AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 1996
REGISTRATION NO. 333-4057
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NETLIVE COMMUNICATIONS, INC.
(Name of small business issuer in its charter)
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<TABLE>
<S> <C> <C>
DELAWARE 7373 13-3848652
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
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584 BROADWAY
NEW YORK, NEW YORK 10012
(212) 343-7082
(Address and telephone number of principal executive offices)
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584 BROADWAY
NEW YORK, NEW YORK 10012
(Address of principal place of business or intended principal place of business)
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LAURENCE ROSEN, PRESIDENT
NETLIVE COMMUNICATIONS, INC.
584 BROADWAY
NEW YORK, NEW YORK 10012
(212) 343-7082
(Name, address and telephone number of agent for service)
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COPIES TO:
<TABLE>
<S> <C>
LAWRENCE G. NUSBAUM, ESQ. JAY M. KAPLOWITZ, ESQ.
RICHARD A. FRIEDMAN, ESQ. GERSTEN SAVAGE KAPLOWITZ
GUSRAE, KAPLAN & BRUNO & CURTIN, LLP
120 WALL STREET 575 LEXINGTON AVENUE
NEW YORK, NEW YORK 10005 NEW YORK, NEW YORK 10022
(212) 269-1400 (212) 752-9700
(212) 809-5449 (FAX) (212) 752-9713 (FAX)
</TABLE>
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this Registration Statement becomes effective.
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 check the following box. X
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value........ 1,035,000(2) $ 5.50 $5,692,500 $ 1,963.93
Common Stock Purchase Warrants........ 690,000(3) $ .10 $ 69,000 $ 23.79
Common Stock, $.0001 par value(4)..... 690,000 $ 5.50 $3,795,000 $ 1,308.62
Underwriter's Warrants(5)............. 1 $10.00 $ 10 $ 0.01
Common Stock, $.0001 par value(6)..... 90,000 $ 6.60 $ 594,000 $ 204.83
Common Stock Purchase Warrants(7)..... 60,000 $ .12 $ 7,200 $ 2.48
Common Stock, $.0001 par value(8)..... 60,000 $ 6.60 $ 396,000 $ 136.55
Common Stock, $.0001 par value(9)..... 417,500 $ 5.50 $2,296,250 $ 791.81
Common Stock Purchase Warrants(9)..... 1,000,000 $ .10 $ 100,000 $ 34.48
Common Stock, $.0001 par value(10).... 1,000,000 $ 5.50 $5,500,000 $ 1,896.55
TOTAL.............................. $ 6,363.05
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) Includes 135,000 shares of Common Stock subject to the Underwriter's
over-allotment option.
(3) Includes 90,000 Common Stock Purchase Warrants subject to the Underwriter's
over-allotment option.
(4) Issuable upon exercise of the Common Stock Purchase Warrants. Includes
shares of Common Stock issuable upon exercise of the Underwriter's
over-allotment option.
(5) To be issued to the Underwriter, entitling the Underwriter to purchase up
to 90,000 Shares of Common Stock and 60,000 Common Stock Purchase Warrants.
(6) Issuable upon the exercise of the Underwriter's Warrants.
(7) Issuable upon exercise of the Underwriter's Warrants, entitling the
Underwriter to purchase up to 60,000 Common Stock Purchase Warrants.
(8) Issuable upon the exercise of the Warrants included in the Underwriter's
Warrants.
(9) To be sold by the Selling Securityholders.
(10) Issuable upon the exercise of the Common Stock Purchase Warrants to be sold
by the Selling Securityholders.
Pursuant to Rule 416, there are also being registered such additional shares
as may become issuable pursuant to anti-dilution provisions of the Common Stock
Purchase Warrants and the Underwriters' Stock Warrants and Underwriters'
Warrants.
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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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an offering by the Company of shares of Common Stock and
Common Stock Purchase Warrants (the "Prospectus") and one to be used in
connection with the sale of shares of Common Stock and Common Stock Purchase
Warrants by certain selling securityholders (the "Selling Securityholder
Prospectus"). The Prospectus and the Selling Securityholder Prospectus will be
identical in all respects except for the alternate pages for the Selling
Securityholder Prospectus included herein which are labeled "Alternate Page for
Selling Securityholder Prospectus."
