ (0.35)
=========== ===========
</TABLE>
Going Concern:
The Company and its subsidiaries have not been able to generate any
operating profit since inception. Through June 30, 1996, the Company
and its subsidiaries have aggregated losses of $2,439,679 and current
liabilities exceed current assets by $1,289,798. Subsequent to year
end, the Company obtained additional funding as described in Note 13.
The Company's management is attempting to raise additional funds to
fully develop its core business products. The Company's management is
attempting to raise additional funds to fully develop its core business
products and manage its cash outflows by engaging in various private
placement issuances, extending its Senior Secured Notes to delay
short-term cash requirements, and pursuing aggressive collection
efforts of its current accounts receivable balances. However, if the
Company cannot raise additional funds, it may not have the financial
resources to continue as a going concern. The financial statements do
not contain any adjustments that may be needed if the Company is unable
to continue as a going concern.
Continued
8
<PAGE>
EDnet, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
2. Summary of Significant Accounting Policies:
Consolidation:
The consolidated financial statements include the accounts of the
Company's wholly owned subsidiaries EDN and IBS. Material inter-company
transactions and balances have been eliminated.
Revenue Recognition:
A significant component of revenues relate to the sale of equipment
which is recognized when the equipment is installed. Installation fees
are recognized when the installation has been completed and usage fees
are recognized over the period the equipment is used based on the
relative usage level. Deferred revenues represent billings in excess of
revenue recognized.
Restricted Cash:
Restricted cash represents the funds received by the Company in
conjunction with its Regulation D offering (see Note 13) prior to
reaching the minimum level of investment for usage of funds.
Allowance for Doubtful Accounts:
Bad debts are provided on the allowance method based on historical
experience and management's evaluation of outstanding accounts
receivable.
Inventories:
Inventories are valued at the lower of cost or market with cost being
determined on the first-in, first-out basis.
Property and Equipment and Leasehold Improvements:
Property and equipment are carried at cost and are depreciated on the
straight-line basis over their estimated useful lives, which range from
five to seven years. The costs of leasehold improvements are amortized
over the lesser of the length of the related leases or the estimated
useful lives of the assets. Expenditures for improvement or expansion
of property and equipment are capitalized. Repairs and maintenance are
charged to expense as incurred. When the assets are sold or retired,
their cost and related accumulated depreciation are removed from the
accounts with the resulting gain or loss reflected in the statement of
operations.
Continued
9
<PAGE>
EDnet, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
2. Summary of Significant Accounting Policies, continued:
Goodwill:
Goodwill is being amortized using the straight-line method over the
estimated useful life of five years. The Company evaluates the recovery
of its goodwill by comparing the aggregate estimated cash flows
generated by those assets with their carrying value. If the carrying
value exceeds the aggregate cash flow amount, goodwill would be reduced
accordingly.
Income Taxes:
The Company accounts for income taxes using the liability method.
Deferred income tax assets and liabilities are computed annually for
differences between the financial reporting and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets
to the amount expected to be realized.
Loss Per Share:
Loss per share has been calculated using the weighted average number of
shares outstanding for the period, which were 1,124,310 for 1995 and
3,181,350 for 1996. Common stock equivalents (stock options and
warrants) have been excluded from the calculation because they are
anti-dilutive.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Recent Accounting Pronouncements:
During October 1995, the financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123), Accounting for Stock-Based
Compensation, which establishes a fair value based method of accounting
for stock-based compensation plans. The Company is currently following
the requirements of APB Opinion No. 25, Accounting for Stock Issued to
Employees. The Company plans to adopt SFAS No. 123 during fiscal year
1997 utilizing the disclosure alternative.
In March 1995, the Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived assets and for Long-Lived
Assets to Be Disposed Of, (SFAS 121) was issued and is effective for
the Company's 1997 fiscal year. SFAS 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used
for long-lived assets
Continued
10
<PAGE>
EDnet, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
and certain identifiable intangibles to be disposed. The Company has
adopted this standard during fiscal year 1996 with no impact on the
financial statements. The Company's policy related to evaluating
long-lived assets is included in the goodwill policy disclosures above.
3. Accounts Receivable and Allowance for Doubtful Accounts:
Accounts receivable at June 30, 1996 comprise the following:
Current trade $ 469,028
Employee 3,372
Rebillable charges 39,612
---------
512,012
Less allowance for doubtful accounts (33,936)
---------
Total $ 478,076
=========
Allowances are made as a percentage of sales adjusted annually based upon
review of the individual accounts receivable. Accounts are written off
when deemed to be worthless. Total bad debt expense was $16,603 and $6,461
for the years ended June 30, 1995 and 1996, respectively.
4. Property and Equipment:
Property and equipment are summarized by major category as follows as of
June 30, 1996:
Network and related equipment $ 831,635
Furniture and fixtures 15,421
Computer software 20,766
Leasehold improvements 15,108
---------
882,930
Depreciation and amortization (393,987)
---------
Net property and equipment $ 488,943
=========
Depreciation and amortization included in the statements of operations
amounted to $107,385 and $136,823 for the years ended June 30, 1995 and
1996, respectively.
The Company leases some equipment to customers under terms which are
accounted for as operating leases. Under the operating method, rental
revenue from leases are recognized ratably over the life of the lease and
the related equipment is depreciated over its estimated useful life.
Continued
11
<PAGE>
EDnet, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
<TABLE>
<CAPTION>
5. Notes Payable:
<S> <C>
Notes payable consist of the following as of June 30, 1996:
Notes payable to two stockholders of $125,000 each at 8% interest,
principal and interest due 60 days subsequent to the IBS purchase,
collateralized by IBS shares of common stock acquired by the Company
(see Note 1). The note and accrued interest was repaid in full in
August, 1996. $ 250,000
Notes payable to two stockholders of $125,000 each at 8% interest,
principal and accrued interest due the earlier of 12 months
subsequent to the IBS purchase or 15 days after close of a public
offering of common stock, uncollateralized (see Note 1). 250,000
Notes payable to Mr. Irawan Onggara, a shareholder and financial advisor,
with original amounts of $250,000, $100,000, and $75,000 at 7%
interest rate, collateralized by assets of the Company subordinated
to equipment covered by individual capital leases, due August 8,
1996, October 18, 1996, and November 20, 1996, respectively. The
Company has repaid $90,000 and has obtained verbal agreement to
extend the due dates of the notes currently due. 410,000
Note payable to Newjack, Inc., dba Waves Sound Recorders, Inc., interest
at 13.09%, monthly principal and interest payments of $1,475,
collateralized by equipment, final maturity May, 1997. 15,441
Notes payable to an officer, interest at 6% per annum, uncollateralized. 24,000
Notes payable to an officer, interest at 6% per annum, uncollateralized. 26,550
Note payable to a director, interest at 6% per annum, uncollateralized. 15,000
--------------
$ 990,991
==============
</TABLE>
The notes payable to officers and director are overdue as of October 21,
1996. Each of these individuals has agreed not to declare a default under
these notes for an indefinite period and to accept repayment by the
Company at a future date.
The carrying value of these financial instruments approximates fair value
due to the relatively short maturity.
6. Line of Credit:
The Company's wholly owned subsidiary, IBS, has a $25,000 line of credit
with a financial institution, of which $16,638 was outstanding as of June
30, 1996. The line of credit bears interest at the institutions reference
rate plus 5.06% (12.31% as of June 30, 1996) and is payable monthly. The
line of credit expires on March 8, 1997.
Continued
12
<PAGE>
EDNET, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
7. Income Taxes:
The provision for income taxes consists of federal income taxes and
California franchise taxes payable and includes the following:
Currently payable $1,600
Deferred --
------
Total provision for income taxes $1,600
======
A reconciliation of the expected and reported provision for income taxes
follows:
For the Years Ended
June 30,
-------------------
1995 1996
Benefit expected based on federal statutory rate 34.0% 34.0%
State taxes, net of federal benefit 6.1 6.1
Nondeductible expenses 0.1 0.2
Valuation allowance, net (40.2) (40.2)
----- -----
Net income tax provision 0.0% 0.1%
===== =====
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
Net operating loss carryforwards $ 879,000
Property and equipment 17,000
Other, net 3,000
Valuation allowance (899,000)
---------
Net deferred tax asset --
=========
Due to the uncertainty of realization, a valuation allowance has been
provided to eliminate the net deferred tax assets. The increase in the
valuation allowance was $420,000 in fiscal 1996.
The Company has Federal and California loss carryforwards totaling
approximately $2.4 million and $1.2 million expiring through 2011 and
2001, respectively, that may be offset against future income taxes. The
utilization of these net operating loss carryforwards are limited due to a
change of ownership as defined in the Internal Revenue Code (see Note 1)
in November 1995.
Continued
13
<PAGE>
EDnet, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
8. Lease Commitments:
As of June 30, 1996, the Company leases office space and certain equipment
under various noncancelable capital and operating leases. Future minimum
lease payments required under the noncancelable leases are as follows:
Operating Capital
Year Ending June 30, Leases Leases
-------------------- ------ ------
1997 $ 200,118 $ 32,498
1998 164,905 26,274
1999 119,961 13,824
2000 92,994 10,961
2001 92,994 -
Thereafter 185,988 -
----------- ----------
Total minimum lease payments $ 856,960 83,557
===========
Less amount representing interest 15,442
----------
Present value of net minimum lease payments 68,115
Less current portion 24,493
----------
Long-term portion $ 43,622
==========
As of June 30, 1996, the Company has equipment purchased under
noncancelable capital leases with a cost of $76,990 and accumulated
amortization of $5,238.
Total rental expense for all operating leases for the years ended June 30,
1996 and 1995 amounted to $121,584 and $124,700, respectively.
The Company's obligations under its lease for its Los Angeles office
premises are guaranteed by its Chairman and Chief Executive Officer.
9. Options and Warrants:
Options to Key Employees and Directors:
On September 19, 1995, EDN granted a total of 263,420 non-qualified
options to certain employees and directors to purchase shares in EDN at
$.10 per share. As a result of the recapitalization discussed in Note
1, the EDN options were converted into options to purchase the
Company's stock at a conversion of .87495 per share for each EDN share.
As a result, at June 30, 1996, there were 230,479 options outstanding
at a price of $.11 per share. These options expire on September 29,
2000. There were no options exercised during the period.
Continued
14
<PAGE>
EDnet, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
9. Options and Warrants, continued:
Incentive Stock Options:
On November 10, 1995, the Company adopted an Incentive Stock Option
Plan (the Plan) for certain officers and executive employees of the
Company. An aggregate of 500,000 shares may be issued under the terms
of the Plan. The option price shall be determined by the Board of
Directors and the Company's Compensation Committee and shall not be
less than 100% of the fair market value of the common stock on the date
of grant. The period of option may not exceed ten years.
During fiscal 1996, the Company entered into an employment agreement
with both its Chairman and President. Under the terms of the agreement,
each officer may purchase up to 250,000 shares at a price of $1.25
under the terms outlined below:
1) On January 1, 1997, the option shall become exercisable for a total
of 100,000 shares of the Company's common stock, exercisable for a
five-year period, if for any prior rolling 12-month period during
the period from September 1, 1995 through December 31, 1996, the
Company has sales of at least $5,000,000 or income before income
taxes of at least $500,000.
2) On January 1, 1998, the option shall become exercisable for a total
of 100,000 shares of the Company's common stock, exercisable for a
five-year period, if for any prior rolling 12-month period during
the period from September 1, 1995 through December 31, 1997, the
Company has sales of at least $8,500,000 or income before income
taxes of at least $1,500,000.
3) On January 1, 1999, the option shall become exercisable for a total
of 50,000 shares of the Company's common stock, exercisable for a
five-year period, if for any prior rolling 12-month period during
the period from September 1, 1995 through December 31, 1998, the
Company has sales of at least $15,000,000 or income before income
taxes of at least $3,000,000.
Each of the above installments may be exercised by the delivery by the
employee to the Company of a three-year promissory note payable to the
Company, with interest to be determined at date of issuance. No further
options may be issued under this Plan.
Continued
15
<PAGE>
EDnet, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
9. Options and Warrants, continued:
Nonstatutory Stock Option Plan:
On November 10, 1995, the Company adopted a nonstatutory stock option
plan whereby 565,000 shares of the Company's common stock was reserved
for issuance. Under the terms of the plan, the options must be granted
prior to December 31, 1996; the price shall be determined by the
Company's Compensation Committee (CC); the period of option shall not
exceed five years from the date of grant; and the option must be paid
in cash when exercised unless a payment plan is authorized by the CC.
As of June 30, 1996, 222,000 options had been granted with an exercise
price of $1.25 per share, of which 100,000 shares have to be exercised
by November 30, 1997 and 100,000 by November 30, 1998.
In addition, in connection with the IBS acquisition (see Note 1),
50,000 options were granted to IBS employees with an exercise price of
$1.25 and a three-year vesting term.
EDN Stockholders' Warrants:
As a result of the recapitalization discussed in Note 1, outstanding
warrants to purchase an aggregate of 347,343 shares of EDN common stock
at $2.625 per share were converted to 303,908 warrants to purchase
shares of the Company's common stock at a price of $3.00 per share.
These warrants became exercisable on May 1, 1996 and expire on October
31, 1996.
Investment Banking Warrants:
In May 1996, the Company entered into an investment banking
relationship with Morgan Fuller Capital Group (Morgan). Under the terms
of the agreement, Morgan will provide the Company with financial
advisor services as well as arranging for equity and debt funding. As
part of Morgan's compensation, they received 250,000 warrants to
purchase shares of the Company's common stock at a price of $6.37 per
share to be exercised prior to May 1999.
Continued
16
<PAGE>
EDnet, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
9. Options and Warrants, continued:
A recap of the options and warrants outstanding as of June 30, 1996 is as
follows:
Quantity
Price Reserved Outstanding
----- -------- -----------
Employee EDN options converted $0.11 230,479 230,479
Employee incentive options $1.25 500,000 500,000
Nonstatutory options $1.25 565,000 272,000
--------- ---------
Total options 1,295,479 1,002,479
========= =========
Employee warrants $3.00 303,908 303,908
Morgan warrants $6.37 250,000 250,000
--------- ---------
Total warrants 553,908 553,908
========= =========
Subsequent to June 30, 1996, additional warrants were issued as described
in Note 13. On August 26, 1996, the Board of Directors issued, pursuant to
the nonstatutory stock option plan, 100,000 options to purchase shares of
common stock at a price of $1.25 per share vesting over three years.
Pursuant to a Consulting Agreement dated July 31, 1995, between EDN and
Century Financial Partners, Inc. (CFP), the Company was obligated to grant
an option to purchase 1,000,000 shares of common stock at $1.25 per share.
The Company has had verbal discussions with CFP with respect to reducing
the number of shares of common stock subject to such option to 805,000
shares.
10. Employment Contracts:
The Company has entered into employment contracts with both its Chairman
and President whereby each will receive a minimum annual salary of
$125,000 until February 28, 1996 adjusted to market rates at March 1,
1996, and annually thereafter, and incentive stock options as described in
Note 9. These agreements cover the period through December 31, 2000.
IBS has entered into employment contracts with its President and Chief
Executive Officer that extend through June 30, 1999. The contracts provide
for a minimum annual salary, adjusted at the discretion of the
Compensation Committee of the Board of Directors. At June 30, 1996 the
commitment under each contract was $300,000.
Continued
17
<PAGE>
EDnet, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
11. Concentration of Credit Risk:
The Company and its subsidiaries maintain cash in bank deposit accounts at
accredited financial institutions. The balances in these accounts may, at
times, exceed federally insured limits.
12. Supplemental Disclosures of Noncash Investing and Financing Activities:
The following noncash activity occurred during the periods under audit as
follows:
o The Company entered into capital leases for office and computer
equipment in the amount of $12,901 and $66,408, for the years ended
June 30, 1995 and 1996, respectively.
o During fiscal year 1996, the Company issued 395,228 shares of its
common stock to officers and employees of the Company in lieu of
payroll.
o During the fiscal year 1996, the Company issued 295,228 shares of its
common stock to officers and employees of the Company in lieu of
payroll resulting in a noncash compensation charge of $51,002. The
shares were valued using an estimation of the fair value of the stock
by management and the Board of Directors.
o In connection with the merger with APO (Note 1) in 1995, the Company
issued 747,500 shares of common stock in exchange for the net assets of
APO totaling $4,275.
o In connection with the merger with APO (Note 1) in 1995, the Company
issued 747,500 shares of common stock in exchange for the net assets of
APO totaling $4,275. The transaction has been recorded as a
recapitalization with the issuance of stock for assets and no goodwill.
o The Company issued 390,000 of its shares of common stock in
consideration for consulting services performed during fiscal year
1996. At the time of issuance these shares were valued at $414,375.
o The Company issued 290,000 of its shares of common stock in
consideration for consulting services performed during fiscal year
1996. At the time of issuance these shares were valued at the closing
bid price on the date of issuance discounted due to certain
restrictions regarding the lack of liquidity in the near term. The
total amount of $414,375 was charged to compensation expense.
o In conjunction with the acquisition of IBS during fiscal year 1996
(Note 1), the Company issued notes payable totaling $500,000 (Note 5)
and 311,284 shares of common stock valued at $622,257.
Continued
18
<PAGE>
EDnet, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
o In conjunction with the acquisition of IBS during fiscal year 1996
(Note 1), the Company issued notes payable totaling $500,000 (Note 5)
and 311,284 shares of common stock valued at $622,257. The shares were
valued by comparing the closing price of common shares concurrently
being issued under a Regulation D offering which included one common
share and one warrant and subsequently discounted due to the fact that
the liquidity of the shares was restricted to a future date.
13. Subsequent Events:
Senior Secured Promissory Notes:
Subsequent to June 30, 1996, the Company has borrowed a total of
$1,000,000 under three senior collateralized promissory notes, arranged
by its financial advisor, Morgan, as follows:
Date Amount Rate Due Date
July 5, 1996 $ 500,000 14% November 15, 1996
August 9, 1996 200,000 14% November 15, 1996
September 11, 1996 300,000 14% November 15, 1996
-------------
$ 1,000,000
=============
Interest on these notes is payable on a quarterly basis starting
September 30, 1996.
13. Subsequent Events, continued:
Senior Secured Promissory Notes, continued:
Subsequent to November 15, 1996, the notes may be converted into term
notes with principal payments for each note of $100,000 per month
beginning December 1, 1996. In addition, the interest rate will be
increased from 14% to 18%. The notes are collateralized by the
Company's assets.
In connection with the senior secured notes and selling of the
participations, investors and Morgan received:
-- 58,824 warrants (39,216 warrants to Morgan) at a price of $4.25 per
share to be exercised prior to July 4, 1999.
-- 67,806 warrants (45,205 warrants to Morgan) at a price of $3.687 per
share to be exercised prior to August 8, 1999 and September 10,
1999, respectively, for debt placement services.
Continued
19
<PAGE>
EDnet, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
If the Company elects not to complete additional financing with Morgan,
a cash fee of $140,000 and $200,000 in warrants at an exercise price
equal to the lesser of (i) $3.00; or (ii) sixty percent of the average
closing bid price of the common stock during a consecutive ten (10) day
period immediately preceding the issuance date of the warrants, will
become due and payable to Morgan.
Regulation D Equity Placement:
The Company has offered up to a maximum of $3,000,000 in units (each
unit consists of one share of its common stock and one warrant) at a
price per unit of the lesser of $3.00 or the average closing bid price
of its common stock during a consecutive 30-day period immediately
preceding the termination date less 30%. The original termination date
of the offering was in August, 1996 but it has been extended and is
currently ongoing as of October 21, 1996. Each share of stock comes
with a warrant to purchase common stock through July 31, 1999 at a
price of the lesser of $4.75 or the average closing bid price during a
consecutive- 30-day period immediately preceding the termination date
as explained above. As of October 21, 1996 the Company had sold 190,000
units at a price of $3.00, with attached warrants at a price of $4.75
per share. The unit purchase price and the related warrant price may be
adjusted at the time of the closing depending on the average trading
price in the period described above.
Continued
20
<PAGE>
EDnet, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
13. Subsequent Events, continued:
<PAGE>
INTERNET WORLDWIDE BUSINESS SOLUTIONS
-----------------
REPORT ON AUDIT OF FINANCIAL STATEMENTS
as of June 24, 1996 and for the
period from October 1, 1995 to June 24, 1996
<PAGE>
INTERNET WORLDWIDE BUSINESS SOLUTIONS
-----------------
C O N T E N T S
Page
Report of Independent Accountants 1
Balance Sheet 2
Statement of Operations 3
Statement of Changes in Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6-8
<PAGE>
Coopers & Lybrand LLP
Coopers
& Lybrand a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of EDnet, Inc.
We have audited the accompanying balance sheet of Internet Worldwide Business
Solutions as of June 24, 1996, and the related statements of income, changes in
stockholders' equity, and cash flows for the period from October 1, 1995 to June
24, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, on June 24, 1996, the
Company was acquired by EDnet, Inc.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Internet Worldwide Business
Solutions as of June 24, 1996, and the results of its operations and its cash
flows for the period from October 1, 1995 to June 24, 1996, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND LLP
/S/ COOPERS & LYBRAND LLP
San Francisco, California
October 21, 1996
<PAGE>
<TABLE>
INTERNET WORLDWIDE BUSINESS SOLUTIONS
BALANCE SHEET
June 24, 1996
-----------------
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $153,814
Accounts receivable, net of allowance for doubtful accounts of $13,911 51,640
Other current assets 14,229
--------
Total current assets 219,683
Property and equipment, net 90,136
Other assets 2,767
--------
$312,856
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 47,777
Accrued expenses 86,534
Line of credit 16,638
Note payable to EDnet, Inc. 25,000
Deferred revenue 62,637
--------
Total liabilities 238,536
--------
Stockholders' equity:
Common stock; no par value; 100,000 shares authorized; 50,000 shares
issued and outstanding
36,330
Retained earnings 37,670
--------
Total stockholders' equity 74,000
--------
$312,586
========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
2
<PAGE>
INTERNET WORLDWIDE BUSINESS SOLUTIONS
STATEMENT OF OPERATIONS
for the period from October 1, 1995 through June 24, 1996
-----------------
Revenues $480,030
Cost of revenues 258,716
--------
Gross profit 221,314
--------
Sales and marketing 64,679
General and administrative 107,798
--------
Income from operations 48,837
Interest expense 832
--------
Income before provision for income taxes 48,005
Provision for income taxes 10,335
--------
Net income $ 37,670
========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
INTERNET WORLDWIDE BUSINESS SOLUTIONS
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
for the period from October 1, 1995 through June 24, 1996
-----------------
<CAPTION>
Total
Stock-
Common Retained holders'
Stock Earnings Equity
------- ------- -------
<S> <C> <C> <C>
Balance, October 1, 1995 -- -- --
Issuance of common stock (50,000 shares) $36,330 -- $36,330
Net income for the period from October 1, 1995 through June 24, 1996
-- $37,670 37,670
------- ------- -------
Balance, June 24, 1996 $36,330 $37,670 $74,000
======= ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
INTERNET WORLDWIDE BUSINESS SOLUTIONS
STATEMENT OF CASH FLOWS
for the period from October 1, 1995 through June 24, 1996
-----------------
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $ 37,670
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 11,509
Bad debt expense 13,911
(Increase) decrease in assets:
Accounts receivable (55,205)
Other current assets (14,229)
Other assets (2,767)
Increase (decrease) in liabilities:
Accounts payable 47,777
Accrued expenses 80,296
Deferred revenue 62,637
---------
Net cash provided by operating activities 181,599
---------
Cash flows from investing activities - purchase of property and equipment (85,900)
---------
Cash flows from financing activities:
Borrowings under line of credit 16,638
Proceeds from note payable 25,000
Proceeds from issuance of common stock 16,477
---------
Net cash provided by financing activities 58,115
---------
Net increase in cash 153,814
Cash at beginning of period --
---------
Cash at end of period $ 153,814
=========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 832
=========
Cash paid during the period for taxes $ 23,047
=========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
5
<PAGE>
INTERNET WORLDWIDE BUSINESS SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
-----------------
1. The Company:
Internet Worldwide Business Solutions (the Company), a California
corporation, is primarily an Internet service provider specializing in the
development and hosting of web sites.
The Company was incorporated on August 4, 1995 in California; however,
operations were not begun until October 1, 1995. On October 1, 1995,
certain assets and liabilities were transferred from a partnership to the
corporation in exchange for 50,000 shares of common stock as follows:
Cash $ 16,477
Accounts receivable 10,346
Fixed assets 15,745
Accrued liabilities (6,238)
On June 24, 1996, the Company was acquired by EDnet, Inc. (EDnet) in a
business combination accounted for as a purchase.
2. Summary of Significant Accounting Policies:
Revenue Recognition:
Revenues are generated from the design and development of web sites and
for services for hosting web sites. Revenue for design and development
contracts is recognized on the percentage of completion method and
service revenue are recognized ratably over the service period.
Deferred revenues represent billings in excess of revenue recognized.
Property and Equipment:
Property and equipment are carried at cost and are depreciated on the
straight-line basis over their estimated useful lives, which is five to
seven years. Expenditures for improvement or expansion of electronic
equipment are capitalized. Repairs and maintenance are charged to
expense as incurred. When the assets are sold or retired, their cost
and related accumulated depreciation are removed from the accounts with
the resulting gain or loss reflected in the income statement.
Income Taxes:
The Company accounts for income taxes using the liability method.
Deferred income tax assets and liabilities are computed annually for
differences between the financial reporting and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets
to the amount expected to be realized.
Continued
6
<PAGE>
INTERNET WORLDWIDE BUSINESS SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
-----------------
2. Summary of Significant Accounting Policies, continued:
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
3. Property and Equipment:
Property and equipment are summarized by major category as follows as
of June 24, 1996:
Network equipment $ 80,977
Furniture and fixtures 6,314
Computer software 14,354
-------------
101,645
Depreciation and amortization (11,509)
-------------
Net property and equipment $ 90,136
=============
Depreciation and amortization included in the statement of operations
amounted to $11,509 for the period from October 1, 1995 through June 24,
1996.
4. Related Party Transactions:
At June 24, 1996, the Company had a note payable to EDnet in the amount of
$25,000 bearing interest at 8%, maturing on August 6, 1996. Subsequent to
the acquisition of the Company by EDnet (Note 1), the note was converted
to an advance with no repayment terms or interest being due.
5. Income Taxes:
The provision for income taxes consists of current taxes of $12,094 and
deferred taxes of $(1,759).
A reconciliation of the expected and reported provision for income taxes
follows:
Taxes using U.S. federal statutory rate $ 6,025
State taxes, net of federal benefit 3,173
Impact of nondeductible expenses 1,137
-----------
Net income tax provision $ 10,335
===========
Continued
7
<PAGE>
INTERNET WORLDWIDE BUSINESS SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
-----------------
5. Income Taxes, continued:
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
Bad debt allowance $ 3,380
Depreciation (1,009)
State income taxes (612)
----------
Net deferred tax asset $ 1,759
==========
6. Lease Commitments:
The Company leases office space under a noncancelable operating lease,
expiring March 3, 1997. Future minimum lease payments under this lease for
the year ending June 30, 1997 are $35,213.
Rental expense for the period from October 1, 1995 to June 24, 1996
amounted to $25,301.
7. Concentration of Credit Risk:
The Company maintains its cash in a bank deposit account at a financial
institution. The balance at times may exceed federally insured limits. At
June 30, 1996, the Company exceeded the insured limit by approximately
$53,000.
8. Major Customer:
The Company had one customer representing approximately 18% of its overall
revenue for the period from October 1, 1995 through June 24, 1996. All
other customers represented less than 10% of its overall revenue during
the same period.
9. Line of Credit:
The Company has a $25,000 line of credit with a financial institution, of
which $16,638 was outstanding as of June 24, 1996. The line of credit
bears interest at the institution's reference rate plus 5.06% (12.31% as
of June 24, 1996) and is payable monthly. The line of credit expires on
March 8, 1997. The carrying value approximates fair value due to the
relatively short maturity of this financial instrument.
8
<PAGE>
PART III
<TABLE>
ITEM 1. INDEX TO EXHIBITS Page Number
<CAPTION>
<S> <C>
Exhibit No. Type of Exhibit
(2) (a) Articles of Incorporation, as amended. PREVIOUSLY FILED.
(b) Bylaws, as amended. PREVIOUSLY FILED.
(c) Certificate of Designation, filed with the Colorado Secretary of State on
February 2, 1997. FILED HEREWITH.
(3) (a) Security Agreement dated as of July 5, 1996, made by the Company, in
favor of Morgan Fuller Capital Group L.L.C. PREVIOUSLY FILED.
(b) Amendment No. 1 to Security Agreement dated as of August 1, 1996.
PREVIOUSLY FILED.
(c) Form of Senior Secured Promissory Note in favor of
Morgan Fuller Capital Group L.L.C., executed on the
following dates for the following amounts:
1. dated July 5, 1996, in the amount of $500,000;
2. dated July 22, 1996, in the amount of $200,000; and
3. dated July 22, 1996, in the amount of $300,000.
PREVIOUSLY FILED.
(d) Amendment No. 1 to Senior Secured Promissory Notes, dated as of
November 15, 1996, executed by the Company and Fuller Capital Group
L.L.C. FILED HEREWITH.
(e) Promissory Note dated February 8, 1996 in favor of Irawan Onggara, in
the principal amount of $250,000. PREVIOUSLY FILED.
(f) Promissory Note dated April 18, 1996 in favor of Irawan Onggara, in the
principal amount of $100,000. PREVIOUSLY FILED.
(g) Promissory Note dated May 20, 1996 in favor of Irawan Onggara, in the
principal amount of $75,000. PREVIOUSLY FILED.
31.
<PAGE>
(h) Form of Promissory Note dated June 24, 1996 in the
principal amount of $125,000, payable to each of
Randall Schmitz and Trevor Stout. PREVIOUSLY FILED.
(i) Breakthrough Software, Inc. Convertible Promissory Note dated
January 31, 1997 in the principal amount not to exceed $250,000 payable
to the Company. FILED HEREWITH.
(6) Material Contracts
(a) Agreement and Plan of Reorganization by and among EDnet, Inc., EDN
Sub, Inc. and Internet Worldwide Business Solutions, dated as of June 24,
1996. PREVIOUSLY FILED.
(b) Stock Purchase Agreement, dated September 22, 1995, between AP Office
Equipment, Inc., Entertainment Digital Network, Inc. and certain
shareholders of Entertainment Digital Network, Inc. PREVIOUSLY
FILED.
(c) Stock Purchase Agreement, dated October 18, 1995, between EDnet, Inc.
and certain shareholders of Entertainment Digital Network, Inc.
PREVIOUSLY FILED.
(d) Employment Agreement between the Company and Tom Kobayashi dated
September 1, 1995. PREVIOUSLY FILED.
(e) Employment Agreement between the Company and David Gustafson dated
September 1, 1995. PREVIOUSLY FILED.
(f) EDnet, Inc. Incentive Stock Option Plan. PREVIOUSLY FILED.
(g) EDnet, Inc. 1995-1996 Nonstatutory Stock Option Plan. PREVIOUSLY
FILED.
(h) Entertainment Digital Network 1993 Flexible Stock Incentive Plan.
PREVIOUSLY FILED.
(i) Form of Entertainment Digital Network Nonqualified Stock Option
Agreement. PREVIOUSLY FILED.
(j) Form of Entertainment Digital Network Stock Purchase Warrant.
PREVIOUSLY FILED.
(k) Form of EDnet, Inc. Warrant. PREVIOUSLY FILED.
32.
<PAGE>
(l) Consulting Agreement, dated as of January 12, 1996, between the
Company and Liviakis Financial Communications, Inc. PREVIOUSLY
FILED.
(m) Consulting Agreement, effective as of January 12, 1997 between the
Company and Liviakis Financial Communications, Inc. FILED
HEREWITH.
(n) Financial Advisory Agreement, dated as of July 31, 1995, between EDN
and Century Financial Partners, Inc. PREVIOUSLY FILED.
(o) Engagement letter dated May 20, 1996 between the Company and Morgan
Fuller Capital Group L.L.C. PREVIOUSLY FILED.
(p) Engagement letter dated June 25, 1996 between the Company and Morgan
Fuller Capital Group L.L.C. PREVIOUSLY FILED.
(q) Engagement letter dated June 28, 1996 between the Company and Morgan
Fuller Capital Group L.L.C. PREVIOUSLY FILED.
(r) Engagement letter dated June 28, 1996 between the Company and Morgan
Fuller Capital Group L.L.C. PREVIOUSLY FILED.
(s) Engagement letter dated October 17, 1996 between the Company and LBC
Capital Resources, Inc. PREVIOUSLY FILED.
(t) Form of Subscription, Representation and Securities Transfer Restriction
Agreement between the Company and investors in Units. FILED
HEREWITH.
(u) Engagement letter dated November 19, 1996 between the Company and
Morgan Fuller Capital Group L.L.C. FILED HEREWITH.
(v) Engagement letter dated November 21, 1996 between the Company and
Morgan Fuller Capital Group L.L.C. FILED HEREWITH.
(w) Consulting Agreement dated January 31, 1997 between the Company and
Net Financial International, Ltd. FILED HEREWITH.
(x) Form of Subscription, Representation and Securities Transfer Restriction
Agreement between Morgan Fuller Capital Group L.L.C. and investors
in Participations. FILED HEREWITH.
33.
<PAGE>
(y) Form of Subscription, Representation and Securities Transfer Restriction
Agreement between the Company and investors in Common Stock.
FILED HEREWITH.
(z) Offshore Securities Subscription Agreement for Convertible Preferred
Shares. FILED HEREWITH.
(aa) Amendment No. 1 to the Agreement and Plan of Reorganization by and
among EDnet, Inc., EDN Sub, Inc. and Internet Worldwide Business
Solutions, dated as of September 13, 1996. FILED HEREWITH.
