As filed with the Securities and Exchange Commission on February 25, 1998
Registration No: 333-39377
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SmartServ Online, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3750708
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
One Station Place
Stamford, Connecticut 06902
(203) 353-5950
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Sebastian E. Cassetta
Chief Executive Officer and Chairman of the Board
One Station Place
Stamford, Connecticut 06902
(203) 353-5950
(Name, address, including zip code, telephone number, including area code,
of agent for service)
COPY TO:
Michael J. Shef, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036-8735
(212) 704-6140
Approximate date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==============================================================================================
Proposed
maximum Proposed
Amount aggregate maximum Amount of
Title of each class of to be price per aggregate registration
securities to be registered registered unit (1) offering price(1) fee (3)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
par value $0.01
per share(2) 8,165,000(2) $1.875 $15,309,375 $4,639.20
- ----------------------------------------------------------------------------------------------
Total $15,309,375 $4,639.20
==============================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee. The
Proposed Maximum Aggregate Offering Price was calculated pursuant to Rule
457(c) under the Securities Act of 1933, as amended, on the basis of the
average of the bid and ask prices reported in the Nasdaq SmallCap Market
system on October 29, 1997.
(2) Issuable upon the exercise of 4,000 Prepaid Common Stock Purchase Warrants
evidencing the right to purchase shares of the Company's Common Stock, par
value $.01 per share (the "Prepaid Warrants"), which is estimated based
upon the terms set forth in the Prepaid Warrants and, pursuant to Rule 416
of the Securities Act of 1933, as amended (the "Securities Act"), is
subject to adjustment and could be materially greater or less than such
estimated amount depending upon factors that cannot be predicted by the
Company at this time, including, among others, stock splits, stock
dividends and similar transactions, the effect of anti-dilution provisions
contained in the Prepaid Warrants and by reason of changes in the exercise
price of the Prepaid Warrants in accordance with the terms thereof. This is
not intended to constitute a prediction as to the number of shares of
Common Stock into which the Prepaid Warrants will be exercised.
(3) In accordance with Rule 457(g), the registration fee for these shares is
calculated based upon a price which represents the highest of: (i) the
price at which the Prepaid Warrants may be exercised; (ii) the offering
price of securities of the same class included in the registration
statement; or (iii) the price of securities of the same class, as
determined pursuant to Rule 457(c).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
An Exhibit Index appears on page E-1
<PAGE>
================================================================================
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
================================================================================
PROSPECTUS
SMARTSERV ONLINE, INC.
8,165,000
SHARES OF COMMON STOCK
(par value $0.01 per share)
This Prospectus relates to the offer and sale from time to time by the Selling
Stockholders named herein (the "Selling Stockholders") of up to 8,165,000 shares
(the "Shares") of common stock, $.01 par value per share (the "Common Stock"),
of SmartServ Online, Inc., a Delaware corporation (the "Company"). See "Selling
Stockholders." The Company is not offering any shares hereunder and will not
receive any of the proceeds from the sale of shares by the Selling Stockholders.
All of the shares offered hereby are issuable upon exercise of outstanding
Prepaid Common Stock Purchase Warrants (the "Prepaid Warrants") held by the
Selling Stockholders.
The shares of Common Stock offered hereby include the resale of such presently
indeterminate number of shares of Common Stock issuable upon exercise of the
outstanding Prepaid Warrants issued in connection with a private placement
consummated by the Company in September 1997 (the "1997 Private Placement"). The
number of shares of Common Stock indicated to be issuable in connection with
such transactions and offered for resale hereby is an estimate based upon the
exercise terms set forth in the Prepaid Warrants and is subject to adjustment
pursuant to Rule 416 of the Securities Act of 1933, as amended (the "Securities
Act"), and could be materially greater or less than such estimated amount
depending upon factors that cannot be predicted by the Company at this time,
including, among others, stock splits, stock dividends and similar transactions,
the effect of anti-dilution provisions contained in the Prepaid Warrants and by
reason of changes in the exercise price of the Prepaid Warrants in accordance
with the terms thereof. If, however, all of the Prepaid Warrants currently
outstanding were exercised on February 17, 1998, based on the closing bid price
of the Common Stock on the NASDAQ SmallCap Market for the 10 prior trading days
ending February 17, 1998, the Company would be obligated to issue a total of
2,995,476 shares of the Common Stock, which number includes 263,339 shares
issued pursuant to the exercise of certain Prepaid Warrants. This presentation
is not intended to constitute a prediction as to the future market price of the
Common Stock or as to the number of shares of Common Stock into which the
Prepaid Warrants will be exercised. See "Risk Factors" on pages 6-13 of this
Prospectus.
The shares of Common Stock covered under the Registration Statement of which
this Prospectus is a part may be offered for sale from time to time by or for
the account of such Selling Stockholders in the open market on the NASDAQ
SmallCap Market in privately negotiated transactions, in an underwritten
offering or in a combination of such methods, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, or at
negotiated prices. The Shares are intended to be sold through one or more
broker-dealers or directly to purchasers. Such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they may sell as principal, or both
(which compensation as to a particular broker-dealer may be in excess of
customary commissions). The Selling Stockholders and any broker-dealers acting
in connection with the sale of the Shares hereunder may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act, and any
commissions received by them and any profit realized by them on the resale of
the Shares as principals may be deemed underwriting compensation under the
Securities Act. See "Selling Stockholders" and "Plan of Distribution."
<PAGE>
The Common Stock is traded on the Nasdaq SmallCap Market under the symbol "SSOL"
and the Company's outstanding Redeemable Common Stock Purchase Warrants (the
"Public Warrants") are traded on the Nasdaq SmallCap Market under the symbol
"SSOLW". On February 17, 1998, the closing bid price of the Common Stock on the
Nasdaq SmallCap Market was $1.8125 per share.
The Company's executive offices are located at One Station Place, Stamford,
Connecticut 06902 and its telephone number is (203) 353-5950.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A
HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY ANYONE
WHO CANNOT AFFORD THE LOSS OF HIS OR HER ENTIRE INVESTMENT. SEE
"RISK FACTORS" ON PAGES 6 - 13 OF THIS PROSPECTUS FOR A
DESCRIPTION OF RISK FACTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Company has agreed to bear all of the reasonable expenses (other than
underwriting discounts and commissions) incurred in connection with the
registration of the Shares being offered for sale by the Selling Stockholders.
See "Selling Stockholders" and "Plan of Distribution." The Company and the
Selling Stockholders have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act. The total expenses
to be paid by the Company for this offering are estimated at $28,000.
THE DATE OF THIS PROSPECTUS IS FEBRUARY __, 1998
2
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain information incorporated by reference into this Prospectus includes
"forward - looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), and is subject to the safe
harbor created by that act. There are several important factors that could cause
actual results to differ materially from those anticipated by the
forward-looking statements contained in such discussions. Additional information
on the risk factors which could affect the Company's financial results is
included in this Prospectus and in the Company's Annual Report for the fiscal
year ended June 30, 1997 on Form 10- KSB/A and in other documents incorporated
by reference herein.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities of the Commission located at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at the New York Regional
Office of the Commission, Seven World Trade Center, Suite 1300, New York, New
York 10048, and at the Chicago Regional Office of the Commission, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621. Copies of
such material can also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Such materials may also be accessed electronically on the Internet at
http://www.sec.gov. The Common Stock and Public Warrants are listed on the
Nasdaq SmallCap Market under the symbols "SSOL" and "SSOLW", respectively.