<PAGE>
NETLIVE COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
FORM SB-2 ITEM CAPTION IN PROSPECTUS
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PART I
1. Forepart of the Registration Statement and
Outside Front Cover of Prospectus.......... Cover Page; Outside Front Page of
Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information and Risk Factors....... Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Risk Factors; Underwriting
6. Dilution................................... Dilution
7. Selling Security Holders................... Selling Securityholders
8. Plan of Distribution....................... Underwriting
9. Legal Proceedings.......................... Business--Legal Proceedings
10. Directors, Executive Officers, Promoters
and Control Persons........................ Management and Principal Stockholders
11. Security Ownership of Certain Beneficial
Owners and Management...................... Principal Stockholders
12. Description of Securities.................. Description of Securities
13. Interest of Named Experts and Counsel...... Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
15. Organization within Last Five Years........ Not Applicable
16. Description of Business.................... Business
17. Management's Discussion and Analysis or
Plan of Operation.......................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
18. Description of Property.................... Business--Facilities
19. Certain Relationships and Related
Transactions............................... Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters........................ Not Applicable
21. Executive Compensation..................... Executive Compensation
22. Financial Statements....................... Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure................................. Not Applicable
PART II
24. Indemnification of Directors and
Officers................................... Indemnification of Directors and Officers
25. Other Expenses of Issuance and Other Expenses of Issuance and
Distribution............................... Distribution
26. Recent Sales of Unregistered Securities.... Recent Sales of Unregistered Securities
27. Exhibits................................... Exhibits
28. Undertakings............................... Undertakings
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 2, 1996
[LOGO]
900,000 SHARES OF COMMON STOCK AND
600,000 COMMON STOCK PURCHASE WARRANTS
NetLive Communications, Inc., a Delaware corporation (the "Company") hereby
offers 900,000 shares of common stock, $.0001 par value (the "Common Stock") of
the Company and 600,000 Common Stock Purchase Warrants (the "Warrants"). The
Common Stock and the Warrants offered hereby (sometimes hereinafter collectively
referred to as the "Securities") will be separately tradeable immediately upon
issuance and may be purchased separately. Investors will not be required to
purchase shares of Common Stock and Warrants together or in any particular
ratio. Each Warrant entitles the holder to purchase one share of Common Stock at
an exercise price of $5.50 (the "Exercise Price"), subject to adjustment,
commencing two years after the date of this Prospectus (the "Effective Date") or
sooner if the Warrants are called for redemption until the close of business on
the fifth year after the Effective Date.
The Warrants are redeemable, in whole or in part, by the Company at a price
of $.05 per Warrant, commencing one year after the Effective Date and prior to
their expiration, provided that (i) prior written notice of not less than 30
days is given to the Warrantholders, (ii) the closing bid price (as defined) of
the Company's Common Stock for the twenty consecutive trading days immediately
prior to the date on which the notice of redemption is given, shall have
exceeded $7.50 per share, and (iii) Warrantholders shall have exercise rights
until the close of business the day preceding the date fixed for redemption.
Prior to this offering (the "Offering"), there has been no public market for
the Company's Common Stock and Warrants, and there can be no assurance that such
a public market will develop or be sustained after the completion of the
Offering. The Offering price of the Common Stock and the exercise price and
other terms of the Warrants were established by negotiations between the Company
and May Davis Group, Inc. (the "Underwriter") and do not bear any direct
relationship to the Company's assets, book value, results of operations or any
other criteria of value. The Company has applied for the listing of the Common
Stock and Warrants on the NASDAQ SmallCap Market ("NASDAQ") under the symbols
"NETL" and "NETLW," respectively.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS," COMMENCING ON PAGE 7 AND
"DILUTION".
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
[CAPTION]
<TABLE>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................... $5.50 $.55 $4.95
Per Warrant................................. $.10 $.01 $.09
Total(3).................................... $5,010,000 $501,000 $4,509,000
</TABLE>
(1) Does not include additional compensation to the Underwriter consisting of
(i) a non-accountable expense allowance equal to 3% of the aggregate
purchase price of the Securities, or $150,300 ($172,845 if the Underwriter's
over-allotment option is exercised in full) of which $25,000 has been paid
to date; (ii) warrants to purchase 90,000 shares of Common Stock at $6.60
per share and 60,000 Common Stock Purchase Warrants at $.12 per Warrant; and
(iii) a three year consulting agreement providing for fees totalling
$90,000, which is payable to the Underwriter in full on the closing of this
Offering. For additional information concerning further agreements between
the Company and the Underwriter, including an agreement to indemnify the
Underwriter against certain civil liabilities, including liabilities under
the Securities Act of 1933, see "Underwriting".