(ab) Amendment No. 2 to the Agreement and Plan of Reorganization by and
among EDnet, Inc., EDN Sub, Inc. and Internet Worldwide Business
Solutions, dated as of January 31, 1997. FILED HEREWITH.
(ac) Breakthrough Software, Inc. Stock Purchase Agreement by and among
Breakthrough Software, Inc. and EDnet, Inc., dated as of January 31,
1997. FILED HEREWITH.
(ad) Technology License Agreement by and among Internet Worldwide
Business Solutions and Breakthrough Software, Inc., dated as of
January 31, 1997. FILED HEREWITH.
(ae) Form of Consulting Agreement by and among EDnet, Inc. and each of
Randall Schmitz and Trevor Stout, dated as of January 31, 1997. FILED
HEREWITH.
(27) Financial Data Schedule. FILED HEREWITH.
</TABLE>
34.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
EDnet, INC.
(Registrant)
Date: February 19, 1997 By: /s/ Tom Kobayashi
-----------------------------------------------
Tom Kobayashi,
Chairman and Chief Executive Officer
Date: February 19, 1997 By: /s/ David Gustafson
-----------------------------------------------
David Gustafson,
President and Chief Operating Officer
35.
CERTIFICATE OF DESIGNATION OF PREFERENCES
of
SERIES A PREFERRED STOCK
of
EDNET, INC.
Pursuant to the provisions of the Colorado Corporations Code and its
Articles of Incorporation, as amended September 29, 1995, the undersigned
corporation adopts the following Certificate of Designation of Preferences. The
following resolution, authorizing the designation of Series A Preferred Stock,
was duly adopted by the board of directors of the corporation as of February 3,
1997:
NOW, THEREFORE, BE IT RESOLVED, that the board of directors
deems it advisable to adopt the following Certificate of Designation of
Series A Preferred Stock of EDNET, INC. (the "Company"):
A. One Thousand Seven Hundred Fifty (1,750) of the authorized shares of
Preferred Stock are hereby designated "Series A Preferred Stock" (the "Series A
Preferred").
B. The rights, preferences, privileges, restrictions and other matters
relating to the Series A Preferred are as follows:
1. Dividend Rights.
(a) Holders of Series A Preferred, in preference to
the holders of any other stock of the Company ("Junior Stock"), shall be
entitled to receive, when and as declared by the Board of Directors, but only
out of funds that are legally available therefor, a cumulative dividend equal to
6% of Original Issuance Value, compounded annually on the anniversary of the
Original Issue Date, payable in Common Stock of the Company valued at the Market
Price of the Common Stock. For purposes of computing the dividend amount,
"Original Issuance Value" shall mean one thousand dollars ($1,000). "Market
Price" shall mean the average closing bid price for the Company's Common Stock
for the five (5) trading days immediately preceding the date of conversion of
the Series A Preferred into the Company's Common Stock. Notwithstanding any
other provision of this Certificate, in no event shall dividends be computed or
the holder be able to convert shares of Series A Preferred into the Company's
Common Stock at a value of less than one dollar ($1.00) per share of Company's
Common Stock. In the event that seventy percent (70%) of the Market Price or the
Closing Price (as hereinafter defined) is below one dollar ($1.00), then in such
event the holder shall still be permitted to convert its
1.
<PAGE>
Series A Preferred or receive dividends, but the Company's Common Stock (after
application of the discounting factor) shall be valued at one dollar ($1.00) per
share (the "Market Price Floor"). Dividends shall be payable only upon
conversion of the Series A Preferred into Common Stock of the Company. Such
dividends shall accrue and be deemed to accrue annually whether or not earned or
declared, and shall be cumulative from the Original Issue Date of the Series A
Preferred (as defined in Section 3(c) below). Any accumulation of dividends on
the Series A Preferred shall not bear interest.
(b) The provisions of Section 1(a) shall not,
however, apply to (i.) the acquisition of shares of any Junior Stock in exchange
for shares of any other Junior Stock, or (ii.) any repurchase of any outstanding
securities of the Company that is unanimously approved by the Company's Board of
Directors.
2. Liquidation Rights.
(a) Upon any liquidation, dissolution, or winding up
of the Company, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of any Junior Stock, the holders of Series
A Preferred shall be entitled to be paid out of the assets of the Company an
amount per share of Series A Preferred equal to the sum of (i) Original Issue
Price and (ii) all accrued but unpaid dividends, whether or not declared, on
such shares of Preferred Stock for each share of Series A Preferred held by
them. The Original Issue Price shall be one thousand dollars and no cents
($1,000.00) per share of Series A Preferred.
(b) After the payment of the full liquidation
preference of the Series A Preferred as set forth in Section 2(a) above, the
remaining assets of the Company legally available for distribution, if any,
shall be distributed ratably to the holders of the Common Stock.
3. Conversion Rights.
The holders of the Series A Preferred shall have the
following rights with respect to the conversion of the Series A Preferred into
shares of Common Stock:
(a) Optional Conversion. Subject to and in compliance
with the provisions of this Section 3, shares of eligible Series A Preferred
may, at the option of the holder, be converted at any time into fully-paid and
nonassessable shares of Common Stock. The number of shares of the Company's
Common Stock issuable upon conversion of the Series A Preferred eligible for
conversion shall equal the amount of subscription proceeds paid, plus the amount
of the accrued dividends through the Conversion Date related to the Series A
Preferred eligible for conversion as of the Conversion Date, divided by the
lesser of (i) seventy percent (70%) of the Market Price of the Company's Common
Stock or (ii) seventy percent (70%) of the Market Price of the Company's Common
Stock, treating the Original Issue Date as the date of conversion of the Series
A Preferred Stock into the Company's Common Stock (the "Closing Price"), subject
in either case to the Market Price Floor. Of the Series A Preferred issued on
any specific Original Issue Date, one-third is convertible 90 days after the
2.
<PAGE>
Original Issue Date, up to an additional one-third (two-thirds cumulatively) of
the original number of Series A Preferred is convertible 120 days after the
Original Issue Date and up to an additional one-third (the entire amount
cumulatively) is convertible 150 days after the Original Issue Date.
(b) Mechanics of Conversion. Each holder of Series A
Preferred who desires to convert the same into shares of Common Stock pursuant
to this Section 3 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or any transfer agent for the Series A
Preferred, and shall give written notice to the Company at such office that such
holder elects to convert the same. Such notice shall state the number of shares
of Series A Preferred being converted. Thereupon, the Company shall promptly
issue and deliver at such office to such holder a certificate or certificates
for the number of shares of Common Stock to which such holder is entitled and
shall promptly pay in Common Stock, any accrued but unpaid dividends, whether or
not declared on the shares of Series A Preferred being converted. The date on
which notice of conversion is effective (the "Conversion Date") shall be deemed
to be the date on which the holder has delivered to the Company certificates
representing the shares of Series A Preferred to be converted, a facsimile or
original of the signed Notice of Conversion, a facsimile or original of the
signed Purchaser Representation Letter and an executed form of proper
assignment, if such assignment is being made. The person entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such shares of Common Stock on such date.
(c) Adjustment for Stock Splits and Combinations. If
the Company shall at any time or from time to time after the date that a share
of Series A Preferred is issued (the "Original Issue Date") effect a subdivision
of the outstanding Common Stock, the Market Price Floor in effect immediately
before that subdivision shall be proportionately decreased. Conversely, if the
Company shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock into a smaller number of shares,
the Market Price Floor in effect immediately before the combination shall be
proportionately increased. Any adjustment under this Section 3(c) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(d) Adjustment for Common Stock Dividends and
Distributions. If the Company at any time or from time to time after the
Original Issue Date makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, in each such event the Market
Price Floor that is then in effect shall be decreased as of the time of such
issuance or, in the event such record date is fixed, as of the close of business
on such record date, by multiplying the Market Price Floor then in effect by a
fraction (1) the numerator of which is the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date, and (2) the denominator of which is
the total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record date
plus the number of shares of Common Stock issuable in payment of such dividend
or distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully
3.
<PAGE>
made on the date fixed therefor, the Market Price Floor shall be recomputed
accordingly as of the close of business on such record date and thereafter the
Market Price Floor shall be adjusted pursuant to this Section 3(d) to reflect
the actual payment of such dividend or distribution.
(e) Adjustment for Reclassification, Exchange and
Substitution. If at any time or from time to time after the Original Issue Date,
the Common Stock issuable upon the conversion of the Series A Preferred is
changed into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Section
3), in any such event each holder of Series A Preferred shall have the right
thereafter to convert such stock into the kind and amount of stock and other
securities and property receivable upon such recapitalization, reclassification
or other change by holders of the maximum number of shares of Common Stock into
which such shares of Series A Preferred could have been converted immediately
prior to such recapitalization, reclassification or change, all subject to
further adjustment as provided herein or with respect to such other securities
or property by the terms thereof.
(f) Reorganizations, Mergers, Consolidations or Sales
of Assets. If at any time or from time to time after the Original Issue Date,
there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 3), as a part of
such capital reorganization, provision shall be made so that the holders of the
Series A Preferred shall thereafter be entitled to receive upon conversion of
the Series A Preferred the number of shares of stock or other securities or
property of the Company to which a holder of the number of shares of Common
Stock deliverable upon conversion would have been entitled on such capital
reorganization, subject to adjustment in respect of such stock or securities by
the terms thereof. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 3 with respect to the rights of
the holders of Series A Preferred after the capital reorganization to the end
that the provisions of this Section 3 (including adjustment of the Market Price
Floor then in effect) shall be applicable after that event and be as nearly
equivalent as practicable.
(g) Accountants' Certificate of Adjustment. In each
case of an adjustment or readjustment of the Market Price Floor, if the Series A
Preferred is then convertible pursuant to this Section 3, the Company, at its
expense, shall compute such adjustment or readjustment in accordance with the
provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to each registered holder of Series A Preferred at the holder's address
as shown in the Company's books. The certificate shall set forth such adjustment
or readjustment, showing in detail the facts upon which such adjustment or
readjustment is based.
(h) Notices of Record Date. Upon (i) any taking by
the Company of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any capital
4.
<PAGE>
reorganization of the Company, any reclassification or recapitalization of the
capital stock of the Company, any merger or consolidation of the Company with or
into any other corporation, or any voluntary or involuntary dissolution,
liquidation or winding up of the Company, the Company shall mail to each holder
of Series A Preferred at least twenty (20) days prior to the record date
specified therein a notice specifying (1) the date on which any such record is
to be taken for the purpose of such dividend or distribution and a description
of such dividend or distribution, (2) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (3) the date, if any, that is to
be fixed as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up.
(i) Automatic Conversion.
(i) Each share of Series A Preferred shall
automatically be converted into shares of Common Stock on the third anniversary
of the Original Issue Date, pursuant to the conversion terms in Section 3,
treating the third anniversary of the Original Issue Date as the Conversion
Date.
(ii) Upon the occurrence of the event
specified in paragraph (i) above, the outstanding shares of Series A Preferred
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent; provided, however, that the
Company shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon such conversion unless the certificates evidencing
such shares of Series A Preferred are either delivered to the Company or its
transfer agent as provided below, or the holder notifies the Company or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such certificates. Upon the
occurrence of such automatic conversion of the Series A Preferred, the holders
of Series A Preferred shall surrender the certificates representing such shares
at the office of the Company or any transfer agent for the Series A Preferred.
Thereupon, there shall be issued and delivered to such holder promptly at such
office and in its name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of shares of Common Stock into
which the shares of Series A Preferred surrendered were convertible on the date
on which such automatic conversion occurred, and the Company shall promptly pay
in Common Stock (valued at the Market Price of the Common Stock), all accrued
but unpaid dividends, whether or not declared, on the shares of Series A
Preferred being converted, to and including the date of such conversion.
(j) Fractional Shares. No fractional shares of Common
Stock shall be issued upon conversion of Series A Preferred. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A Preferred by a holder thereof shall be aggregated for
purposes of determining whether the conversion would
5.
<PAGE>
result in the issuance of any fractional share. If the conversion would result
in the issuance of any fractional share, the number of shares issuable shall be
rounded to the nearest whole share.
(k) Reservation of Stock Issuable Upon Conversion.
The Company shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series A Preferred. If at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series A Preferred,
the Company will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(l) Notices. Any notice required by the provisions of
this Section 3 shall be in writing and shall be deemed effectively given on the
earliest of: (i) the date of personal delivery, or (ii) the date of delivery by
facsimile, or (iii) the business day after deposit in the United States with a
nationally-recognized courier or overnight service, including Express Mail, for
United States deliveries or five (5) business days after such deposit for
international deliveries, or (iv) five (5) business days after deposit in the
United States mail by registered or certified mail for United States deliveries.
All notices not delivered personally or by facsimile will be sent with postage
and other charges prepaid. All notices for delivery internationally will be sent
by facsimile, or by nationally recognized courier or overnight service,
including Express Mail. All notices shall be addressed to each holder of record
at the address of such holder appearing on the books of the Company.
(m) Payment of Taxes. The Company will pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock upon
conversion of shares of Series A Preferred, excluding any tax or other charge
imposed in connection with any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the shares of Series A
Preferred so converted were registered.
(n) No Dilution or Impairment. The Company shall not
amend its Articles of Incorporation or participate in any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, for the purpose of avoiding or seeking
to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but shall at all times in good faith assist
in carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series A Preferred
against dilution or other impairment.
RESOLVED FURTHER, that the officers of the corporation be, and
each of them hereby is, authorized and directed, for and on behalf of
the corporation to execute and file the Certificate of Designation of
Preferences with the Colorado Secretary of State; and
6.
<PAGE>
RESOLVED FURTHER, that the officers of the corporation be, and
each of them hereby is, authorized and directed, for and on behalf of
the corporation to take such further actions and execute such documents
as may be necessary or appropriate to carry out the foregoing
resolutions.
The foregoing resolutions have not been modified, altered or amended
and are presently in full force and effect.
IN WITNESS WHEREOF, EDNET, INC. has caused this Certificate of
Designation of Preferences of Series A Preferred Stock to be signed by its
President and attested to by its Secretary the 3rd day of February, 1997.
EDNET, INC.
By: /s/ David Gustafson
---------------------------------------
David Gustafson, President
By: /s/ David Gustafson
---------------------------------------
David Gustafson, Secretary
AMENDMENT NO. 1 TO SENIOR SECURED PROMISSORY NOTES
THIS AMENDMENT NO. 1 TO SENIOR SECURED PROMISSORY NOTES ("Amendment")
dated as of November 15, 1996, is made by EDNET, INC., a Colorado corporation
(the "Company"), and MORGAN FULLER CAPITAL GROUP L.L.C. ("Morgan Fuller").
RECITALS
A. The Company previously executed that: (i) Senior Secured Promissory
Note in favor of Morgan Fuller dated July 5, 1996 in the original principal
amount of $500,000; (ii) Senior Secured Promissory Note in favor of Morgan
Fuller dated July 22, 1996 in the original principal amount of $200,000; and
(iii) Senior Secured Promissory Note in favor of Morgan Fuller dated July 22,
1996 in the original principal amount of $300,000 (collectively, the "Senior
Secured Notes").
B. The Company and Morgan Fuller now desire to amend the Senior Secured
Notes as provided for in this Amendment.
AGREEMENT
ACCORDINGLY, for good and valuable consideration, the parties hereby
agree as follows:
Section 1. Amendment of Senior Secured Notes. Each of the Senior
Secured Notes is hereby amended as follows:
(a) Section 1 ("Principal Payments") of each of the Senior
Secured Notes is amended in its entirety to read as follows:
"1. Principal Payments. The entire principal
amount of and all accrued interest on this Senior
Secured Promissory Note (the "Note") shall be due and
payable on January 31, 1997 (the "Maturity Date"),
provided, however, that if the entire principal
amount of and all accrued interest on this Note is
not repaid on the Maturity Date, the Loan shall be
converted into a term loan and Borrower shall pay to
Lender on the fifteenth (15th) day of each calendar
month, commencing on February 15, 1997 (the
"Conversion Date"), principal in the amount of
$100,000.00, and all accrued interest thereon, until
the entire principal amount of and all accrued
interest on this Note is repaid in full."
Section 2. Miscellaneous. This Amendment shall be governed by and
construed in accordance with the laws of the State of California, as applied to
contracts entered into by California residents and to be performed entirely
within California. This Amendment may be executed in any number of counterparts,
each of which when so delivered shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument. Each such
1.
<PAGE>
agreement shall become effective upon the execution of a counterpart hereof or
thereof by each of the parties hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be executed and delivered by its duly authorized officer on the
date first set forth above.
the "Company"
EDnet, INC.
a Colorado corporation
By /s/ Tom Kobayashi
___________________________________
Tom Kobayashi
Chief Executive Officer
"Morgan Fuller"
Morgan Fuller Capital Group L.L.C.,
By /s/ Gordon R. Taubenheim
___________________________________
Gordon R. Taubenheim
Managing Director
2.
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A
VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF. THE SECURITIES
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND
QUALIFICATION WITHOUT, EXCEPT UNDER CERTAIN SPECIFIC LIMITED CIRCUMSTANCES, AN
OPINION OF COUNSEL FOR THE HOLDER, CONCURRED IN BY COUNSEL FOR THE COMPANY THAT
SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
IBS SOFTWARE, INC.
CONVERTIBLE PROMISSORY NOTE
In the amount Palo Alto, California
not to exceed $250,000 Effective as of December 31, 1996
See Schedule A hereto Dated as of January 31, 1997
IBS SOFTWARE, INC. (the "Company"), a California corporation, for value
received, hereby promises to pay to the order of EDnet, Inc., a Colorado
corporation, or holder ("Payee") in lawful money of the United States of America
at the address of Payee set forth below, the principal amount together with
interest as set forth in Section 1 hereof. This Note shall be due and payable
thirty (30) days after written demand for such payment has been made by the
Payee; provided, however, that a demand cannot be made prior to July 1, 1997 or
upon a date by which the Company closes a financing in exchange for not less
than an aggregate of $1,000,000 in a single transaction or series of
transactions (the "Financing"), and provided that this Note has not been
converted pursuant to Section 2 hereof. In the event that the Company does not
close a Financing prior to July 1, 1997, EDnet, Inc. shall approve the financing
of the Company until this Note is repaid in full.
1. Principal and Interest.
The Company promises to pay a principal amount provided by
Payee to the Company as detailed in Schedule A attached hereto.
The Company promises to pay interest on the unpaid principal
amount of this Note at the rate of eight percent (8.0%) per annum from the date
of this Note until such principal amount is paid in full. Accrued interest shall
be payable at the time the Company pays the entire unpaid principal amount.
1.
<PAGE>
All unpaid principal and unpaid accrued interest of this Note
may be prepaid without penalty, in whole or in part, at any time. Any prepayment
of this Note will be credited first against accrued interest then principal.
Upon payment in full of the entire principal amount of the
Note and interest payable hereunder, this Note shall be surrendered to the
Company for cancellation.
2. Conversion. In the event that the Company does not close a Financing
prior to July 1, 1997, EDnet, Inc. shall have an option to convert this Note
into the Company's common stock at the price of $1.00 per share.
Upon conversion of this Note, there shall be no further
obligation of the Company pursuant to this Note and this Note shall be converted
when the Note is surrendered to the Company or its transfer agent. The Company
shall not be obligated to issue certificates evidencing the shares of the
securities issuable upon conversion unless this Note is either delivered to the
Company or its transfer agent, or the holder notifies the Company or its
transfer agent that this Note has been lost, stolen or destroyed and executes an
agreement satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with this Note. The Company shall, as soon as
practicable after such delivery, or such agreement and indemnification, issue
and deliver at such office to such holder of this Note, a certificate or
certificates for the securities to which the holder shall be entitled and a
check payable to the holder in the amount of any cash amounts payable as the
result of a conversion into fractional shares of the Securities. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of the surrender of the Note. The person or persons entitled to receive
securities issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such securities on such date.
3. Notices. Any notice, other communication or payment required or
permitted hereunder shall be in writing and shall be deemed to have been given
upon delivery if personally delivered or three business days after deposit if
deposited in the United States mail for mailing by certified mail, postage
prepaid, and addressed as follows:
(1) if to the Company: IBS Software, Inc.
Attention: Randall H. Schmitz and
Trevor R. Stout
2083 Landings Drive
Mountain View, CA 94043
Telephone: (415) 967-3700
Facsimile: (415) 967-3735
2.
<PAGE>
with a copy to: Wilson Sonsini Goodrich & Rosati, P.C.
Attention: Robert D. Brownell
650 Page Mill Road
Palo Alto, CA 94304-1050
Telephone: (415) 493-9300
Facsimile: (415) 493-6811
(2) if to Payee: EDnet, Inc.
Attention: Tom Kobayashi, Chairman &
CEO
One Union Street, 2d Floor
San Francisco, CA 94111
Telephone: (415) 274-8800
Facsimile: (415) 274-8802
with a copy to: Cooley, Godward LLP
Attention: Sam Livermore
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Telephone: (415) 693-2113
Facsimile: (415) 951-3699
Each of the above addressees may change its address for purposes of this
paragraph by giving to the other addressee notice of such new address in
conformance with this paragraph.
4. Acceleration. This Note shall become immediately due and payable if
(i) the Company commences any proceeding or bankruptcy or for dissolution,
liquidation, winding-up, composition or other relief under state or federal
bankruptcy laws; or (ii) such proceedings are commenced against the Company, or
a receiver or trustee is appointed for the Company or a substantial part of its
property.
5. No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation or Bylaws 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 Note, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holder of this
Note against dilution or other impairment.
6. Waivers. The Company hereby waives presentment, demand for
performance, notice of non-performance, protest, notice of protest and notice of
dishonor. No delay on the part of Payee in exercising any right hereunder shall
operate as a waiver of such right or any
3.
<PAGE>
other right. This Note is being delivered in and shall be construed in
accordance with the laws of the State of California, without regard to the
conflicts of laws provisions thereof.
IBS SOFTWARE, INC.
By: /s/ Trevor Stout
------------------------------
4.
<PAGE>
SCHEDULE A
Schedule of Payments by EDnet, Inc. to IBS Software, Inc.
Payment Principal Amount Date
- ------- ---------------- ----
Initial Payment $100,000 January 31, 1997
Outstanding Liabilities* $_____________ ______________
* This amount shall be received by the Company over a period of six
months from January 1, 1997 through July 1, 1997, and shall not exceed $150,000.
(a) This amount shall be payable to cover the outstanding
unpaid liabilities incurred in the development and marketing of the Toolkit
Product (as defined in the Technology License Agreement of even date herewith,
between Internet Worldwide Business Solutions and IBS Software, Inc.) as of
December 31, 1996 in excess of $250,000.
(b) This amount shall further include certain other advances
to cover liabilities that the Company shall incur after December 31, 1996 that
EDnet, Inc. shall approve, such as the portions of salary, rent and
miscellaneous expenses as specified in Section 2(c) of the Memorandum of
Understanding between EDnet, Inc. and Internet Worldwide Business Solutions
dated December 22, 1996.
5.
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement"), dated December 18, 1996 and
effective as of January 12, 1997 is entered into by and between ED NET, INC., a
Colorado corporation (herein referred to as the "Company") and LIVIAKIS
FINANCIAL COMMUNICATIONS, INC., a California corporation (herein referred to as
the "Consultant").
RECITALS
WHEREAS, Company is a publicly held corporation with its common stock
traded on the NASDAQ Electronic Bulletin Board; and
WHEREAS, Consultant has experience in the area of corporate finance,
investor communications and financial and investor public relations; and
WHEREAS, Company desires to engage the services of Consultant to assist
and consult with the Company in matters concerning corporate finance and to
represent the company in investors' communications and public relations with
existing shareholders, brokers, dealers and other investment professionals as to
the Company's current and proposed activities;
NOW THEREFORE, in consideration of the promises and the mutual
covenants and agreements hereinafter set forth, the parties hereto covenant and
agree as follows:
1. Term of Consultancy. Company hereby agrees to retain the Consultant to
act in a consulting capacity to the Company, and the Consultant hereby agrees to
provide services to the Company commencing January 12, 1997 and ending on
January 2, 1998.
2. Duties of Consultant. The Consultant agrees that it may provide some or
all of the following specified consulting services through it's officers and
employees during the term specified in Section 1.:
(a) Advise and assist the Company in developing and implementing
appropriate plans and materials for presenting the Company and its business
plans, strategy and personnel to the financial community, establishing an image
for the Company in the financial community, and creating the foundation for
subsequent financial public relations efforts;
(b) Introduce the Company to the financial community;
(c) With the cooperation of the Company, maintain an awareness during
the term of this Agreement of the Company's plans, strategy and personnel, as
they may evolve during such period, and advise and assist the Company in
communicating appropriate information regarding such plans, strategy and
personnel to the financial community;
(d) Assist and advise the Company with respect to its (i) corporate
finance activities, (ii) stockholder and investor relations, (iii) relations
with brokers, dealers, analysts and other investment professionals, and (iv)
financial public relations generally;
(e) Perform the functions generally assigned to investor/stockholder
relations and public relations departments in major corporations, including
responding to telephone and written
1.
<PAGE>
inquiries (which may be referred to the Consultant by the Company); preparing or
reviewing press releases, reports and other communications with or to
shareholders, the investment community and the general public; advising with
respect to the timing, form, distribution and other matters related to such
releases, reports and communications; and consulting with respect to corporate
symbols, logos, names, the presentation of such symbols, logos and names, and
other matters relating to corporate image;
(f) Disseminate information regarding the Company to shareholders,
brokers, dealers, other investment community professionals and the general
investing public;
(g) Conduct meetings, in person or by telephone, with brokers, dealers,
analysts and other investment professionals to advise them of the Company's
plans, goals and activities, and assist the Company in preparing for press
conferences and other forums involving the media, investment community
professionals and the general investment public;
(h) At the Company's request, review business plans, strategies,
mission statements budgets, proposed transactions and other plans for the
purpose of advising the Company of the investment community implications
thereof; and,
(i) Otherwise perform as the Company's financial relations and public
relations consultant.
(j) Make public communications and disclosures regarding the Company
within the scope of the authorizations conferred and information provided by the
Company.
3. Allocation of Time and Energies. The Consultant hereby promises to perform
and discharge well and faithfully the responsibilities which may be assigned to
the Consultant from time to time by the officers and duly authorized
representatives of the Company in connection with the conduct of its financial
and investor public relations and communications activities, so long as such
activities are in compliance with applicable securities laws and regulations.
Consultant shall diligently and thoroughly provide the consulting services
required hereunder. Although no specific hours-per-day requirement will be
required, Consultant and the Company agree that Consultant will perform the
duties set forth hereinabove in a diligent and professional manner. Though the
parties acknowledge and agree that a disproportionately large amount of the
effort to be expended and the costs to be incurred by the Consultant and the
benefits to be received by the Company are expected to occur upon and shortly
after, and in any event, within one month of the effectiveness of this
Agreement, the parties further agree that diligent effort will be expended by
the Consultant throughout the term of the Agreement. It is explicitly understood
that Consultant s performance of its duties hereunder will in no way be measured
by the price of the Company's common stock, nor the trading volume of the
Company's common stock, both of which cannot be guaranteed by the Consultant. It
is also understood that the Company is entering into this Agreement with
Liviakis Financial Communications, Inc. ("LFC"), a corporation and not any
individual member of LFC, and with such, Consultant will not be deemed to have
breached this Agreement if any member, officer or director of LFC leaves the
firm or dies or becomes physically unable to perform any meaningful activities
during the term of the Agreement.
4. Remuneration. As full and complete compensation for services described
in this Agreement, the Company shall compensate Consultant as follows:
2.
<PAGE>
4.1 For undertaking this engagement and for other good and valuable
consideration , the Company agrees to issue a "Commencement Bonus"
payable in the form of 490,000 unregistered, restricted shares of the
Company's common stock (the "Common Stock") as that term is defined in
the Securities Act of 1933, as amended. This Commencement Bonus shall
be issued to the Consultant promptly following execution of this
Agreement and shall, when issued and delivered to Consultant, be fully
paid and non-assessable. The Company understands and agrees that
Consultant has foregone significant opportunities to accept this
engagement and that the Company derives substantial benefit from the
execution of this Agreement and the ability to announce its
relationship with Consultant. The 490,000 shares of Common Stock issued
as a Commencement Bonus, therefore, constitute payment for Consultant's
agreement to represent the Company and are a nonrefundable,
non-apportionable, and non-ratable retainer; such shares of Common
Stock are not a prepayment for future services. If the Company decides
to terminate this Agreement prior to January 2, 1998 for any reason
whatsoever, it is agreed and understood that Consultant will not be
requested or demanded by the Company to return any of the shares of
Common Stock. All shares of Common Stock issued pursuant to this
Agreement shall be evidenced by a stock certificate(s) in the name of
Liviakis Financial Communications, Inc. Consultant shall have demand
registration rights at the end of this Agreement to require the Company
to register the 490,000 shares issued to it under this Agreement with
the same timing as that committed to participants in the Reg D/506
private placement initiated by the Company in December, 1996. All
registration costs shall be borne solely by the Company.
4.2 Consultant acknowledges that the Common Stock issuable pursuant to this
Agreement (the "Shares") have not been registered under the Securities
Act of 1933, and accordingly are "restricted securities" within the
meaning of Rule 144 of the Act. As such, the Shares may not be resold
or transferred unless the Company has received an opinion of counsel
reasonably satisfactory to the Company that such resale or transfer is
exempt from the registration requirements of that Act.
4.3 In connection with the acquisition of Shares hereunder, the Consultant
represents and warrants to the Company as follows:
(a) Consultant acknowledges that the Consultant has been afforded the
opportunity to ask questions of and receive answers from duly
authorized officers or other representatives of the Company concerning
an investment in the Shares, and any additional information which the
Consultant has requested.
(b) Consultant's investment in restricted securities is reasonable in
relation to the Consultant's net worth, which is in excess of ten (10)
times the Consultant's cost basis in the Shares. Consultant has had
experience in investments in restricted and publicly traded securities,
and Consultant has had experience in investments in speculative
securities and other investments which involve the risk of loss of
investment. Consultant acknowledges that an investment in the Shares is
speculative and involves the risk of loss. Consultant has the requisite
knowledge to assess the relative merits and risks of
3.
<PAGE>
this investment without the necessity of relying upon other advisors,
and Consultant can afford the risk of loss of his entire investment in
the Shares. Consultant is (i) accredited investors, as that term is
defined in Regulation D promulgated under the Securities Act of 1933,
and (ii) a purchaser described in Section 25102(f)(2) of the California
Corporate Securities Law of 1968, as amended.
(c) Consultant is acquiring the Shares for the Consultant's own account
for long-term investment and not with a view toward resale or
distribution thereof except in accordance with applicable securities
laws.
5. Expenses. Consultant agrees to pay for all its expenses (phone,
mailing, labor, etc.), other than extraordinary items (travel required by/or
specifically requested by the Company, luncheons or dinners to large groups of
investment professionals, mass faxing to a sizable percentage of the Company's
constituents, investor conference calls, print advertisements in publications,
etc.) approved by the Company prior to its incurring an obligation for
reimbursement.
6. Indemnification. The Company warrants and represents that all oral
communications, written documents or materials, other than those designated by
the Company to the Consultant as "confidential" or "Company private", furnished
to Consultant by the Company with respect to financial affairs, operations,
profitability and strategic planning of the Company are accurate and Consultant
may rely upon the accuracy thereof without independent investigation. The
Company will protect, indemnify and hold harmless Consultant against any claims
or litigation including any damages, liability, cost and reasonable attorney's
fees with respect thereto resulting from Consultant's communication or
dissemination of any said information, documents or materials not designated by
the Company to the Consultant as "confidential" or "Company private", excluding
any such claims or litigation resulting from Consultant's communication or
dissemination of information not provided or authorized by the Company. To the
extent feasible, the Company agrees to make Consultant an additional insured on
any and all commercial liability and directors and officers liability insurance
policies and to provide Consultant with current Certificates of Insurance
reflecting the same.
7. Representations. Consultant represents that he is not required to maintain
any licenses and registrations under federal or any state regulations necessary
to perform the services set forth herein. Consultant acknowledges that, to the
best of his knowledge, the performance of the services set forth under this
Agreement will not violate any rule or provision of any regulatory agency having
jurisdiction over Consultant. Consultant acknowledges that, to the best of his
knowledge, Consultant is not the subject of any investigation, claim, decree or
judgment involving any violation of the SEC or securities laws. Consultant
further acknowledges that he is not a securities Broker Dealer or a registered
investment advisor. Company acknowledges that, to the best of its knowledge,
that it has not violated any rule or provision of any regulatory agency having
jurisdiction over the Company. Company acknowledges that, to the best of its
knowledge, Company is not the subject of any investigation, claim, decree or
judgment involving any violation of the SEC or securities laws.
4.
<PAGE>
8. Legal Representation. The Company acknowledges that it has been
represented by independent legal counsel in the preparation of this Agreement.
Consultant represents that they have consulted with independent legal counsel
and/or tax, financial and business advisors, to the extent the Consultant deemed
necessary.
9. Status as Independent Contractor. Consultant's engagement pursuant to this
Agreement shall be as independent contractor, and not as an employee, officer or
other agent of the Company. Neither party to this Agreement shall represent or
hold itself out to be the employer or employee of the other. Consultant further
acknowledges the consideration provided hereinabove is a gross amount of
consideration and that the Company will not withhold from such consideration any
amounts as to income taxes, social security payments or any other payroll taxes.
All such income taxes and other such payment shall be made or provided for by
Consultant and the Company shall have no responsibility or duties regarding such
matters. Neither the Company or the Consultant possess the authority to bind
each other in any agreements without the express written consent of the entity
to be bound.
10. Attorney's Fee. If any legal action or any arbitration or other proceeding
is brought for the enforcement or interpretation of this Agreement, or because
of an alleged dispute, breach, default or misrepresentation in connection with
or related to this Agreement, the successful or prevailing party shall be
entitled to recover reasonable attorneys' fees and other costs in connection
with that action or proceeding, in addition to any other relief to which it or
they may be entitled.