Reports, proxy materials and other information concerning the Company can also
be inspected at the offices of the Nasdaq Stock Market, Inc., 1735 K Street, NW,
Washington, DC 20006-1500.
The Company has filed with the Commission a registration statement on Form S-3,
File No. 333-39377 (together with any and all amendments, the "Registration
Statement") under the Securities Act with respect to the registration of the
Shares. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain portions of which have
been omitted as permitted by the rules and regulations of the Commission. In
addition, certain documents filed by the Company with the Commission have been
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference." For further information regarding the Company and the Shares,
reference is made to the Registration Statement, including the exhibits and
schedules thereto and the documents incorporated herein by reference.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are incorporated herein by reference: (i) the Company's Quarterly
Report on Form 10-QSB for the fiscal quarter ended December 31, 1997; (ii) the
Company's Current Report on Form 8-K filed with the Commission on February 11,
1998; (iii) the Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended September 30, 1997; (iv) the Company's Annual Report on Form 10-KSB/A for
the fiscal year ended June 30, 1997; (v) the Company's Current Report on Form
8-K filed with the Commission on September 30, 1997, as amended on Form 8-K/A
filed on October 13, 1997; and (vi) the description of Common Stock contained in
the Company's Registration Statement on Form 8-A, filed on March 19, 1996. In
addition, each document filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to termination of the offering of Shares shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date such document is filed with the Commission.
Any statement contained herein, or any document, all or a portion of which is
incorporated or deemed to be incorporated by reference herein, shall be deemed
to be modified or superseded for purposes of the Registration Statement and this
Prospectus to the extent that a statement contained herein, or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute part of the Registration Statement or this Prospectus.
The Company will provide without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus has been delivered, upon written or
oral request of any such person, a copy of any or all of the information that
has been incorporated by reference herein, other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
the information that this Prospectus incorporates. Written or oral requests for
such copies should be directed to: SmartServ Online, Inc., One Station Place,
Stamford, Connecticut 06902; (203) 353-5950, Attn: Thomas W. Haller, Chief
Financial Officer.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere or incorporated by reference in this
Prospectus.
To inform investors of the Company's future plans and objectives, this
Prospectus (and other reports and statements issued by the Company and its
officers from time to time) contain certain statements concerning the Company's
future results, future performance, intentions, objectives, plans and
expectations that are or may be deemed to be "forward-looking statements." The
Company's ability to do this has been fostered by the Reform Act, which provides
a "safe harbor" for forward-looking statements to encourage companies to provide
prospective information so long as those statements are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those discussed in the statement. The
Company believes it is in the best interest of investors for the Company to take
advantage of the "safe harbor" provisions of the Reform Act. Such
forward-looking statements are subject to a number of known and unknown risks
and uncertainties that, in addition to general economic and business conditions
and those described in "Risk Factors" could cause the Company's actual results,
performance and achievements to differ materially from those described or
implied in the forward-looking statements.
THE OFFERING
Securities Registered.....................8,165,000 shares of Common Stock to be
issued from time to time upon exercise
of the Company's outstanding Prepaid
Warrants.
Common Stock outstanding
prior to the offering hereby.........3,958,339 shares of Common Stock
Common Stock outstanding
after the offering hereby............6,690,476 shares of Common Stock (1)
Common Stock trading symbol
on NASDAQ ...........................SSOL
- ------------------------------
(1) Assumes 3,825 Prepaid Warrants outstanding on February 17, 1998 are
exercised at $1.40 per share of Common Stock. See "Description of
Securities -- Prepaid Warrants." Does not include shares of Common Stock
issuable upon exercise of other outstanding warrants or of options to
purchase Common Stock. See "Risk Factors".
5
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES SUBSTANTIAL INVESTMENT RISK AND SHARES SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. IN
EVALUATING AN INVESTMENT IN THE COMPANY AND ITS BUSINESS, PROSPECTIVE INVESTORS
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AS WELL AS OTHER
INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED HEREIN BY
REFERENCE.
Net Losses; Accumulated Deficit. The Company has incurred net losses
of $4,434,482 for the year ended June 30, 1997, $2,966,287 for the year ended
June 30, 1996 and $1,846,183 for the year ended June 30, 1995. In addition, the
Company incurred a net loss of $2,933,380 for the six-months ended December 31,
1997 and had an accumulated deficit of $12,715,250 at December 31, 1997. Losses
have resulted principally from costs incurred in connection with activities
aimed at developing the Company's software, information and transactional
services and from costs associated with the Company's marketing and
administrative activities. The Company has incurred substantial expenses and
commitments, has not derived any significant revenues from operations and
currently has minimal revenues from monthly subscriber fees. There can be no
assurance that the Company will be able to continue operations as a going
concern or develop significant revenues from operations or that its operations
will become profitable. The Company expects to have fluctuations in revenues,
expenses, losses and cash flow, some of which could be significant. Results of
operations will depend upon numerous factors including, without limitation, the
regulatory environment, introduction and market acceptance of the Company's
services, establishing alliances with strategic marketing partners ("Strategic
Marketing Partners") and competition. The Company expects to continue to incur
losses at least through June 1998.
Independent Auditor's Qualified Report. The report of the Company's
independent auditors with respect to the financial statements of the Company for
the year ended June 30, 1997 contains a paragraph as to the Company's ability to
continue as a going concern. Among the factors cited by the auditors as raising
substantial doubt as to the Company's ability to continue as a going concern is
that, with respect to the periods covered, the Company incurred recurring
operating losses and has a working capital deficiency. See the financial
statements of the Company for the year ended June 30, 1997 and the notes thereto
and the Report of Independent Auditors included therein.
Limited Operating History; No Assurance of Development of Services.
The Company was formed in August 1993. There can be no assurance that the
Company's services will be successfully marketed or achieve market acceptance.
The likelihood of success of the Company must be considered in light of the
problems, expenses, difficulties, complications and delays, many of which are
beyond the Company's control, frequently encountered in connection with the
growth of a young business and in light of the competitive environment in which
the Company is operating. There can be no assurance that the Company will
successfully complete its proposed plans. Accordingly, the securities offered
hereby involve a high degree of risk and purchasers should be prepared to lose
their entire investment.
6
<PAGE>
Capital Requirements; Potential Unavailability of Additional
Financing. The Company estimates that, without a significant increase in
revenues, it has sufficient cash resources to fund its operations through April
1998. Moreover, the Company is currently seeking additional debt or equity
financing to fund the cost of continuing operations subsequent to April 1998.
The Company has no current commitments or arrangements for additional financing
and, in the case of equity financing, the Company needs to increase the amount
of authorized shares of Common Stock, which action requires stockholder
approval. There can be no assurance that such stockholder approval will be
obtained or, if obtained, whether any additional debt or equity financing will
be available to the Company on acceptable terms, or at all. Should such
financing not be available, the Company will be required to curtail its
operating activities.