(2) After deducting Underwriting discounts and commissions, but before the
payment of the Underwriter's non-accountable expense allowance in the amount
of $150,300 ($172,845 if the Underwriter's over-allotment option is
exercised in full) and other expenses of the Offering payable by the Company
(estimated at $385,000).
(3) The Company has granted the Underwriter an option to purchase up to 135,000
additional shares of Common Stock and 90,000 additional Warrants, upon the
same terms and conditions set forth above, solely to cover over-allotments,
if any (the "Over-allotment Option"). If the Over-allotment Option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be increased to $5,761,500,
$576,150, and $5,185,350 respectively.
The Common Stock and Warrants are being offered on a "firm commitment" basis,
subject to prior sale, when, as, and if delivered to and accepted by the
Underwriter, and subject to certain other conditions and legal matters. The
Underwriter reserves the right to withdraw, cancel or modify the Offering and to
reject orders in whole or in part. It is expected that delivery of the
certificates representing the shares of Common Stock and Warrants will be made
at the offices of the Underwriter, in New York City, on or about ,
1996.
MAY DAVIS GROUP, INC.
THE DATE OF THIS PROSPECTUS IS , 1996
<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.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND THE WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-------------------
The Company intends to distribute to its stockholders annual reports
containing financial statements audited and reported upon by its independent
public accountants after the close of each fiscal year, and will make such other
periodic reports as the Company may determine to be appropriate or as may be
required by law. The Company's fiscal year ends March 31st of each year.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including financial statements and notes thereto appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. Except as otherwise indicated herein, the
information contained in this Prospectus gives no effect to the exercise of (i)
the Over-allotment Option, (ii) the Underwriter's Warrants, (iii) Warrants
offered hereby or issued to private investors, or (iv) options granted under the
Company's stock option plan. All per share information in this Prospectus has
been adjusted to reflect an 837.14 for one stock split of the Company's Common
Stock effected in March 1996.
THE COMPANY
NetLive Communications, Inc. (the "Company") is a development stage company
recently organized to provide live, one-on-one, videoconferenced entertainment,
educational and counseling services over the Internet. The Company is developing
and intends to utilize technologies that will allow customers to view and
communicate with the Company's professionals and entertainment performers over
the Internet in an interactive and user-friendly environment. It is intended
that, at such time as the Company either develops or licenses technology from
others, customers will be able to simultaneously view and speak with the
Company's live professionals. The Company plans to bill its customers according
to the length of time that they remain on-line. No assurance can be given as to
when, if ever, such technology will be ready to be used commercially or that it
will be commercially accepted. To date, other than the continued development of
its technology and business plan and raising financing, the Company has not
conducted any business nor generated any revenues or profits and no assurance
can be given, that it will be able to do so in the future.
The Internet is a global web of computer networks. The expansion of this
information and communications medium has created a new consumer market. The
Company plans to service this market by providing live videoconferenced
one-on-one entertainment, educational and counseling services through the use of
technology designed to enable users to view live, individual, video broadcasts
over the Internet. The Company believes that the convergence of the growing
Internet medium and Internet-based videoconferencing technology presents a
unique opportunity to bring the Company's services directly into consumers'
homes.
The Company's proposed entertainment services are initially intended to
include Jeane Dixon's PsychicNet ("PsychicNet") and HolisticVisions. It is
intended that PsychicNet will employ professional psychics to provide live
videoconferenced psychic advice including tarot card readings, astrological
chart analysis and general psychic guidance. It is intended that
HolisticVisions, in addition to PsychicNet, will employ professional psychics to
provide live videoconferenced psychic advice including tarot card readings,
astrological chart analysis and general psychic guidance. In addition, the
Company's proposed HolisticVisions World Wide Web ("WWW") site will offer
consumers information on holistic health, spirituality, personal fulfillment and
other "New Age" related issues.
The Company's proposed educational services are initially intended to
include TutorNet, which will provide customers with instruction in a variety of
academic subjects over the Internet. It is intended that TutorNet will provide
tutoring services for students ranging from elementary school to graduate
school.