11. Waiver. The waiver by either party of a breach of any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any subsequent breach by such other party.
12. Notices. All notices, requests, and other communications hereunder
shall be deemed to be duly given if sent by U.S. mail, postage prepaid,
addressed to the other party at the address as set forth herein below:
To the Company: Mr. Tom Kobayashi
CEO
ED NET, Inc.
One Union Street
San Francisco, CA 94111
To the Consultant: Liviakis Financial Communications, Inc.
John M. Liviakis, President
2420 "K" Street, Suite 220
Sacramento, CA 95816
It is understood that either party may change the address to which
notices for it shall be addressed by providing notice of such change to the
other party in the manner set forth in this paragraph.
5.
<PAGE>
13. Choice of Law, Jurisdiction and Venue. This Agreement shall be governed
by, construed and enforced in accordance with the laws of the State of
California. The parties agree that Sacramento County, CA will be the venue of
any dispute and will have jurisdiction over all parties.
14. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the alleged breach thereof, or relating to Consultant's activities
or remuneration under this Agreement, shall be settled by binding arbitration in
California, in accordance with the applicable rules of the American Arbitration
Association, and judgment on the award rendered by the arbitrator(s) shall be
binding on the parties and may be entered in any court having jurisdiction
thereof. The provisions of Title 9 of Part 3 of the California Code of Civil
Procedure, including section 1283.05, and successor statutes, permitting
expanded discovery proceedings shall be applicable to all disputes that are
arbitrated under this paragraph.
15. Complete Agreement. This Agreement instrument contains the entire
agreement of the parties relating to the subject matter hereof. This Agreement
and its terms may not be changed orally but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
AGREED TO:
"Company" ED NET, INC.
Date: 1/3/97 By: /s/ Tom Kobayashi
-------------------- ------------------------------
Tom Kobayashi
CEO
"Consultant" LIVIAKIS FINANCIAL COMMUNICATIONS, INC.
Date: 12/18/96 By: /s/ John M. Liviakis
-------------------- ------------------------------
John M. Liviakis
President
6.
EDNET, INC.,
a Colorado corporation
Private Offering of up to
$3,000,000 of Units
(Consisting of One Share of Common Stock and One Warrant)
---------------------------------------------------------------
SUBSCRIPTION, REPRESENTATION AND
SECURITIES TRANSFER RESTRICTION
AGREEMENT
DATED JULY 18, 1996
TO BE USED ONLY IN CONJUNCTION WITH
AN INVESTMENT IN SHARES AND WARRANTS DESCRIBED HEREIN
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INSTRUCTIONS TO SUBSCRIBERS
If you wish to subscribe for Units (consisting of one share of
Common Stock (the "Shares") and one warrant (a "Warrant")) of EDNET, Inc., a
Colorado corporation (the "Company"), please complete and sign the Subscription,
Representation and Securities Transfer Restriction Agreement (the "Agreement")
marked "Execution Copy," following the instructions carefully. If you have any
questions concerning any of the information called for, you may ask your lawyer,
accountant or financial advisor for assistance, and if you desire, contact the
individual indicated below.
Because the price of each Unit will not be known at the time you
complete this Agreement, you must subscribe for Units by indicating the
aggregate purchase price (a minimum of $35,000) you are enclosing. The completed
and signed Agreement, together with your check in the amount of your total
subscription payable to "EDNET, Inc.," should then be sent to the address set
forth below. You should make a copy of the executed Agreement for your files.
ANSWER ALL QUESTIONS.
ALL INFORMATION WILL BE TREATED CONFIDENTIALLY.
EDNET, Inc.
One Union Street
San Francisco, California 94111
Attention: David Gustafson
President and Chief Operating Officer
Telephone Number: (415) 274-8800
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THE SHARES, WARRANTS AND SHARES PURCHASABLE UPON THE EXERCISE OF THE
WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED UNDER THE CALIFORNIA CORPORATE SECURITIES LAW OF
1968, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF
ANY OTHER JURISDICTION, AND MAY ONLY BE SOLD, PLEDGED, TRANSFERRED OR
OTHERWISE DISPOSED OF BY AN INVESTOR IF SUBSEQUENTLY REGISTERED UNDER THE
SECURITIES ACT AND REGISTERED OR QUALIFIED UNDER ANY APPLICABLE STATE
SECURITIES LAWS, UNLESS THE COMPANY DETERMINES THAT EXEMPTIONS FROM SUCH
REGISTRATION AND QUALIFICATION REQUIREMENTS ARE AVAILABLE.
SUBSCRIPTION, REPRESENTATION AND
SECURITIES TRANSFER RESTRICTION
AGREEMENT
EDNET, Inc.
One Union Street
San Francisco, California 94111
Gentlemen:
1. Subscription. By executing and delivering this Subscription, Representation
and Stock Transfer Restriction Agreement (the "Agreement"), the undersigned (and
each of the undersigned if more than one) hereby applies to purchase Units (each
Unit consisting of one share of Common Stock (the "Shares") and one warrant (a
"Warrant") of EDNET, Inc., a Colorado corporation (the "Company"), on the terms
and conditions described herein, for a price per Unit equal to the lesser of:
(i) $3.00; or (ii) the average closing bid price of the Common Stock during a
consecutive thirty (30) day period immediately preceding the Termination Date
(as defined below) minus thirty percent (30%) (the Shares, the Warrants and the
Shares purchasable pursuant to the Warrants may be hereinafter collectively
referred to as the "Securities"). The minimum purchase is $35,000. This offering
of Units will terminate on August 31, 1996 or such earlier date which the
Company shall select in its sole discretion (the "Termination Date").
The purchase price for each Warrant is one-tenth of one cent
($0.001) per Warrant. Each Warrant is exercisable until July 31, 1999, and
entitles the holder to purchase one Share at an exercise price equal to the
lesser of: (i) $4.75; or (ii) the average closing bid price of the Common Stock
during a consecutive thirty (30) day period immediately preceding the
Termination Date (subject to adjustment in certain circumstances). In the event
that the average closing bid price of the Shares exceeds one hundred sixty
percent (160%) of the Warrant exercise price for thirty (30) consecutive trading
days, then the Company may, within three business days following the end of such
thirty (30) day period, give notice of its intent to repurchase the Warrants at
a purchase price of one-tenth of one cent ($0.001) per Warrant. Holders will
have (30) days following the date of the Company's notice to exercise the
Warrants. In the event the Company exercises the right to redeem the Warrants,
such Warrants will be exercisable until the close of business on the business
day immediately preceding the date for redemption fixed in such notice. If any
Warrant called for redemption is not exercised by such time, it will cease to be
exercisable and the Holder will be entitled only to the redemption price. For a
more complete description of the Warrants, please see the form of Warrant
attached hereto as Exhibit "A".
2. Acknowledgments. The undersigned (and each of the undersigned if more than
one) acknowledges that:
2.1 This subscription may be rejected in whole or in part at the sole
discretion of the Company, and the execution and delivery of this
Agreement does not constitute an agreement to sell the Securities
or any other securities to me unless and until it has been
accepted by the Company.
2.2 The Company will rely upon the information contained herein for
purposes of determining my suitability as an investor in the
Company.
2.3 The funds submitted with this Agreement will be held in escrow by
the Company in a non-interest bearing account at a financial
institution selected by the Company until the earlier to occur of
the following: (a) August 31, 1996; or (b) the date the Company
receives subscriptions for at least
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$300,000 of Units (the "Minimum Subscription"). If the Minimum
Subscription is not received by August 31, 1996, the Company shall
terminate the offering and return all funds to subscribers.
2.4 If the Company receives subscriptions for the Minimum Subscription
by August 31, 1996, the Company may continue to sell Units up to a
maximum amount of $3,000,000 of Units, provided, however, the
Company has no obligation to sell more than $300,000 of Units.
2.5 The Company may elect to sell a lesser number of Units to the
undersigned and upon so doing, the Company shall return to the
undersigned the difference between the subscription price tendered
and the subscription price required to purchase such Units.
2.6 The management of the Company is vested in the Board of Directors
and that being a shareholder confers no right to participate in
the Company's business or in the decisions of its directors and
officers.
2.7 The offering of Units described in this Agreement terminates on
the Termination Date, or such date as the Company shall elect, and
the Company shall have no obligation to sell Units to the
undersigned thereafter.
3. Representations. The undersigned (and each of the undersigned if more than
one) hereby makes the following representations and warranties to the Company:
3.1 I have received and carefully reviewed this Agreement and I have
separately received and carefully reviewed the Company's
Confidential Business Plan dated July, 1996 (the "Business Plan").
3.2 I have obtained from the Company satisfactory responses to all
questions and requests for further information regarding the
business and plans of the Company, the contents of the Business
Plan the terms and conditions of the offering, and all other
relevant matters.
3.3 I have been given access to and the opportunity to obtain such
additional information as I have deemed necessary to verify the
accuracy of the information provided to me by the Company.
3.4 I have not received and am not relying upon any written offering
literature or prospectus other than this Agreement and the
materials contained in the Business Plan, and have not received
and am not relying upon any oral representations which are in any
manner inconsistent with the information contained therein.
3.5 I personally have substantial knowledge and experience in
financial and business matters, have specific experience making
investment decisions of a similar nature, and am capable, without
the use of a financial advisor, of utilizing and analyzing the
information made available in connection with this offering and of
evaluating the merits and risks of an investment in Securities. I
will provide the Company, upon request, with such information
concerning my prior investment experience, business or
professional experience and other information as the Company may
deem necessary to further evaluate the foregoing representations.
3.6 I am subscribing to acquire the Securities for investment purposes
only, for my own account, and not for resale to others or in
connection with (or with any view to) any further distribution of
the Securities.
3.7 I understand that (i) the Securities have not been registered
under the Securities Act of 1933, as amended (the "Securities
Act"), nor qualified under the California Corporate Securities Law
of 1968, as amended, or the securities laws of any other
jurisdiction, (ii) the Securities cannot be resold unless they
subsequently are registered under the Securities Act and qualified
under applicable state securities laws, unless the Company
determines that exemptions from such registration and
qualification requirements are available, and (iii) consequently,
purchasers must bear the economic risk of an investment in the
Securities for an indefinite period of time. I understand that
only a very limited public market now exists for any of the
securities issued by the Company and that it is uncertain whether
a substantial public market will ever exist for the Securities.
3.8 I am aware that an investment in the Securities is speculative and
involves a high degree of risk.
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3.9 I have adequate means of providing for my current needs and
possible personal contingencies and have no need for liquidity in
an investment in the Securities. I am able to bear the economic
risk of an investment in the Securities, can afford to hold the
Securities for an indefinite period of time and, at the present
time, could afford a complete loss of such investment.
3.10 I may be deemed to be an accredited investor, because I meet the
requirements of one or more of the following categories:
(Please initial all boxes which apply to you.)
[ ] I am a director or executive officer of the Company.
[ ] I am a natural person whose individual net worth, or joint
net worth with my spouse, exceeds $1,000,000.
[ ] I am a natural person and had individual (not joint) income
in excess of $200,000 in each of the two most recent years
and reasonably expect to reach the same income level in the
current year, or I am a natural person and had joint income
(together with my spouse) in excess of $300,000 in each of
the two most recent years and reasonably expect to reach
the same income level in the current year.
[ ] The undersigned is a private business investment company as
defined in section 202(a)(22) of the Investment Advisers
Act of 1940.
[ ] The undersigned is a corporation, trust, Massachusetts or
similar business trust, partnership or other organization
described in section 501(c)(3) of the Internal Revenue Code
of 1986 as amended (i.e., tax exempt entities), not formed
for the specific purpose of acquiring the Securities, with
total assets in excess of $5 million according to its most
recent audited financial statements, and the investment
decisions of which are directed by one or more persons who
have substantial knowledge and experience in financial and
business matters, have specific experience making
investment decisions of a similar nature, and are capable,
without the use of a financial advisor, of utilizing and
analyzing the information made available in connection with
this offering and of evaluating the merits and risks of an
investment in the Securities.
[ ] The undersigned is a (i) small business investment company
licensed by the U.S. Small Business Administration under
section 301(c) or (d) of the Small Business Investment
Company Act of 1958; (ii) any investment company registered
under the Investment Company Act of 1940 or a business
development company as defined in section 2(a)(48) of that
Act; or (iii) U.S. bank or savings and loan association,
whether acting for itself or as a trustee, or an insurance
company.
[ ] The undersigned is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income
Security Act of 1974, the investment decision of which are
made by a plan fiduciary, as defined in section 9(21) of
such Act, which is either a bank, a savings and loan
association, an insurance company, or a registered
investment adviser.
[ ] The undersigned is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income
Security Act of 1974, which either has total assets in
excess of $5,000,000 or is a self-directed plan, the
investment decisions of which are made solely by one or
more persons able to make the representations contained in
section 3.5 above and who fits into one of the above
categories.
[ ] The undersigned is an entity in which all of the equity
owners are accredited investors, falling into one or more
of the categories described above.
(NOTE: The Company will not sell Securities to an investor unless
the investor falls within one or more of the above categories.)
3.11 All information which I have provided to the Company concerning
myself, my financial position and my knowledge of and experience
with financial and business matters is correct and complete as of
the date
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set forth at the end of this Agreement, and if there should be any
material change in such information prior to the closing of this
offering, I will immediately provide the Company with such
information.
3.12 If an individual, the undersigned is at least 21 years of age. If
an entity other than an individual, the undersigned is duly
authorized to purchase and hold the Securities.
3.13 If an individual, the residence, or, if an entity other than an
individual, the principal place of business, of the undersigned is
as set forth on the signature page of this Agreement. This address
is the true and correct address of the undersigned and is the only
jurisdiction in which an offer to sell the Securities was made to
the undersigned. The undersigned has no present intention, if an
individual, of becoming a resident of, or, if an entity other than
an individual, of moving its principal place of business to, any
other state or jurisdiction.
4. Registration Rights.
4.1 Piggyback Registrations. The Company shall notify all persons
owning of record Shares that have not been sold to the public
("Holders") in writing at least thirty (30) days prior to the
filing of any registration statement under the Securities Act for
purposes of any public offering of securities by the Company, on
Form S-1 or any other available form, initiated by the Company
(but excluding registration statements relating to employee
benefit plans or with respect to corporate reorganizations or
other transactions under Rule 145 of the Securities Act) and will
afford each such Holder an opportunity to include in such
registration statement all or part of such Shares held by such
Holder or into which the Warrants could be converted ("Registrable
Shares"). Each Holder desiring to include in any such registration
statement all or any part of its Registrable Shares shall, within
fifteen (15) days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state
the intended method of disposition of such Registrable Shares. If
a Holder decides not to include all of its Registrable Shares in
any registration statement thereafter filed by the Company, such
Holder shall nevertheless continue to have the right to include
its Registrable Shares in any subsequent such registration
statement or registration statements as may be filed by the
Company with respect to offerings of its securities, all upon the
terms and conditions set forth herein.
4.1.1 Underwriting. If the registration statement under which the
Company gives notice under this Section 4.1 is for an
underwritten offering, the Company shall so advise the
Holders. In such event, the right of any such Holder to be
included in a registration pursuant to this Section 4.1
shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's
Registrable Shares in the underwriting to the extent
provided herein. All Holders proposing to distribute their
Registrable Shares through such underwriting shall enter
into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting
by the Company. Notwithstanding any other provision of the
Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of
shares to be underwritten, the number of shares that may be
included in the underwriting shall be allocated, first, to
the Company; and second, to the Holders on a pro rata basis
based on the total number of Registrable Shares held by the
Holders. No such reduction shall reduce the securities
being offered by the Company for its own account to be
included in the registration and underwriting.
4.1.2 Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated
by it under this Section 4.1 prior to the effectiveness of
such registration whether or not any Holder has elected to
include securities in such registration. The Registration
Expenses (as defined below) of such withdrawn registration
shall be borne by the Company in accordance with Section
4.3 hereof.
4.1.3 Expiration. A Holder's registration rights under this
Section 4.1 shall expire if all Registrable Shares held by
such Holder may be sold under Rule 144 during any ninety
(90) day period.
4.2 Form S-3 Registration. Subject to the conditions of this Section
4.2, if the Company shall receive a written request from the
Holders of more than sixty-six and two-thirds percent (66-2/3%) of
the Registrable Shares then outstanding that the Company effect a
registration on Form S-3 (or any successor to Form S-3) or any
similar short-form registration statement and any related
qualification or
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compliance with respect to all or a part of the Registrable Shares
owned by such Holder or Holders, the Company will:
4.2.1 promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other
Holders of Shares; and
4.2.2 as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution
of all or such portion of such Holder's or Holders'
Registrable Shares as are specified in such request,
provided, however, that the Company shall not be obligated
to effect any such registration, qualification or
compliance pursuant to this Section 4.2:
(a) if Form S-3 (or any successor or similar form) is not
available for such offering by the Holders; or
(b) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Shares
and such other securities (if any) at an aggregate
price to the public of less than $500,000; or
(c) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of
Directors of the Company stating that in the good
faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the
Company and its shareholders for such Form S-3
Registration to be effected at such time, in which
event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a
period of not more than ninety (90) days after receipt
of the request of the Holder or Holders under this
Section 4.2; or
(d) if the Company shall have previously filed a
registration on Form S-3 at the request of the Holders
with respect to the same Registrable Shares; or
(e) in any particular jurisdiction in which the Company
would be required to qualify to do business or to
execute a general consent to service of process in
effecting such registration, qualification or
compliance.
4.2.3 A Holder's registration rights under this Section 4.2 shall
expire if all Registrable Shares held by such Holder may be
sold under Rule 144 during any ninety (90) day period.
4.3 Expenses of Registration. Except as specifically provided herein,
all Registration Expenses incurred in connection with any
registration under Sections 4.1 or 4.2 shall be borne by the
Company. All Selling Expenses incurred in connection with any
registrations hereunder, shall be borne by the holders of the
securities so registered pro rata on the basis of the number of
shares so registered. The Company shall not, however, be required
to pay for expenses of any registration proceeding begun pursuant
to Section 4.2, the request of which has been subsequently
withdrawn by the Holders unless (a) the withdrawal is based upon
material adverse information concerning the Company of which the
Holders were not aware at the time of such request or (b) the
Holders of a majority of Registrable Shares agree to forfeit their
right to registration pursuant to Section 4.2, in which event such
right shall be forfeited by all Holders). If the Holders are
required to pay the Registration Expenses, such expenses shall be
borne by the Holders of securities (including Registrable Shares)
requesting such registration in proportion to the number of shares
for which registration was requested. If the Company is required
to pay the Registration Expenses of a withdrawn offering pursuant
to clause (a) above, then the Holders shall not forfeit their
rights pursuant to Section 4.2 to a demand registration. As used
herein, "Registration Expenses" means all expenses incurred by the
Company in complying with Sections 4.1 and 4.2, including, without
limitation, all registration and filing fees, printing expenses,
fees and disbursements of counsel for the Company, reasonable fees
and disbursements of a single special counsel for the Holders,
blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding
the compensation of regular employees of the Company which shall
be paid in any event by the Company), and "Selling Expenses" means
all underwriting discounts and selling commissions applicable to
the sale of Registrable Shares.
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4.4 Obligations of the Company. Whenever required to effect the
registration of any Registrable Shares, the Company shall, as
expeditiously as reasonably possible:
4.4.1 Prepare and file with the Securities and Exchange
Commission (the "SEC") a registration statement with
respect to such Registrable Shares and use all reasonable
efforts to cause such registration statement to become
effective, and, upon the request of the Holders of a
majority of the Registrable Shares registered thereunder,
keep such registration statement effective for up to ninety
(90) days or, if earlier, until the Holder or Holders have
completed the distribution related thereto.
4.4.2 Prepare and file with the SEC such amendments and
supplements to such registration statement and the
prospectus used in connection with such registration
statement as may be necessary to comply with the provisions
of the Securities Act with respect to the disposition of
all securities covered by such registration statement.
4.4.3 Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and
such other documents as they may reasonably request in
order to facilitate the disposition of Registrable Shares
owned by them.
4.4.4 Use all reasonable efforts to register and qualify the
securities covered by such registration statement under
such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify
to do business or to file a general consent to service of
process in any such states or jurisdictions.
4.4.5 In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing
underwriter(s) of such offering. Each Holder participating
in such underwriting shall also enter into and perform its
obligations under such an agreement.
4.4.6 Notify each Holder of Registrable Shares covered by such
registration statement at any time when a prospectus
relating thereto is required to be delivered under the
Securities Act of the happening of any event as a result of
which the prospectus included in such registration
statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading in the light of the
circumstances then existing.
4.4.7 Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such
Registrable Shares are delivered to the underwriters for
sale, if such securities are being sold through
underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration
statement with respect to such securities becomes
effective, (a) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given
to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting
registration of Registrable Shares and (b) a letter dated
as of such date, from the independent certified public
accountants of the Company, in form and substance as is
customarily given by independent certified public
accountants to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in
interest of the Holders requesting registration, addressed
to the underwriters, if any, and if permitted by applicable
accounting standards, to the Holders requesting
registration of Registrable Shares.
4.5 Delay of Registration; Furnishing Information. No Holder shall
have any right to obtain or seek an injunction restraining or
otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Article 4. It shall be a condition
precedent to the obligations of the Company to take any action
pursuant to Sections 4.1 or 4.2 that the selling Holders shall
furnish to the Company such information regarding themselves, the
Registrable
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Shares held by them and the intended method of disposition of such
securities as shall be required to effect the registration of
their Registrable Shares.
4.6 Indemnification. In the event any Registrable Shares are included
in a registration statement under Sections 4.1 or 4.2:
4.6.1 To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers,
directors and legal counsel of each Holder, any underwriter
(as defined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
against any losses, claims, damages, or liabilities (joint
or several) to which they may become subject under the
Securities Act, 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 of the following statements, omissions or
violations (collectively a "Violation") by the Company: (i)
any untrue statement or alleged untrue statement of a
material fact contained in such registration statement,
including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto,
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary
to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law
or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration
statement; and the Company will reimburse each such Holder,
partner, officer or director, underwriter or controlling
person for 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
Section 4.6.1 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 the
Company, which consent shall not be unreasonably withheld,
nor shall the Company 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 a Violation which
occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with
such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder.
4.6.2 To the extent permitted by law, each Holder will, if
Registrable Shares held by such Holder are included in the
securities as to which such registration qualifications or
compliance is being effected, indemnify and hold harmless
the Company, each of its directors, its officers, and legal
counsel and each person, if any, who controls the Company
within the meaning of the Securities Act, any underwriter
and any other Holder selling securities under such
registration statement or any of such other Holder's
partners, directors or officers or any person who controls
such Holder, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any
such director, officer, controlling person, underwriter or
other such Holder, or partner, director, officer or
controlling person of such other Holder may become subject
under the Securities Act, 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 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 by such Holder under an instrument duly executed
by such Holder and stated to be specifically for use in
connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, or
partner, officer, director or controlling person of such
other Holder in connection with investigating or defending
any such loss, claim, damage, liability or action if it is
judicially determined that there was such a Violation;
provided, however, that the indemnity agreement contained
in this Section 4.6.2 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 the Holder, which consent shall not be unreasonably
withheld; provided further, that in no event shall any
indemnity under this Section 4.6 exceed the proceeds from
the offering received by such Holder.
4.6.3 Promptly after receipt by an indemnified party under this
Section 4.6 of notice of the commencement of any action
(including any governmental action), such indemnified party
will, if
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a claim in respect thereof is to be made against any
indemnifying party under this Section 4.6, 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 the defense thereof with
counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to
retain its own 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 materially prejudicial
to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified
party under this Section 4.6, 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 4.6.
4.6.4 If the indemnification provided for in this Section 4.6 is
held by a court of competent jurisdiction to be unavailable
to an indemnified party with respect to any losses, claims,
damages or liabilities referred to herein, the indemnifying
party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage
or liability 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 Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of
the indemnifying party and of the indemnified party shall
be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a
material fact relates to information supplied by the
indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or
omission; provided, however, that in no event shall any
contribution by a Holder hereunder exceed the proceeds from
the offering received by such Holder.
4.6.5 The obligations of the Company and Holders under this
Section 4.6 shall survive completion of any offering of
Registrable Shares in a registration statement. No
Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. [In the
event any offering of Registrable Shares is underwritten,
and the underwriting agreement provides for indemnification
and/or contribution by the Company and the Holders offering
securities thereunder, the indemnification and/or
contribution obligations of the Company and the Holders
hereunder shall in no event exceed the obligations of the
parties set forth in such underwriting agreement.]
4.7 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Shares pursuant to this Article 4 may not
be assigned by a Holder without the prior written consent of the
Company.
4.8 Amendment of Registration Rights. Any provision of this Article 4
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
the Holders of at least [sixty-six and two-thirds percent
(66-2/3%)] of the Registrable Shares. Any amendment or waiver
effected in accordance with this Section 4.8 shall be binding upon
each Holder and the Company. By acceptance of any benefits under
this Article 4, Holders of Registrable Shares hereby agree to be
bound by the provisions hereunder.
4.9 "Market Stand-Off" Agreement. If requested by the Company as the
representative of the underwriters of Registrable Shares (or other
securities) of the Company, each Holder shall not sell or
otherwise transfer or dispose of any Registrable Shares (or other
securities) of the Company held by such each Holder (other than
those included in the registration) for a period specified by the
representative of the underwriters not to exceed one hundred
eighty (180) days following the effective date of a registration
-9-
<PAGE>
statement of the Company filed under the Securities Act. The
obligations described in this Section 4.9 shall not apply to a
registration relating solely to employee benefit plans on Form S-1
or Form S-8 or similar forms that may be promulgated in the
future, or a registration relating solely to a Commission Rule 145
transaction on Form S-4 or similar forms that may be promulgated
in the future. The Company may impose stop-transfer instructions
with respect to the Registrable Shares (or other securities)
subject to the foregoing restriction until the end of said one
hundred eighty (180) day period.
4.10 Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Shares to the public without
registration, the Company agrees to use its best efforts to: (i)
make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous
rule promulgated under the Securities Act, at all times after the
effective date of the first registration filed by the Company for
an offering of its securities to the general public; (ii) file
with the SEC, in a timely manner, all reports and other documents
required of the Company under the Exchange Act; and (iii) so long
as a Holder owns any Registrable Shares, furnish to such Holder
forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 of
the Securities Act, and of the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of the Company and such
other reports and documents as a Holder may reasonably request in
availing itself of any rule or regulation of the SEC allowing it
to sell any such securities without registration.
5. Restrictions on Transfer of Securities. The undersigned (and each of the
undersigned if more than one) hereby makes the following further agreements,
representations and warranties regarding the restrictions on the transferability
of the Securities:
5.1 I agree that I will not directly or indirectly sell, assign,
pledge, distribute, donate, or otherwise transfer or dispose of,
or offer to do any of the foregoing with respect to, any of the
Securities which I purchase from the Company, or any beneficial
interest in such Securities, unless either (i) such Securities are
registered under and sold in accordance with the Securities Act
and the rules and regulations promulgated thereunder, and are
registered or qualified under and sold in accordance with the
provisions of any applicable state securities laws, or (ii) the
Company has determined that exemptions from such registration and
qualification requirements are available.
5.2 I understand and agree that a legend will be stamped on each
certificate representing the Securities substantially in the
following form:
The Securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or qualified under the
California Corporate Securities Law of 1968, as amended, or
the securities laws of any other jurisdiction. The
Securities represented hereby cannot be sold, assigned,
pledged, distributed, donated or otherwise transferred or
disposed of without such registration under the Securities
Act and registration or qualification under applicable
state securities laws, unless the Company determines that
exemptions from such registration and qualification
requirements are available.
5.3 I understand and agree that the Company may issue such stop
transfer instructions to its transfer agents, if any, as it may
deem necessary to enforce the above transfer restrictions.
6. Joint Signers; Successors and Assigns. If this Agreement is signed by more
than one person or entity, then the obligations of the undersigned shall be
joint and several, and the acknowledgements, representations, warranties and
agreements herein contained shall be deemed to be made by and be binding upon
each such person or entity. This Agreement shall survive the death or disability
of the undersigned and shall be binding upon the undersigned's heirs, executors,
administrators, successors and assigns.
7. Miscellaneous.
7.1 This Agreement shall be governed by and construed in accordance
with the laws of the State of California applicable to contracts
between California residents entered into and to be performed
entirely within the State of California.
-10-
<PAGE>
7.2 Except as otherwise provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors and
assigns of the parties hereto.
7.3 This Agreement constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof.
7.4 This Agreement may be executed in counterparts, each of which
shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one
instrument.
7.5 In the case any provision of this agreement shall be invalid,
illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
8. CERTIFICATION AS TO TAXPAYER IDENTIFICATION NUMBER & BACKUP WITHHOLDING AND
NON-FOREIGN STATUS-SUBSTITUTE FORM W-9. SOCIAL SECURITY OR TAX ID NUMBER.
Under penalties of perjury, I certify by my signature below that (1) the
number shown on this form is my correct taxpayer identification number, (2) I am
not subject to backup withholding either because (a) I am exempt from backup
withholding, (b) I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or (c)
the Internal Revenue Service has notified me that I am no longer subject to back
withholding, (3) I am not a non-resident alien for purposes of U.S. income
taxation, (4) my home address (individual) or business address (entity) set
forth in the Agreement is correct, and (5) if I become a non-resident alien, I
will notify the Company within 60 days of doing so.
IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE PRESENTLY SUBJECT TO BACKUP
WITHHOLDING, STRIKE OUT THE LANGUAGE UNDER (2) ABOVE BEFORE SIGNING.
9. Type of Ownership for the Securities Subscribed (Check the Appropriate Box)
[ ] INDIVIDUAL OWNERSHIP BY UNMARRIED PERSON
[ ] OWNERSHIP BY MARRIED PERSON AS SOLE AND SEPARATE PROPERTY
(if you live in a state which has community property laws,
signatures of both spouses may be required)
[ ] COMMUNITY PROPERTY (signatures of both spouses are
required)
[ ] JOINT TENANTS WITH RIGHT OF SURVIVORSHIP (both parties must
sign)
[ ] TENANTS-IN-COMMON (both parties must sign)
[ ] CORPORATION*
[ ] PARTNERSHIP*
[ ] TRUST*
[ ] OTHER ENTITY*
* Any person executing this Agreement on behalf of such
entities hereby represents and agrees that: (i) he or she
is duly authorized to act on behalf of such corporation,
partnership, trust or other entity, (ii) such corporation,
partnership, trust or other entity was formed on
________________________, 19__, and (iii) he or she will
provide such information as the Company may request
confirming the authority to sign on behalf of such entity.
-11-
<PAGE>
10. Subscription Details and Execution. IN WITNESS WHEREOF, the undersigned
hereby subscribe(s) for the amount of Securities indicated in the subscription
price indicated below, provide(s) the information indicated, and execute(s) and
deliver(s) this Agreement as of the date indicated. Following the Termination
Date, the Company shall mail to you at the address indicated below original
Warrants and stock certificates representing the purchased Shares.
<TABLE>
Subscription Price Enclosed: $_________________________
(minimum purchase: $35,000; make checks payable to "EDNET, Inc.")
Date of Execution: _______________, 1996
<CAPTION>
<S> <C>
- ------------------------------------------------ ------------------------------------------------
Investor #1 (Print or Type Name) Investor #2 (Print or Type Name)
- ------------------------------------------------ ------------------------------------------------
Signature Signature
- ------------------------------------------------ ------------------------------------------------
Social Security or Tax ID # Social Security or Tax ID #
- ------------------------------------------------ ------------------------------------------------
Residence Street Address Residence Street Address
- ------------------------------------------------ ------------------------------------------------
City and State Zip City and State Zip
- ------------------------------------------------ ------------------------------------------------
Residence Telephone Residence Telephone
- ------------------------------------------------ ------------------------------------------------
Business Name Business Name
- ------------------------------------------------ ------------------------------------------------
Business Address Business Address
- ------------------------------------------------ ------------------------------------------------
City and State Zip City and State Zip
- ------------------------------------------------ ------------------------------------------------
Business Telephone Business Telephone
Mail Correspondence to: Mail Correspondence to:
[ ] Residence [ ] Business [ ] Residence [ ] Business
</TABLE>
-12-
<PAGE>
SUBSCRIPTION ACCEPTED:
EDNET, INC.
By: ____________________________
Thomas Kobayashi
Chairman and
Chief Executive Officer
Date: ___________, 1996
-13-
<PAGE>
Exhibit "A"
(Form of Warrant)
[to be attached]
-14-
MORGAN FULLER CAPITAL GROUP
November 19, 1996
Mr. Tom Kobayashi, Chairman
EDnet, Inc.
One Union Street
San Francisco, California 94111
Dear Tom:
The purpose of this letter is to confirm Morgan Fuller's engagement by
EDnet, Inc. ("EDnet" or the "Company") to arrange an extension of the notes
associated with the $1 million bridge loan financing which were due and payable
on November 15, 1996. The following summarizes our mutual understandings:
Placement Agent Provisions
1. Senior Secured Notes: Morgan Fuller will use its best efforts
to cause the voluntary seventy-five (75) day extension of the
due date for the repayment of the $1,000,000 of Senior Secured
Notes ("Notes"). In the event that a present Note participant
demands immediate repayment, Morgan Fuller will use its best
efforts to identify alternative investor(s) in the loan
participation. Other terms and conditions are as follows:
- Simple Interest - For the loan(s) will be made by
the Company for the period ended November 15, 1996.
On the loan extension, interest will continue to be
payable at the end of each calendar quarter and at
the time of the scheduled January 31, 1997 payoff.
Interest Rate - Fourteen percent (1.17% per month).
- Loan Covenants and Provisions - No change in the
current instrument except to incorporate the extended
term for repayment.
- Repayment Provisions - To be repaid with fifty
percent (50%) of the proceeds from: (i) The
contemplated Regulation D (Rule 504) financing; (ii)
Any Regulation-S financings or the proceeds from any
other equity financing.