Competition. The market for online information and transactional
services is highly competitive and subject to rapid innovation and technological
change, shifting consumer preferences and frequent new service introductions. In
addition to competing with other companies that provide screen-based phones in
combination with online services such as Online Resources and Communications
Corporation and Intelidata Technologies, the Company also faces increasing
competition from other emerging services delivered through PCs such as
developing transactional services offered by Checkfree Corporation, Microsoft
Corp., PC Quote, Inc., Intuit Inc., Data Broadcasting Corp., Electronic Data
Systems Corp. and other software and online companies. The Company expects
competition to increase from existing competitors and from new competitors,
possibly including telecommunications companies. Established online information
services including America Online, Inc., CompuServe Inc. and Prodigy Services
Co. offer competing services delivered through home computers. Most of the
Company's competitors and potential competitors have substantially greater
financial, marketing and technical resources than the Company. The Company
believes that potential new competitors, including large multimedia and
information system companies, are increasing their focus on transaction
processing. Increased competition in the market for the Company's services could
materially and adversely affect the Company's results of operations through
price reductions and loss of market share.
The information content provided through the Company's software and
communication architecture is generally purchased through non-exclusive
distribution agreements. While the Company is not dependent on any one content
provider, existing and potential competitors may enter into agreements with
these and other such providers and thereby acquire the ability to deliver online
information and transactional services substantially similar to those provided
by the Company.
The Company intends to continue to sell its services primarily by
entering into non-exclusive agreements with potential Strategic Marketing
Partners. No assurance can be given that the Company will enter into any such
agreements with any such Strategic Marketing Partners on terms favorable to the
Company, if at all, or that any such Strategic Marketing Partners will not enter
into similar arrangements with providers of competing services. In addition, in
the event the Company establishes alliances with potential Strategic Marketing
Partners, such Strategic Marketing Partners will face competition from other
resellers of competing services.
7
<PAGE>
The principal competitive factors in the online services industry
include content, product features and quality, ease of use, access to
distribution channels, brand recognition, reliability and price.
Government Regulation and Legal Uncertainty. The Company is not
currently subject to direct regulation other than federal and state regulation
generally applicable to businesses. However, changes in the regulatory
environment relating to the telecommunications and media industry could have an
adverse effect on the Company's business, including regulatory changes which
directly or indirectly affect telecommunication costs or increase the likelihood
or scope of competition from regional telephone companies. Additionally,
legislative proposals from international, federal and state governmental bodies
in the areas of content regulation, intellectual property and privacy rights, as
well as federal and state tax issues could impose additional regulations and
obligations upon all online service providers. The Company cannot predict the
likelihood that any such legislation will pass, or the financial impact, if any,
the resulting regulation or taxation may have.
Moreover, the applicability to online service providers of existing
laws governing issues such as intellectual property ownership, libel and
personal privacy is uncertain. Recent events relating to the use of online
services for illegal activities have increased public focus and could lead to
increased pressure on legislatures to impose regulations on online service
providers such as the Company. The law relating to the liability of online
service companies for information carried on or disseminated through their
systems is currently unsettled and has been the subject of several recent
private lawsuits. If similar actions were to be initiated against the Company,
costs incurred as a result of such actions could have a material adverse effect
on the Company's business.
Proprietary Rights; Substantial Dependence Upon Proprietary
Information; Access to Providers of Online Information and Transactional
Services. The Company has designed and developed its own information platform,
"SmartServ", based on Sun Microsystems, Inc. computers and Oracle Corp.'s
version 7.X relational database manager, to support a variety of end user
devices. The Company relies upon a combination of contract provisions and
copyrights, trade secret laws and a service mark and trademark to attempt to
protect its proprietary rights. The Company licenses the use of its services to
its Strategic Marketing Partners and direct subscribers under agreements that
contain terms and conditions prohibiting the unauthorized reproduction of the
Company's software and services. Although the Company intends to protect its
rights vigorously, there can be no assurance that any of the foregoing measures
will be successful.
The Company seeks to protect the source code of its software as a
trade secret and as an unpublished copyrighted work. The Company has obtained an
allowance of its U.S. trademark application for the mark "SmartServ Online" for
the computer software used with its platform services, and expects a U.S.
trademark registration for the mark to be granted in the near future. This
registration will have an initial term of 10 years and be renewable indefinitely
for successive 10-year terms upon filing proof of continued use of the mark. The
Company has also filed an intent-to-use application to register "SmartServ
Online" as a service mark for its platform services and as a trademark for
related computer hardware.
The Company believes that its service mark and trademark "SmartServ
Online" has significant value and is important to the marketing of its services.
There can be no absolute assurance, however, that the Company's mark does not or
will not violate the proprietary rights of others, that the Company's mark would
be upheld if challenged or that the Company would not be prevented from using
its mark, any of which could have an adverse effect on the Company. In addition,
there can be no assurance that the Company will have the financial resources
necessary to enforce or defend its mark.
8
<PAGE>
The Company believes that its software, services, service mark and
trademark and other proprietary rights do not infringe on the proprietary rights
of third parties. From time to time, however, the Company may receive
communications from third parties asserting that features or contents of certain
of its services may infringe copyrights or other rights of such parties. To
date, the Company has received one such communication, dated May 23, 1995, but
believes that the assertion contained therein is without merit. Since the
receipt of such letter, the Company has not received further correspondence.
There can be no assurance, however, that the infringement claim asserted in such
letter will not ultimately require the Company to enter into a royalty
arrangement or result in litigation. Further, there can be no assurance that
other third parties will not assert infringement claims against the Company with
respect to current or future features, content or services or that any such
assertion may not require the Company to enter into royalty arrangements or
result in litigation.
Strategic Marketing Alliances. The Company intends to sell its
services primarily by entering into non-exclusive agreements with Strategic
Marketing Partners who would brand the Company's "bundled" services with their
own private label, promote the packaged offering and then distribute the
Company's information package on screen-based phones, PCs, PDAs, interactive
voice response systems, alpha numeric pagers and other personal communication
systems ("PCS") devices to their clients for use. The Company's success will
depend (i) on its ability to enter into agreements with Strategic Marketing
Partners, (ii) on the ultimate success of these Strategic Marketing Partners and
(iii) on the ability of the Strategic Marketing Partners to successfully market
the Company's services. The failure of the Company to complete its strategic
alliance strategy or the failure of the Strategic Marketing Partners to develop
and sustain a market for the Company's services would materially adversely
affect the Company's overall performance.
The information services offered by the Company are not unique and
are offered by a variety of other service providers including America Online,
Prodigy and CompuServe, as well as other Internet service providers. Nor are
there any technical or exclusive business relationships inhibiting new
competitors from entering the markets targeted by the Company.
Although the Company views strategic marketing alliances as a major
factor in the successful commercialization of its services, there can be no
assurance that the Strategic Marketing Partners would view an alliance with the
Company as significant to their businesses.
Developing Market. Online information and transactional services are
developing markets. Consumer preferences in developing technologies are
difficult to predict. Any future growth and profitability of the Company will
depend, in part, upon consumer acceptance of online information and
transactional services in general and a significant expansion in the consumer
market for screen-based telephones, PCs, PDAs and interactive voice response
system services in particular. Screen-based telephones, PCS devices and PDAs are
in the early stages of development and marketing. Even if these markets
experience substantial growth, there can be no assurance that the Company's
services will be commercially successful or will benefit from such growth. Even
if initially successful, of which no assurance can be given, any continued
development and expansion of a market for the Company's services will depend in
part upon the Company's ability to create and develop additional services and
adjust existing services in accordance with changing consumer preferences, all
at competitive prices.
9
<PAGE>
There can be no assurance that any of the risks associated with the
development of new services will not occur. The occurrence of one or more of
these risks could have a material adverse effect on the Company's financial
condition and operating results.