The Company's proposed counseling services are initially intended to include
TherapyNet, which will provide customers with a variety of psychological advice
and counseling over the Internet. It is intended that TherapyNet will provide
clients with a full range of psychological counseling from experienced mental
health professionals, who videoconference directly with the patient in the
privacy of his home or office.
3
<PAGE>
With the exception of having retained the services of certain consultants,
on a part-time basis, who are helping the Company develop its proposed TutorNet
and TherapyNet services and WWW sites, the Company has not, as of the date
hereof, entered into any agreements with any professional tutors or mental
health professionals.
Additional proposed entertainment, educational and counseling services which
the Company is considering include FantasyNet, ModelNet, WebClinic and CookNet.
See "Business."
The Company is continuously monitoring and evaluating the proposed services
it has under development in order to establish priorities and determine the
probabilities of success. In addition, the Company is reviewing additional
services which it may consider offering. No assurance can be given that the
Company will fully develop or offer its currently proposed services, or that, if
developed and offered, such proposed services will be accepted by consumers.
It is intended that computer users will be able to access the Company's
services over the Internet using a Netscape browser based user interface. The
Company intends for its integrated WWW commerce server to provide for secure
transaction processing, efficient scheduling, and automated billing. The Company
also is designing its system to automatically collect and process market data.
The Company is developing and plans to maintain databases containing
profiles of all customers utilizing the Company's services. The Company believes
that this information will enable the Company to better understand its customer
base, to develop new and innovative services and to create targeted marketing
programs geared toward efficiently selling the Company's services. The Company
also intends to employ focused consumer marketing techniques and to track
marketing effectiveness utilizing advanced database and analytical methods. It
is intended that the Company will initially market its services worldwide over
the Internet and through traditional media in targeted markets throughout North
America. In addition, the Company plans, in the future, to market through
traditional media in targeted markets throughout Europe and Asia.
The Company was organized in the State of Delaware on August 23, 1995. The
Company's executive offices are located at 584 Broadway, New York, New York
10012, and its telephone number at that address is (212) 343-7082.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered(1)........................ 900,000 shares of Common Stock and 600,000
Warrants. Each Warrant entitles the holder to
purchase one share of Common Stock at a price
of $5.50 during a three year period
commencing two years after the date of this
Prospectus. The exercise price and the number
of shares issuable upon exercise of the
Warrants are subject to adjustment in certain
circumstances. See "Description of
Securities."
Common Stock Outstanding Before Offering..... 1,700,000 shares.
Common Stock Outstanding After
Offering(1)(2)............................... 2,600,000 shares.
Warrants Outstanding Before Offering......... 1,000,000.
Warrants Outstanding After Offering.......... 1,600,000 Warrants.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Exercise Terms............................... Each Warrant entitles the holder thereof to
purchase one share of Common Stock for $5.50,
during the three year period commencing two
years after the Effective Date, subject to
adjustment in certain circumstances. See
"Description of Securities--Warrants."
Expiration Date.............................. , 2001 (five years after the Effective Date).
Redemption................................... Redeemable by the Company, in whole or in
part, at a price of $.05 per Warrant,
commencing one year after the Effective Date
upon not less than 30 days prior written
notice to the holders of such Warrants,
provided that the closing bid price (as
defined) of the Company's Common Stock for
the twenty consecutive trading days
immediately prior to the date on which the
notice of redemption is given, shall have
exceeded $7.50 per share.
Use of Proceeds.............................. Expansion of operations, development of
proposed business, capital expenditures and
working capital. See "Use of Proceeds".
Risk Factors................................. Investment in the securities offered hereby
involves a high degree of risk and immediate
substantial dilution. See "Risk Factors" and
"Dilution".
Proposed NASDAQ Symbols:(2)
Common Stock............................... NETL
Warrants................................... NETLW
</TABLE>
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(1) Does not include (i) 135,000 shares of Common Stock and 90,000 Warrants,
subject to the Underwriter's Over-allotment Option; (ii) 1,000,000 shares of
Common Stock issuable upon the exercise of the outstanding Warrants, (iii)
150,000 shares of Common Stock issuable upon the exercise of the
Underwriter's Warrants; (iv) 800,000 shares of Common Stock reserved for
issuance pursuant to the Company's incentive stock option plan; or (v)
260,000 shares of Common Stock reserved for issuance pursuant to certain
other options. See "Management", "Underwriting" and "Description of
Securities".