MORGAN FULLER CAPITAL GROUP L.L.C.,
595 MARKET STREET SUITE 2100 SAN FRANCISCO CA 94105
PHONE (415) 977-1500 FAX (415) 977-1510
MEMBER OF NASD & SIPC
<PAGE>
Mr. Tom Kobayashi
November 19, 1996
Page 2
The next $750,000 of proceeds received from the current
Regulation-D financing will be excluded from the above
referenced fifty percent (50%) of proceeds of pay-down
requirement. In the event that the repayment has not occurred
by January 31, 1997, the Notes will be converted to a Term
Loan with $100,000 per month principal payments commencing
February 15, 1997.
Placement Agent Fees
Senior Secured Notes: The Company will pay to Morgan Fuller a Loan Extension Fee
of one-and-one-half percent (1.5%). In addition, the Company will issue to
Morgan Fuller or its nominee investors a total of $150,000 of three year
Warrants (55,970). The execution price is to be priced at market based on the
Closing Bid Price on November 15, 1996, which was $2.68.
Miscellaneous Provisions:
(a) Expenses. The Company hereby agrees, from time to time upon request, to
reimburse Morgan Fuller for all reasonable travel and out-of-pocket costs.
(b) Indemnity. The Company will enter into a separate standard agreement
providing for the mutual indemnification of the parties in connection with this
engagement.
(c) Governing Law. This letter agreement and the related indemnification letter
referred to above shall be deemed made in California. Such agreements shall be
governed by the laws of California without regard to such state's rules
concerning conflicts of laws. Any right to trial by jury with respect to any
claim or proceeding related to or arising out of this engagement, or any
transaction or conduct in connection herewith, is waived.
(d) Benefit and Use Of Services Provided. The Company expressly acknowledges
that all advice (written or oral) given by Morgan Fuller to the Company in
connection with this engagement are intended solely for the benefit and use of
the Company (including its management, directors, and attorneys). The Company
agrees thai no such opinion or advice shall be used for any other purpose or
reproduced, disseminated, quoted or referred to at any time, in any manner or
for any purpose, nor shall any public references to Morgan Fuller be made by
EDnet (or such persons) without the prior written consent of Morgan Fuller,
which consent shall not be unreasonably withheld.
(e) Basis Of Services Provided. The Company expressly acknowledges that Morgan
Fuller has been retained solely as a placement agent in this engagement and not
as an advisor or agent of any other person, and that the Company's engagement of
Morgan Fuller is not intended to
<PAGE>
Mr. Tom Kobayashi
November 19, 1996
Page 3
confer rights upon any persons not a party hereto (including shareholders,
employees, or creditors of the Company) as against Morgan Fuller, Morgan
Fuller's affiliates, or their respective directors, officers, agents and
employees.
To accomplish this loan extension, the Company will instruct its legal
counsel (Cooley Godward Castro Huddleson & Tatum) to draw up the necessary loan
extension documents. Please confirm that the foregoing is in accordance with
your understandings and agreements with Morgan Fuller by signing and returning
to Morgan Fuller the duplicate of this letter enclosed herewith.
Very truly yours, ACCEPTED AND AGREED:
MORGAN FULLER CAPITAL GROUP, L.L.C. EDNET, INC.
/s/ Gordon R. Taubenheim /s/ Tom Kobayashi
- --------------------------------- --------------------------------
Gordon R. Taubenheim Tom Kobayashi
Managing Director Chairman and Chief Executive
Date: November 22, 1996
MORGAN FULLER CAPITAL GROUP
November 21, 1996
Tom Kobayashi, Chairman
EDnet, Inc.
One Union Street
San Francisco, CA 94111
Dear Tom:
The purpose of this letter is to confirm Morgan Fuller's engagement by
EDnet, Inc. ("EDnet" or the "Company") as the Placement Agent to arrange up to
$500,000 of bridge loan financing. The following summarizes our mutual
understandings:
Placement Agent Provisions - Senior Secured Notes
Morgan Fuller will use its best efforts to place up to $500,000 of
Senior Secured Notes ("Notes") with accredited investors. As security,
a blanket lien will be filed on the Company's personal assets. Other
terms and conditions are as follows:
- Simple Interest - Payable at the end of each calendar
quarter and at the time of payoff. Interest Rate - Fourteen
percent (1.17% per month)
- Loan Covenants and Provisions - Standard provisions for such
credit facilities as contained in the existing bridge loan
documents
- Repayment Provisions - To be repaid with fifty percent (50%)
of the proceeds from: (i) The contemplated Regulation D (Rule
504) financing; (ii) Any Regulation-S financings or the
proceeds from any other equity financing. The next $750,000 of
proceeds received from the current Regulation-D financing will
be excluded from the above-referenced fifty percent (50%) of
proceeds of paydown requirement. In the event that the
repayment has not occurred by January 31, 1997, the Notes will
be converted to a Term Loan with $100,000 per month principal
payments commencing February 15, 1997.
Placement Agent Fees
The Company will pay to Morgan Fuller a Loan Fee of Five percent
(5%)--payable out of gross loan proceeds. In addition, the Company will
issue to Morgan Fuller or its
MORGAN FULLER CAPITAL GROUP L.L.C.,
595 MARKET STREET SUITE 2100 SAN FRANCISCO CA 94105
PHONE (415) 977-1500 FAX (415) 977-1510
MEMBER OF NASD & SIPC
<PAGE>
Mr. Tom Kobayashi
EDnet, Inc.
November 21, 1996
Page 2
nominee investors three year Warrants totaling one-half (50%) of the,
amount of the bridge loan funded at each closing. The execution price
is to be priced at market based on the Closing Bid Price on the date of
each loan funding.
Miscellaneous Provisions:
(a) Expenses. The Company hereby agrees, from time to time upon
request, to reimburse Morgan Fuller for all reasonable travel and
out-of-pocket costs.
(b) Indemnity. The Company will enter into a separate standard
agreement providing for the mutual indemnification of the parties in
connection with this engagement.
(c) Governing Law. This letter agreement and the related
indemnification letter referred to above shall be deemed made in
California. Such agreements shall be governed by the laws of California
without regard to such state's rules concerning conflicts of laws. Any
right to trial by jury with respect to any claim or proceeding related
to or arising out of this engagement, or any transaction or conduct in
connection herewith, is waived.
(d) Benefit and Use Of Services Provided. The Company expressly
acknowledges that all advice (written or oral) given by Morgan Fuller
to the Company in connection with this engagement are intended solely
for the benefit and use of the Company (including its management,
directors, and attorneys). The Company agrees that no such opinion or
advice shall be used for any other purpose or reproduced, disseminated,
quoted or referred to at any time, in any manner or for any purpose,
nor shall any public references to Morgan Fuller be made by EDnet (or
such persons) without the prior written consent of Morgan Fuller, which
consent shall not be unreasonably withheld.
(e) Basis Of Services Provided. The Company expressly acknowledges that
Morgan Fuller has been retained solely as a placement agent in this
engagement and not as an advisor or agent of any other person, and that
the Company's engagement of Morgan Fuller is not intended to confer
rights upon any persons not a party hereto (including shareholders,
employees, or creditors of the Company) as against Morgan Fuller,
Morgan Fuller's affiliates, or their respective directors, officers,
agents and employees.
To accomplish this loan extension, the Company will instruct its legal
counsel (Cooley Godward Castro Huddleson & Tatum) to draw up the necessary loan
documents and to cause their execution at the time of each loan funding. Please
confirm that the foregoing is in
<PAGE>
Mr. Tom Kobayashi
EDnet, Inc.
November 21, 1996
Page 3
accordance with your understandings and agreements with Morgan Fuller by signing
and returning to Morgan Fuller the duplicate of this letter enclosed herewith.
Very truly yours, ACCEPTED AND AGREED:
MORGAN FULLER CAPITAL GROUP, L.L.C. EDNET, INC.
/s/ Gordon R. Taubenheim /s/ Tom Kobayashi
- ----------------------------------- ------------------------------
Gordon R. Taubenheim Tom Kobayashi
Managing Director Chairman and Chief Executive
Date: November 22, 1996
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is entered into this 31st day
of January, 1997, by and between EDnet, Inc. (the "Company"), and NET Financial
International, Ltd. with an office in Zollikon, Switzerland ("Consultant").
RECITALS
A. Consultant, through the expenditure of considerable money, time and
effort, has created and developed, and is continuing to improve, an efficient
system for providing financial services (the "Services") to public companies.
B. The Company desires to obtain the assistance of Consultant, and
Consultant is willing to provide such assistance, with respect to the Services.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the sufficiency of which is hereby acknowledged by each of the
parties, the Company and Consultant hereby agree as follows:
1. Appointment as Consultant: Scope of Services. The Company hereby
engages Consultant as a consultant in connection with the Services. Consultant
hereby agrees to perform such services upon the terms and conditions hereinafter
set forth.
2. Term. This Agreement shall be effective for a period of three (3)
months commencing as of the date of this Agreement. Thereafter, this Agreement
will remain in effect until terminated by either party upon ten (10) days
written notice.
3. Services of Consultant.
(a) Consultant agrees that during the term of this Agreement,
unless this Agreement is sooner terminated pursuant to its terms, Consultant
shall perform the Services, including more specifically those services related
to the formation of capital. The Company specifically desires the Consultant to
assist it in raising approximately $5,000,000 on a phased basis. During phase
one (1) the Consultant will assist the Company by providing its Services in
relation to a Regulation S offering of Convertible Preferred Stock in the amount
of $1,750,000. Phase one (1) is to be completed by February 7, 1997. The parties
agree that the work performed by Consultant will be governed by the general
terms and conditions of this Agreement which will be controlling.
4. Compensation. As compensation for Consultant's services as a
consultant pursuant hereto, the Company agrees to:
(a) Pay fees to the Consultant equal to 10% of the total
amount of capital raised; and
1.
<PAGE>
(b) Grant to Consultant as an additional consulting fee the
right to purchase from the Company fully paid, duly authorized and nonassessable
shares of Common Stock equal in face value to 6% of the capital raised pursuant
to the terms of a Warrant Agreement. These Warrants are exercisable for two
years at 100% of the closing bid price on the day of closing of the financing
with the Company. The Warrant Agreement shall provide for Piggyback Registration
Rights with the next available registration filed by the Company subsequent to
any financings following the execution of this agreement.
5. Expenses. Consultant shall be responsible for any and all of its
expenses incurred in connection with the performance of the Services.
6. Relationship of the Parties. Consultant under this Agreement is and
shall act as an independent contractor, and not as an agent, servant, or
employee of the Company. Nothing in this Agreement shall be construed to imply
that the Consultant or its agents or employees are officers or employees of the
Company. Consultant hereby acknowledges and agrees that it shall have no
authority to enter into any contract or agreement or to bind the Company except
as specifically provided herein and that in connection with the performance of
the Services it shall have no authority to make any representations of any kind
with respect to or on behalf of the Company. It is understood that independent
contractor status is a condition required by the Consultant to its agreement to
perform the Services specified to be performed by the Consultant under this
Agreement.
7. Personal Services. Consultant shall be personally responsible for
the performance of the Services described herein, and shall be responsible for
any persons employed by Consultant to assist consultant in the performance of
such Services.
8. Non-Exclusive Services/Right of First Refusal. During the term of
this Agreement, Consultant may perform and may permit any of its employees,
principals, or affiliates to perform consulting services similar to the Services
provided for herein in its sole and absolute discretion. In the event Company
seeks additional financing during the twelve (12) month period following the
signing of this agreement, Company must give Consultant the right of refusal to
obtain the additional financing for Company. If Consultant accepts the right to
obtain such financing for the Company, Consultant shall be given a period of 15
business days, from the date Consultant receives an approved form of
Subscription Agreement and up to date financials from the Company, in which to
obtain said financing for the Company on a best efforts basis. The fees for such
services will be the same as those described in paragraphs 4(a) and 4(b) above.
9. Non-Disclosure Covenant. Consultant covenants and agrees that it
will not, at any time during the term of this Agreement, or at any time
thereafter, communicate or disclose to any person, or use for its own account or
for the account of any other person, without the prior written consent of the
Company, any confidential knowledge or information concerning any patents,
inventions, know-how, processes or equipment used in, or any trade secret or
confidential information concerning the business and affairs of the Company or
any of its affiliates acquired by Consultant during the term of this Agreement.
The same shall not be used
2.
<PAGE>
by Consultant in any way other than in performance of its services under this
Agreement and shall be returned to the Company promptly at the termination of
the work performed pursuant to this Agreement by Consultant. Consultant will not
deliver, reproduce, or in any way allow such information or documents to be
delivered by it or any person or entity outside the Company without duly
authorized specific direction or consent of the Company. Consultant further
covenants and agrees that, during the term of this Agreement and thereafter, it
will retain all such confidential knowledge and information concerning the
foregoing, in trust, for the sole benefit of the Company and its affiliates and
their respective successors and assigns. Consultant shall ensure the compliance
of all of its employees and agents with the provisions of this covenant. This
Section 9 shall survive the termination of this Agreement.
10. Obligations of the Company. The Company hereby agrees to facilitate
the performance of the Services by the Consultant and to provide Consultant with
access to all information and personnel reasonably requested by Consultant
relating to the Services.
11. Indemnification.
(a) Consultant agrees to indemnify and to save and hold
harmless the Company, its agents and employees from and against any and all
claims, losses, liabilities, damages, costs, and expenses, including without
limitation attorneys fees, to which the Company may be subject under any
applicable act, rule, regulation, statute or at common law or otherwise, and
will reimburse the Company and such other persons for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending actions, whether or not resulting in any liability, insofar as such
losses, claims, damages, liabilities, or expenses arise out of or are based on
any (i) breach of inaccuracy of any representation, warranty, or covenant of
Consultant contained herein; or (ii) misrepresentation or fraud made as a result
of or in connection with Consultant's performance of the Services hereunder.
(b) Promptly after receipt by Consultant under Subsections
11(a) or 11(b) hereof of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under any such Subsections, notify the indemnifying party in
writing of the commencement of such action. Any failure to so notify the
indemnifying party shall relieve the indemnifying party of liability.
12. Indemnification.
(a) Company agrees to indemnify and to save and hold harmless
Consultant, its agents and employees from and against any and all claims,
losses, liabilities, damages, costs, and expenses, including without limitation
attorneys fees, to which the Consultant may be subject under any applicable act,
rule, regulation, statute or at common law or otherwise, and will reimburse the
Consultant and such other persons for any legal or other expenses reasonably
incurred by them in connection with investigation or defending actions, whether
or not resulting in any liability, insofar as such losses, claims, damages,
liabilities, or expenses arise out of or are based on any (i) breach or
inaccuracy of any representation, warranty, or covenant of the Company contained
herein; or (ii) any misrepresentations or any untrue statements of a material
3.
<PAGE>
fact contained in any offering materials or the omission therefrom of a material
fact required to be stated therein or necessary to make the statement therein
not misleading.
(b) Promptly after receipt by Consultant under Subsections
12(a) or 12(b) hereof of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under any such Subsections, notify the indemnifying party in
writing of the commencement of such action. Any failure to so notify the
indemnifying party shall relieve the indemnifying party of liability.
13. Intellectual Property. Consultant acknowledges that the Company's
trademarks, trade names and emblems are the property of the Company and that it
is expressly understood that no licensed use of intellectual property is granted
herein to Consultant. It is further understood that any use of Consultant of any
such intellectual property shall be in the name of the Company. Upon termination
of this agreement, Consultant shall immediately and permanently discontinue and
cease and desist from engaging in any activity which would tend to indicate that
Consultant is affiliated with anyone who is authorized to utilize the
intellectual property.
14. Representations and Warranties of Consultant. Consultant hereby
represents and warrants as of the date hereof each of the following:
(a) Consultant has the requisite power and authority to enter
into this agreement and to carry out its obligations hereunder. The execution
and delivery of this agreement by Consultant and the consummation by Consultant
of the transactions contemplated hereby have been duly authorized by Consultant,
and no other action on the part of Consultant is necessary to authorize this
agreement in such transactions. This agreement has been duly executed and
delivered by Consultant and constitutes a valid and binding obligation of
Consultant, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization
or other similar laws relating to the enforcement of creditors' rights generally
by general principles of equity.
15. Representations and Warranties of the Company. The Company hereby
represents and warrants as of the date hereof each of the following:
(a) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Colorado, with all
requisite corporate power and authority to carry on its business now conducted
and to own and operate the assets and properties now owned and operated by it.
The Company is duly qualified to do business and is in good standing in Colorado
and in each jurisdiction in which it is required to be qualified and in which
the failure to be so qualified could have a material adverse effect on the
business of operations of the Company.
(b) The Company has the requisite corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this agreement by the Company and the
consummation by the Company of the transactions
4.
<PAGE>
contemplated hereby have been duly authorized by the Company, and no other
corporate proceedings on the part of the Company are necessary to authorize this
agreement in such transactions. This agreement has been duly executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization or other
similar laws relating to the enforcement of creditors' rights generally by
general principles of equity.
16. Notices. Any notice of communication to be given under the terms of
this Agreement shall be in writing and delivered in person or deposited,
certified or registered, in the United States mail, postage prepaid, addressed
as follows:
If to Consultant: Mr. Roland Kaufmann, President
NET Financial International, Ltd.
c/o Akar Verwaltungs, AG
Seestrasse 17 P.O. Box 53
CH-8702 Zollikon 2
Switzerland
(p) 011 41 1 3962700
(f) 011 41 1 3962705
If to Company: Tom Kobayashi, CEO
EDnet, Inc.
One Union Street
San Francisco, CA 94111
(p) 415-274-8800
(f) 415-274-8802
17. Severability. In the event that any provision in this Agreement is
held to be invalid, void or illegal by any court of competent jurisdiction, then
the court making such determination may reduce the obligations so as to be
enforceable according to applicable law and enforce such obligations as reduced.
The remaining provisions of this agreement shall be enforced according to their
terms.
18. Modifications And Amendments. This Agreement shall not be altered
or amended, except by writing signed by all the parties hereto, or such parties'
authorized agents.
19. Entire Agreement. This agreement constitutes and embodies the full
and complete understanding and agreement of the parties hereto with respect to
the subject matter hereof and supersedes all prior understandings or agreements
whether oral or in writing.
20. Governing Law. This agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut, without regard to the
conflict of laws principles thereof.
5.
<PAGE>
21. Headings. The paragraph headings used herein are for convenience
and reference only and are not intended to define, limit or describe the scope
or intent of any provision of this Agreement.
22. No Waiver By Failure To Act. Neither any failure nor any delay on
the part of either party hereto in exercising any right hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any right
hereunder preclude any other or further any exercise thereof or the exercise of
any other right.
23. Assignment. This agreement shall inure to the benefit of, and shall
be binding upon, the successors and assigns of the parties hereto; provided,
however, that Consultant shall not assign any right herein or delegate any
duties without the prior written consent of the Company.
24. No Partnership; Third Person. It is not intended by this Agreement
to, and nothing contained in this Agreement shall, create any partnership, joint
venture or other arrangement between Consultant and the Company. No term or
provision of this Agreement is intended to, or shall, be for the benefit of any
person, firm, corporation or other entity not a party hereto and no such party
shall have any right or cause of action hereunder.
25. Arbitration. The parties shall resolve any dispute arising
hereunder before a panel of three arbitrators selected pursuant to and run in
accordance with the rules of the American Arbitration Association. The
arbitration shall be held in Stamford, Connecticut. Each party shall bear their
own attorney's fees and costs of such arbitration. Disputes under this Agreement
as well as of the terms and conditions of this Agreement shall be governed in
accordance with and by the laws of the State of Connecticut (without regard to
its conflicts of law principles).
26. For the purposes of this Agreement, the term "Company" includes any
entity which acquires, by merger or otherwise, all of the Company's assets, and
the successors or assigns of the Company.
6.
<PAGE>
IN WITNESS WHEREOF, this Consulting Agreement has been executed as of the day
and year first written above.
EDNET, INC.
By: /s/ Tom Kobayashi
--------------------------
Tom Kobayashi
Its: CEO, duly authorized
NET FINANCIAL INTERNATIONAL, LTD.
By: /s/ Roland Kaufmann
--------------------------
Roland Kaufmann
Its: President, duly authorized
7.
<PAGE>
SCHEDULE A
I. The parties recognize that certain responsibilities and obligations are
imposed by both U.S. and foreign securities laws as well as by the applicable
rules and regulations of the NASD, in-house "due diligence" or "compliance"
departments of brokerage houses, etc. Accordingly Consultant agrees to the
following limitations on services:
1. Consultant shall NOT release any financial or other information or
data about the Company without the consent and approval of the Company.
2. Consultant shall NOT conduct any meeting with financial analyst
without informing the Company in advance of the proposed meeting and the format
or agenda of such meeting and the Company may elect to have a representative of
the Company attend such meeting.
3. Consultant shall NOT release any information or data about the
Company to any selected or limited person(s), entity, or group if Consultant is
aware that such information or data has not been generally released or
promulgated.
4. Consultant shall not take any action or knowingly permit the Company
to take any actions, which would violate any foreign securities laws or rules
and regulations issued thereunder.
8.
MORGAN FULLER CAPITAL GROUP L.L.C.
Private Offering of Participations in that Senior Secured
Promissory Note, dated July 3, 1996, in the amount of $500,000,
Senior Secured Promissory Note, dated July 22, 1996, in the amount of $500,000,
and
Senior Secured Promissory Note, dated August 15, 1996,
in the amount of $250,000,
made by Ednet, Inc., a Colorado corporation
---------------------------------------------------------------
SUBSCRIPTION, REPRESENTATION AND
SECURITIES TRANSFER RESTRICTION
AGREEMENT
DATED JULY 3, 1996
TO BE USED ONLY IN CONJUNCTION WITH
AN INVESTMENT IN PARTICIPATIONS DESCRIBED HEREIN
---------------------------------------------------------------
INSTRUCTIONS TO SUBSCRIBERS
If you wish to subscribe for participations ("Participations") in
that certain Senior Secured Promissory Note, dated July 3 1996, in the amount of
$500,000, Senior Secured Promissory Note, dated July 22, 1996, in the amount of
$500,000 and Senior Secured Promissory Note, dated August 15, 1996, in the
amount of $250,000, each made by EDnet, Inc., a Colorado corporation ("EDnet"),
as debtor, in favor of Morgan Fuller Capital Group L.L.C. ("Morgan Fuller"),
please complete and sign the Subscription, Representation and Securities
Transfer Restriction Agreement (the "Agreement") marked "Execution Copy,"
following the instructions carefully. If you have any questions concerning any
of the information called for, you may ask your lawyer, accountant or financial
advisor for assistance, and if you desire, contact the individual indicated
below.
The completed and signed Agreement, together with your check in
the amount of your total subscription payable to "Morgan Fuller Capital Group
L.L.C." should then be sent to the address set forth below. You should make a
copy of the executed Agreement for your files.
ANSWER ALL QUESTIONS.
ALL INFORMATION WILL BE TREATED CONFIDENTIALLY.
Morgan Fuller Capital Group L.L.C.
595 Market Street, Suite 2100
San Francisco, California 94105
Attention: Gordon R. Taubenheim
Managing Director
Telephone Number: (415) 977-1500
-1-
<PAGE>
THE PARTICIPATIONS, WARRANTS AND SHARES PURCHASABLE UPON THE EXERCISE OF
THE WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR QUALIFIED UNDER THE CALIFORNIA
CORPORATE SECURITIES LAW OF 1968, AS AMENDED, OR REGISTERED OR QUALIFIED
UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTION, AND MAY ONLY BE
SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF BY AN INVESTOR IF
SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT AND REGISTERED OR
QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS, UNLESS MORGAN
FULLER DETERMINES THAT EXEMPTIONS FROM SUCH REGISTRATION AND
QUALIFICATION REQUIREMENTS ARE AVAILABLE.
SUBSCRIPTION, REPRESENTATION AND
SECURITIES TRANSFER RESTRICTION
AGREEMENT
Morgan Fuller Capital Group L.L.C.
595 Market Street, Suite 2100
San Francisco, California 94105
Gentlemen:
1. Subscription. By executing and delivering this Subscription, Representation
and Stock Transfer Restriction Agreement (the "Agreement"), the undersigned (and
each of the undersigned if more than one) hereby applies to purchase
participations ("Participations") in that certain Senior Secured Promissory
Note, dated July 3 1996, in the amount of $500,000 (the "First Note"), Senior
Secured Promissory Note, dated July 22, 1996, in the amount of $500,000 (the
"Second Note") and Senior Secured Promissory Note, dated August 15, 1996, in the
amount of $250,000 (the "Third Note") (the First Note, the Second Note and the
Third Note are hereinafter collectively referred to as the "Notes"), each made
by EDnet, Inc., a Colorado corporation ("Ednet"), as debtor, in favor of Morgan
Fuller Capital Group L.L.C. ("Morgan Fuller"), on the terms and conditions
described herein. The minimum purchase is $100,000. This offering of
Participations will terminate on August 15, 1996 or such earlier date which
Morgan Fuller shall select in its sole discretion (the "Termination Date").
Investors purchasing Participations will also receive that number of
warrants (the "Warrants," each a "Warrant") of EDnet equal to one-sixth (1/6) of
the aggregate dollar mount of Participations purchased divided by the exercise
price (as discussed below). Each Warrant is exercisable until July 31, 1999, and
entitles the holder to purchase one share of the common stock (the "Common
Stock") of EDnet at an exercise price equal to the closing bid price of the
Common Stock on the date of the Note(s) in which the investor is purchasing
Participations (July 3, July 22 or August 15, 1996) (subject to adjustment in
certain circumstances). The purchase price for each Warrant is one-tenth of one
cent ($0.001) per Warrant. In the event that the average closing bid price of
the Common Stock exceeds one hundred sixty percent (160%) of the Warrant
exercise price for thirty (30) consecutive trading days, EDnet may, within three
business days following the end of such thirty (30) day period, give notice of
its intent to repurchase the Warrants at a purchase price of one-tenth of one
cent ($0.001) per Warrant. Holders will have (30) days following the date of
EDnet's notice to exercise the Warrants. In the event EDnet exercises the right
to redeem the Warrants, such Warrants will be exercisable until the close of
business on the business day immediately preceding the date for redemption fixed
in such notice. If any Warrant called for redemption is not exercised by such
time, it will cease to be exercisable and the Holder will be entitled only to
the redemption price. For a more complete description of the Warrants, please
see the form of Warrant attached hereto as Exhibit "A". The Participations, the
Warrants and the shares purchasable pursuant to the Warrants may be hereinafter
collectively referred to as the "Securities.
2. Acknowledgments. The undersigned (and each of the undersigned if more than
one) acknowledges that:
2.1 The undersigned will receive a portion of the Loan Fee (as defined
in the Notes) equal to one and one-half percent (1.5%) of the
total dollar value of Participations it purchases, accruing from
the date of the Note(s) in which the investor is purchasing
Participations (July 3, July 22 or August 15, 1996). The
undersigned is not entitled to any other portion of the Loan Fee.
-2-
<PAGE>
2.2 This subscription may be rejected in whole or in part at the sole
discretion of Morgan Fuller, and the execution and delivery of
this Agreement does not constitute an agreement to sell Securities
or any other securities to me unless and until it has been
accepted by Morgan Fuller.
2.3 Morgan Fuller will rely upon the information contained herein for
purposes of determining my suitability as an investor in the
Securities.
2.4 Investors who submit funds after July 3, 1996 and before July 22,
1996 will be deemed to have purchased Participations in the First
Note; Investors who submit funds after July 22, 1996 and before
August 15, 1996 will be deemed to have purchased Participations in
the Second Note; and Investors who submit funds after August 15
will be deemed to have purchased Participations in the Third Note,
provided however, that an investor will earn interest on its
Participation from the date of its investment or the date of the
Note in which the investor has invested, whichever is later.
2.5 Morgan Fuller has no obligation to sell more than $1,250,000.00 of
Participations.
2.6 Morgan Fuller may elect to sell a lesser number of Participations
to the undersigned and upon so doing, Morgan Fuller shall return
to the undersigned the difference between the subscription price
tendered and the subscription price required to purchase such
Participations.
2.7 The management of EDnet is vested in EDnet's Board of Directors
and that investing in Securities confers no right to participate
in EDnet's business or in the decisions of its directors and
officers.
2.8 The offering of Securities described in this Agreement terminates
on the Termination Date, or such date as Morgan Fuller shall
elect, and Morgan Fuller shall have no obligation to sell
Securities to the undersigned thereafter.
2.9 The Participations are participations in Morgan Fuller's interest
in the Loan Documents (compared to an assignment of Morgan
Fuller's interest in the Loan Documents) and do not give a holder
of a Participation any rights with respect to EDnet. The holder of
a Participation will receive a certificate substantially in the
form attached as Exhibit "B" hereto (not a promissory note) within
ten (10) days after Morgan Fuller's receipt and acceptance of such
subscription and will not have any of the rights of Morgan Fuller
under the Loan Documents. In particular, a potential investor
should note Section 19 of the Notes.
3. Representations. The undersigned (and each of the undersigned if more than
one) hereby makes the following representations and warranties to Morgan Fuller:
3.1 I have received and carefully reviewed this Agreement and I have
separately received and carefully reviewed EDnet's Information
Package, dated June 26, 1996, that Security Agreement, dated July
3, 1996, made by EDnet, as debtor, in favor of Morgan Fuller, as
secured party, and a copy of the executed Note(s) or the form
thereof (the "Investment Information").
3.2 I have obtained from Morgan Fuller and EDnet satisfactory
responses to all questions and requests for further information
regarding the business and plans of EDnet, the contents of the
Investment Information, the terms and conditions of this offering,
and all other relevant matters.
3.3 I have been given access to and the opportunity to obtain such
additional information as I have deemed necessary to verify the
accuracy of the information provided to me by EDnet and Morgan
Fuller.
3.4 I have not received and am not relying upon any written offering
literature or prospectus other than this Agreement and the
materials contained in the Investment Information, and have not
received and am not relying upon any oral representations which
are in any manner inconsistent with the information contained
therein.
3.5 I personally have substantial knowledge and experience in
financial and business matters, have specific experience making
investment decisions of a similar nature, and am capable, without
the use of a financial advisor, of utilizing and analyzing the
information made available in connection with this offering and of
evaluating the merits and risks of an investment in Securities. I
will provide Morgan
-3-
<PAGE>
Fuller, upon request, with such information concerning my prior
investment experience, business or professional experience and
other information as Morgan Fuller may deem necessary to further
evaluate the foregoing representations.
3.6 I am subscribing to acquire the Securities for investment purposes
only, for my own account, and not for resale to others or in
connection with (or with any view to) any further distribution of
the Securities.
3.7 I understand that (i) the Securities have not been registered
under the Securities Act of 1933, as amended (the "Securities
Act"), nor qualified under the California Corporate Securities Law
of 1968, as amended, or the securities laws of any other
jurisdiction, (ii) the Securities cannot be resold unless they
subsequently are registered under the Securities Act and qualified
under applicable state securities laws, unless Morgan Fuller
determines that exemptions from such registration and
qualification requirements are available, and (iii) consequently,
purchasers must bear the economic risk of an investment in the
Securities for an indefinite period of time.
3.8 I am aware that an investment in the Securities is speculative and
involves a high degree of risk.
3.9 I have adequate means of providing for my current needs and
possible personal contingencies and have no need for liquidity in
an investment in the Securities. I am able to bear the economic
risk of an investment in the Securities, can afford to hold the
Securities for an indefinite period of time and, at the present
time, could afford a complete loss of such investment.
3.10 I may be deemed to be an accredited investor, because I meet the
requirements of one or more of the following categories:
(Please initial all boxes which apply to you.)
[ ] I am a director or executive officer of Morgan Fuller.
[ ] I am a natural person whose individual net worth, or joint
net worth with my spouse, exceeds $1,000,000.
[ ] I am a natural person and had individual (not joint) income
in excess of $200,000 in each of the two most recent years
and reasonably expect to reach the same income level in the
current year, or I am a natural person and had joint income
(together with my spouse) in excess of $300,000 in each of
the two most recent years and reasonably expect to reach
the same income level in the current year.
[ ] The undersigned is a private business investment company as
defined in section 202(a)(22) of the Investment Advisers
Act of 1940.
[ ] The undersigned is a corporation, trust, Massachusetts or
similar business trust, partnership or other organization
described in section 501(c)(3) of the Internal Revenue Code
of 1986 as amended (i.e., tax exempt entities), not formed
for the specific purpose of acquiring the Securities, with
total assets in excess of $5 million according to its most
recent audited financial statements, and the investment
decisions of which are directed by one or more persons who
have substantial knowledge and experience in financial and
business matters, have specific experience making
investment decisions of a similar nature, and are capable,
without the use of a financial advisor, of utilizing and
analyzing the information made available in connection with
this offering and of evaluating the merits and risks of an
investment in the Securities.
[ ] The undersigned is a (i) small business investment company
licensed by the U.S. Small Business Administration under
section 301(c) or (d) of the Small Business Investment
Company Act of 1958; (ii) any investment company registered
under the Investment Company Act of 1940 or a business
development company as defined in section 2(a)(48) of that
Act; or (iii) U.S. bank or savings and loan association,
whether acting for itself or as a trustee, or an insurance
company.
[ ] The undersigned is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income
Security Act of 1974 ("ERISA"), the investment decision of
which are made
-4-
<PAGE>
by a plan fiduciary, as defined in section 9(21) of such
Act, which is either a bank, a savings and loan
association, an insurance company, or a registered
investment adviser.
[ ] The undersigned is an employee benefit plan within the
meaning of Title I of ERISA, which either has total assets
in excess of $5,000,000 or is a self-directed plan, the
investment decisions of which are made solely by one or
more persons able to make the representations contained in
section 3.5 above and who fits into one of the above
categories.
[ ] The undersigned is an entity in which all of the equity
owners are accredited investors, falling into one or more
of the categories described above.
(NOTE: Morgan Fuller will not sell Securities to an investor
unless the investor falls within one or more of the above
categories.)