Dependence on Key Employees. The Company is highly dependent on its
executive officers and several technical employees, the loss of any of whom
could have an adverse impact on the future operations of the Company. The
Company believes that due to the rapid pace of innovation within its industry,
factors such as the technological and creative skills of its personnel are more
important in establishing and maintaining a leadership position within the
industry than are any legal protections of the Company's technology. The Company
is dependent on its ability to recruit, retain and motivate high quality
personnel; however, competition for such personnel is intense and the inability
to attract and retain additional qualified employees or the loss of current key
employees could materially and adversely affect the Company's business,
operating results and financial condition. Although Mr. Sebastian E. Cassetta,
Chief Executive Officer, Chairman of the Board and Secretary of the Company,
entered into an employment agreement with the Company, the loss of the services
of Mr. Cassetta would have a material adverse effect upon the Company's
business, financial condition and results of operations. The Company maintains
and is the sole beneficiary of a key-person life insurance policy on the life of
Mr. Cassetta in the amount of $650,000.
At a meeting of the Board held on February 6, 1998, the Board voted
to terminate the Company's employment contract with Steven T. Francesco, the
Company's former President and Chief Operating Officer. Mr. Francesco's duties
have been assumed by Sebastian E. Cassetta and Mario Rossi, Vice President of
Operations. Previously, the Board believed the departure of Mr. Francesco would
have a material adverse effect on the Company's business, financial condition
and results of operations. However, the Board believes that the termination of
Mr. Francesco as an officer of the Company was in the best interests of the
Company and its stockholders. Prior to his termination as an officer, Mr.
Francesco commenced litigation against the Company, Sebastian E. Cassetta, Bruno
Guazzoni, Claudio Guazzoni, Zanett Securities, Inc. and Zanett Capital, Inc. in
the Supreme Court of the State of New York, County of New York alleging, among
other things, a claim for damages against the Company for breach of his
employment agreement as well as a request for certain injunctive relief.
Although the Company is vigorously defending this lawsuit, there can be no
assurance whether it will be successful.
Fluctuations in Operating Results. The Company may experience
fluctuations in quarterly operating results due to, among other factors, the
size and timing of customer subscriptions, changes in the Company's pricing
policies or those of its competitors, new service introductions or enhancements
by competitors, delay in the introduction of new services or service
enhancements by the Company or by its competitors, customer subscription
deferrals in anticipation of upgrades and new services, lack of market
acceptance of new services, the timing and nature of sales and marketing
expenses, development expenses, other changes in operating expenses, personnel
changes and general economic conditions.
Network Operations. The Company's operations are dependent on its
ability to protect its computer equipment and the information stored in its
information platform against damage by fire, power loss, telecommunications
failures, unauthorized intrusion and other events. Any damage or failure that
causes interruptions in the Company's operations could have a material adverse
effect on its business. While the Company carries property and business
interruption insurance to cover its computer operations, the coverage may not be
adequate to compensate for losses that may occur.
10
<PAGE>
Failure or Inability to Register Shares, Maintain Nasdaq Listing or
Reserve Adequate Shares. If the Company fails or is unable to timely register
any of the shares of Common Stock issuable upon exercise of the Prepaid Warrants
as well as certain other warrants, or if the Company fails to maintain its
listing on the NASDAQ SmallCap Market, or if the Company fails to maintain an
adequate reserve of authorized but unissued shares of Common Stock, the Company
will incur penalties and costs, including without limitation, possible mandatory
redemption of Prepaid Warrants, pursuant to the terms and conditions of the
Prepaid Warrants, such other warrants, that certain registration rights
agreement among the Company and the Selling Stockholders (the "Registration
Rights Agreement") and a certain other registration rights agreement. Any of
these events may have a material and adverse effect on the Company.
Request for Payment by Third Party. In accordance with the terms of
an engagement letter (the "Engagement Letter") dated January 21, 1994 between
the Company and Tri-Cap International (the "Finder"), the Finder agreed to act
as exclusive investment banker to the Company in connection with certain
financing transactions. By letter dated September 8, 1994, the Finder requested
payment of a monthly retainer and expenses aggregating $6,167, the issuance of
warrants to purchase 2% of the Company's fully-diluted common stock and a
placement fee, all of which it alleged it was owed under the Engagement Letter.
Although no further correspondence has been received by the Company from the
Finder since the September 8, 1994 letter and the Company's belief that the
Finder has ceased operations, no assurance can be given that the Finder, or an
assignee of the Finder, will not renew the Finder's request for payment or
commence litigation or that such litigation will not be successful.
Control by Management; Possible Change of Control. The directors and
officers of the Company beneficially own 2,041,645 shares of Common Stock or
approximately 42.8% of the Company's outstanding shares of Common Stock. Such
officers are therefore in a position to significantly influence the election of
the Company's directors and thereby select the management, and direct the
policies, of the Company. However, the Company and each of Messrs. Cassetta and
Francesco have entered into an agreement with Zanett Capital, Inc. ("Zanett")
dated September 29, 1997, as amended by letter dated February 9, 1998, which
provide, among other things, that for a period of 5 years, provided there is an
occurence of an event of default under the Prepaid Warrants, at the request of
Zanett the Company will appoint such number of designees of Zanett to its Board
of Directors so that the designees of Zanett will constitute a majority of the
members of the Board of Directors of the Company. Zanett has agreed to waive its
rights with respect to a certain event of default under the Prepaid Warrants
which has previously occured. Further, Messrs. Cassetta and Francesco have
agreed to vote their shares of Common Stock, representing approximately 30.7% of
the outstanding stock of the Company, and any shares they may acquire in the
future, in favor of the designees of Zanett at each Annual Meeting of
Stockholders of the Company at which Directors are elected. In addition, Mr.
Bruno Guazzoni, a financial consultant to the Company, has received warrants to
purchase an aggregate of 3,555,555 shares of the Company's Common Stock at an
exercise price of $1.125 per share, 3,055,555 of which are subject to
stockholder approval as long as the Company continues its listing on the NASDAQ
SmallCap Market. Subject to certain provisions with respect to the exercise of
such warrants and his Prepaid Warrants, assuming no other person or entity
exercises warrants and upon his exercise of same, Mr. Guazzoni will hold a
majority of the Company's Common Stock and have the ability to elect directors
to the Board of Directors.
Anti-Takeover Provisions. The Company's Amended and Restated
Certificate of Incorporation (the "Restated Certificate of Incorporation")
restricts the ability of stockholders to call stockholders meetings, provides
that the Company's stockholders may not act by written consent or change the
number of directors and classifies its Board of Directors. These provisions may
have the effect of deterring or delaying certain transactions involving an
actual or potential change in control of the Company, including transactions in
which its stockholders might otherwise receive a premium for their shares over
then current market prices and may limit the ability of its stockholders to
approve transactions that they may deem to be in their best interests.
11
<PAGE>
Absence of Dividends. The Company has never paid cash dividends on
the Common Stock and does not anticipate paying any cash dividends in the
foreseeable future.
Common Stock Eligible for Future Sale. Future sales of shares of
Common Stock by existing stockholders under Rule 144 of the Securities Act
("Rule 144") or through the exercise of outstanding registration rights or the
issuance of shares of Common Stock upon the exercise of the Prepaid Warrants,
options or other warrants could materially adversely affect the market price of
the Common Stock and could materially impair the Company's future ability to
raise capital through an offering of equity securities. A substantial number of
shares of Common Stock are available for sale under Rule 144 in the public
market or will become available for sale in the near future and no predictions
can be made as to the effect, if any, that sales of such shares or the
availability of such shares for future sale will have on the market price of the
Common Stock prevailing from time to time.