(2) The proposed trading symbols do not imply that a liquid and active market
will be developed or sustained for the securities upon completion of the
Offering.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary of financial information should be read in conjunction
with the Unaudited Financial Statements and notes thereto appearing elsewhere in
this Memorandum.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 23, 1995
(DATE OF
INCEPTION)
TO MARCH 31, 1996
-----------------
<S> <C>
Selling, General and Administrative Expenses............... $243,129
Net loss................................................... (243,129)
Net loss per share......................................... (0.16)
Weighted average number of common shares outstanding(1).... 1,543,385
</TABLE>
- ------------
(1) Reflects incorporation of the Company on August 23, 1995. See "Certain
Transactions."
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------
(ACTUAL) (AS ADJUSTED)(1)(2)
-------- -------------------
<S> <C> <C>
Current Assets................................... $162,166 $ 4,224,616
Total Assets..................................... 282,438 4,336,909
Total Liabilities................................ 250,631 143,033
Deficit Accumulated During the Development
Stage............................................ (243,129) (431,760)
</TABLE>
- ------------
(1) Adjusted to give effect to the sale of 900,000 shares of Common Stock and
600,000 Warrants offered hereby and the receipt of $3,909,200 of net
proceeds, after giving effect to $25,500 of previously paid Offering costs.
(2) Reflects the issuance of 200,000 shares of Common Stock in connection with
the May 1996 private placement and the use of a portion of the proceeds of
such private placement to repay notes payable.
6
<PAGE>
RISK FACTORS
An investment in the securities offered hereby is speculative in nature,
involves a high degree of risk and should not be made by any investor who cannot
afford the loss of his entire investment. Each prospective purchaser should
carefully consider the following risks and speculative factors associated with
this Offering, as well as other factors described elsewhere in this Prospectus,
before making an investment.
DEVELOPMENT STAGE COMPANY. The Company is in the development stage, has been
engaged primarily in organizational activities and has had limited operations.
As a result, the likelihood of success of the Company's operations must be
considered in view of all of the risks, expenses and delays inherent in the
establishment of a new business, including, but not limited to, unforeseen
expenses, complications and delays, the initiation of marketing activities, the
uncertainty of market acceptance of new services, intense competition from
larger more established competitors and other factors. Accordingly, there can be
no assurance that the business of the Company will be successful. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
EXPLANATORY PARAGRAPH IN INDEPENDENT AUDITORS REPORT; DEPENDENCE UPON
OFFERING PROCEEDS. The Company incurred a net loss of $243,129 for the period
from August 23, 1995 (date of inception) to March 31, 1996. In addition, the
Company had a working capital deficiency of $76,185 and a deficit accumulated
during the development state of $243,129 at such date. As a result of the
Company's working capital deficiency and deficit accumulated during the
development stage, the Company's independent auditors' report on the Company's
financial statements for the period from August 23, 1995 (date of inception) to
March 31, 1996 contains an explanatory paragraph discussing the fact that there
is substantial doubt about the Company's ability to continue as a going concern.
The Company has an immediate need for the net proceeds of this Offering, or
other financing in order to continue the development of its proposed services,
and to commence its operations and the marketing of its services. The Company
believes that the proceeds of this Offering will be sufficient to fund the
Company's operations for a period of approximately one year from the date of
this Prospectus, including the commencement of its operations and marketing of
its services. This estimate is based upon the Company's limited operations to
date and its estimates as to cash flow. However, in the event that such
estimates are inaccurate or future events prevent the Company from implementing
its plans as anticipated, the Company may be materially and adversely effected.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Financial Statements."
ANTICIPATED INITIAL LOSSES; WORKING CAPITAL DEFICIT; NO ASSURANCE OF
PROFITABILITY. During the period from August 23, 1995 (date of inception) to
March 31, 1996, the Company incurred a net loss of $243,129. In addition, at
March 31, 1996, the Company had a working capital deficit of $76,185 and a
deficit accumulated during the development stage of $243,129. The Company has
not derived any revenues and has continued to incur losses. There can be no
assurance that the Company will be able to profitably implement and market its
proposed services. It is anticipated that until the Company is able to generate
significant revenues, the Company will sustain additional losses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Use of Proceeds" and "Proposed Business."