3.11 All information which I have provided to Morgan Fuller concerning
myself, my financial position and my knowledge of and experience
with financial and business matters is correct and complete as of
the date set forth at the end of this Agreement, and if there
should be any material change in such information prior to the
closing of this offering, I will immediately provide Morgan Fuller
with such information.
3.12 If an individual, the undersigned is at least 21 years of age. If
an entity other than an individual, the undersigned is duly
authorized to purchase and hold the Securities.
3.13 If an individual, the residence, or, if an entity other than an
individual, the principal place of business, of the undersigned is
as set forth on the signature page of this Agreement. This address
is the true and correct address of the undersigned and is the only
jurisdiction in which an offer to sell the Securities was made to
the undersigned. The undersigned has no present intention, if an
individual, of becoming a resident of, or, if an entity other than
an individual, of moving its principal place of business to, any
other state or jurisdiction.
4. Restrictions on Transfer of Securities. The undersigned (and each of the
undersigned if more than one) hereby makes the following further agreements,
representations and warranties regarding the restrictions on the transferability
of Securities:
4.1 I agree that I will not directly or indirectly sell, assign,
pledge, distribute, donate, or otherwise transfer or dispose of,
or offer to do any of the foregoing with respect to, any of
Securities which I purchase from Morgan Fuller, or any beneficial
interest in such Securities, unless either (i) such Securities are
registered under and sold in accordance with the Securities Act
and the rules and regulations promulgated thereunder, and are
registered or qualified under and sold in accordance with the
provisions of any applicable state securities laws, or (ii) Morgan
Fuller has determined that exemptions from such registration and
qualification requirements are available.
4.2 I understand and agree that a legend will be stamped on each
certificate representing the Securities substantially in the
following form:
The Securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or qualified under the
California Corporate Securities Law of 1968, as amended, or
the securities laws of any other jurisdiction. The
Securities represented hereby cannot be sold, assigned,
pledged, distributed, donated or otherwise transferred or
disposed of without such registration under the Securities
Act and registration or qualification under applicable
state securities laws, unless Morgan Fuller Capital Group
L.L.C. determines that exemptions from such registration
and qualification requirements are available.
4.3 I understand and agree that Morgan Fuller may issue such stop
transfer instructions to its transfer agents, if any, as it may
deem necessary to enforce the above transfer restrictions.
5. Joint Signers; Successors and Assigns. If this Agreement is signed by more
than one person or entity, then the obligations of the undersigned shall be
joint and several, and the acknowledgements, representations, warranties and
agreements herein contained shall be deemed to be made by and be binding upon
each such person or entity.
-5-
<PAGE>
This Agreement shall survive the death or disability of the undersigned and
shall be binding upon the undersigned's heirs, executors, administrators,
successors and assigns.
6. Miscellaneous.
6.1 This Agreement shall be governed by and construed in accordance
with the laws of the State of California applicable to contracts
between California residents entered into and to be performed
entirely within the State of California.
6.2 Except as otherwise provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors and
assigns of the parties hereto.
6.3 This Agreement constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof.
6.4 This Agreement may be executed in counterparts, each of which
shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one
instrument.
6.5 In the case any provision of this agreement shall be invalid,
illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
7. CERTIFICATION AS TO TAXPAYER IDENTIFICATION NUMBER & BACKUP WITHHOLDING AND
NON-FOREIGN STATUS-SUBSTITUTE FORM W-9. SOCIAL SECURITY OR TAX ID NUMBER.
Under penalties of perjury, I certify by my signature below that (1) the
number shown on this form is my correct taxpayer identification number, (2) I am
not subject to backup withholding either because (a) I am exempt from backup
withholding, (b) I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or (c)
the Internal Revenue Service ("IRS") has notified me that I am no longer subject
to back withholding, (3) I am not a non-resident alien for purposes of U.S.
income taxation, (4) my home address (individual) or business address (entity)
set forth in the Agreement is correct, and (5) if I become a non-resident alien,
I will notify Morgan Fuller within 60 days of doing so.
IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE PRESENTLY SUBJECT TO BACKUP
WITHHOLDING, STRIKE OUT THE LANGUAGE UNDER (2) ABOVE BEFORE SIGNING.
8. Type of Ownership for the Securities Subscribed (Check the Appropriate Box)
[ ] INDIVIDUAL OWNERSHIP BY UNMARRIED PERSON
[ ] OWNERSHIP BY MARRIED PERSON AS SOLE AND SEPARATE PROPERTY
(if you live in a state which has community property laws,
signatures of both spouses may be required)
[ ] COMMUNITY PROPERTY (signatures of both spouses are
required)
[ ] JOINT TENANTS WITH RIGHT OF SURVIVORSHIP (both parties must
sign)
[ ] TENANTS-IN-COMMON (both parties must sign)
[ ] CORPORATION*
[ ] PARTNERSHIP*
[ ] TRUST*
[ ] OTHER ENTITY*
* Any person executing this Agreement on behalf of such
entities hereby represents and agrees that: (i) he or she
is duly authorized to act on behalf of such corporation,
-6-
<PAGE>
partnership, trust or other entity, (ii) such corporation,
partnership, trust or other entity was formed on
________________________, 19__, and (iii) he or she will
provide such information as Morgan Fuller may request
confirming the authority to sign on behalf of such entity.
9. Subscription Details and Execution. IN WITNESS WHEREOF, the undersigned
hereby subscribe(s) for the amount of Securities indicated in the subscription
price indicated below, provide(s) the information indicated, and execute(s) and
deliver(s) this Agreement as of the date indicated. Following the Termination
Date, Morgan Fuller shall mail to you at the address indicated below original
Warrants and a certificate representing the Participations.
<TABLE>
Subscription Price Enclosed: $_________________________
(minimum purchase: $100,000; make checks payable to "Morgan Fuller
Capital Group L.L.C.")
Date of Execution: _______________, 1996
<CAPTION>
<S> <C>
- ------------------------------------------------ ------------------------------------------------
Investor #1 (Print or Type Name) Investor #2 (Print or Type Name)
- ------------------------------------------------ ------------------------------------------------
Signature Signature
- ------------------------------------------------ ------------------------------------------------
Social Security or Tax ID # Social Security or Tax ID #
- ------------------------------------------------ ------------------------------------------------
Residence Street Address Residence Street Address
- ------------------------------------------------ ------------------------------------------------
City and State Zip City and State Zip
- ------------------------------------------------ ------------------------------------------------
Residence Telephone Residence Telephone
- ------------------------------------------------ ------------------------------------------------
Business Name Business Name
- ------------------------------------------------ ------------------------------------------------
Business Address Business Address
- ------------------------------------------------ ------------------------------------------------
City and State Zip City and State Zip
- ------------------------------------------------ ------------------------------------------------
Business Telephone Business Telephone
Mail Correspondence to: Mail Correspondence to:
[ ] Residence [ ] Business [ ] Residence [ ] Business
</TABLE>
-7-
<PAGE>
SUBSCRIPTION ACCEPTED:
MORGAN FULLER CAPITAL GROUP L.L.C.
By: ____________________________
Gordon R. Taubenheim
Managing Director
Date: ___________, 1996
-8-
<PAGE>
Exhibit "A"
(Form of Warrant)
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR QUALIFIED
UNDER THE CALIFORNIA CORPORATE SECURITIES LAW OF 1968, AS AMENDED (THE
"SECURITIES LAW"), OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THE
SECURITIES REPRESENTED HEREBY CANNOT BE SOLD, ASSIGNED, PLEDGED, DISTRIBUTED,
DONATED OR OTHERWISE TRANSFERRED OR DISPOSED OF WITHOUT SUCH REGISTRATION UNDER
THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE
SECURITIES LAWS, UNLESS THE COMPANY DETERMINES THAT EXEMPTIONS FROM SUCH
REGISTRATION AND QUALIFICATION REQUIREMENTS ARE AVAILABLE.
THIS WARRANT AND THE COMMON STOCK PURCHASABLE HEREUNDER ARE SUBJECT TO
RESTRICTIONS ON TRANSFER CONTAINED IN THAT CERTAIN SUBSCRIPTION, REPRESENTATION
AND SECURITIES TRANSFER RESTRICTION AGREEMENT, DATED JULY 2, 1996, WHICH
RESTRICTIONS ON TRANSFER ARE INCORPORATED HEREIN BY REFERENCE.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
WARRANT TO PURCHASE A MAXIMUM OF
___________ SHARES OF COMMON STOCK OF
EDNET, INC.,
a Colorado corporation
(Void after July 31, 1999)
This certifies that ______________________ (the "Holder"), for value
received, is entitled to purchase from EDNET, INC., a Colorado corporation (the
"Company"), having a place of business at One Union Street, San Francisco,
California 94111, a maximum of ____________________ fully paid and nonassessable
shares of the Company's common stock (the "Common Stock") for cash at a price of
_________ Dollars and ____ Cents ($________)(1) per share (the "Stock Purchase
Price") upon surrender to the Company at its principal office (or at such other
location as the Company may advise the Holder in writing) of this Warrant
properly endorsed with the Form of Subscription attached hereto duly completed
and signed and upon payment in cash or by check of the aggregate Stock Purchase
Price for the number of shares for which this Warrant is being exercised
determined in accordance with the provisions hereof. This Warrant will expire on
the date described in Section 2 below. The Stock Purchase Price and the number
of shares purchasable hereunder are subject to adjustment as provided in Section
4 below.
This Warrant is issued pursuant to the terms of that certain
Subscription, Representation and Securities Transfer Restriction Agreement,
dated July 2, 1996 (the "Agreement").
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Common Stock. This
Warrant is exercisable at the option of the holder of record hereof, at any time
or from time to time commencing on the date hereof and expiring as provided in
Section 2 below for all or any part of the shares of Common Stock (but not for a
fraction of a share) which may be purchased hereunder. The Company agrees that
the shares of Common Stock purchased under this Warrant shall be and are deemed
to be issued to the Holder hereof as the record owner of such shares as of the
close of business on the date on which the following items have been delivered
to the Company: (a) this Warrant, properly endorsed, (b) the completed, executed
Form of Subscription, and (c) payment for such shares, provided, however, that
the Company is not obligated to issue shares of Common Stock purchased under
this Warrant unless such Common Stock is registered under the Securities Act and
qualified under the Securities Law, or the securities laws of any other
jurisdiction, or exemptions from such registration and qualification
requirements are available. Certificates for the shares of Common Stock so
purchased, together
- --------
(1) As provided in Section 1 of the Agreement, equal to one-sixth (1/6) of the
aggregate dollar mount of Participations purchased divided by the exercise price
of the Warrants.
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<PAGE>
with any other securities or property to which the Holder hereof is entitled
upon such exercise, shall be delivered to the Holder hereof by the Company at
the Company's expense within a reasonable time after the rights represented by
this Warrant have been so exercised. In case of a purchase of less than all the
shares which may be purchased under this Warrant, the Company shall cancel this
Warrant and execute and deliver a new Warrant or Warrants of like tenor for the
balance of the shares purchasable under the Warrant surrendered upon such
purchase to the Holder hereof within a reasonable time. Each stock certificate
so delivered shall be in such denominations of Common Stock as may be requested
by the Holder hereof and shall be registered in the name of such Holder.
2. Termination. This Warrant will terminate at 5:00 p.m. (Pacific time)
on July 31, 1999, provided, however, that in the event that the average closing
bid price of the Common Stock exceeds one hundred sixty percent (160%) of the
Stock Purchase Price for thirty (30) consecutive trading days, then the Company
may, within three business days following the end of such thirty (30) day
period, give notice of its intent to repurchase the Warrants at a purchase price
of one-tenth of one cent ($0.001) per Warrant. Holders will have (30) days
following the date of the Company's notice to exercise the Warrants. In the
event the Company exercises the right to redeem the Warrants, such Warrants will
be exercisable until the close of business on the business day immediately
preceding the date for redemption fixed in such notice. If any Warrant called
for redemption is not exercised by such time, it will cease to be exercisable
and the Holder will be entitled only to the redemption price.
3. Common Stock to be Fully Paid; Reservation of Common Stock. The
Company covenants and agrees that all shares of Common Stock which may be issued
upon the exercise of the rights represented by this Warrant will, upon issuance,
be duly authorized, validly issued, fully paid and nonassessable and free from
all preemptive rights of any shareholder and free of all taxes, liens and
charges with respect to the issue thereof. The Company further covenants and
agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved, for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of authorized
but unissued Common Stock, or other securities and property, when and as
required to provide for the exercise of the rights represented by this Warrant.
4. Adjustment of Stock Purchase Price and Number of Shares. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 4. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock. In case the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
4.2 Dividends in Common Stock, Other Stock, Property,
Reclassification. If at any time or from time to time the holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) Common Stock or any shares of stock or other securities
which are at any time directly or indirectly convertible into or
exchangeable for Common Stock, or any rights or options to subscribe for,
purchase or otherwise acquire any of the foregoing by way of dividend or
other distribution,
(b) any cash paid or payable otherwise than as a cash
dividend, or
(c) Common Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than (i)
shares of Common Stock issued as a stock split, adjustments in respect of
which shall be covered by the terms of Section 4.1 above or (ii) an event
for which adjustment is otherwise made pursuant to Section 4.3 below),
then and in each such case, the Holder hereof shall, upon the exercise of
this Warrant, be entitled to receive, in addition to the number of shares
of Common Stock receivable thereupon, and without payment of any
additional consideration therefor, the amount of stock and other
securities and property (including cash in the cases referred to in
clauses (b) and (c) above) which such Holder would hold on the date of
such exercise had he been the holder of record of such Common Stock
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<PAGE>
as of the date on which holders of Common Stock received or became
entitled to receive such shares or all other additional stock and other
securities and property.
4.3 Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another corporation shall be effected
in such a way that holders of Common Stock shall be entitled to receive stock,
securities, or other assets or property, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provisions shall be made whereby the Holder hereof shall thereafter
have the right to purchase and receive (in lieu of the shares of the Common
Stock of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby) such shares of stock, securities or
other assets or property as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby; provided,
however, that in the event the value of the stock, securities or other assets or
property (determined in good faith by the Board of Directors of the Company)
issuable or payable with respect to one share of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby is in excess of the Stock Purchase Price effective at
the time of the merger and securities received in such reorganization, if any,
are publicly traded, then this Warrant shall expire unless exercised prior to
the reorganization.
In any reorganization described above, appropriate provision shall
be made with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof (including, without limitation, provisions
for adjustments of the Stock Purchase Price and of the number of shares
purchasable and receivable upon the exercise of this Warrant) shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise hereof. The
Company will not effect any such consolidation, merger or sale unless, prior to
the consummation thereof, the successor corporation (if other than the Company)
resulting from such consolidation or the corporation purchasing such assets
shall assume by written instrument, executed and mailed or delivered to the
registered Holder hereof at the last address of such Holder appearing on the
books of the Company, the obligation to deliver to such Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase.
4.4 Notice of Adjustment. Upon any adjustment of the Stock
Purchase Price or any increase or decrease in the number of shares purchasable
upon the exercise of this Warrant, the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the registered
Holder of this Warrant at the address of such Holder as shown on the books of
the Company. The notice shall be signed by the Company's chief financial officer
and shall state the Stock Purchase Price resulting from such adjustment and the
increase or decrease, if any, in the number of shares purchasable at such price
upon the exercise of this Warrant, setting forth in reasonable detail the method
of calculation and the facts upon which such calculation is based.
4.5 Other Notices. If at any time:
(a) the Company shall declare any cash dividend upon its
Common Stock;
(b) the Company shall declare any dividend upon its Common
Stock payable in stock or make any special dividend or other distribution
to the holders of its Common Stock;
(c) the Company shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any
class or other rights;
(d) there shall be any capital reorganization or
reclassification of the capital stock of the Company; or consolidation or
merger of the Company with, or sale of all or substantially all of its
assets to, another corporation;
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(f) there shall be an initial public offering of Company
securities;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (i) at least fifteen (15)
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend,
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<PAGE>
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up, and (ii) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up or public offering, at least fifteen (15) days' prior
written notice of the date when the same shall take place; provided, however,
that the Holder shall make a best efforts attempt to respond to such notice as
early as possible after the receipt thereof. Any notice given in accordance with
the foregoing clause (i) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto. Any notice given in accordance with the
foregoing clause (ii) shall also specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, winding-up, conversion or public
offering, as the case may be.
4.6 Certain Events. If any change in the outstanding Common Stock
of the Company or any other event occurs as to which the other provisions of
this Section 4 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with such provisions, the Board of Directors of the Company shall make an
adjustment in the number and class of shares available under the Warrant, the
Stock Purchase Price or the application of such provisions, so as to protect
such purchase rights as aforesaid. The adjustment shall be such as will give the
Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price
the total number, class and kind of shares as it would have owned had the
Warrant been exercised prior to the event and had it continued to hold such
shares until after the event requiring adjustment.
5. Issue Tax. The issuance of certificates for shares of Common Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
6. No Voting or Dividend Rights; Limitation of Liability. Nothing
contained in this Warrant shall be construed as conferring upon the holder
hereof the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised.
7. Warrants Not Transferable. This Warrant and the rights hereunder may
not be transferred, in whole or in part, without the prior written consent of
the Company. Upon the Company's request, the Holder shall deliver evidence
satisfactory to the Company that any proposed transferee is an "accredited
investor" under the Securities Act and the Securities Law.
8. Modification and Waiver. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the Company and representatives of a majority in interest of the
Holders under the Agreement.
9. Notices. Any notice, request or other document required or permitted
to be given or delivered to the Holder hereof or the Company shall be delivered
or shall be sent by certified mail, postage prepaid, to each such Holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
10. Binding Effect on Successors. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Common Stock issuable upon the exercise of this Warrant
shall survive the exercise and termination of this Warrant. All of the covenants
and agreements of the Company shall inure to the benefit of the successors and
assigns of the holder hereof.
11. Descriptive Headings and Governing Law. The description 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
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California.
12. Lost Warrants. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any
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<PAGE>
such mutilation upon surrender and cancellation of such Warrant, the Company, at
its expense, will make and deliver a new Warrant, of like tenor, in lieu of the
lost, stolen, destroyed or mutilated Warrant.
13. Fractional Shares. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
In Witness Whereof, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this ____ day of __________,
1996.
EDNET, INC.,
a Colorado corporation
By: ____________________________________
Thomas Kobayashi
Chairman and Chief Executive Officer
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<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: EDNET, Inc.
One Union Street
San Francisco, California 94111
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, the number of shares of common stock ("Common Stock") of
EdNet, Inc., a Colorado corporation (the "Company"), indicated below and
requests that the certificates for such shares be issued in the name of, and
delivered to the undersigned at the address listed below.
The undersigned represents that it is acquiring such Common Stock for its
own account for investment and not with a view to or for sale in connection with
any distribution thereof and in order to induce the issuance of such Common
Stock makes to the Company the representation and warranties set forth on the
investment representation statement attached hereto.
- ----------------------------------- -------------------------------------
Printed Name Signature
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
Address:
- ---------------------------------
- ---------------------------------
Number of Shares Purchased: _____________________(2)
Purchase Price Enclosed: $_____________________
($__________ per Unit; make checks payable to "EDNET, Inc."
DATED: _______________
- --------
(2) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the Warrant
is being exercised), in either case without making any adjustment for additional
Common Stock or any other stock or other securities or property or cash which,
pursuant to the adjustment provisions of the Warrant, may be deliverable upon
exercise.
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<PAGE>
Exhibit "B"
(Form of Participation Certificate)
THE PARTICIPATIONS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
QUALIFIED UNDER THE CALIFORNIA CORPORATE SECURITIES LAW OF 1968, AS AMENDED, OR
THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THE SECURITIES REPRESENTED HEREBY
CANNOT BE SOLD, ASSIGNED, PLEDGED, DISTRIBUTED, DONATED OR OTHERWISE TRANSFERRED
OR DISPOSED OF WITHOUT SUCH REGISTRATION UNDER THE SECURITIES ACT AND
REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, UNLESS
MORGAN FULLER CAPITAL GROUP L.L.C. DETERMINES THAT EXEMPTIONS FROM SUCH
REGISTRATION AND QUALIFICATION REQUIREMENTS ARE AVAILABLE.
This confirms that the individual indicated below has purchased from Morgan
Fuller Capital Group L.L.C. ("Morgan Fuller") the participations
("Participations") indicated below in that certain Senior Secured Promissory
Note, dated July 3 1996, in the amount of $500,000, Senior Secured Promissory
Note, dated July 22, 1996, in the amount of $500,000 and Senior Secured
Promissory Note, dated August 15, 1996, in the amount of $250,000, each made by
EDnet, Inc., a Colorado corporation, as debtor, in favor of Morgan Fuller, on
the terms and conditions contained in that Subscription, Representation and
Stock Transfer Restriction Agreement, dated July 3, 1996:
Name of Investor: _______________________________________
---------------------------------------
Amount of Participation: $_______________________________________
MORGAN FULLER CAPITAL GROUP L.L.C.
By: ____________________________
Gordon R. Taubenheim
Managing Director
Date: ___________, 1996
-1-
EDnet, INC.,
a Colorado corporation
Private Offering of up to
$5,000,000 of Shares of Common Stock
---------------------------------------------------------------
SUBSCRIPTION, REPRESENTATION AND
STOCK TRANSFER RESTRICTION
AGREEMENT
DATED DECEMBER 20, 1996
TO BE USED ONLY IN CONJUNCTION WITH
AN INVESTMENT IN THE SHARES DESCRIBED HEREIN
---------------------------------------------------------------
INSTRUCTIONS TO SUBSCRIBERS
If you wish to subscribe for shares of Common Stock (the "Shares") of EDnet,
Inc., a Colorado corporation (the "Company"), please complete and sign this
Subscription, Representation and Stock Transfer Restriction Agreement (the
"Agreement"), following the instructions carefully. If you have any questions
concerning any of the information called for, you may ask your lawyer,
accountant or financial advisor for assistance, and if you desire, contact the
individual indicated below. The completed and signed Agreement, together with
your check in the amount of your total subscription payable to "EDnet, Inc.,"
should then be sent to the address set forth below. You should make a copy of
the executed Agreement for your files.
ANSWER ALL QUESTIONS.
ALL INFORMATION WILL BE TREATED CONFIDENTIALLY.
EDnet, Inc.
One Union Street
San Francisco, California 94111
Attention: Alan Geddes
Vice President and Chief Financial Officer
Telephone Number: (415) 274-8800
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<PAGE>
THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED UNDER THE CALIFORNIA CORPORATE SECURITIES LAW OF
1968, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF
ANY OTHER JURISDICTION, AND MAY ONLY BE SOLD, PLEDGED, TRANSFERRED OR
OTHERWISE DISPOSED OF BY AN INVESTOR IF SUBSEQUENTLY REGISTERED UNDER THE
SECURITIES ACT AND REGISTERED OR QUALIFIED UNDER ANY APPLICABLE STATE
SECURITIES LAWS, UNLESS THE COMPANY DETERMINES THAT EXEMPTIONS FROM SUCH
REGISTRATION AND QUALIFICATION REQUIREMENTS ARE AVAILABLE.
SUBSCRIPTION, REPRESENTATION AND
STOCK TRANSFER RESTRICTION AGREEMENT
EDnet, Inc.
One Union Street
San Francisco, California 94111
Gentlemen:
1. Subscription. By executing and delivering this Subscription, Representation
and Stock Transfer Restriction Agreement (the "Agreement"), the undersigned (and
each of the undersigned if more than one) hereby applies to purchase shares of
common stock (the "Shares") of EDnet, Inc., a Colorado corporation (the
"Company"), on the terms and conditions described herein, for $1.00 per share.
The minimum purchase is $25,000. This offering will terminate on February 28,
1997 or such other date which the Company shall select in its sole discretion
(the "Termination Date"). In the event that the Company sells Shares between the
date hereof and April 30, 1997 for a price below $1.00 per Share (the "Lower
Price"), the Company shall deliver to the undersigned an amount of Shares
determined as follows: (i) the difference between $1.00 and the Lower Price
multiplied by (ii) the number of Shares purchased hereby by the undersigned
divided by (iii) the Lower Price.
2. Acknowledgments. The undersigned (and each of the undersigned if more than
one) acknowledges that:
2.1 This subscription may be rejected in whole or in part at the sole
discretion of the Company, and the execution and delivery of this
Agreement does not constitute an agreement to sell the Shares or
any other securities to me unless and until it has been accepted
by the Company.
2.2 The Company will rely upon the information contained herein for
purposes of determining my suitability as an investor in the
Company.
2.3 The funds submitted with this Agreement will be held in escrow by
the Company in a non-interest bearing account at a financial
institution selected by the Company until the date the Company
receives subscriptions for at least $100,000 of shares (the
"Minimum Subscription"). If the Minimum Subscription is not
received by January 13, 1997, the Company shall terminate the
offering and return all funds to subscribers.
2.4 If the Company receives subscriptions for the Minimum Subscription
by January 13, 1997, the Company may continue to sell Shares up to
the maximum amount, provided, however, the Company has no
obligation to sell more than $100,000 of Shares.
2.5 The Company may elect to sell a lesser number of Shares to the
undersigned and upon so doing, the Company shall return to the
undersigned the difference between the subscription price tendered
and the subscription price required to purchase such Shares.
2.6 The management of the Company is vested in the Board of Directors
and that being a shareholder confers no right to participate in
the Company's business or in the decisions of its directors and
officers.
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<PAGE>
2.7 The offering of Shares described in this Agreement terminates on
the Termination Date, or such date as the Company shall elect, and
the Company shall have no obligation to sell Shares to the
undersigned thereafter.
2.8 The Company may pay a commission of up to seven percent (7%) of
the dollar amount of Shares sold to qualified broker/dealers in
connection with the offering and sale of Shares.
3. Representations. The undersigned (and each of the undersigned if more than
one) hereby makes the following representations and warranties to the Company:
3.1 I have received and carefully reviewed this Agreement and I have
separately received and carefully reviewed the: (a) Company's
Registration Statement on Form 10-SB, filed with the Securities
and Exchange Commission (the "SEC") on October 31, 1996; (b)
Summary Business Plan dated December 1996; and (c) Risk Factors
dated December 20, 1996 (collectively, the "Offering Materials").
3.2 I have obtained from the Company satisfactory responses to all
questions and requests for further information regarding the
business and plans of the Company, the contents of the Offering
Materials the terms and conditions of the offering, and all other
relevant matters.
3.3 I have been given access to and the opportunity to obtain such
additional information as I have deemed necessary to verify the
accuracy of the information provided to me by the Company.
3.4 I have not received and am not relying upon any written offering
literature or prospectus other than this Agreement and the
Offering Materials, and have not received and am not relying upon
any oral representations which are in any manner inconsistent with
the information contained therein.
3.5 I personally have substantial knowledge and experience in
financial and business matters, have specific experience making
investment decisions of a similar nature, and am capable, without
the use of a financial advisor, of utilizing and analyzing the
information made available in connection with this offering and of
evaluating the merits and risks of an investment in the Shares. I
will provide the Company, upon request, with such information
concerning my prior investment experience, business or
professional experience and other information as the Company may
deem necessary to further evaluate the foregoing representations.
3.6 I am subscribing to acquire the Shares for investment purposes
only, for my own account, and not for resale to others or in
connection with (or with any view to) any further distribution of
the Shares.
3.7 I understand that (i) the Shares have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), nor
qualified under the California Corporate Securities Law of 1968,
as amended, or the securities laws of any other jurisdiction, (ii)
the Shares cannot be resold unless they subsequently are
registered under the Securities Act and qualified under applicable
state securities laws, unless the Company determines that
exemptions from such registration and qualification requirements
are available, and (iii) consequently, purchasers must bear the
economic risk of an investment in the Shares for an indefinite
period of time. I understand that only a very limited public
market now exists for any of the securities issued by the Company
and that it is uncertain whether a substantial public market will
ever exist for the Shares.
3.8 I am aware that an i nvestment in the Shares is speculative and
involves a high degree of risk.
3.9 I have adequate means of providing for my current needs and
possible personal contingencies and have no need for liquidity in
an investment in the Shares. I am able to bear the economic risk
of an investment in the Shares, can afford to hold the Shares for
an indefinite period of time and, at the present time, could
afford a complete loss of such investment.
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<PAGE>
3.10 I may be deemed to be an accredited investor, because I meet the
requirements of one or more of the following categories:
(Please initial all boxes which apply to you.)
[ ] I am a director or executive officer of the Company.
[ ] I am a natural person whose individual net worth, or joint
net worth with my spouse, exceeds $1,000,000.
[ ] I am a natural person and had individual (not joint) income
in excess of $200,000 in each of the two most recent years
and reasonably expect to reach the same income level in the
current year, or I am a natural person and had joint income
(together with my spouse) in excess of $300,000 in each of
the two most recent years and reasonably expect to reach
the same income level in the current year.
[ ] The undersigned is a private business investment company as
defined in section 202(a)(22) of the Investment Advisers
Act of 1940.
[ ] The undersigned is a corporation, trust, Massachusetts or
similar business trust, partnership or other organization
described in section 501(c)(3) of the Internal Revenue Code
of 1986 as amended (i.e., tax exempt entities), not formed
for the specific purpose of acquiring the Shares, with
total assets in excess of $5 million according to its most
recent audited financial statements, and the investment
decisions of which are directed by one or more persons who
have substantial knowledge and experience in financial and
business matters, have specific experience making
investment decisions of a similar nature, and are capable,
without the use of a financial advisor, of utilizing and
analyzing the information made available in connection with
this offering and of evaluating the merits and risks of an
investment in the Shares.
[ ] The undersigned is a (i) small business investment company
licensed by the U.S. Small Business Administration under
section 301(c) or (d) of the Small Business Investment
Company Act of 1958; (ii) any investment company registered
under the Investment Company Act of 1940 or a business
development company as defined in section 2(a)(48) of that
Act; or (iii) U.S. bank or savings and loan association,
whether acting for itself or as a trustee, or an insurance
company.
[ ] The undersigned is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income
Security Act of 1974, the investment decision of which are
made by a plan fiduciary, as defined in section 9(21) of
such Act, which is either a bank, a savings and loan
association, an insurance company, or a registered
investment adviser.
[ ] The undersigned is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income
Security Act of 1974, which either has total assets in
excess of $5,000,000 or is a self-directed plan, the
investment decisions of which are made solely by one or
more persons able to make the representations contained in
section 3.5 above and who fits into one of the above
categories.
[ ] The undersigned is an entity in which all of the equity
owners are accredited investors, falling into one or more
of the categories described above.
(NOTE: The Company will not sell Shares to an investor unless the
investor falls within one or more of the above categories.)
3.11 All information which I have provided to the Company concerning
myself, my financial position and my knowledge of and experience
with financial and business matters is correct and complete as of
the date set forth at the end of this Agreement, and if there
should be any material change in such information prior to the
closing of this offering, I will immediately provide the Company
with such information.
3.12 If an individual, the undersigned is at least 21 years of age. If
an entity other than an individual, the undersigned is duly
authorized to purchase and hold the Shares.
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3.13 If an individual, the residence, or, if an entity other than an
individual, the principal place of business, of the undersigned is
as set forth on the signature page of this Agreement. This address
is the true and correct address of the undersigned and is the only
jurisdiction in which an offer to sell the Shares was made to the
undersigned. The undersigned has no present intention, if an
individual, of becoming a resident of, or, if an entity other than
an individual, of moving its principal place of business to, any
other state or jurisdiction.
4. Registration Rights.
4.1 Piggyback Registrations. The Company shall notify all persons
owning of record Shares that have not been sold to the public
("Holders") in writing at least thirty (30) days prior to the
filing of any registration statement under the Securities Act for
purposes of any public offering of securities by the Company, on
Form S-1 or any other available form, initiated by the Company
(but excluding registration statements relating to employee
benefit plans or with respect to corporate reorganizations or
other transactions under Rule 145 of the Securities Act) and will
afford each such Holder an opportunity to include in such
registration statement all or part of such Shares held by such
Holder ("Registrable Shares"). Each Holder desiring to include in
any such registration statement all or any part of its Registrable
Shares shall, within fifteen (15) days after the above-described
notice from the Company, so notify the Company in writing. Such
notice shall state the intended method of disposition of such
Registrable Shares. If a Holder decides not to include all of its
Registrable Shares in any registration statement thereafter filed
by the Company, such Holder shall nevertheless continue to have
the right to include its Registrable Shares in any subsequent such
registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all
upon the terms and conditions set forth herein.
4.1.1 Underwriting. If the registration statement under which the
Company gives notice under this Section 4.1 is for an
underwritten offering, the Company shall so advise the
Holders. In such event, the right of any such Holder to be
included in a registration pursuant to this Section 4.1
shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's
Registrable Shares in the underwriting to the extent
provided herein. All Holders proposing to distribute their
Registrable Shares through such underwriting shall enter
into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting
by the Company. Notwithstanding any other provision of the
Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of
shares to be underwritten, the number of shares that may be
included in the underwriting shall be allocated, first, to
the Company; and second, to the Holders on a pro rata basis
based on the total number of Registrable Shares held by the
Holders. No such reduction shall reduce the securities
being offered by the Company for its own account to be
included in the registration and underwriting.
4.1.2 Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated
by it under this Section 4.1 prior to the effectiveness of
such registration whether or not any Holder has elected to
include securities in such registration. The Registration
Expenses (as defined below) of such withdrawn registration
shall be borne by the Company in accordance with Section
4.3 hereof.
4.1.3 Expiration. A Holder's registration rights under this
Section 4.1 shall expire if all Registrable Shares held by
such Holder may be sold under Rule 144 during any ninety
(90) day period.