Possible Delisting and Risk of Low-Priced Securities. The Company's
Common Stock and outstanding Public Warrants are quoted on the National
Association of Securities Dealers Automatic Quotation System ("NASDAQ"). To
continue to be listed, NASDAQ requires satisfaction of certain maintenance
criteria. These criteria include $2,000,000 of total assets and $1,000,000 in
capital and surplus. By letter dated May 22, 1997, NASDAQ advised the Company
that it did not then meet these criteria. At a hearing held on September 11,
1997, NASDAQ provided an extension to meet its listing requirements to September
30, 1997, the date upon which the 1997 Private Placement was consummated. The
Company received net proceeds of approximately $2,643,941 from the 1997 Private
Placement. Pursuant to new, more stringent requirements by NASDAQ for
maintaining a continued listing on the NASDAQ SmallCap Market, on February 23,
1998 the Company is required to satisfy certain compliance tests, including, but
not limited to Net Tangible Assets of $2,000,000, a Market Capitalization of
$35,000,000, or Net Income of $500,000. Although the Company is not in
compliance with any of these criteria, it is currently seeking financing
alternatives in order to meet the continued listing requirements of NASDAQ.
However, no assurance can be given that the Company will be able to comply with
NASDAQ's listing requirements. If the Company is unable to satisfy NASDAQ's
maintenance criteria in the future, the Common Stock and the Public Warrants may
be delisted from trading on NASDAQ. If the Common Stock and the Public Warrants
are delisted from trading on NASDAQ, trading, if any, would thereafter be
conducted in the over-the-counter market in the so-called "pink sheets" or the
"Electronic Bulletin Board" of the National Association of Securities Dealers,
Inc. and consequently an investor will likely find it more difficult to dispose
of the Company's securities and the Public Warrants would no longer be
redeemable. Moreover, delisting from NASDAQ would constitute an event of default
under the terms of the Prepaid Warrants and Zanett would have the right to
designate a majority of the Board. See "Control by Management; Possible Change
of Control"
The Securities Enforcement and Penny Stock Reform Act of 1990
requires additional disclosure relating to the market for penny stocks in
connection with trades in any stock defined as a penny stock. Commission
regulations generally define a penny stock to be an equity security that has a
market price of less than $5.00 per share, subject to certain exceptions. Such
exceptions include any equity security listed on NASDAQ or a national securities
exchange and any equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years or (iii) average
annual revenue of at least $6,000,000, if such issuer has been in continuous
operation for less than three years. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated therewith.
12
<PAGE>
In addition, if the Company's securities are not quoted on NASDAQ, or
if the Company does not meet the other exceptions to the penny stock regulations
cited above, trading in the Company's securities, including exercising warrants
to purchase shares of Common Stock, would be covered by Rule 15g-9 promulgated
under the Exchange Act for non- NASDAQ and non-national securities exchange
listed securities. Under such rule, broker/dealers who recommend such securities
to persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities also
are exempt from this rule if the market price is at least $5.00 per share.
If the Company's securities become subject to the regulations
applicable to penny stocks, the market liquidity for the Company's securities
could be adversely affected. In such event, the regulations on penny stocks
could limit the ability of broker/dealers to sell the Company's securities and
thus the ability of purchasers of the Company's securities to sell their
securities in the secondary market.
Effect of Issuance of Common Stock Upon Exercise of Outstanding
Warrants. The Company has outstanding warrants to purchase an aggregate of up to
2,662,500 shares of Common Stock, not including the Prepaid Warrants, placement
agent warrants to purchase 670,200 shares of Common Stock issued to The Zanett
Securities Corporation, warrants to purchase 581,300 shares of Common Stock
issued to Zanett Lombardier, Ltd., or warrants to purchase 3,555,555 shares of
Common Stock issued to Mr. Bruno Guazzoni, 3,055,555 of which are subject to
stockholder approval as long as the Company maintains its NASDAQ SmallCap
listing, pursuant to a consulting agreement with the Company (the Prepaid
Warrants and all other outstanding warrants collectively, the "Outstanding
Warrants"). Unless registered for sale, any shares of Common Stock acquired upon
the exercise of any of such Outstanding Warrants would be "restricted
securities" for purposes of Rule 144, subject to a one-year holding period which
commences when shares are issued upon exercise of a warrant and further subject
to the volume and other restrictions of Rule 144. The Company has agreed to file
registration statements with the Commission relating to 14,887,500 shares of
Common Stock potentially issuable upon exercise of such Outstanding Warrants and
to ensure that such registration statements are kept effective. In addition, the
holders of the 2,025,000 Public Warrants have demand and/or "piggyback"
registration rights with respect to the shares of Common Stock issuable upon
exercise of such warrants held by them and the holders of 299,485 shares of
Common Stock have similar registration rights.
The exercise of the Outstanding Warrants issued by the Company and
the sale of the underlying shares of Common Stock (or even the potential of such
exercise or sale) may have a depressive effect on the market price of the
Company's securities depending on the timing of such sales, and may have a
dilutive effect on the book value per share of Common Stock. Moreover, the terms
upon which the Company will be able to obtain additional equity capital may be
adversely affected because the holders of the Outstanding Warrants can be
expected to exercise them, to the extent they are able to, at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in the warrants. In addition,
depending upon market conditions at the time of exercise of the Prepaid
Warrants, the number of shares of Common Stock issuable upon such exercise could
increase significantly in the event of a decrease in the trading price of the
Common Stock. Holders of Common Stock could therefore experience significant
dilution upon exercise of the Prepaid Warrants.
Limitation on Liability of Directors for Monetary Damages. The
Restated Certificate of Incorporation of the Company contains a provision
limiting, to the full extent permitted by Delaware law, personal liability of
the Company's directors for monetary damages for breach of fiduciary duty. By
virtue of this provision, under current Delaware law, a director of the Company
will not be personally liable for monetary damages for breach of his fiduciary
duty as a director, except for liability for (i) any breach of his duty of
loyalty to the Company or to its stockholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) dividends or stock purchases or redemptions that are unlawful under
Delaware law and (iv) any transaction from which he derives an improper personal
benefit.
13
<PAGE>
USE OF PROCEEDS
The proceeds from the sale of the shares of Common Stock issuable upon exercise
of the Prepaid Warrants offered hereby are solely for the account of the Selling
Stockholders. Accordingly, although the Company received net proceeds of
approximately $2,643,941 in the 1997 Private Placement, the Company will receive
none of the proceeds from sales of the Common Stock.
SELLING STOCKHOLDERS
The Shares being offered for resale by the Selling Stockholders were acquired in
connection with the 1997 Private Placement and consist of the shares of Common
Stock issuable upon exercise of the Prepaid Warrants. In connection with the
1997 Private Placement, the Company granted the Selling Stockholders certain
registration rights pursuant to which the Company agreed to keep the
Registration Statement, of which this Prospectus is a part, effective until the
earlier of: (i) date that all of such Shares have been sold pursuant to the
Registration Statement and (ii) the date on which all of the Shares may be
immediately sold to the public without registration pursuant to Rule 144(k)
under the Securities Act or any successor provision. The Company and the Selling
Stockholders have agreed to indemnify each other against certain expenses,
claims, losses, damages and liabilities (or action in respect thereof). The
Company has agreed to pay its expenses of registering the Shares under the
Securities Act, including registration and filing fees, blue sky expenses,
printing expenses, accounting fees, administrative expenses and its own counsel
fees.