NEED FOR ADDITIONAL FINANCING. Although the Company believes that the net
proceeds from the sale of the Securities offered hereby will be sufficient to
fund the Company's operations for a period of approximately one year, such
belief cannot give rise to an assumption that the Company's cost estimates are
accurate or that the proceeds to be received from this Offering will provide
sufficient working capital for at least one year of operations. In addition, in
the event of delays or unanticipated costs or problems in the development and
marketing of the Company's proposed services, the Company may require
substantial additional financing. Further, the Company's ability to continue
operations after one year
7
<PAGE>
will depend substantially upon the availability of cash flow from its operations
or the ability of the Company to raise additional funds through alternative
financing methods, if necessary. There can be no assurance that the Company will
be able to obtain additional funding when needed, or that such funding, if
available, will be obtained on terms acceptable to the Company. In the event
that the Company's operations do not generate sufficient cash flow, or the
Company cannot obtain additional funds if and when needed, the Company may be
forced to curtail or cease its activities, which would likely result in loss to
investors of all or a substantial portion of their investment. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Use of Proceeds."
NEW AND UNCERTAIN MARKET; POSSIBLE LACK OF MARKET ACCEPTANCE. The market for
Internet services has only recently begun to develop, is rapidly evolving and is
characterized by an increasing number of market entrants who have developed
products and services for communication and commerce over the Internet. The
Company's future success will depend, in part, upon increased commercial use of
the Internet. In addition, the market for and success of the Company's proposed
services will also depend upon acceptance by its potential customers. While many
commercial, educational and governmental networks are currently connected to the
Internet, increased commercial use of the Internet will depend upon several
critical issues (i.e., security, reliability, cost, ease of use and access, and
quality of service). There can be no assurance that widespread commercial use of
the Internet or the Company's services will develop or be accepted.
TECHNOLOGICAL CHANGE AND NEW SERVICES. The market for Internet services is
characterized by rapidly changing technology, evolving industry standards,
changing customer needs and demands, and frequent new product and service
introductions. The Company's future success will depend, in part, on its ability
to develop, maintain and improve new and existing technology for use in
connection with the provision of its videoconferenced services over the
Internet, as well as on its ability to develop and provide new and desirable
services that capitalize on the increased use of the Internet. In addition, the
Company's success will also depend on its ability to attract and retain talented
professionals, and on its ability to provide extensive support and services to
its customers. There can be no assurance that the Company will be successful in
effectively developing or providing new technologies or services on a timely
basis or that such technologies or services will achieve market acceptance.
DEPENDENCE ON THE INTERNET. Although it is anticipated that some sales of
the Company's products will be to PC users who are able to use the Company's
services by connecting directly to the Company's network using a modem, sales of
the Company's services will depend in large part upon a robust industry and
infrastructure for providing Internet access and carrying Internet traffic. The
Internet may not prove to be a viable commercial marketplace because of
inadequate development of the necessary infrastructure, such as a reliable
network backbone or timely development of complementary products, such as high
speed modems. Because global commerce and on-line exchange of information on the
Internet and other similar open wide area networks are new and evolving, it is
difficult to predict with any assurance whether the Internet will prove to be a
viable commercial marketplace. There can be no assurance that the infrastructure
or complementary products necessary to make the Internet a viable commercial
marketplace will be developed, or, even if developed, that the Internet
necessarily will become a viable commercial marketplace. If the necessary
infrastructure or complementary products are not developed, or if the Internet
does not become a viable commercial marketplace, the Company's business,
operating results and financial condition will be materially adversely affected.
CUSTOMER CHARGEBACKS. The Company intends to utilize "900" numbers in
connection with its proposed telephone entertainment services and may therefore
be subject to the risk of non-collection of charges made on such numbers which
are not paid by the callers. In the event of nonpayment by the caller, the
Company may be required to pay the service bureau which it has engaged for such
service, which, in turn, is obligated to pay the telephone company. In addition,
the Company may be required to maintain a reserve for consumer chargebacks with
regard to its proposed telephone entertainment
8
<PAGE>
services. Although the Company has not created such reserve, the Company
believes that such reserve will be based on estimated refunds, credits and
uncollectible charges. In the event that such reserve is implemented, there can
be no assurance that the Company's proposed reserves will be adequate to cover
actual chargebacks. Although the Company will attempt to minimize any failure to
collect and the resulting chargebacks upon implementing the proposed telephone
entertainment service, the possibility of significant loss of revenues related
to nonpayment of charges could have a material adverse effect on the Company's
financial condition and results of operations.