4.2 Form S-3 Registration. Subject to the conditions of this Section
4.2, if the Company shall receive a written request from the
Holders of more than sixty-six and two-thirds percent (66-2/3%) of
the Registrable Shares then outstanding that the Company effect a
registration on Form S-3 ("Form S-3 ") (or any successor to Form
S-3) or any similar short-form registration statement and any
related qualification or compliance with respect to all or a part
of the Registrable Shares owned by such Holder or Holders, the
Company will:
4.2.1 promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other
Holders of Shares; and
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4.2.2 as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution
of all or such portion of such Holder's or Holders'
Registrable Shares as are specified in such request,
provided, however, that the Company shall not be obligated
to effect any such registration, qualification or
compliance pursuant to this Section 4.2:
(a) if Form S-3 (or any successor or similar form) is not
available for such offering by the Holders; or
(b) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Shares
and such other securities (if any) at an aggregate
price to the public of less than $500,000; or
(c) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of
Directors of the Company stating that in the good
faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the
Company and its shareholders for such Form S-3 to be
filed at such time, in which event the Company shall
have the right to defer the filing of the Form S-3 for
a period of not more than ninety (90) days after
receipt of the request of the Holder or Holders under
this Section 4.2; or
(d) if the Company shall have previously filed a
registration on Form S-3 at the request of the Holders
with respect to the same Registrable Shares; or
(d) in any particular jurisdiction in which the Company
would be required to qualify to do business or to
execute a general consent to service of process in
effecting such registration, qualification or
compliance.
4.2.3 A Holder's registration rights under this Section 4.2 shall
expire if all Registrable Shares held by such Holder may be
sold under Rule 144 during any ninety (90) day period.
4.3 Expenses of Registration. Except as specifically provided herein,
all Registration Expenses incurred in connection with any
registration under Sections 4.1 or 4.2 shall be borne by the
Company. All Selling Expenses incurred in connection with any
registrations hereunder, shall be borne by the holders of the
securities so registered pro rata on the basis of the number of
shares so registered. The Company shall not, however, be required
to pay for expenses of any registration proceeding begun pursuant
to Section 4.2, the request of which has been subsequently
withdrawn by the Holders unless (a) the withdrawal is based upon
material adverse information concerning the Company of which the
Holders were not aware at the time of such request or (b) the
Holders of a majority of Registrable Shares agree to forfeit their
right to registration pursuant to Section 4.2, in which event such
right shall be forfeited by all Holders). If the Holders are
required to pay the Registration Expenses, such expenses shall be
borne by the Holders of securities (including Registrable Shares)
requesting such registration in proportion to the number of shares
for which registration was requested. If the Company is required
to pay the Registration Expenses of a withdrawn offering pursuant
to clause (a) above, then the Holders shall not forfeit their
rights pursuant to Section 4.2 to a demand registration. As used
herein, "Registration Expenses" means all expenses incurred by the
Company in complying with Sections 4.1 and 4.2, including, without
limitation, all registration and filing fees, printing expenses,
fees and disbursements of counsel for the Company, reasonable fees
and disbursements of a single special counsel for the Holders,
blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding
the compensation of regular employees of the Company which shall
be paid in any event by the Company), and "Selling Expenses" means
all underwriting discounts and selling commissions applicable to
the sale of Registrable Shares.
4.4 Obligations of the Company. Whenever required to effect the
registration of any Registrable Shares, the Company shall, as
expeditiously as reasonably possible:
4.4.1 Prepare and file with the SEC a registration statement with
respect to such Registrable Shares and use all reasonable
efforts to cause such registration statement to become
effective, and, upon the request of the Holders of a
majority of the Registrable Shares registered thereunder,
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keep such registration statement effective for up to ninety
(90) days or, if earlier, until the Holder or Holders have
completed the distribution related thereto.
4.4.2 Prepare and file with the SEC such amendments and
supplements to such registration statement and the
prospectus used in connection with such registration
statement as may be necessary to comply with the provisions
of the Securities Act with respect to the disposition of
all securities covered by such registration statement.
4.4.3 Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and
such other documents as they may reasonably request in
order to facilitate the disposition of Registrable Shares
owned by them.
4.4.4 Use all reasonable efforts to register and qualify the
securities covered by such registration statement under
such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify
to do business or to file a general consent to service of
process in any such states or jurisdictions.
4.4.5 In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing
underwriter(s) of such offering. Each Holder participating
in such underwriting shall also enter into and perform its
obligations under such an agreement.
4.4.6 Notify each Holder of Registrable Shares covered by such
registration statement at any time when a prospectus
relating thereto is required to be delivered under the
Securities Act of the happening of any event as a result of
which the prospectus included in such registration
statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading in the light of the
circumstances then existing.
4.4.7 Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such
Registrable Shares are delivered to the underwriters for
sale, if such securities are being sold through
underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration
statement with respect to such securities becomes
effective, (a) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given
to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting
registration of Registrable Shares and (b) a letter dated
as of such date, from the independent certified public
accountants of the Company, in form and substance as is
customarily given by independent certified public
accountants to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in
interest of the Holders requesting registration, addressed
to the underwriters, if any, and if permitted by applicable
accounting standards, to the Holders requesting
registration of Registrable Shares.
4.5 Delay of Registration; Furnishing Information. No Holder shall
have any right to obtain or seek an injunction restraining or
otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Article 4. It shall be a condition
precedent to the obligations of the Company to take any action
pursuant to Sections 4.1 or 4.2 that the selling Holders shall
furnish to the Company such information regarding themselves, the
Registrable Shares held by them and the intended method of
disposition of such securities as shall be required to effect the
registration of their Registrable Shares.
4.6 Indemnification. In the event any Registrable Shares are included
in a registration statement under Sections 4.1 or 4.2:
4.6.1 To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers,
directors and legal counsel of each Holder, any underwriter
(as defined in the
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Securities Act) for such Holder and each person, if any,
who controls such Holder or underwriter within the meaning
of the Securities Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), against any losses,
claims, damages, or liabilities (joint or several) to which
they may become subject under the Securities Act, 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 of the
following statements, omissions or violations (collectively
a "Violation") by the Company: (i) any untrue statement or
alleged untrue statement of a material fact contained in
such registration statement, including any preliminary
prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the
Exchange Act or any state securities law in connection with
the offering covered by such registration statement; and
the Company will reimburse each such Holder, partner,
officer or director, underwriter or controlling person for
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 Section 4.6.1
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 the Company, which
consent shall not be unreasonably withheld, nor shall the
Company 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 a Violation which occurs in
reliance upon and in conformity with written information
furnished expressly for use in connection with such
registration by such Holder, partner, officer, director,
underwriter or controlling person of such Holder.
4.6.2 To the extent permitted by law, each Holder will, if
Registrable Shares held by such Holder are included in the
securities as to which such registration qualifications or
compliance is being effected, indemnify and hold harmless
the Company, each of its directors, its officers, and legal
counsel and each person, if any, who controls the Company
within the meaning of the Securities Act, any underwriter
and any other Holder selling securities under such
registration statement or any of such other Holder's
partners, directors or officers or any person who controls
such Holder, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any
such director, officer, controlling person, underwriter or
other such Holder, or partner, director, officer or
controlling person of such other Holder may become subject
under the Securities Act, 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 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 by such Holder under an instrument duly executed
by such Holder and stated to be specifically for use in
connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, or
partner, officer, director or controlling person of such
other Holder in connection with investigating or defending
any such loss, claim, damage, liability or action if it is
judicially determined that there was such a Violation;
provided, however, that the indemnity agreement contained
in this Section 4.6.2 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 the Holder, which consent shall not be unreasonably
withheld; provided further, that in no event shall any
indemnity under this Section 4.6 exceed the proceeds from
the offering received by such Holder.
4.6.3 Promptly after receipt by an indemnified party under this
Section 4.6 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 4.6, 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 the defense thereof with
counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to
retain its own 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
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<PAGE>
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
materially prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 4.6,
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 4.6.
4.6.4 If the indemnification provided for in this Section 4.6 is
held by a court of competent jurisdiction to be unavailable
to an indemnified party with respect to any losses, claims,
damages or liabilities referred to herein, the indemnifying
party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage
or liability 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 Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of
the indemnifying party and of the indemnified party shall
be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a
material fact relates to information supplied by the
indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or
omission; provided, however, that in no event shall any
contribution by a Holder hereunder exceed the proceeds from
the offering received by such Holder.
4.6.5 The obligations of the Company and Holders under this
Section 4.6 shall survive completion of any offering of
Registrable Shares in a registration statement. No
Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. In the
event any offering of Registrable Shares is underwritten,
and the underwriting agreement provides for indemnification
and/or contribution by the Company and the Holders offering
securities thereunder, the indemnification and/or
contribution obligations of the Company and the Holders
hereunder shall in no event exceed the obligations of the
parties set forth in such underwriting agreement.
4.7 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Shares pursuant to this Article 4 may not
be assigned by a Holder without the prior written consent of the
Company.
4.8 Amendment of Registration Rights. Any provision of this Article 4
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
the Holders of at least sixty-six and two-thirds percent (66-2/3%)
of the Registrable Shares. Any amendment or waiver effected in
accordance with this Section 4.8 shall be binding upon each Holder
and the Company. By acceptance of any benefits under this Article
4, Holders of Registrable Shares hereby agree to be bound by the
provisions hereunder.
4.9 "Market Stand-Off" Agreement. If requested by the Company as the
representative of the underwriters of Registrable Shares (or other
securities) of the Company, each Holder shall not sell or
otherwise transfer or dispose of any Registrable Shares (or other
securities) of the Company held by such each Holder (other than
those included in the registration) for a period specified by the
representative of the underwriters not to exceed one hundred
eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act. The
obligations described in this Section 4.9 shall not apply to a
registration relating solely to employee benefit plans on Form S-1
or Form S-8 or similar forms that may be promulgated in the
future, or a registration relating solely to a Rule 145
transaction on Form S-4 or similar forms that may be promulgated
in the future. The Company may impose stop-transfer instructions
with respect to the Registrable Shares (or other securities)
subject to the foregoing restriction until the end of said one
hundred eighty (180) day period.
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4.10 Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Shares to the public without
registration, the Company agrees to use its best efforts to: (i)
make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous
rule promulgated under the Securities Act, at all times after the
effective date of the first registration filed by the Company for
an offering of its securities to the general public; (ii) file
with the SEC, in a timely manner, all reports and other documents
required of the Company under the Exchange Act; and (iii) so long
as a Holder owns any Registrable Shares, furnish to such Holder
forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 of
the Securities Act, and of the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of the Company and such
other reports and documents as a Holder may reasonably request in
availing itself of any rule or regulation of the SEC allowing it
to sell any such securities without registration.
5. Restrictions on Transfer of Shares. The undersigned (and each of the
undersigned if more than one) hereby makes the following further agreements,
representations and warranties regarding the restrictions on the transferability
of the Shares:
5.1 I agree that I will not directly or indirectly sell, assign,
pledge, distribute, donate, or otherwise transfer or dispose of,
or offer to do any of the foregoing with respect to, any of the
Shares which I purchase from the Company, or any beneficial
interest in such Shares, unless either (i) such Shares are
registered under and sold in accordance with the Securities Act
and the rules and regulations promulgated thereunder, and are
registered or qualified under and sold in accordance with the
provisions of any applicable state securities laws, or (ii) the
Company has determined that exemptions from such registration and
qualification requirements are available.
5.2 I understand and agree that a legend will be stamped on each
certificate representing the Securities substantially in the
following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR QUALIFIED UNDER THE CALIFORNIA
CORPORATE SECURITIES LAW OF 1968, AS AMENDED, OR THE
SECURITIES LAWS OF ANY OTHER JURISDICTION. THE SHARES
REPRESENTED HEREBY CANNOT BE SOLD, ASSIGNED, PLEDGED,
DISTRIBUTED, DONATED OR OTHERWISE TRANSFERRED OR DISPOSED
OF WITHOUT SUCH REGISTRATION UNDER THE SECURITIES ACT AND
REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE
SECURITIES LAWS, UNLESS THE COMPANY DETERMINES THAT
EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION
REQUIREMENTS ARE AVAILABLE.
5.3 I understand and agree that the Company may issue such stop
transfer instructions to its transfer agents, if any, as it may
deem necessary to enforce the above transfer restrictions.
6. Joint Signers; Successors and Assigns. If this Agreement is signed by more
than one person or entity, then the obligations of the undersigned shall be
joint and several, and the acknowledgements, representations, warranties and
agreements herein contained shall be deemed to be made by and be binding upon
each such person or entity. This Agreement shall survive the death or disability
of the undersigned and shall be binding upon the undersigned's heirs, executors,
administrators, successors and assigns.
7. Miscellaneous.
7.1 This Agreement shall be governed by and construed in accordance
with the laws of the State of California applicable to contracts
between California residents entered into and to be performed
entirely within the State of California.
7.2 Except as otherwise provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors and
assigns of the parties hereto.
7.3 This Agreement constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof.
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7.4 This Agreement may be executed in counterparts, each of which
shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one
instrument.
7.5 In the case any provision of this agreement shall be invalid,
illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
8. CERTIFICATION AS TO TAXPAYER IDENTIFICATION NUMBER & BACKUP WITHHOLDING AND
NON-FOREIGN STATUS-SUBSTITUTE FORM W-9. SOCIAL SECURITY OR TAX ID NUMBER.
Under penalties of perjury, I certify by my signature below that (1) the
number shown on this form is my correct taxpayer identification number, (2) I am
not subject to backup withholding either because (a) I am exempt from backup
withholding, (b) I have not been notified that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or (c)
the Internal Revenue Service has notified me that I am no longer subject to back
withholding, (3) I am not a non-resident alien for purposes of U.S. income
taxation, (4) my home address (individual) or business address (entity) set
forth in the Agreement is correct, and (5) if I become a non-resident alien, I
will notify the Company within 60 days of doing so.
IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE PRESENTLY SUBJECT TO BACKUP
WITHHOLDING, STRIKE OUT THE LANGUAGE UNDER (2) ABOVE BEFORE SIGNING.
9. Type of Ownership for the Shares Subscribed (Check the Appropriate Box)
[ ] INDIVIDUAL OWNERSHIP BY UNMARRIED PERSON
[ ] OWNERSHIP BY MARRIED PERSON AS SOLE AND SEPARATE PROPERTY
(if you live in a state which has community property laws,
signatures of both spouses may be required)
[ ] COMMUNITY PROPERTY (signatures of both spouses are
required)
[ ] JOINT TENANTS WITH RIGHT OF SURVIVORSHIP (both parties must
sign)
[ ] TENANTS-IN-COMMON (both parties must sign)
[ ] CORPORATION*
[ ] PARTNERSHIP*
[ ] TRUST*
[ ] OTHER ENTITY*
* Any person executing this Agreement on behalf of such
entities hereby represents and agrees that: (i) he or she
is duly authorized to act on behalf of such corporation,
partnership, trust or other entity, (ii) such corporation,
partnership, trust or other entity was formed on
________________________, 19__, and (iii) he or she will
provide such information as the Company may request
confirming the authority to sign on behalf of such entity.
10. Subscription Details and Execution. IN WITNESS WHEREOF, the undersigned
hereby subscribe(s) for the amount of Shares indicated in the subscription price
indicated below, provide(s) the information indicated, and execute(s) and
deliver(s) this Agreement as of the date indicated. Following the Termination
Date, the Company shall mail to you at the address indicated below original
stock certificates representing the purchased Shares.
Subscription Price Enclosed: $_________________________
(minimum purchase: $25,000; make checks payable to "EDnet, Inc.")
-11-
<PAGE>
<TABLE>
Date of Execution: _______________, 199__
<CAPTION>
<S> <C>
- ------------------------------------------------ ------------------------------------------------
Investor #1 (Print or Type Name) Investor #2 (Print or Type Name)
- ------------------------------------------------ ------------------------------------------------
Signature Signature
- ------------------------------------------------ ------------------------------------------------
Social Security or Tax ID # Social Security or Tax ID #
- ------------------------------------------------ ------------------------------------------------
Residence Street Address Residence Street Address
- ------------------------------------------------ ------------------------------------------------
City and State Zip City and State Zip
- ------------------------------------------------ ------------------------------------------------
Residence Telephone Residence Telephone
- ------------------------------------------------ ------------------------------------------------
Business Name Business Name
- ------------------------------------------------ ------------------------------------------------
Business Address Business Address
- ------------------------------------------------ ------------------------------------------------
City and State Zip City and State Zip
- ------------------------------------------------ ------------------------------------------------
Business Telephone Business Telephone
Mail Correspondence to: Mail Correspondence to:
[ ] Residence [ ] Business [ ] Residence [ ] Business
</TABLE>
SUBSCRIPTION ACCEPTED:
EDnet, INC.
By: ____________________________
Thomas Kobayashi
Chairman and
Chief Executive Officer
Date: ___________, 199__
-12-
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
FOR CONVERTIBLE PREFERRED SHARES
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1993 ACT"), AND MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS DEFINED IN
REGULATION S OF THE 1933 ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
U.S. PERSONS (AS DEFINED IN REGULATION S OR THE 1933 ACT) EXCEPT
PURSUANT TO REGISTRATION UNDER OF AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT.
This Offshore Securities Subscription Agreement ("Agreement") is
executed in reliance upon the transaction exemption afforded by Regulation S
("Regulation S") as promulgated by the Securities and Exchange Commission
("SEC") under the Securities Act of 1993, as amended ("1933 ACT").
This Agreement has been executed by the undersigned in connection with
the private placement of an amount not exceeding $1,750,000 of the Series A
Convertible Preferred Stock of
EDnet, Inc.
One Union Street
San Francisco, CA 94111
National Association of Securities Dealers Automated Quotation System Symbol
(DNET), a corporation organized under the laws of Colorado, United States of
America (the "Issuer" or "Company").
The Undersigned Purchaser:
NAME:
----------------------------------
ADDRESS:
----------------------------------
----------------------------------
----------------------------------
, a non "U.S. person" (the "Purchaser") hereby represents and warrants to, and
agrees with, Issuer as follows:
1.
<PAGE>
1. The Offering.
a. The undersigned hereby subscribes for ____________________ shares of
Series A Convertible Preferred Stock of the Company (the "Shares"), at
the aggregate subscription price of U.S. $1,000 per share, payable in
United States Dollars, for a total consideration of
$____________________ Dollars (the "Subscription Proceeds"). The Shares
shall pay a 6% cumulative dividend compounded annually on the
anniversary of the Closing Date (as that term is defined in Paragraph 9
of the Agreement) payable in common stock at the time of each
conversion. The Shares are subject to a mandatory 36 month conversion
feature at the end of which all Shares outstanding will be
automatically converted based upon the conversion formula set forth in
Paragraph 7 ("Mandatory Conversion"). For purposes of Mandatory
Conversion, the "Conversion Date" shall be that date which is the third
anniversary of the Closing Date
b. Form of Payment. Purchaser shall pay the total Subscription Proceeds
hereunder by delivering good funds by wire transfer in United States
Dollars on or before February ___, 1997 into the escrow account as
follows:
First Union Bank of Connecticut
Stamford Executive Office
300 Main Street, P.O. Box 700
Stamford, CT 06904-0700
ABA# 021101108
Swift # FUNBUS33INT
Account: 20000-2072298-4
Account Name: Joseph B. LaRocco, Esquire - Trustee Account
2. Subscriber Representations: Access to Information: Independent Investigation.
a. Offshore Transaction. Purchaser represents and warrants to Issuer as
follows:
(i) Neither the Purchaser nor any person or entity for whom
the Purchaser is acting as fiduciary is a U.S. person.
A U.S. person means any one of the following:
(1) any natural person resident in the United States
of America;
(2) any partnership or corporation organized or
incorporated under the laws of the United States;
(3) any estate of which any executor or administrator
is a U.S. person;
(4) any trust of which any trustee is a U.S. person;
2.
<PAGE>
(5) any agency or branch of a foreign entity located
in the United States;
(6) any non-discretionary account or similar account
(other than an estate or trust) held by a dealer
or other fiduciary for the benefit or account of a
U.S. person;
(7) any discretionary account or similar account
(other than an estate or trust) held by a dealer
or other fiduciary organized, incorporated, or (if
an individual) resident in the United States; and
(8) any partnership or corporation if:
(A) organized or incorporated under the laws of
any foreign jurisdiction; and
(B) formed by a U.S. person, principally for the
purpose of investing in securities not
registered under the 1933 Act, unless it is
organized or incorporated, and owned, by
accredited investors (as defined in Rule
501(a) under the 1933 Act) who are not
natural persons, estates or trusts.
(ii) At the time the buy order was originated, Purchaser was
outside the United States and is outside the United
States as of the date of the execution and delivery of
this Agreement. No offer to purchase the Shares was
made to a person in the United States.
(iii) Purchaser is purchasing the Shares for its own account
or for the account of beneficiaries for whom the
Purchaser has full investment discretion with respect
to the Shares and whom the Purchaser has full authority
to bind so that each such beneficiary is bound hereby
as if such beneficiary were a direct purchaser
hereunder and all representations, warranties and
agreements herein were made directly by such
beneficiary. Purchaser is not purchasing the Shares on
behalf of any U.S. person and the sale has not been
prearranged with a purchaser in the United States.
(iv) Each distributor participating in the offering of the
Shares, if any, has agreed in writing, a copy of which
has been delivered to Issuer with this Agreement, that
all offers and sales of the Shares prior to the
expiration of a period commencing on the date of the
Closing of the last purchase and sale of the
Convertible Preferred Shares offered by the Issuer and
ending 40 days thereafter (the "Restricted Period")
shall only be made (A) in compliance with the safe
harbor contained in Regulation S; (B) pursuant to
registration of Shares under the Securities Act; or (C)
pursuant to an exemption from registration.
3.
<PAGE>
(v) Purchaser represents and warrants and hereby agrees
that all offers and sales of the Shares shall only be
made (A) in compliance with the safe harbor contained
in Regulation S; (B) pursuant to registration of Shares
under the Securities Act; or (C) pursuant to an
exemption from registration.
(vi) Purchaser understands and acknowledges that the Shares
have not been registered under the 1933 Act and may not
be offered or sold in the United States or to U.S.
persons or for the account or benefit of a U.S. person
(other than distributors as defined in Regulation S)
unless the Shares are registered under the Securities
Act, sold pursuant to Regulation S or an exemption from
the registration requirements is available.
(vii) Purchaser acknowledges that the purchase of the Shares
involves a high degree of risk and further acknowledges
that it can bear the economic risk of the purchase of
the Shares, including the total loss of its investment.
Purchaser acknowledges that it has obtained the advice
of competent legal counsel in its domicile jurisdiction
that Purchaser is qualified under the laws of its
domicile to purchase the securities offered hereunder
and that the offer and sale of said securities will not
violate the laws of its domicile jurisdiction.
(viii) Purchaser understands that the Shares are being offered
and sold to it in reliance on the rules promulgated
under Regulation S and that the Issuer is relying upon
the truth and accuracy of the representations,
warranties, agreements, acknowledgments and
understandings of Purchaser set forth herein in order
to determine the applicability of such rules and the
legality of Purchaser to acquire the Shares.
(ix) Purchaser is sufficiently experienced in financial and
business matters to be capable of evaluating the merits
and risks of its investments, and to make an informed
decision relating thereto.
(x) The Purchaser acknowledges that all documents, records,
and books pertaining to this investment have been made
available for inspection by (i) the Purchaser, (ii) the
Purchaser's attorney and the Purchaser's account and
(iii) the Purchaser's offeree representative, if any.
(xi) The Purchaser:
(a) has been furnished with any documents which may
have been made available upon request, and the
Purchaser has carefully read these documents and
understands and has evaluated the risks of a
purchase of Shares and has relied solely and
exclusively on such information; and
4.
<PAGE>
(b) has the capacity to protect its own interests in
purchasing the Shares and has determined that the
Shares are a suitable investment for the Purchaser
and that at this time the Purchaser has no need
for liquidity of this investment and could bear a
complete loss of this investment.
(xii) In evaluating its investment, Purchaser has consulted
with its own investment and/or legal and/or tax
advisors.
(xiii) Purchaser understands that in the view of the SEC the
statutory basis for the exemption claimed for this
transaction would not be present if the offering of
Shares, although in technical compliance with
Regulation S, is part of a plan or scheme to evade the
registration provision of the Securities Act.
Purchaser is acquiring the Shares for investment
purposes and has no present intention to sell the
Shares in the United States, to a U.S. person or for
the account or benefit of a U.S. Person. Purchaser
hereby confirms that the purpose of including the
Purchaser Representation Letter (see Exhibit B
attached hereto) to facilitate the transfer of the
certificates representing the Shares into a specified
street name, is to enable Purchaser to comply with the
requirements of certain offshore portfolio management
regulations and the security requirements of offshore
lenders for margin loans.
(xiv) Purchaser is neither an underwriter of, nor a dealer
in, the Shares. Purchaser is not participating,
pursuant to a contractual agreement, in the
distribution of the Shares.
(xv) Purchaser represents and warrants that neither it nor
any of its affiliates will directly or indirectly
maintain any short position in Shares, Common Stock or
any other securities of the Issuer or engage in any
other hedging transactions (such as option writing,
equity swaps or other types of derivative
transactions) so long as any of the shares have not
been converted into Common Stock;
(xvi) All invitations, offers and sales of or in respect of
any of the Shares, by Purchaser and any distribution
by Purchaser of any documents relating to any offer by
it of any of the Shares will be in compliance with
applicable laws and regulations and will be made in
such a manner that no prospectus need be filed and no
other filing need be made by Issuer with any
regulatory authority or stock exchange in any country
or any political subdivision of any country, excepting
such filing on form 8-K as is required in accordance
with SEC Release No. 34-37801 as same relates to
disclosure regarding Regulation S offerings.
(xvii) Purchaser will not make any offer or sale of the
Securities by any means which would not comply with
the laws and regulation of the territory in
5.
<PAGE>
which such offer or sale takes place or to which such
offer or sale is subject or which would in connection
with any such offer or sale impose upon Seller any
obligation to satisfy any public filing or
registration requirement or provide or publish any
information of any kind whatsoever or otherwise
undertake or become obligated to do any act, except
as indicated in (xvi) above;
(xviii) Purchaser represents and warrants that it is an
"accredited investor" as that term is defined in
Regulation D.
If Purchaser is purchasing the Shares
subscribed for hereby in representative or fiduciary
capacity, the representations and warranties in this
Offshore Securities Subscription Agreement shall be
deemed to have been made on behalf of the person or
persons for whom Purchaser is so purchasing.
The foregoing representations and warranties
are true and accurate as of the date hereof, shall be
true and accurate as of the date of the acceptance by
the Issuer of Purchaser's subscription, and shall
survive thereafter. If Purchaser has knowledge, prior
to the acceptance of its Offshore Securities
Subscription Agreement by the Issuer, that any such
representations and warrants shall not be true and
accurate in any respect, the Purchaser, prior to such
acceptance, will give written notice of such fact to
the Issuer specifying which representations and
warranties are not true and accurate and the reasons
therefor.
b. Current Public Information. Purchaser acknowledges that Purchaser
has acquired and carefully reviewed the Issuer's Form 10-SB filed on
October 31, 1996 and a copy of the letter from the Securities and
Exchange Commission dated December 30, 1996 commenting on the Form
10-SB, which letter the Company is in the process of responding to,
(the "SEC Reports"). Except as set forth in this Agreement and the SEC
Reports, no representations or warranties have been made to Purchaser
by the Issuer or any agent, employee or affiliate of the Issuer, and in
entering into this transaction Purchaser is not relying upon any
information, other than that provided pursuant to this Agreement and
the SEC Reports and the results of independent investigation by
Purchaser.
c. Independent Investigation; Access. Purchaser acknowledges that
Purchaser, in making the decision to purchase the Shares subscribed
for, has relied upon independent investigations made by it and its
Purchaser representative, if any, and Purchaser and such
representatives, if any, have, prior to any sale to Purchaser, had an
opportunity to ask questions of, and to receive answers from Issuer or
any person acting on its behalf concerning the terms and conditions of
this offering. Purchaser and its advisors, if any, have been furnished
with access to all publicly available materials relating to the
business, finances and operations of the Issuer and materials relating
to the offer and sale
6.
<PAGE>
of the Shares which have been requested. Purchaser and its advisors, if
any, have received complete and satisfactory answers to any such
inquiries.
d. No Government Recommendations or Approval. Purchaser understands
that no federal or state agency has made or will make any finding or
determination relating to the fairness for public investment in the
Shares, or has passed or made, or will pass on or make, any
recommendation or endorsement of the Shares.
e. Entity Purchases. If Purchaser is a partnership, corporation or
trust, estate, employee benefit plan, governmental plan, a governmental
unit, or other entity the person executing this Agreement on its behalf
represent and warrants that:
(i) He or she has made due inquiry to determine the
truthfulness of the representations and warranties made
pursuant to this Agreement;
(ii) He or she is duly authorized (if the undersigned is a
trust, by the trust agreement) to make this investment and to
enter into and execute this Agreement on behalf of such
entity.
3. Issuer Representations.
Issuer represents and warrants to the Purchaser as follows:
a. Reporting Company Status. Issuer is a reporting Issuer as defined by
Rule 902 of Regulation S. Issuer has filed the information required by
the reporting obligations under Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended.
b. Offshore Transaction. Prior to the offering, which is the subject of
this Agreement, Issuer has not offered Convertible Preferred Shares to
any person in the United States or to any U.S. person or for the
account or benefit of any U.S. person. At the time the buy order was
originated, Issuer and/or its agent reasonably believed that Purchaser
was outside of the United States and was not a U.S. Person. Issuer
and/or its agent reasonably believe that the transaction has not been
prearranged with a Purchaser in the United States.
c. No Directed Selling Efforts. In regard to this transaction, Issuer
has not conducted any "directed selling efforts" as that term is
defined in Rule 902 of Regulation S nor has Issuer conducted any
general solicitation relating to the offer and sale of Shares to U.S.
persons residing with in the United States or elsewhere.
d. Shares. The Shares and shares of Common Stock issuable upon
conversion of the Shares, when issued and delivered against payment in
full to the Company of the consideration due less placement fees, will
be duly and validly authorized and issued, fully paid and
non-assessable and will not subject the holders thereof to any
liability by reason of being such holders. The stock certificates
representing Common Stock issued
7.
<PAGE>
upon conversion of the Shares shall be unlegended and there shall be no
stop transfer instructions issued in relation to such common stock.
e. Subscription Agreement. This Agreement, when acknowledged by the
signature of an officer of the Issuer, has been duly authorized,
validly executed and delivered on behalf of the Issuer and is a valid
and binding agreement of the Issuer in accordance with its terms.
f. Non-contravention. The execution and delivery of this Agreement, the
consummation of the issuance of the Shares and the transactions
contemplated hereunder do not and will not conflict with or result in a
breach by the Issuer of any of the terms or provisions of, or
constitute a default under, the certificate of incorporation or by-laws
of the Issuer (or any equivalent documents thereto) or any indenture,
mortgage, deed of trust, or other material agreement or instrument to
which the Issuer is a party or by which it or any of its properties or
assets are bound, or any existing applicable law, rule or regulation or
any applicable decrees, judgment, or order of any court, federal or
state regulatory body, administrative agency or other governmental body
having jurisdictions over the Issuer or any of its properties or
assets.
g. Prior Shares Issued Under Regulation S. Prior to the transactions
contemplated by this Agreement, Issuer has not issued any shares of
stock under Regulation S. Issuer is currently pursuing an offering of
Company Common Stock under Regulation D.
h. Securities Law Compliance. Based upon the representations and
warranties of the Purchaser in Section 2 and of all other Purchasers
executing similar agreements in connection with this offering, with
respect to the Company's actions, (i) the offer and the sale of Share
has been made so as to conform in all respects with the requirements of
Regulation S and with the requirements of all other published rules and
regulations of the SEC currently in effect relating to "private
offerings" to non-residents of the United States of the type
contemplated herein; and (ii) neither the offer, sale or delivery of
the Shares under the terms of this Agreement will violate Section 5 of
the Securities Act, as presently in effect.
i. Filings. Issuer undertakes and agrees pursuant to the sale of its
securities under Regulation S to make all necessary filings in
connection with the sale of its securities as required by the laws and
regulations of the United States, including, if necessary, Form 8-K and
mandatory NASDAQ notification. Issuer agrees, with respect to the
filing of Form 8-K, that it will only identify Purchaser as an
"accredited investor" as that term is defined in Regulation D and will
not disclose Purchaser's name in Form 8-K or otherwise unless such
disclosure is required by law.
j. Use of Proceeds. Issuer represents that the net proceeds of this
offering shall be used primarily for working capital requirements, as
reasonably determined by the Company's officers.
8.
<PAGE>
k. Concerning the Securities. The issuance, sale and delivery of the
Shares have been duly authorized by all required corporate action on
the part of Issuer,and when issued, sold and delivered in accordance
with the terms hereof and thereof for the consideration expressed
herein and therein, will be duly and validly issued, fully paid and
non-assessable. A sufficient number of shares of Common Stock issuable
upon conversion f the Shares has been duly and validly reserved for
issuance and upon issuance in accordance with the terms of the Shares,
shall be duly and validly issued, fully paid, and non-assessable and
will not subject the holders thereof, if such persons are non-U.S.
persons, to personal liability beyond the amounts paid for such Shares
by reason of being such holders. There are no pre-emptive rights of any
of Issuer.
l. Intellectual Property. The Company, to the best of its knowledge,
has valid, unrestricted and exclusive patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. The
Company, to the best of its knowledge, also has trade secrets necessary
to the conduct of its business which are necessarily secret and cannot
be disclosed to Purchasers. The Issuer, to the best of its knowledge,
has granted licenses or has assigned or otherwise transferred a portion
of (or all of) such valid, unrestricted and exclusive patents,
trademarks, trademark registrations, trade names, copyrights, know-how,
technology and other intellectual property necessary to the conduct of
its business. The Company, to the best of its knowledge, has granted
licenses or has been assigned or has otherwise had transferred to it
from other persons or entities the use of patents, trademarks,
trademarks registrations, trade names, copyrights, know-how, technology
and/or other intellectual property necessary to the conduct of its
business.