The following table sets forth the name of each Selling Stockholder, the
number of shares of Common Stock beneficially owned by such Selling Stockholder
as of February 17, 1998 and the number of Shares being offered by each Selling
Stockholder. The Shares being offered hereby are being registered to permit
public secondary trading, and the Selling Stockholders may offer all or part of
the shares for resale from time to time. However, such resale is subject to a
lock-up, on a pro rata basis, of one-third of the shares of Common Stock issued
to such Selling Stockholders upon exercise of the Prepaid Warrants for 60, 90
and 120 days, respectively, following the effectiveness of the registration
statement, of which this Prospectus forms a part. Such Selling Stockholders are
under no obligation to sell all or any portion of such Shares. All information
with respect to share ownership has been furnished by the Selling Stockholders.
Because the Selling Stockholders may sell all or part of their Shares, no
estimates can be given as to the number of shares of Common Stock that will be
held by any Selling Stockholder upon termination of any offering made hereby.
See "Plan of Distribution."
Pursuant to Rule 416 under the Securities Act, Selling Stockholders may also
offer and sell shares of Common Stock issued with respect to the Prepaid
Warrants as a result of stock splits, stock dividends or similar transactions,
the effect of anti- dilution provisions contained in the Prepaid Warrants and by
reason of changes in the exercise price of the Prepaid Warrants in accordance
with the terms thereof. This is not intended to constitute a prediction as to
the number of shares of Common Stock into which the Prepaid Warrants will be
exercised.
14
<PAGE>
<TABLE>
<CAPTION>
Shares of Common
Stock Owned
after Offering (2)
-------------------
Shares of
Common Stock
Beneficially Shares of
Owned as of Common Stock
Selling Stockholder (3) 02/17/98 (1)(3) to be Sold (1)(2) Number (2) Percent
- ----------------------- ---------------- ----------------- ---------- -------
<S> <C> <C> <C>
Optimum Fund 357,142 357,142 0 *
ProFutures Special Equities
Fund, L.P. 357,142 357,142 0 *
American High Growth Equities
Retirement Trust 107,142 107,142 0 *
William G. Spears 71,428 71,428 0 *
Dr. William McGuire 71,428 71,428 0 *
Samuel L. Milbank 35,714 35,714 0 *
Arnhold and S. Bleichroeder, Inc. 403,422 403,422 0 *
Zanett Lombardier, Ltd. 785,714 785,714 0 *
Emral Holdings 214,285 214,285 0 *
Steven B. Rosner 145,631 145,631 0 *
Joseph Habert 40,000 40,000 0 *
Bruno Guazzoni 406,428 406,428 0 *
--------- --------- -------
Total 2,995,476 2,995,476 0 *
</TABLE>
* Less than 1%
- -----------------
(1) As of February 17, 1998, Arnhold and S. Bleichroeder, Inc. has exercised
100 of its Prepaid Warrants into 117,708 Shares at an exercise price of
$0.85 per share. As of February 17, 1998, Steven B. Rosner has exercised 75
of his Prepaid Warrants into 145,631 Shares at an exercise price of $0.515
per share. Assumes that all of the other Selling Stockholders will convert
all of their Prepaid Warrants into Common Stock at a price of $1.40 per
share and eliminates any fractional shares. Pursuant to the terms of each
Prepaid Warrant, the Selling Stockholders may convert each Prepaid Warrant
into such number of shares of Common Stock as is determined by dividing
$1,000 by the lesser of (i) 70% (less 1% for each 60 day period following
September 30, 1997) of the average closing bid price on the NASDAQ SmallCap
Market for the ten trading days prior to the date of exercise or (ii)
$1.40.
(2) Assumes that each of the Selling Stockholders sells all of the shares of
Common Stock offered hereby during the effective period of the Registration
Statement. The actual number of shares of Common Stock offered hereby is
subject to change and could be materially greater or less than the
estimated amount indicated, depending upon a number of factors, including,
but not limited to, (i) the average closing bid price of the Common Stock
for the ten trading days prior to the date of exercise, (ii) whether any of
the Prepaid Warrants have been redeemed and (iii) whether the number of
shares of the Common Stock outstanding have been adjusted to account for
any stock dividend, stock split and similar transactions or other
adjustment.
(3) Except under certain circumstances, none of the Selling Stockholders is
entitled to exercise the Prepaid Warrants to the extent that such exercise
would cause the Selling Stockholder to beneficially own more than 4.99% of
the total outstanding Common Stock of the Company. Therefore, the number of
shares set forth herein and which a Selling Stockholder may sell pursuant
to this Prospectus may exceed the number of shares such Selling Stockholder
may beneficially own as determined pursuant to Section 13(d) of the
Exchange Act. Does not include warrants to purchase 581,300 shares of the
Company's Common Stock issued to Zanett Lombardier, Ltd and warrants to
purchase 3,555,555 shares of the Company's Common Stock issued to Bruno
Guazzoni, 3,055,555 of which are subject to stockholder approval as long as
the Company maintains its NASDAQ SmallCap listing.
15
<PAGE>
Zanett Lombardier, Ltd. received warrants to purchase 581,300 shares
of the Common Stock in connection with a certain Line of Credit Agreement with
the Company dated as of May 29, 1997, as amended. Messr. Bruno Guazzoni received
warrants to purchase 3,555,555 shares of the Common Stock, 3,055,555 of which
are subject to stockholder approval as long as the Company maintains its NASDAQ
SamllCap listing, in connection with a certain Consulting Agreement entered into
with the Company dated September 29, 1997, as amended by letter dated February
9, 1998. Except as stated herein, none of such Selling Stockholders is
affiliated with the Company or has had any material relationship with the
Company within the past three years.
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 15,000,000 shares of
Common Stock, par value $.01 per share. As of the date hereof, 3,958,339 shares
of Common Stock are issued and outstanding. The Company currently has reserved
11,041,661 shares of Common Stock for issuance pursuant to outstanding options
and warrants.
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. The Company's
Restated Certificate of Incorporation and By-Laws do not provide for cumulative
voting rights in the election of directors. Accordingly, holders of a majority
of the shares of Common Stock entitled to vote in any election of directors may
elect all of the directors standing for election. Holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board out
of funds legally available therefor. In the event of a liquidation, dissolution
or winding up of the Company, holders of Common Stock are entitled to share
ratably in the assets remaining after payment of liabilities. Holders of Common
Stock have no preemptive, conversion or redemption rights. All of the
outstanding shares of Common Stock are fully-paid and nonassessable.
PREPAID WARRANTS
On September 30, 1997, SmartServ Online, Inc., a Delaware corporation,
consummated the sale of $4,000,000 of Prepaid Warrants of the Company at a
purchase price of $1,000 per warrant in a private placement exempted from the
registration requirements of the Securities Act of 1933, as amended, pursuant to
Regulation D promulgated thereunder.
The Prepaid Warrants are exercisable for shares of the Company's common stock,
par value $0.01 per share. Prepaid Warrants may be exercised at any time after
the earlier of the date on which a registration statement has been declared
effective by the Commission or 90 days after their date of issuance. The Prepaid
Warrants expire on September 29, 2000. One-third of the shares of Common Stock
issued upon exercise of the Prepaid Warrants will be locked up on a pro rata
basis for 60, 90 and 120 days, respectively, following the effectiveness of the
registration statement. The initial exercise price of the Prepaid Warrants will
be the lesser of (i) 70% of the average closing bid price of the Common Stock as
reported on the Nasdaq SmallCap Market for the 10 trading days ending on the day
prior to the date of exercise or (ii) $1.40 per share. The exercise price
percentage shall be reduced by an additional 1% on the 60th day following the
date of original issue of the Prepaid Warrants and by an additional 1% for each
60 day period thereafter that the Prepaid Warrants remain unexercised. In no
event will the exercise price exceed $1.40.
Redemption Provision
At the option of the holders of the Prepaid Warrants, if the Company fails to
maintain an adequate reserve of authorized but unissued shares of Common Stock,
the Company may be required to redeem for cash a certain amount of the Prepaid
Warrant.
16
<PAGE>
Voting, Dividends, Liquidation
The holders of Prepaid Warrants have no right to vote on matters submitted to
the stockholders of the Company, have no right to receive dividends and are not
entitled to share in the assets of the Company in the event of liquidation,
dissolution or winding up of the Company's affairs.
DELAWARE BUSINESS COMBINATION PROVISIONS
Subject to certain exceptions, Section 203 of the General Corporation Law of the
State of Delaware (the "GCL") prohibits a publicly held Delaware corporation
from engaging in any "business combination" with an "interested stockholder" for
a three-year period following the date on which such person became an interested
stockholder, unless (i) prior to such date the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares) or (iii) on or subsequent to such date, the
business combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66-2/3% of the outstanding voting stock which is
not owned by the interested stockholder. A "business combination" when used in
reference to any corporation and any interested stockholder of such corporation
includes a merger, asset sale or other transaction which results in a financial
benefit to the interested stockholder. An "interested stockholder" is
essentially a person who, either alone or together with affiliates and
associates of the corporation, owns (or within the past three years has owned)
15% or more of the corporation's voting stock. It is anticipated that the
provisions of Section 203 of the GCL may encourage any person interested in
acquiring the Company to negotiate in advance with the Board since the
stockholder approval requirement would be avoided if a majority of the Company's
directors then in office approved either the business combination or the
transaction that resulted in such person becoming an interested stockholder. The
Board approved the transaction whereby the Prepaid Warrants were issued.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the GCL enables a corporation in its original certificate
of incorporation or an amendment thereto to eliminate or limit the personal
liability of a director to a corporation or its stockholders for violations of
the director's fiduciary duty, except (i) for any breach of a director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the GCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions), or (iv) for any transaction from which a director derived an
improper personal benefit. The Restated Certificate of Incorporation of the
Company provides in effect for the elimination of the liability of directors to
the extent permitted by the GCL.
Section 145 of the GCL provides, in summary, that directors and officers of
Delaware corporations are entitled, under certain circumstances, to be
indemnified against all expenses and liabilities (including attorney's fees)
incurred by them as a result of suits brought against them in their capacity as
a director or officer, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided, that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, they
are fairly and reasonably entitled to indemnity for such expenses which the
court shall deem proper. Any such indemnification may be made by the corporation
only as authorized in each specific case upon a determination by the
stockholders or disinterested directors that indemnification is proper because
the indemnitee has met the applicable standard of conduct. The Company's By-laws
entitle officers and directors of the Company to indemnification to the fullest
extent permitted by the GCL.
The Company maintains an insurance policy with respect to potential liabilities
of its directors and officers, including potential liabilities under the
Securities Act.
17
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described above, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
PLAN OF DISTRIBUTION
The Shares may be sold or distributed from time to time by the Selling
Stockholders or by pledgees, donees or transferees of, or successors in interest
to, the Selling Stockholders, directly to one or more purchasers (including
pledgees) or through brokers, dealers or underwriters who may act solely as
agents or may acquire Shares as principals, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, at negotiated
prices or at fixed prices, which may be changed. The distribution of the Shares
may be effected in one or more of the following methods: (i) ordinary brokers
transactions, which may include long or short sales, (ii) transactions involving
cross or block trades or otherwise on the NASDAQ SmallCap Market, (iii)
purchases by brokers, dealers or underwriters as principal and resale by such
purchasers for their own accounts pursuant to this Prospectus, (iv) "at the
market" to or through market makers or into an existing market for the Common
Stock, (v) in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected through agents,
(vi) through transactions in options, swaps or other derivatives (whether
exchange listed or otherwise), or (vii) any combination of the foregoing, or by
any other legally available means. In addition, the Selling Stockholders or
their successors in interest may enter into hedging transactions with
broker-dealers who may engage in short sales of Shares in the course of hedging
the positions they assume with the Selling Stockholders. The Selling
Stockholders or their successors in interest may also enter into option or other
transactions with broker-dealers that require the delivery by such
broker-dealers of the Shares, which Shares may be resold thereafter pursuant to
this Prospectus.
Brokers, dealers, underwriters or agents participating in the distribution of
the Shares may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders and/or the purchasers of Shares for
whom such broker-dealers may act as agent or to whom they may sell as principal,
or both (which compensation as to a particular broker-dealer may be in excess of
customary commissions). The Selling Stockholders and any broker-dealers acting
in connection with the sale of the Shares hereunder may be deemed to be
underwriters within the meaning of Section 2(11) of the Securities Act, and any
commissions received by them and any profit realized by them on the resale of
Shares as principals may be deemed underwriting compensation under the
Securities Act. Neither the Company nor any Selling Stockholder can presently
estimate the amount of such compensation. The Company knows of no existing
arrangements between any Selling Stockholder and any other stockholder, broker,
dealer, underwriter or agent relating to the sale or distribution of the Shares.
Except for the net proceeds received from the sale of the Prepaid Warrants, the
Company will not received any proceeds from the sale of the Shares pursuant to
this Prospectus. The Company has agreed to bear the expenses of the registration
of the shares, including legal and accounting fees, and such expenses are
estimated to be $28,000.
The Company has informed the Selling Stockholders that certain anti-manipulative
rules contained in Regulation M under the Exchange Act may apply to their sales
in the market and has furnished each Selling Stockholder with a copy of such
rules and has informed them of the need for delivery of copies of this
Prospectus.
Selling Stockholders may also use Rule 144 under the Securities Act to sell the
Shares if they meet the criteria and conform to the requirements of such Rule.
18
<PAGE>
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company , Two Broadway, New York, New York 10004; its telephone
number is (212) 509-4000.
LEGAL MATTERS
The validity of the Shares of Common Stock offered hereby has been passed upon
for the Company by Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the
Americas, New York, New York 10036-8735; its telephone number is (212) 704-6000.
EXPERTS
The financial statements of SmartServ Online, Inc. appearing in the Company's
Annual Report on Form 10-KSB/A for the year ended June 30, 1997 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon (which contains an explanatory paragraph with respect to the Company's
ability to continue as a going concern) included therein and incorporated herein
by reference. Such financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
19
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE OF THIS PROSPECTUS.
----------------
TABLE OF CONTENTS PAGE
- ------------------------------------------------------------------------- ----
Forward Looking Statements................................................. 3
Available Information ..................................................... 3
Incorporation of Certain Documents by Reference ........................... 4
Prospectus Summary......................................................... 5
Risk Factors .............................................................. 6
Use of Proceeds ........................................................... 14
Selling Stockholders ...................................................... 14
Description of Securities ................................................. 16
Delaware Business Combination Provisions................................... 17
Indemnification of Directors and Officers.................................. 17
Plan of Distribution....................................................... 18
Legal Matters ............................................................. 19
Experts ................................................................... 19
- --------------------------------------------------------------------------------
8,165,000
SHARES OF COMMON STOCK
Par Value $0.01 per Share
(Issuable upon the exercise of
Prepaid Common Stock Purchase Warrants)
SMARTSERV ONLINE, INC.