To the best of the Company's knowledge, the Company is not
infringing on the intellectual property rights of any third party, nor
is any third party infringing on the Company's intellectual property
rights. There are no restrictions in any agreements, licenses,
franchises, or other instruments that have a material adverse effect on
the Company's business as presently conducted or as planned to be
conducted in the future.
4. Restricted Period: Conversion.
Rule 903(c) under Regulation S restricts Purchaser from offering and
selling the Shares or the shares of Common Stock into which the Shares may be
converted to U.S. persons or for the account or benefit of a U.S. person during
the forty (40) day Restricted Period.
5. Reliance on Representations.
Purchaser understands that the offer and sale of the Shares is not
being registered under the Securities Act. Issuer is relying on the
representations of Purchaser and on the rules governing offers and sales made
outside the United States pursuant to Regulation S. Rules 901 through 903 of
Regulation S govern this transaction.
9.
<PAGE>
6. Transfer Agent Instructions.
a. Legends on Certificate. Purchaser may transfer the Shares to persons
other than U.S. persons in accordance with Regulation S prior to the
expiration of the 40 day restricted period. Accordingly, Purchaser
acknowledges that the Company will instruct its transfer agent to place
a stop transfer order with respect to certificates representing the
Shares and that such certificates will bear the following legend:
"The shares represented by this certificate have been issued
pursuant to Regulation S promulgated under the Securities Act
of 1933, as amended ("Act"),and have not been registered under
the Act. These shares may not be offered or sold within the
United States or to or for the account of a "U.S. Person" as
that term is defined in Regulation S) until after
________________________________________, 1997, [the 40th day
following completion of the offering]. The terms of conversion
are subject to a Subscription Agreement that was entered into
with EDnet, Inc.
b. Purchaser Representation Letter. Issuer agrees to accept a
Purchaser's Representation Letter from the Purchaser in the form of
Exhibit "B" attached, as sole and sufficient evidence that the
Purchaser has complied with applicable securities laws and upon receipt
of such a letter and a properly executed form of assignment, if
Purchaser makes an assignment, shall promptly transfer, or instruct the
transfer agent, for the Convertible Preferred Shares, if any, to
transfer the Shares into "Street Name", if so requested by Purchaser,
as expeditiously as practical after receipt of the certificates and the
Purchaser Representation Letter.
c. Transfer Agent Instructions. Issuer shall issue, or instruct the
transfer agent for the Shares, if any, to issue one or more share
certificates representing Shares, in the names of qualified purchasers
to be specified prior to Closing. All of the Shares so issued will be
issued pursuant to Regulation S. Issuer warrants further that the
Shares shall be freely transferable on the books and records of Issuer
subject to compliance with Regulation S and other applicable securities
laws and the terms of this Agreement.
7. Conversion Procedures.
a. The Purchaser is entitled, at its option to convert up to one-third
of the Shares into shares of Common Stock, $0.001 par value per share,
of the Issuer (the "Common Stock") at anytime commencing 90 days after
the Closing Date (as defined in paragraph 9). The number of shares of
the Company's Common Stock issuable upon conversion of the Shares held
by the Purchaser under the terms of this Agreement shall equal the
Subscription Proceeds plus the amount of the accrued dividends through
the Conversion Date (as that term is hereinafter defined) related to
the Shares, eligible for conversion as of the Conversion Date divided
by the lesser of (i) seventy percent (70%) of the Market Price (as
hereinafter defined) of the Issuer's Common Stock or (ii) seventy
percent (70%) of the average of the closing bid prices for the five (5)
trading days
10.
<PAGE>
preceding the Closing Date (the "Closing Price"). Up to an additional
one-third (two-thirds cumulatively) of the original number of Shares is
convertible 120 days after the Closing Date and up to an additional
one-third (the entire amount cumulatively) of the original Shares is
convertible 150 days after the Closing Date. Such conversion shall be
effectuated by sending to the Company, or its attorney, the certificate
or certificates representing the Shares to be converted, a facsimile or
original of the signed Notice of Conversion and a facsimile or original
of the signed Purchaser Representation Letter, see Exhibits A and B
attached hereto, which evidences Purchaser's intention to convert the
Shares or a specified portion thereof, and accompanied by proper
assignment, if applicable. No fractional shares or scrip representing
fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded down or up, as the case may be, to the
nearest whole share. The date on which notice of conversion is
effective ("Conversion Date") shall be deemed to be the date on which
the Purchaser has delivered to the Company, the Certificate or
certificates representing the Shares to be converted, a facsimile or
original of the signed Notice of Conversion, a facsimile or original of
the signed Purchaser Representation Letter and an executed form of
proper assignment, if such assignment is being made. "Market Price"
shall mean the average of the five (5) trading day closing bid prices
for the common Stock for the five (5) trading days immediately
preceding the conversion Date, as reported by NASDAQ. Notwithstanding
any other provision in this Agreement, for purposes of this Agreement,
in no event shall the Purchaser be able to convert Shares into the
Company's Common Stock at a value of less than one dollar ($1.00) per
share of the Company's Common Stock. In the event that seventy percent
(70%) of the Market Price or the closing Price is below one dollar
($1.00), then in such event the Purchaser shall still be permitted to
convert its Shares, but the Company's Common Stock (after application
of the discounting factor) shall be valued at one dollar ($1.00) per
share. Purchaser shall exercise the conversion option pursuant to the
Notice of Conversion attached hereto as Exhibit "A" and the Purchaser
Representation Letter attached hereto as Exhibit "B".
b. Within five (5) business days after receipt of the documentation
referred to above in this Section 7a, the Company shall deposit with a
nationally recognized courier or overnight service, including Express
Mail, per the Purchaser's written delivery instructions, a certificate,
without restrictive legend or stop transfer instructions, for the
number of shares of Common Stock issuable upon the conversion. It shall
be the Company's responsibility to take all necessary actions and to
bear all such costs to issue the Common Stock as provided herein,
including the delivery of an opinion letter to the transfer agent, if
so required. The person in whose name the certificate of Common Stock
is to be registered shall be treated as a shareholder of record on and
after the Conversion Date. No payment or adjustment shall be made for
accrued interest until the earlier of the Conversion Date or the
mandatory conversion date. Upon surrender of any Shares that are to be
converted in part, the Company shall issue to the Purchaser a
certificate representing the unconverted Shares, if so requested by
Purchaser. In the event the Company does not deposit with a nationally
recognized courier or overnight service, including Express Mail,
certificates representing the Common Stock, per the Purchaser's written
deliver instructions, within 5 business days after the Conversion
11.
<PAGE>
Date, then in such event the Company shall pay to Purchaser an amount,
in cash in accordance with the following schedule, wherein "No.
Business Days Late" is defined as the number of business days beyond
the 5 business days deliver period.
Late Payment for Each
$10,000 of Preferred Principal
No. Business Days Late Amount Being Converted
---------------------- ----------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
greater than 10 $1,000 + $200 for each
Business Day Late Beyond 10 Days
To the extent that the failure of the Company to issue the
Common Stock pursuant to this Section 7b is due to the unavailability
of authorized but unissued shares of Common Stock,the provisions of
this Section 7b shall not apply but instead the provisions of Section
7c shall apply.
The Company shall pay any payment incurred under this Section
7b in immediately available funds within three (3) business days from
the date of issuance of the applicable Common Stock. Nothing herein
shall limit a Purchaser's right to pursue actual damages for the
Company's failure to issue and deposit with a nationally recognized
courier or overnight service including Express Mail, certificates for
the Common Stock, per the Purchaser's written delivery instructions,
within 5 business days after the Conversion Date.
c. If, at any time Purchaser submits a Notice of Conversion and the
Company does not have sufficient authorized but unissued shares of
Common Stock available to effect, in full, a conversion of the Shares
(a "Conversion Default", the date of such default being referred to
herein as the "Conversion Default Date"), the Company shall issue to
the Purchaser all of the shares of Common Stock which are available,
and the Notice of Conversion as to any Shares requested to be converted
but not converted (the "Unconverted Shares") shall become null and
void. The Company shall provide notice of such Conversion Default
("Notice of Conversion Default") to all existing Purchasers of
outstanding Shares, by facsimile, within one (1) business day of
knowledge of such default (with the original delivered by overnight or
two day courier). No Holder may submit a Notice of Conversion after
receipt of a Notice of Conversion Default until the date additional
shares of Common Stock are authorized by the Company.
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The Company agrees to pay to all Purchasers of outstanding
Shares payments for a Conversion Default ("Conversion Default
Payments") in the amount of (N/365) x (.24) x the initial issuance
price of the outstanding Shares held by each Purchaser where N = the
number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Company authorizes a sufficient number
of shares of Common Stock to effect conversion of all remaining Shares.
The Company shall send notice ("Authorization Notice") to each
Purchaser of outstanding Shares that additional shares of Common Stock
have been authorized, the Authorization Date and the amount of Holder's
accrued Conversion Default Payments. The accrued Conversion Default
shall be paid in cash or shall be convertible into Common Stock at the
Conversion Rate which would have been in effect had the conversion
taken place, at the Purchaser's option, payable as follows: (i) in the
event Purchaser elects to take such payment in cash, cash payments
shall be made to such Purchaser of outstanding Shares by the fifth
business day of the following calendar month, or (ii) in the event
Purchaser elects to take such payment in stock, the Purchaser may
convert such payment amount into Common Stock at the Conversion Rate
anytime after the 5th business day of the calendar month following the
month in which the Authorization Notice was received, until the
expiration of the mandatory 36 month conversion period.
Nothing herein shall limit the Purchaser's right to pursue
actual damages for the Company's failure to maintain a sufficient
number of authorized shares of Common Stock.
8. Assignment.
a. The Company recognizes the right of Purchaser to assign any portion
of the Shares to another non-U.S. Person during the 40 day restricted
period, subject to: (i) receipt by the Company prior to the assignment
of written acknowledgment by assignee that the subscriber
representations in Paragraph 2 of this Agreement are true and correct
as of the date of the assignment when applied to assignee; (ii) receipt
by the Company of an executed form or proper assignment; and (iii)
receipt by the Company of the original certificate representing the
Shares to be transferred.
b. The Company recognizes the right of Purchaser to assign any portion
of the Shares to another person or entity after expiration of the 40
day restricted period, subject to: (i) receipt by the Company of an
executed form of proper assignment, and (ii) receipt by the Company of
the original certificate representing the Shares to be transferred.
9. Closing Date and Escrow Agent.
The date of the issuance of the Shares in the name of the Purchaser
(the "Closing Date") shall be the date an executed copy of the Agreement and
funds are received by the Issuer, and certificates are delivered to the Escrow
Agent. Purchaser shall forthwith deliver the necessary funds as indicated in
Paragraph 1 to the Escrow Agent. Share Certificates will be delivered at
13.
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the instructions of the Issuer to the Escrow Agent: Joseph B. LaRocco, Esquire,
1055 Washington Boulevard, 8th Floor, Stamford, Connecticut 06901. Purchaser
herein instructs the Escrow Agent, and gives the Escrow Agent its good and
sufficient authority to release the Subscription Proceeds to the Issuer, less
placement fees to which the Issuer has agreed in writing, in connection with the
purchase of the Shares, upon receipt by the Escrow Agent of said Shares
subscribed for. Purchaser and Issuer agree that the Escrow Agent, in his
capacity as Escrow Agent, has no liability as a result of any fraudulent or
unlawful conduct of any party other than the Escrow Agent and agree to hold the
Escrow Agent harmless in such event. In the event the Share Certificates are not
received by the Escrow Agent from the Issuer within Five (5) Business Days of
notification by Escrow Agent to Company of the date of receipt of the Escrowed
Funds, the Escrow Agent shall return the Escrowed Funds without interest to the
Purchaser by wire transfer pursuant to written instructions.
10. Conditions to the Company's Obligation to Sell.
Issuer reserves the right to reject this Agreement prior to signing by
Issuer. Purchaser understands that Issuer's obligation to sell the Shares
subscribed for hereunder is conditioned upon:
a. The receipt and acceptance by Issuer of this Agreement for all the
Shares as evidenced by execution of this subscription agreement by the
Chief Executive Officer or Chief Financial Officer of the Issuer. The
acceptance of funds by the Issuer's counsel shall be deemed to be
constructive acceptance of this Agreement. Purchaser understands this
Agreement is irrevocable; and
b. Delivery into the Escrow Agent by Purchaser of good U.S. funds as
payment in full for the purchase of the Shares and all fees.
11. Conditions to Purchaser's Obligation to Purchase.
Issuer understand that Purchaser's obligation to purchase the Shares
subscribed for hereunder is conditioned upon the following:
a. execution and delivery of this Agreement; and
b. delivery of Shares.
12. Governing Law.
This Agreement shall be governed by and construed under the laws of the
State of California without regard to its choice of law principles.
14.
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13. Registration Rights.
a. Piggyback Registrations. The Company shall notify all persons owning
of record Shares or shares of Common Stock issuable upon conversion f
the Shares that have not been sold to the public ("Holders") in writing
at least thirty (30) days prior to the filing of any registration
statement under the Securities Act of 1933, as amended (the "Securities
Act") for purposes of any public offering of securities by the Company,
on Form S-1 or any other available form, initiated by the Company (but
excluding registration statements relating to employee benefit plans or
with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an
opportunity to include in such registration statement all or part of
such shares of Common Stock issuable upon conversion of the Shares held
by such Holder ("Registrable Shares"). Each Holder desiring to include
in any such registration statement all or any part of its Registrable
Shares shall, within fifteen (15) days after the above-described notice
from the Company, so notify the Company in writing. Such notice shall
state the intended method of disposition of such Registrable Shares. If
a Holder decides not to include all of its Registrable Shares in any
registration statement thereafter filed by the Company, such Holder
shall nevertheless continue to have the right to include its
Registrable Shares in any subsequent such registration statement or
registration statements as may be filed by the Company with respect to
offerings of its securities, all upon the terms and conditions set
forth herein.
(i) Underwriting. If the registration statement under which
the Company gives notice under this Subparagraph a is for an
underwritten offering, the Company shall so advise the
Holders. In such event, the right of any such Holder to be
included in a registration pursuant to this Subparagraph a
shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable
Shares in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Shares
through such underwriting shall enter into an underwriting
agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the
underwriting, shall be allocated, first, to the Company; and
second, to the Holders on a pro rata basis based on the total
number of Registrable Shares held by the Holders. No such
reduction shall reduce the securities being offered by the
Company for its own account to be included in the registration
and underwriting.
(ii) Right to Terminate Registration. The Company shall have
the right to terminate or withdraw any registration initiated
by it under this Subparagraph a prior to the effectiveness of
such registration whether or not any Holder has elected to
include securities in such registration. The Registration
Expenses (as
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defined below) of such withdrawn registration shall be borne
by the Company in accordance with Paragraph 13 hereof.
(iii) Expiration. A Holder's registration rights under this
Subparagraph a shall expire if all Registrable Shares held by
such Holder may be sold under Rule 144 during any ninety (90)
day period.
b. Form S-3 Registration. Subject to the conditions of this
Subparagraph b, if the Company shall receive a written request from the
Holders of more than sixty-six and two-thirds percent (66-2/3%) of the
Registrable Shares then outstanding that the Company effect a
registration on Form S-3 (or any successor to Form S-3) or any similar
short-form registration statement and any related qualification or
compliance with respect to all or a part of the Registrable Shares
owned by such Holder or Holders, the Company will:
(i) promptly give written notice of the proposed
registration, and any related qualification or
compliance, to all other Holders of Shares; and
(ii) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale
and distribution of all or such portion of such
Holder's or Holders' Registrable Shares as are
specified in such request, provided, however, that
the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to
this Subparagraph b;
(1) if Form S-3 (or any successor or similar
form) is not available for such offering by
the Holders; or
(2) if the Holders, together with the holders of
any other securities of the Company entitled
to inclusion in such registration, proposed
to sell Registrable Shares and such other
securities (if any) at an aggregate price to
the public of less than $500,000; or
(3) if the Company shall furnish to the Holders
a certificate signed by the Chairman of the
Board of Directors of the Company stating
that in the good faith judgment of the Board
of Directors of the Company, it would be
seriously detrimental to the Company and its
shareholders for such Form S-3 Registration
to be effected at such time, in which event
the Company shall have the right to defer
the filing of the Form S-3 registration
statement for a period of not more than
ninety (90) days after receipt of the
request of the Holder or Holders under this
Subparagraph b; or
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(4) if the Company shall have previously filed a
registration on Form S-3 at the request of
the Holders with respect to the same
Registrable Shares; or
(5) if any particular jurisdiction in which the
Company would be required to qualify to do
business or to execute a general consent to
service of process in effecting such
registration, qualification or compliance.
(iii) A Holder's registration rights under this
Subparagraph b shall expire if all Registrable Shares
held by such Holder may be sold under Rule 144 during
any ninety (90) day period.
c. Expenses of Registration. Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration
under Subparagraphs a and b shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall
be borne by the holders of the securities so registered pro rata on the
basis of the number of shares so registered. The Company shall not,
however, be required to pay for expenses of any registration proceeding
begun pursuant to Subparagraph b, the request of which has been
subsequently withdrawn by the Holders unless (a) the withdrawal is
based upon material adverse information concerning the Company of which
the Holders were not aware at the time of such request or (b) the
Holders of a majority of Registrable Shares agree to forfeit their
right to registration pursuant to Subparagraph b (in which event such
right shall be forfeited by all Holders). If the Holders are required
to pay the Registration Expenses, such expenses shall be borne by the
Holders of securities (including Registrable Shares) requesting such
registration in proportion to the number of shares for which
registration was requested. If the Company is required to pay the
Registration Expenses of a withdrawn offering pursuant to clause (a)
above, then the Holders shall not forfeit their rights pursuant to
Subparagraph b to a demand registration. As used herein, "Registration
Expenses" means all expenses incurred by the Company in complying with
Subparagraphs a and b, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel
for the Company, reasonable fees and disbursements of a single special
counsel for the Holders, blue sky fees and expenses and the expense of
any special audits incident to or required by any such registration
(but excluding the compensation for regular employees of the Company
which shall be paid in any event by the Company), and "Selling
Expenses" means all underwriting discounts and selling commissions
applicable to the sale of Registrable Shares.
d. Obligations of the Company. Whenever required to effect the
registration of any Registrable Shares, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the Securities and Exchange
Commission (the "SEC") a registration statement with
respect to such Registrable Shares and use all
reasonable efforts to cause such registration
statement to
17.
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become effective, and, upon request of the Holders of
a majority of the Registrable Shares registered
thereunder, keep such registration statement
effective for up to ninety (90) days or, if earlier,
until the Holder or Holders have completed the
distribution related thereto.
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the
prospectus used in connection with such registration
statement as may be necessary to comply with the
provisions of the Securities Act with respect to the
disposition of all securities covered by such
registration statement.
(iii) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities
Act, and such other documents as they may reasonably
request in order to facilitate the disposition of
Registrable Shares owned by them.
(iv) Use all reasonable efforts to register and qualify
the securities covered by such registration statement
under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be
required in connection therewith or as a condition
thereto to qualify to do business or to file a
general consent to service of process in any such
states or jurisdictions.
(v) In the event of any underwritten public offering,
enter into and perform its obligations under an
underwriting agreement, in usual and customary form,
with the managing underwriter(s) of such offering.
Each Holder participating in such underwriting shall
also enter into and perform its obligations under
such an agreement.
(vi) Notify each Holder of Registrable Shares covered by
such registration statement at any time when a
prospectus relating thereto is required to be
delivered under the Securities Act of the happening
of an event as a result of which the prospectus
included in such registration statement, as then in
effect, included an untrue statement of a material
fact or omits to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading in the light of the
circumstances then existing.
(vii) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that
such Registrable Shares are delivered to the
underwriters for sale, if such securities are being
sold through underwriters, or if such securities are
not being sold through underwriters, on the date that
the registration statement with respect to such
securities becomes effective, (a) an opinion, dated
as of such date, of the counsel representing the
Company for the purposes of such registration, in
form
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and substance as is customarily given to underwriters
in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders
requesting registration, addressed to the
underwriters, if any, and to the Holders requesting
registration of Registrable Shares and (b) a letter
dated as of such date, from the independent certified
public accountants of the Company, in form and
substance as is customarily given by independent
certified public accounts to underwriters in an
underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders
requesting registration, addressed to the
underwriters, if any, and if permitted by applicable
accounting standards, to the Holders requesting
registration of Registrable Shares.
e. Delay of Registration; Furnishing Information. No Holder shall have
any right to obtain or seek an injunction restraining or otherwise
delaying any such registration as the result of any controversy that
might arise with respect to the interpretation or implementation of
this Paragraph 13. It shall be a condition precedent to the obligations
of the Company to take any action pursuant to Subparagraph a and b that
the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Shares held by them and the
intended method of disposition of such securities as shall be required
to effect the registration of their Registrable Shares.
f. Indemnification. In the event any Registrable Shares are included in
a registration statement under Subparagraph a and b:
(i) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the
partners, officers, directors and legal counsel of
each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if
any, who controls such Holder or underwriter within
the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "Exchange
Act"), against any losses, claims, damages, or
liabilities (joint or several) to which they may
become subject under the Securities Act, 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
of the following statements, omissions or violations
(collectively a "Violation") by the Company, (i) any
untrue statement or alleged untrue statement of a
material fact contained in such registration
statement, including any preliminary prospectus or
final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to
be stated therein, or necessary to make the
statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the
Securities Act, the Exchange Act, or any securities
law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state
securities law in connection with the offering
covered by such registration statement; and the
Company will reimburse
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each such Holder, partner, officer or director,
underwriter or controlling person for 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 int
his Subparagraph (f)(i) 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 the Company, which consent
shall not be unreasonably withheld, nor shall the
Company 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 a Violation which
occurs in reliance upon and in conformity with
written information furnished expressly for use in
connection with such registration by such Holder,
partner, officer, director, underwriter or
controlling person of such Holder.
(ii) To the extent permitted by law, each Holder will, if
Registrable Shares held by such Holder are included
in the Securities as to which such registration
qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its
directors, its officers, and legal counsel and each
person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and
any other Holder selling securities under such
registration statement or any of such other Holder's
partners, directors or officers or any person who
controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which
the Company or any such director, officer,
controlling person, underwriter or other such Holder,
or partner, director, officer, or controlling person
of such other Holder may become subject under the
Securities Act, 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 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 by such Holder
under an instrument duly executed by such Holder and
stated to be specifically for use in connection with
such registration; and each such Holder will
reimburse any legal or other expenses reasonably
incurred by the Company or any such director,
officer, controlling person, underwriter or other
Holder, or partner, officer, director or controlling
person of such other Holder in connection with
investigating or defending any such loss, claim,
damage, liability or action if it is judicially
determined that there was a Violation; provided,
however, that the indemnity agreement contained in
this Subparagraph (f)(ii) 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 the Holder, which consent
shall not be unreasonably withheld; provided further,
that in no event shall
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any indemnity under this Subparagraph f exceed the
proceeds from the offering received by such Holder.
(iii) Promptly after receipt by an indemnified party under
this Subparagraph f 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 Subparagraph f, 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
shall have the right to retain its own 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
interest 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 materially
prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any
liability to the indemnified party under this
Subparagraph f, 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
Subparagraph f.
(iv) If the indemnification provided for in this
Subparagraph f is held by a court of competent
jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or
liabilities referred to herein, the indemnifying
party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by
applicable law contribute to the amount paid or
payable by such indemnified party as a result of such
loss, claim, damage or liability 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
Violation(s) that resulted in such loss, claim,
damage or liability, as well as any other relevant
equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall
be determined by a court of law by reference to,
among other things, whether the untrue or alleged
untrue statement of a material fact or the omission
to state a material fact relates to information
supplied by the indemnifying party or by the
indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to
correct or prevent such statement of omission;
provided, however, that in no event shall any
contribution by a Holder hereunder exceed the
proceeds from the offering received by such Holder.
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(v) The obligation of the Company and Holders under this
Subparagraph f shall survive completion of any
offering of Registrable Shares in a registration
statement. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry
of any judgment or enter into any settlement which
does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability to
such Indemnified Party of a release from all
liability in respect to such claim or litigation. In
the event any offering of Registrable Shares is
underwritten, and the underwriting agreement provides
for indemnification and/or contribution by the
Company and the Holders offering securities
thereunder, the indemnification and/or contribution
obligations of the Company and the Holders hereunder
shall in no event exceed the obligations of the
parties set forth in such underwriting agreement.
g. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Shares pursuant to this Paragraph 13 may not be
assigned by a Holder without prior written consent of the Company.
h. Amendment of Registration Rights. Any provision of this Paragraph 13
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 the
Holders of at least sixty-six and two-thirds percent (66-2/3%) of the
Registrable Shares. Any amendment or waiver effected in accordance with
this Subparagraph h shall be binding upon each Holder and the Company.
By acceptance of any benefits under this Paragraph 13, Holders of
Registrable Shares hereby agree to be bound by the provisions
thereunder.
i. "Market Stand-Off" Agreement. If requested by the Company as the
representative of the underwriters of Registrable Shares (or other
securities) of the Company, each Holder shall not sell or otherwise
transfer or dispose of any Registrable Shares (or other securities) of
the Company held by each such Holder (other than those included in the
registration) for a period specified by the representative of the
underwriters not to exceed one hundred eighty (180) days following the
effective date of a registration statement of the Company filed under
the Securities Act. The obligations described in this Subparagraph i
shall not apply to a registration relating solely to employee benefit
plans on Form S-1 or Form S-8 or similar forms that may be promulgated
in the future, or a registration relating solely to a Commission Rule
145 transaction on Form S-4 or similar forms that may be promulgated in
the future. The Company may impose stop-transfer instructions with
respect to the Registrable Shares (or other securities) subject to the
foregoing restriction until the end of said one hundred eighty (180)
day period.
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j. Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Shares to the public without
registration, the Company agrees to use its best efforts to: (i) make
and keep public information available, as those terms are understood
and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective
date of the first registration filed by the Company for an offering of
its securities to the general public; (ii) so long as a Holder owns any
Registrable Shares, furnish to such Holder forthwith upon request a
written statement by the Company as to its compliance with the
reporting requirements of said Rule 144 of the Securities Act, and of
the Exchange Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly
report of the Company and such other reports and documents as a Holder
may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
14. Entire Agreement.
This Agreement constitutes the entire agreement among the parties
hereof with respect to the subject matter hereof and supersedes any and all
prior or contemporaneous representations, warranties, agreements and
understandings in connection therewith. This Offshore Securities Subscription
Agreement may be amended only in writing executed by all parties hereto.
15. Independent Counsel.
The undersigned acknowledge that they have been advised to consult with
their own attorneys and financial advisors regarding this Agreement.
16. Arbitration.
The parties shall resolve any dispute arising hereunder before a panel
of three arbitrators selected pursuant to and run in accordance with the rules
of the American Arbitration Association. The arbitration shall be held in New
York, New York. Each party shall bear their own attorney's fees and costs of
such arbitration. Disputes under this Agreement as well as all of the terms and
conditions of this Agreement shall be governed in accordance with and by the
laws of the State of California.
17. Notices.
Unless otherwise provided, notice required or permitted to be given to
a party pursuant to the provisions of this Agreement will be in writing and will
be effective and deemed given under this Agreement on the earliest of (i) the
date of personal delivery, or (ii) the date of delivery by facsimile, or (iii)
the business day after deposit in the United States with a nationally-recognized
courier or overnight service, including Express Mail, for United States
deliveries or five (5) business days after such deposits for international
deliveries, or (iv) five
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(5) business days after deposit in the United States mail by registered or
certified mail for United States deliveries. All notices not delivered
personally or by facsimile will be sent with postage and other charges prepaid
and properly addressed to the party to be notified at the address set forth in
Paragraph 21 of this Agreement (in the case of Purchaser) or below issuer's
signature on this Agreement or at such other address as such party may designate
by ten (10) days' advance written notice to the other parties hereto. All
notices for delivery internationally will be sent by facsimile, or by nationally
recognized courier or overnight service, including Express Mail. Any notice
given hereunder to more than one person will be deemed to have been given, for
purposes of counting time periods hereunder, on the date given to the last party
required to be given such notice. Notices to the Company will be marked to the
attention of the President.
18. Counterparts; Facsimiles.
This Agreement may be executed through the use of separate signature
pages or in any number of counterparts, and each of such counterpart shall, for
all purposes, constitute one agreement binding on all the parties,
notwithstanding that all parties are not signatories to the same counterpart. An
executed telecopy or facsimile version of this Agreement shall be construed by
the parties as an original.
19. Binding Effect.
Except as otherwise provided herein, this Agreement shall be binding
upon and inure to the benefit of the parties and their heirs, executors,
administrators, successors, legal representatives, and assigns. If the Purchaser
is more than one person or entity, the obligations of the Purchaser shall be
joint and several, and the other agreements, representations; warranties, and
acknowledgements herein contained shall be deemed to be made by and be binding
upon each and his or her heirs, executors, administrators, and successors.
20. Assignability.
This Agreement is not transferable or assignable by the Purchaser
except as may be provided herein.
21. Full Name and Address of Purchaser for Registration Purposes:
NAME:
---------------------------------------------------------------------------
ADDRESS:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TELE.
NO.
---------------------------------------------------------------------------
---------------------------------------------------------------------------
24.
<PAGE>
FAX
NO.
---------------------------------------------------------------------------
CONTACT
NAME:
---------------------------------------------------------------------------
22. Delivery Instructions: (If different from Registration Name):
NAME:
---------------------------------------------------------------------------
ADDRESS:
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TELE.
NO.
---------------------------------------------------------------------------
FAX
NO.
---------------------------------------------------------------------------
SPECIAL
INSTRUCTIONS:
------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
23. Issuer's Acceptance Based Upon Purchaser Representations.
Issuer is accepting this subscription based upon and in reliance upon
the representations and warranties of Purchaser contained herein, including
without limitation, those contained in section 2 of this Agreement would not be
accepted by Issuer in the absence of such representations and warranties.
24. Limits on Amount of Conversion and Ownership.
Other than the Mandatory Conversion provisions contained in Paragraph 1
which are not limited by the following, in no other even shall the holder be
entitled to convert any Shares in excess of that number of Shares upon
conversion of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Purchaser and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Shares), and (2) the number of shares of Common Stock
issuable upon the conversion of the Shares with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Purchaser and its affiliates of more than 4.9% of the
outstanding shares of Common Stock of the Company. For purposes of this proviso
to the immediately preceding sentence, beneficial ownership shall be determined
in accordance
25.
<PAGE>
with Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13D-G thereunder, except as otherwise provided in clause (1) of such
proviso.
IN WITNESS WHEREOF, this Offshore Securities Subscription Agreement was
duly executed as of the _____ day of _______________, 1997.
Company
Name:
- --------------------------------------------------------------------------------
Purchaser
EDnet, Inc.
By:
--------------------------------------
Official Signatory of Purchaser
Name
(Printed):
----------------------------------------------------------------------
Title:
-------------------------------------------------------------------------
Country of
Execution:
---------------------------------------------------------------------
Accepted this _____ day of the month of _______________, 1997.
By:
----------------------------------------
Tom Kobayashi its CEO, duly authorized
26.
<PAGE>
EXHIBIT "A"
NOTICE OF CONVERSION
EDnet, Inc. _______________, 199_
One Union Street
San Francisco, CA 94111
The undersigned, _________________________ (the "Holder"), does hereby
give notice that it wishes to convert __________ shares of Series A Convertible
Preferred Stock (the "Shares") of EDnet, Inc. (the "Issuer") held by it into
shares of Common Stock of the Issuer, which have been reserved for issuance upon
such conversion. The Holder represents and warrants that (i) all of the
requirements of Regulation S promulgated under the Securities Act of 1933, as
amended (the "Act") applicable to the Holder have been complied with by the
Holder and (ii) the Holder has not engaged in any transaction or series of
transactions that, although in technical compliance with all of the requirements
of Regulation S, is part of a plan or scheme to evade the registration
requirements of the Act. The number of shares of the Company's common stock, par
value $.0001 per share ("Common Stock") issuable upon conversion of the Shares
held by an investor under the terms of the Offshore Securities Subscription
Agreement ("Agreement") shall equal the Subscription Proceeds plus the amount of
the accrued dividends through the Conversion Date related to the Shares being
converted, (as that term is defined in Paragraph 7a of the Agreement), divided
by the lesser of (i) seventy percent (70%) of the Market Price (as defined
below) of the Issuer's Common Stock or (ii) seventy percent (70%) of the average
closing bid prices for the five (5) trading days preceding the Closing Date as
defined in paragraph 9 of the Agreement (the "Closing Price") "Market Price"
shall mean the five (5) trading day average closing bid price for the Common
Stock for the five (5) trading days immediately preceding the Conversion Date,
as reported by NASDAQ. Notwithstanding any other provision in the Agreement, for
purposes of the Agreement, seventy percent (70%) of the Market Price or Closing
Price shall not be less than $1.00, and if less than that amount, shall be
deemed to be $1.00. The undersigned has not taken any short position or hedge
position including, but not limited to option writing, equity swaps or other
types of derivative transactions in the Company's Common Stock to be covered by
any of the Shares or the Underlying Common Stock nor has the undersigned made
any promissory notes and/or pledges to that effect on the Company's Common
Stock. Accompanying this Notice of Conversion is a signed Purchaser
Representation Letter.
[Holder]
By:
-------------------------------------
27.
<PAGE>
EXHIBIT "B"
PURCHASER REPRESENTATION LETTER
Dear Sirs:
The undersigned ____________________, has purchased on __________,
1997, _____ Convertible Preferred Shares of EDnet, Inc. (the "Company") at a per
share subscription price of $1,000 per share, (the Convertible Preferred Shares
referred to herein as the "Shares"). In connection with such purchase, the
undersigned, has executed and delivered a subscription agreement ("Subscription
Agreement") of your design. As the applicable restriction period has expired,
the undersigned hereby requests that the Shares be transferred into the
following name:
- -------------------------.