--------------
PROSPECTUS
--------------
February __, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses payable by the Company in
connection with the issuance and distribution of the securities being registered
hereunder, other than underwriting discounts and commissions. Except for the
Securities and Exchange Commission registration fee, all amounts are estimates.
SEC Registration Fee $ 4,639.20
Legal Fees and Expenses 10,000.00
Accounting Fees and Expenses 10,000.00
Miscellaneous Expenses 3,360.80
----------
Total $28,000.00
==========
All of the costs identified above will be paid by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the GCL enables a corporation in its original certificate
of incorporation or an amendment thereto to eliminate or limit the personal
liability of a director to a corporation or its stockholders for violations of
the director's fiduciary duty, except (i) for any breach of a director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the GCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions), or (iv) for any transaction from which a director derived an
improper personal benefit. The Restated Certificate of Incorporation of the
Company provides in effect for the elimination of the liability of directors to
the extent permitted by the GCL.
Section 145 of the GCL provides, in summary, that directors and officers of
Delaware corporations are entitled, under certain circumstances, to be
indemnified against all expenses and liabilities (including attorney's fees)
incurred by them as a result of suits brought against them in their capacity as
a director or officer, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided, that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, they
are fairly and reasonably entitled to indemnity for such expenses which the
court shall deem proper. Any such indemnification may be made by the corporation
only as authorized in each specific case upon a determination by the
stockholders or disinterested directors that indemnification is proper because
the indemnitee has met the applicable standard of conduct. The Company's By-laws
entitle officers and directors of the Company to indemnification to the fullest
extent permitted by the GCL.
The Company maintains an insurance policy with respect to potential liabilities
of its directors and officers, including potential liabilities under the
Securities Act.
See Item 17 of this Registration Statement regarding the opinion of the
Commission with respect to indemnification for liabilities arising under the
Securities Act.
II-1
<PAGE>
ITEM 16. EXHIBITS.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- -----------------------------------------------------------------------
4.1 Amended and Restated Certificate of Incorporation of the Company
4.2 By-Laws of the Company
4.3 Form of Prepaid Warrant dated September 29, 1997
4.4 Form of Registration Rights Agreement dated September 29, 1997
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP
23.1 Consent of Parker Chapin Flattau & Klimpl, LLP
(included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
24.1 Powers of Attorney of certain directors and officers of the Company
(included as part of Signature Pages)
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
however, that paragraphs (1)(i) and (1)(ii) do not apply if the registration
statement is on Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or 15(d) of the
Exchange Act that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The Company hereby undertakes that, for purposes of determining any liability
under the Securities Act, each filing of the Company's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Exchange Act) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described under Item 15 above, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in
II-2
<PAGE>
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Stamford, State of Connecticut, on February 25, 1998.
SMARTSERV ONLINE, INC.
By: /s/ Sebastian E. Cassetta
------------------------------
Sebastian E. Cassetta
Chief Executive Officer and
Chairman of the Board
II-4
<PAGE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed below by the following persons in the capacities and on the date
indicated.
Signature Title Date
--------- ----- ----
/s/ Sebastian E. Cassetta Chief Executive Officer, February 25, 1998
- ----------------------------- Chairman of the Board,
Sebastian E. Cassetta Secretary and Director
* Director February 25, 1998
- -----------------------------
Steven T. Francesco
/s/ Thomas W. Haller Vice President, Treasurer February 25, 1998
- ----------------------------- and Chief Financial Officer
Thomas W. Haller
* Director February 25, 1998
- -----------------------------
Catherine Cassel Talmadge
* Director February 25, 1998
- -----------------------------
L. Scott Perry
/s/ Claudio Guazzoni Director February 25, 1998
- -----------------------------
Claudio Guazzoni
Director February __, 1998
- -----------------------------
Robert H. Steele
/s/ Mario F. Rossi Director February 25, 1998
- -----------------------------
Mario F. Rossi
*By: /s/ Sebastian E. Cassetta
-------------------------
Sebastian E. Cassetta
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NO. DESCRIPTION OF EXHIBIT PAGE NO./REF.
- ------- ------------------------------------------------------- -------------
4.1 Amended and Restated Certificate of Incorporation
of the Company (A)
4.2 By-Laws of the Company (A)
4.3 Form of Registration Rights Agreement dated
September 29, 1997 (B)
4.4 Form of Prepaid Warrant dated September 29, 1997 (B)
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP E-2
23.1 Consent of Parker Chapin Flattau & Klimpl, LLP
(included in Exhibit 5.1) E-2
23.2 Consent of Ernst & Young LLP E-3
24.1 Powers of Attorney of certain directors and officers
of the Company (C)
(A) Incorporated herein by reference to the Company's Registration Statement on
Form SB-2 (file number 33-114) filed with the Commission on January 5,
1996.
(B) Incorporated herein by reference to the Company's Form 8-K/A (file number
000-28008) filed with the Commission on October 14, 1997.
(C) Included as part of the signature page on page II-5 of this filing.
E-1
Exhibit 5.1
OPINION OF PARKER CHAPIN FLATTAU & KLIMPL, LLP
[LETTERHEAD]
February 25, 1998
SmartServ Online, Inc.
One Station Place
Stamford, Connecticut 06902
Ladies and Gentlemen:
We have acted as counsel to SmartServ Online, Inc. (the "Company") in connection
with Amendment No. 1 to the Registration Statement on Form S-3 (file no.
333-39377) filed by the Company with the Securities and Exchange Commission (the
"Registration Statement") relating to up to 8,165,000 shares (the "Shares") of
the Company's Common Stock, par value $0.01 per share (the "Common Stock"). Of
such Shares, 2,995,476 may be issued upon the exercise of Prepaid Common Stock
Purchase Warrants which were issued to the holders of the Shares (the "Prepaid
Warrants").
In connection with the foregoing, we have examined, among other things, the
Registration Statement, the Prepaid Warrants and originals or copies,
satisfactory to us, of all such corporate records and of all such agreements,
certificates and other documents as we have deemed relevant and necessary as a
basis for the opinion hereinafter expressed. In such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity with the original documents
submitted to us as copies. As to any facts material to such opinion, we have, to
the extent that relevant facts were not independently established by us, relied
on certificates of public officials and certificates, oaths and declarations of
officers or other representatives of the Company.
Based upon the foregoing, we are of the opinion that the Shares issuable upon
the exercise of the Prepaid Warrants (when such Shares are issued in accordance
with the terms of the Prepaid Warrants) will be legally issued, fully paid and
non-assessable.
We hereby consent to the use of our name under the caption "Legal Matters" in
the Prospectus constituting a part of the Registration Statement and to the
filing of a copy of this opinion as an exhibit.
Very truly yours,
/s/ Parker Chapin Flattau & Klimpl, LLP
E-2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement on Form S-3 (File No. 333-39377) and related
Prospectus of SmartServ Online, Inc. for the registration of 8,165,000 shares of
its common stock and to the incorporation by reference therein of our report
dated October 6, 1997, with respect to the financial statements of SmartServ
Online, Inc. included in its Annual Report (Form 10-KSB/A) for the year ended
June 30, 1997 filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Stamford, CT.
February 20, 1998
E-3