The undersigned represents and warrants as follows:
(1) The offer to purchase the Shares was made to it outside of the United States
and the undersigned was, at the time the Subscription Agreement was executed and
delivered, and is now, outside the United States;
(2) It is not a U.S. Person (as such term is defined in Section 902(a) of
Regulation S promulgated under the United States Securities Act of 1933 (the
"Securities Act"); and it has not purchased the Shares for its own account and
not for the account or benefit of any U.S. person;
(3) All offers and sales by the undersigned of the Shares shall be made pursuant
to an effective registration statement under the Securities Act or pursuant to
an exemption from, or in a transaction not subject to the registration
requirements of, the Securities Act;
(4) It is familiar with and understands the terms, conditions and requirements
contained in Regulation S and definitions of U.S. persons contained in
Regulation S;
(5) The undersigned has not engaged in any "directed selling efforts" (as such
term is defined in Regulation S) with respect to the Shares; and
(6) If the Purchaser purchased the Shares during the 40 day restricted period,
such Purchaser hereby represents that the representations and warranties made in
paragraph 2 of the Offshore Securities Subscription Agreement were true at the
time of the purchase of the Shares, as if they had been made by the Purchaser.
Dated this _____ day of the month of _______________, 1997.
By:
- ---------------------------------------- ---------------------------------
Official Signature of Purchaser Title
28.
AMENDMENT NO. 1
TO THE
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
EDNET, INC., EDN SUB, INC. AND
INTERNET WORLDWIDE BUSINESS SOLUTIONS
THIS AMENDMENT NO. 1 (the "Amendment") is made and entered into as of
September 13, 1996 and amends that certain Agreement and Plan of Reorganization
by and among EDnet, Inc. ("Parent"), EDN Sub. Inc. ("Merger Sub") and Internet
Worldwide Business Solutions (the "Company") dated as of June 24, 1996 (the
"Agreement").
RECITALS
WHEREAS, Parent, Merger Sub and the Company have heretofore executed
and entered into the Agreement. Pursuant to Section 7.3 of the Agreement,
Parent, Merger Sub and the Company may from time to time amend the Agreement in
accordance with the provisions of Section 7.3 thereto.
WHEREAS, Parent, Merger Sub and the Company have determined that the
amendments to the Agreements set forth below are in the best interests of all
the parties to the Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual
promises and covenants contained herein, the parties hereto hereby agree as
follows:
1. Section 7.1(b) of the agreement shall be amended to read in its
entirety as follows:
"(b) by Parent or the company if the Closing has not occurred
within one hundred eighty (180) days following the date of this
Agreement, other than due to the failure of the party seeking to
terminate this Agreement to perform its obligations under this
Agreement which are required to be performed at or prior to the
Effective Time."
2. Except as expressly set forth in this Amendment, the Agreement shall
continue in full force and effect in accordance with its terms.
3. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
1.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the date first above written.
INTERNET WORLDWIDE EDNET, INC.
BUSINESS SOLUTIONS
By /s/ Randall H. Schmitz By /s/ Tom Kobayashi
--------------------------------- ----------------------------
Randall H. Schmitz, Tom Kobayashi,
Chief Executive Officer Chairman and CEO
EDN SUB, INC.
By /s/ Trevor A. Stout
----------------------------
Trevor A. Stout,
President and CFO
2.
AMENDMENT NO. 2
TO THE
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
EDNET, INC., EDN SUB, INC. AND
INTERNET WORLDWIDE BUSINESS SOLUTIONS
THIS AMENDMENT NO. 2 (the "Amendment") is made and entered into as of
January 31, 1997 to be effective as of December 31, 1996 and amends that certain
Agreement and Plan of Reorganization by and among EDnet, Inc. ("Parent"), EDN
Sub, Inc. ("Merger Sub") and Internet Worldwide Business Solutions (the
"Company") dated as of June 24, 1996, as amended September 13, 1996 (the
"Agreement") and certain exhibits thereto.
RECITALS
WHEREAS, Parent, Merger Sub and the Company have heretofore executed
and entered into the Agreement. Pursuant to Section 7.3 of the Agreement,
Parent, Merger Sub and the Company may from time to time amend the Agreement in
accordance with the provisions of Section 7.3 thereto.
WHEREAS, Parent, Merger Sub and the Company have determined that the
amendments to the Agreement set forth below are in the best interests of all the
parties to the Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants contained herein, the parties hereto hereby agree as
follows:
1. The introductory paragraph of Section 1.6 shall be amended to read in its
entirety as follows:
"1.6 Merger Consideration; Effect on Capital Stock. The
consideration to be paid by Parent in exchange for the acquisition of
all outstanding Company Common Stock shall be (i) secured promissory
notes payable for an aggregate principal amount of $250,000 in the form
of Exhibit A hereto (the "First Notes"), (ii) 311,284 shares of Parent
Common Stock, and (iii) the contractual obligation to issue up to
125,000 additional shares of Parent Common Stock in the event that
certain milestones are reached as evidenced by the Earn-Out Plan
attached hereto as Exhibit C."
Section 1.6(a) of the Agreement shall be amended to read in its
entirety as follows:
"(a) Payment of Merger Consideration. Subject to the terms and
conditions of this Agreement, as of the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the
Company or the holders of any
1.
<PAGE>
shares of Company Common Stock, each share of Company Common Stock
issued and outstanding as of immediately prior to the Effective Time
will be canceled and extinguished at the Effective Time and will be
converted at such time into the right to receive, upon surrender of the
certificate representing such share of Company Common Stock in the
manner provided in Section 1.8, a First Note, a number of shares of
Parent Common Stock, a right to receive shares of Parent Common Stock
pursuant to the terms of the Earn-Out Plan such amount of notes, stock
and rights to receive stock (collectively, the "Merger Consideration")
on the terms and conditions set forth in this Agreement as follows:
(A) Stock. Each share of Company Common
Stock shall be entitled to receive a number of shares of Parent Common
Stock equal to the quotient of (i) 311,284, divided by (ii) the number
of shares of Company Common Stock outstanding as of the Closing,
provided that no fractional shares of Parent Common Stock shall be
issued, and in lieu thereof, any fractional shares issuable to any
holder after aggregating all shares of Company Common Stock owned by
such holder shall be rounded up to a whole share;
(B) Notes. In addition, each holder of
Company Common Stock shall be entitled to receive a First Note in the
principal amount of $250,000 multiplied by the quotient of (i) the
number of shares of Company Common Stock owned by the holder, divided
by (ii) the total outstanding shares of Company Common Stock; and
(C) Earn-Out Plan. In addition, each holder
of Company Common Stock shall be entitled to receive additional Parent
Common Stock pursuant to the Earn Out Plan in the form of Exhibit C."
2. Exhibit B to the Agreement shall be deleted. The unsecured promissory notes
for an aggregate principal amount of $250,000 executed by the Parent on June 24,
1996, shall be returned to the Parent for cancellation.
3. Sections I, IV, VI and VII of the Earn Out Plan, Exhibit C to the Agreement,
shall be amended, pursuant to Section IX thereof, to read in their entirety as
follows:
"I. Purposes of the Plan.
Pursuant to the Agreement and Plan of Reorganization by and
among EDnet, Inc., EDN Sub, Inc., and Internet Worldwide Business
Solutions dated as of June 24, 1996 (the "Reorganization Agreement"),
EDnet, Inc. (the "Company") is hereby establishing an Earn-Out Plan
(the "Plan") to issue up to an aggregate of 125,000 shares of the
Company Common Stock to certain persons identified herein over a period
provided herein provided that the revenues or profits of Internet
Worldwide Business Solutions or of the Surviving Corporation (as that
term is defined in the Reorganization Agreement) ("IBS") reach certain
levels provided herein."
2.
<PAGE>
"IV. Term of Plan.
The Plan shall become effective upon the "Effective Time," as
such term is defined in the Reorganization Agreement, and shall
terminate one hundred twenty (120) days after December 31, 1996, unless
a determination is being disputed pursuant to Section VIII."
"VI. Company Common Stock Allocation.
Plan Participants shall be eligible to receive up to an
aggregate of 125,000 shares of Company Common Stock in the applicable
time period ("Stock Allocation"). The Stock Allocation shall be
distributed among the Plan Participants according to the percentages
stated next to each Plan Participant's name on Exhibit A. The Stock
Allocation shall be issued to Plan Participants within one hundred
twenty (120) days following the end of the applicable time period,
unless a determination is being disputed pursuant to Section VIII."
"VII. Stock Allocation Formula.
Set forth below is the time period during which a measurement
IBS' Revenues and IBS' Profits will be made and the Stock Allocation
that will be distributed if either threshold set forth for such period
is met or exceeded.
Jan. 1, 1996 to
Time Period Dec. 31, 1996
- -----------
(1) IBS' Revenues $675,000
IBS' Profits $ 90,000
Stock Allocation 93,750
(2) IBS' Revenues $900,000
IBS' Profits $ 90,000
Stock Allocation 125,000
4. The first sentence of Section 1 of Exhibits F-1 and F-2 shall be amended to
read as follows: "This Agreement shall remain in force from the date hereof
until December 31, 1996 (the "Expiration Date") unless sooner terminated in
accordance with Section 5 (the "Term")."
5. This Amendment supersedes the Memorandum of Understanding between the Parent
and the Company dated December 22, 1996.
6. Except as expressly set forth in this Amendment, the Agreement shall continue
in full force and effect in accordance with its terms.
3.
<PAGE>
7. This Amendment may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the date first above written, and hereby consent to and ratify all the Exhibits
to the Amendment and the Agreement and all the documents related to the Merger.
INTERNET WORLDWIDE BUSINESS EDNET, INC.
SOLUTIONS
By /s/ Randall H. Schmitz By /s/ Tom Kobayashi
--------------------------------- --------------------------
Randall H. Schmitz, Tom Kobayashi,
Chief Executive Officer Chairman and CEO
EDN SUB, INC.
By /s/ Trevor R. Stout
--------------------------
Trevor R. Stout,
President and CFO
/s/ Trevor R. Stout /s/ Randall H. Schmitz
--------------------------------- --------------------------
Trevor R. Stout Randall H. Schmitz
4.
IBS SOFTWARE, INC.
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made this 31st day of January 1997 to be effective as
of December 31, 1996, between IBS Software, Inc., a California corporation (the
"Company") and EDnet, Inc., a Colorado corporation (the "Purchaser").
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser
and the Purchaser hereby agrees to purchase an aggregate of Two Million
(2,000,000) shares of the Company's Series A Preferred Stock (the "Shares"), for
an aggregate purchase price of Six Hundred and Five Thousand Dollars ($605,000).
The rights, preferences and privileges of the Shares are provided in the Amended
and Restated Articles of the Company attached hereto as Exhibit A (the
"Articles").
2. Payment of Purchase Price. The purchase price for the Shares is
composed of the following: (a) previous expenditures made the Purchaser in
connection with the development of certain software by a predecessor to the
Company; and (b) the execution and delivery at the time of execution of this
Agreement of that certain license attached hereto as Exhibit B.
3. Issuance of Shares. Upon receipt by the Company of the purchase
price, the Company shall issue and deliver to the Purchaser a duly executed
certificate evidencing the Shares in the name of the Purchaser.
4. Representations and Warranties of the Company.
(a) The Company is a corporation duly organized and validly
existing under, and by virtue of, the laws of the State of California and is in
good standing under such laws. The Company has requisite corporate power and
authority to own and operate its properties and assets, and to carry on its
business as presently conducted.
(b) The Company has all requisite legal and corporate power
and authority to execute and deliver this Agreement. All corporate action on the
part of the Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement shall be taken prior to
the execution of this Agreement.
(c) The Articles shall be filed with the California Secretary
of State prior to the execution of this Agreement.
(d) The Series A Preferred Stock that is being purchased by
the Purchaser hereunder, when issued, sold, and delivered in accordance with the
terms of this Agreement for the consideration expressed herein, will be duly and
validly issued, fully paid, and nonassessable, and will be free of restrictions
on transfer other than restrictions on transfer under
1.
<PAGE>
this Agreement and under applicable state and federal securities laws. The
Common Stock issuable upon conversion of the Series A Preferred Stock being
purchased under this Agreement has been duly and validly reserved for issuance
and, upon issuance in accordance with the terms of the Articles, will be duly
and validly issued, fully paid, and nonassessable and will be free of
restrictions on transfer under this Agreement and under applicable state and
federal securities laws.
5. Investment Representations.
(a) In connection with the purchase of the Shares, the
Purchaser represents to the Company the following:
(i) It is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities. It is
purchasing these securities for investment for its own account only and not with
a view to, or for resale in connection with, any "distribution" thereof within
the meaning of the Securities Act of 1933 (the "Securities Act").
(ii) It understands that the securities have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of its
investment intent as expressed herein. In this connection, it understands that,
in view of the Securities and Exchange Commission ("Commission"), the statutory
basis for such exemption may not be present if its representations meant that
its present intention was to hold these securities for a minimum capital gains
period under the tax statutes, for a deferred sale, for a market rise, for a
sale if the market does not rise, or for a year or any other fixed period in the
future.
(iii) It further acknowledges and understands that the
securities must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available. It
further acknowledges and understands that the Company is under no obligation to
register the securities. It understands that the certificate evidencing the
securities will be imprinted with a legend which prohibits the transfer of the
securities unless they are registered or such registration is not required in
the opinion of counsel for the Company.
(iv) It is aware of the adoption of Rule 144 by the
Commission, promulgated under the Securities Act, which permits limited public
resale of securities acquired in a non-public offering subject to the
satisfaction of certain conditions.
(v) It further acknowledges that in the event all of
the requirements of Rule 144 are not met, compliance with Regulation A or some
other registration exemption will be required; and that although Rule 144 is not
exclusive, the staff of the Commission has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and other than pursuant to Rule 144 will have a substantial burden of
2.
<PAGE>
proof in establishing that an exemption from registration is available for such
offers or sales and that such persons and the brokers who participate in the
transactions do so at their own risk.
(b) The Purchaser agrees, in connection with the Company's
initial public offering of the Company's securities, (i) not to sell, make short
sales of, loan, grant any options for the purchase of, or otherwise dispose of
any shares of capital stock of the Company held by the Purchaser (other than
those shares included in the registration) without the prior written consent of
the Company or the underwriters managing such initial underwritten public
offering of the Company's securities for one hundred eighty (180) days from the
effective date of such registration and (ii) further agrees to execute any
agreement reflecting (i) above as may be requested by the underwriters at the
time of the public offering.
6. Purchaser's Rights.
(a) The Purchaser shall be entitled to the registration rights
equal to such rights afforded to future investors in the equity of the Company.
(b) The Purchase shall have a right of first refusal to
purchase its pro rata share of all Equity Securities (as defined below) that the
Company may, from time to time, propose to sell and issue after the date of this
Agreement. The term "Equity Securities" shall mean (i) any Common Stock,
Preferred Stock or other security of the Company, (ii) any security convertible,
with or without consideration, into any Common Stock, Preferred Stock or other
security (including any option to purchase such a convertible security), (iii)
any security carrying any warrant or right to subscribe to or purchase any
Common Stock, Preferred Stock or other security or (iv) any such warrant or
right. If the Company proposes to issue any Equity Securities, it shall give the
Purchaser written notice of its intention, describing the Equity Securities, the
price and the terms and conditions upon which the Company proposes to issue the
same. The Purchaser shall have fifteen (15) days from the giving of such notice
to agree to purchase its pro rata share of the Equity Securities for the price
and upon the terms and conditions specified in the notice by giving written
notice to the Company and stating therein the quantity of the Equity Securities
to be purchased.
(c) If either Trevor Stout or Randall Schmitz (a "Founder")
proposes to sell or transfer any shares of Common Stock or Preferred Stock, the
Founder shall promptly give written notice (the "Notice") to the Purchaser at
least thirty (30) days prior to the closing of such sale or transfer. The Notice
shall describe in reasonable detail the proposed sale or transfer including,
without limitation, the number of shares of stock to be sold or transferred, the
nature of such sale or transfer, the consideration to be paid, and the name and
address of each prospective purchaser or transferee. The Purchaser shall have
the right, exercisable upon written notice to such Founder within fifteen (15)
days after the Notice, to participate on a pro rata basis in such sale of stock
on the same terms and conditions. Such notice shall indicate the number of
shares of stock the Purchaser wishes to sell under its right to participate. Any
sale of stock in violation of this Section 6(c) shall be null and void.
3.
<PAGE>
7. Legends. The share certificate evidencing the Shares issued
hereunder shall be endorsed with the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT OF 1933".
(b) Any legend required to be placed thereon by the California
Commissioner of Corporations or any other applicable state securities laws.
8. Adjustment for Stock Split. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9. General Provisions.
(a) This Agreement shall be governed by the internal laws of
the State of California. This Agreement represents the entire agreement between
the parties with respect to the purchase of the Shares by the Purchaser, may
only be modified or amended in writing signed by both parties and satisfies all
of the Company's obligations to the Purchaser with regard to the issuance or
sale of securities.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
(c) The rights and benefits of the Company under this
Agreement shall be transferable to any one or more persons or entities, and all
covenants and agreements hereunder shall inure to the benefit of, and be
enforceable by the Company's successors and assigns. The rights and obligations
of the Purchaser under this Agreement may only be assigned with the prior
written consent of the Company.
(d) Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, nor prevent that party thereafter from
enforcing each and every other provision of this Agreement. The rights granted
both parties herein are cumulative and shall not constitute a
4.
<PAGE>
waiver of either party's right to assert all other legal remedies available to
it under the circumstances.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS
AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR
RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS
UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY
SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS
OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first set forth above.
COMPANY: PURCHASER:
IBS SOFTWARE, INC. EDNET, INC.
a California corporation
By: /s/ Trevor R. Stout By: /s/ Tom Kobayashi
-------------------------------- -------------------------
Title: Chairman Title: Chairman & CEO
----------------------------- -------------------------
2083 Landings Drive One Union Street, 2nd Floor
- ------------------------------------ ---------------------------
(Address) (Address)
Mountain View, CA 94043 San Francisco, CA 94111
- ---------------------------------------- ------------------------
The undersigned hereby consent to the terms of this Agreement:
/s/ Trevor R. Stout /s/ Randall H. Schmitz
-------------------------------- -------------------------
Trevor R. Stout Randall H. Schmitz
5.
TECHNOLOGY LICENSE AGREEMENT
This Agreement ("Agreement") is entered into January 31, 1997 to be
effective as of December 31, 1996 ("Effective Date") by and between Internet
Worldwide Business Solutions, a California corporation ("IWBS") and IBS
Software, Inc. a California corporation ("IBS Software").
1. DEFINITIONS.
1.1 "Toolkit Technology" shall mean any and all source code,
programmer's notes, files, data, databases, materials, procedures, processes,
designs, inventions, discoveries, know-how and works of authorship, including
all documentation, and (a) all worldwide patent rights and applications
(including any additions, continuations, continuations-in-part, divisions,
reissues or extensions based thereon), (b) copyrights and other rights in works
of authorship, (iii) mask work rights, (iv) trade secrets and know how, (v)
confidential information and (vi) all other intellectual property and
proprietary rights, whether owned or licensed, held by IWBS as of the Effective
Date relating to the development, operation and maintenance of World Wide Web
sites as further described in Exhibit A.
1.2 "Toolkit Product" means the software development toolkit product
commercialized by IBS Software based on the Toolkit Technology in object code
form, as such product exists on the Effective Date and including any updates,
upgrades and enhancements thereto created by IBS Software and made commercially
available after the Effective Date.
2. GRAND OF LICENSE.
2.1 License to IBS Software. IWBS hereby grants to IBS Software an
exclusive, irrevocable, perpetual, worldwide, fully paid up right and license,
including the right to grant and authorize the grant of sublicenses, to the
Toolkit Technology for all purposes, including, without limitation, to design,
develop, modify, make, have made, use, import, lease, sell and otherwise
distribute products incorporating or utilizing the Toolkit Technology and to
otherwise exploit the Toolkit Technology.
2.2 License to IWBS. In partial consideration for the rights granted in
Section 2.1, IBS Software hereby grants to IWBS a non-exclusive, worldwide,
irrevocable, perpetual, fully paid up right and license to the Toolkit Product
to copy and use internally and on behalf of third parties to which IWBS is
providing services to develop World Wide Web sites. IWBS may not sublicense or
distribute the Toolkit Product. All rights not granted to the Toolkit Product
are reserved to IBS Software.
3. CONSIDERATION. In consideration of the rights granted to IBS Software, IBS
Software will issue 2,000,000 shares of preferred stock to EDnet, the sole
shareholder of IWBS in accordance with a separate stock purchase agreement to be
entered into concurrently with this Agreement.
1.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES. IWBS represents and warrants to IBS
Software as follows:
4.1 No Conflict. The entering into and performance of this Agreement by
IWBS does not and will not violate, conflict with or result in a material
default under any other contract or obligation to which IWBS is a party or by
which it is or may become subject or bound. IWBS will not grant any rights under
any future agreement, nor will it permit any obligation that will conflict with
its obligations under this Agreement or the full enjoymen by IBS Software of uts
rights under this Agreement.
4.2 Right to Make Full Grant. IWBS has all requisite ownership, rights
and licenses to grant the rights granted under this Agreement. To the best
knowledge of IWBS, the Toolkit Technology and the use and distribution of the
Toolkit Product as it exists on the Effective Date by IBS Software will not
infringe, violate or misappropriate any rights of any third person.
4.3 No Harmful Content. To the best knowledge of IWBS, the portion of
the Toolkit Technology consisting of software as delivered by IWBS to IBS
Software does not contain any matter which is injurious to end-users or their
property, or which is scandalous, libelous, obscene, an invasion of privacy or
otherwise unlawful or tortious and contains no computer viruses, booby traps,
time bombs or other programming designed to interfere with the normal
functioning of the software.
5. DISCLAIMER.
EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN SECTION 4, THE TOOLKIT
TECHNOLOGY IS PROVIDED "AS IS" WITHOUT WARRANTY OR CONDITION OF ANY KIND,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OR
CONDITIONS OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
6. CONFIDENTIALITY.
6.1 Confidentiality. "Confidential Information" consists of (i) any
information designated as confidential, (ii) the Toolkit Technology, and (iii)
any information relating to product plans, product designs, product costs,
product prices, product names, finances, marketing plans, business
opportunities, personnel, research, development or know-how except such
information which the parties agree in writing is not confidential. Except to
the extent consistent with the exercise of the licenses granted herein, each
party agrees that it will not use in any way for its own account or the account
of any third party, nor disclose to any third party, any such confidential
information revealed to it by the other party and will take every reasonable
precaution to protect the confidentiality of such information.
6.2 Exceptions. The foregoing restrictions will not apply to
information that (i) has become publicly known through no wrongful act of the
receiving party, (ii) has been rightfully
2.
<PAGE>
received from a third party authorized to make such disclosure without
restriction, or (iii) has been approved for release by written authorization of
the disclosing party.
7. LIMITATION OF LIABILITY.
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL,
CONSEQUENTIAL, INDIRECT, OR INCIDENTAL DAMAGES, HOWEVER CAUSED, ON ANY THEORY OF
LIABILITY AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES, ARISING UNDER ANY CAUSE OF ACTION AND IN ANY WAY OUT OF THIS
AGREEMENT.
8. MISCELLANEOUS PROVISIONS.
8.1 Assignment. IWBS may not assign this Agreement without the prior
written consent of IBS Software.
8.2 Independent Contractors. The relationship of the parties
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to (i) give either party the
power to direct or control the day-to-day activities of the other, (ii)
constitute the parties as partners, joint venturers, co-owners or otherwise as
participants in a joint or common undertaking or (iii) allow either party to
create or assume any obligation on behalf of the other party for any purpose
whatsoever.
8.3 Waiver and Amendment. No modification, amendment or waiver of any
provision of this Agreement shall be effective unless in writing and signed by
the party to be charged. No failure or delay by either party in exercising any
right, power, or remedy under this Agreement, except as specifically provided
herein, shall operate as a waiver of any such right, power or remedy.
8.4 Governing Law; Arbitration. This Agreement shall be governed by the
laws of the State of California, USA, excluding conflict of laws provisions. Any
disputes arising out of this Agreement shall be resolved by binding arbitration
in Santa Clara County California in accordance with the rules of the American
Arbitration Association. The arbitrator shall have the power to grant injunctive
relief.
8.5 Notices. All notices, demands or consents required or permitted
under this Agreement shall be in writing. Notice shall be considered delivered
and effective when (a) personally delivered; (b) the day following transmission
if sent by telex, telegram or facsimile followed by written confirmation by
registered overnight carrier or certified United States mail; or (c) one (1) day
after posting when sent by registered private overnight carrier (e.g., DHL,
Federal Express, etc); or (d) five (5) days after posting when sent by certified
United States mail. Notice shall be sent to the parties at the addresses set
forth on Exhibit A or at such other address as shall be given by either party to
the other in writing.
3.
<PAGE>
8.6 Severability. If any provision of this Agreement is held by a court
of competent jurisdiction to be contrary to law, such provision shall be changed
and interpreted so as to best accomplish the objectives of the original
provision to the fullest extent allowed by law and the remaining provisions of
this Agreement shall remain in full force and effect.
8.7 Complete Understanding. This Agreement constitutes the final,
complete and exclusive agreement between the parties with respect to the subject
matter hereof, and supersedes any prior or contemporaneous agreement.
8.8 Further Assurances. At any time or from time to time on and after
the date of this Agreement, each party shall at the request of the other party,
at such requesting party's expense, (i) deliver such records, data or other
documents consistent with the provisions of this Agreement, (ii) execute, and
deliver or cause to be delivered, all such assignments, consents, documents or
further instruments of transfer or license, and (iii) take or cause to be taken
all such other actions, as the requesting party may reasonably deem necessary or
desirable in order for the requesting party to obtain the full benefit of this
Agreement and the transactions contemplated hereby.
INTERNET WORLDWIDE
BUSINESS SOLUTIONS IBS SOFTWARE
By: /s/ Randall H. Schmitz By: /s/ Trevor Stout
----------------------------- -----------------------
Name: Randall H. Schmitz Name: Trevor Stout
-------------------------- ---------------------
Title: CEO Title: CEO
------------------------- -------------------
Agreed to and reviewed by:
EDNET, Inc.
By: /s/ Tom Kobayashi
-----------------------------
Name: Tom Kobayashi
--------------------------
Title: CEO
-------------------------
4.
<PAGE>
Technology License Description
All source, object, executable, design documents, documentation, databases,
tables, makefiles, project files, graphic icons and stylesheets, used for the
creation of interactive web sites, including:
IBS Business Builder Server (cgi-bin)
All cgi-bin programs and source code used for the creation of
interactive web sites
All database source code and modules for connectivity to databases,
including but not limited to ODBC, Oracle Call Interface and Codebase.
All source code for SQL interface to Codebase database
IBS WebC (codename chianti) interpreter
IBS Business Builder Development Tool for Windows 95/NT
All Windows 95/NT user interface source code for the development of
interactive web sites, including the following features:
source code for a hierarchical web designer
source code for ann imagegroup editor
source code for integrated web browser
source code for html help via web browser
source code for passing (reading and writing) of html files into object
arrays
source code for the creation, modification, of data base entry into
database tables
source code for one-click site navigation, hyperlink management
source code for ftp publishing to the internet
source code for the generation of graphic stylesheets with embedded
text
source code for wizards that generate web modules
source for split screen views that allow for preview, layout, source,
and code views of web
<PAGE>
source code for wysiwyg html editor using 3rd party editor
source code for installation program
source for all web modules written in IBS WebC (codename chianti) for
the purpose of shopping, discussion groups, database searching,
database updating, user administration, form handling, and other web
applications
EDNET, INC.
CONSULTING AGREEMENT
This Agreement (the "Agreement") is made by and between EDNET, INC., a
Colorado corporation (the "Company") and _______________ (the "Consultant") as
of January 31, 1997 to be effective December 31, 1996.
1. Services. The Consultant shall provide to the Company the services
set forth in paragraph 1 of Exhibit A in accordance with the terms and
conditions contained in this Agreement.
2. Term. Unless terminated in accordance with the provisions of
paragraph 7 hereof, the services provided by the Consultant to the Company shall
be performed during the period set forth in paragraph 2 of Exhibit A or up to
completion of the project as described in paragraph 2 of Exhibit A. The
Consultant shall coordinate his work efforts and report his progress regularly
to the individual set forth in paragraph 3 of Exhibit A.
3. Payment for Service Rendered. For providing the consulting services
as defined herein, the Company shall deliver to the Consultant the consideration
described in paragraph 4 of Exhibit A. The Company shall reimburse the
Consultant for all reasonable expenses provided the Company has approved the
expenses in advance and in writing.
4. Nature of Relationship. The Consultant is an independent contractor.
The Consultant will not act as an agent nor shall he be deemed an employee of
the Company for the purposes of any employee benefit program, income tax
withholding, FICA taxes, unemployment benefits or otherwise. The Consultant
shall not enter into any agreement or incur any obligations on the Company's
behalf, or commit the Company in any manner without the Company's prior written
consent.
5. Confidentiality.
(a) The Consultant agrees that he shall not use (except for
the Company's benefit) or divulge to anyone either during the term of this
Agreement or thereafter any of the Company's trade secrets or other proprietary
data or information of any kind whatsoever acquired by the Consultant. The
Consultant further agrees that upon completion or termination of this Agreement,
he will turn over to the Company any notebook, data, information or other
material acquired or compiled by the Consultant in carrying out the terms of the
Agreement. However, the Consultant may keep one copy of such material for
archival purposes.
(b) The Consultant represents that his performance of the
terms of the Agreement does not and will not conflict with the terms of any
agreement to keep in confidence proprietary information and trade secrets
acquired in confidence or in trust prior to his consulting relationship with the
Company. The Consultant will not disclose to the Company,
1.
<PAGE>
or induce the Company to use, any confidential or proprietary information or
material belonging to any third party.
(c) The Consultant represents that he is not presently
retained by any entity that develops, manufactures or sells products competitive
with those of the Company and he agrees that he will not accept such retention
during the term of this Agreement without prior written approval of the Company.
6. Inventions. The Consultant shall promptly and fully disclose to the
Company any and all inventions, improvements, discoveries, developments,
original works of authorship, software, trade secrets or other intellectual
property conceived, developed or reduced to practice by the Consultant during
the term of this Agreement and in any way relating to (a) the actual or
anticipated research and development of the Company, or (b) the services
performed by the Consultant under this Agreement (the "Information"). The
Consultant shall treat all of the Information as the proprietary property of the
Company. The Consultant agrees to assign, and does hereby assign, to the Company
and its successors and assigns, without further consideration, the Consultant's
entire right, title and interest in and to the Information whether or not
patentable or copyrightable. The Consultant further agrees to execute all
applications for patents and/or copyrights, domestic or foreign, assignments and
other papers necessary to secure and enforce rights related to the Information.
7. Termination. Either party may terminate this Agreement in whole or
in part at its convenience upon 30 days written notice to the other party. Such
termination shall be effective in the manner and upon the date specified in said
notice and shall be without prejudice to any claims which one party may have
against the other. In the event of such termination the Company shall be
obligated to reimburse the Consultant for services actually performed by the
Consultant up to the effective date of termination. Termination shall not
relieve the Consultant of his continuing obligations under this Agreement,
particularly the requirements of paragraph 5 and 6 above.
8. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of California. The federal and state
courts within the State of California shall have exclusive jurisdiction to
adjudicate any dispute arising out of this Agreement. The parties consent to
personal jurisdiction of the federal and state courts within California and
service of process being effected by registered mail sent to the address set
forth at the end of this Agreement.
(b) This Agreement may not be and shall not be deemed or
construed to have been modified, amended, rescinded, cancelled or waived in
whole or in part, except by written instruments signed by the parties hereto. No
failure on the part of either party to exercise, and no delay in exercising, any
right or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right or remedy hereunder preclude any other
or
2.
<PAGE>
further exercise thereof or the exercise of any other right or remedy granted
hereby or by any related document or by law.
(c) This Agreement, including the exhibit attached hereto and
made a part hereof, constitutes and expresses the entire agreement and
understanding between the parties. All previous discussions, promises,
representations and understandings between the parties relative to this
Agreement, if any, have been merged into this document. The provisions of
paragraphs 5 and 6 shall survive the termination of this Agreement. The terms
and provisions of this Agreement shall be binding on and inure to the benefit of
the parties, their heirs, legal representatives, successors and assigns.
(d) The Consultant may not subcontract all or any part of the
services to be provided hereunder without the prior written consent of the
Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
EDNET, INC.
a Colorado Corporation ---------------------------------
(Signature)
By:
-------------------------- ---------------------------------
Title: ---------------------------------
------------------------ (Social Security No.)
One Union Street, 2nd Street
- ------------------------------ ---------------------------------
(Address) (Address)
San Francisco, CA 94111
- ------------------------------ ---------------------------------
3.
<PAGE>
EXHIBIT A
NAME OF CONSULTANT: _____________________
1. Description of consulting services:
Managerial, administrative, and technical assistance as necessary for
ongoing continuity in the function of the IBS services business and the
transition of management responsibilities to newly assigned executives, as
determined by EDnet, Inc.
2. Term of Agreement:
January 1, 1997 to March 31, 1997
3. The Consultant shall report to:
Tom Kobayashi, CEO, EDnet, Inc.
4. Consideration for services:
$4,167.00 per month
1.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 221,875
<SECURITIES> 0
<RECEIVABLES> 478,076
<ALLOWANCES> 0
<INVENTORY> 147,409
<CURRENT-ASSETS> 861,658
<PP&E> 488,943
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,518,511
<CURRENT-LIABILITIES> 2,151,456
<BONDS> 0
<COMMON> 4,468
0
0
<OTHER-SE> 318,965
<TOTAL-LIABILITY-AND-EQUITY> 2,518,511
<SALES> 0
<TOTAL-REVENUES> 2,536,258
<CGS> 2,126,741
<TOTAL-COSTS> 3,654,739
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,322
<INCOME-PRETAX> (1,152,803)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> (1,154,403)
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