DEPENDENCE ON THIRD PARTY SERVICE BUREAUS. The Company will be dependent
upon service bureaus to provide the Company's billing and collection services
and accounts receivable financing for the Company's proposed telephone
entertainment services. The Company believes that it will also be dependent upon
such service bureaus to provide other services including call processing and
inbound telemarketing. The Company believes that it will be able to obtain a
service bureau, however, no assurance can be given that it will be able to do so
on reasonable terms or otherwise. While the Company believes that there are a
sufficient number of service bureaus able to extend credit and provide services
to the Company in connection with its proposed telephone entertainment services,
a decline in the financial condition or economic prospects of the service
bureaus with which the Company will do business, resulting in their inability to
advance funds to the Company or otherwise pay amounts owed, under certain
circumstances could have a material adverse effect on the Company.
DEPENDENCE ON THIRD PARTY CARRIERS. For its proposed telephone entertainment
services, the Company will be dependent upon long distance, regional and local
telephone carriers ("Carriers") to transmit "900" number calls and to bill and
collect telephone charges. Failure by Carriers to provide such services may have
a material adverse effect on the Company's proposed telephone entertainment
services. Moreover, changes in billing and collection practices of Carriers
could create substantial additional costs to the Company, which could have a
significant impact on the Company and exacerbate the risks inherent in its
business.
LIMITATIONS ON PRICE AND ACCESS TO TELEPHONE SERVICES. In response to
pressure from and monitoring by regulatory authorities, the Company believes
that Carriers have voluntarily imposed limitations on amounts billed to
consumers for per minute and flat rate calls. Although the Company intends to
implement per minute rates which will be below such limits, there can be no
assurance that Carriers will not further reduce these limits or implement other
billing restrictions that would require the Company to alter its proposed
pricing structure or other methods of operations. In addition, the Company
believes that the rates charged by Carriers for telephone services have
increased and future increases may adversely affect the Company's proposed
operating margins. Furthermore, consumers may request that Carriers block their
ability to access "900" number services and Carriers may involuntarily block
consumer access to such services if the consumer fails to pay for "900" number
billed service. Blocking of substantial consumer access to "900" number services
could limit the market for the Company's proposed telephone entertainment
services and may adversely affect the Company's results of operations.
GOVERNMENT REGULATION. The Company's proposed telephone entertainment
services will be subject to extensive regulation at the federal, state and local
levels, and the effect and extent of such regulations has not been fully
reviewed or addressed by the Company. There can be no assurance that the Company
will be able to comply with applicable laws and regulations, that such laws and
regulations will not change, or that regulatory authorities will not take action
to limit or prevent the Company from advertising, marketing, promoting or
offering its proposed telephone entertainment services. Failure to comply with
applicable laws and regulations could prevent the Company from offering its
proposed telephone entertainment services and could subject the Company to civil
remedies, including substantial fines, penalties and injunctions, as well as
possible criminal sanctions, which could have a material adverse effect on the
Company. See "Business--Government Regulations."
9
<PAGE>
POTENTIAL LIABILITY AND INSURANCE. The Company may be subject to substantial
liability as a result of claims made by consumers arising out of services
provided by the Company's independent contractors and employees. The Company is
aware that claims have been made against other companies engaged in providing
telephone entertainment services on the basis of advice or prognostications
disseminated through such services. While the Company does not currently
maintain insurance, the Company intends to attempt to purchase such insurance at
such time as it has sufficient funds available for such purpose. There can be no
assurance that the Company will be able to obtain such insurance, or if
obtained, that such insurance will be sufficient to cover potential claims or
that an adequate level of coverage will be available in the future at a
reasonable cost. The Company will seek to limit any such potential liability by
providing disclaimers in connection with its services. There can be no
assurance, however, that the Company will not face claims resulting in
substantial liability for which the Company is partially or completely
uninsured. A partially or completely uninsured claim against the Company, if
successful and of sufficient magnitude, would have a material adverse effect on
the Company.
COMPETITION. The market for Internet services is new, intensely competitive,
rapidly evolving and subject to rapid technological change. The Company expects
to encounter significant competition from numerous companies, many of which may
possess substantially greater technical, financial, sales and marketing
resources than the Company. The Company believes that competition from new
entrants is expected to increase as commercial acceptance and use of the
Internet expands. Such increased competition may have a material adverse effect
on the Company's ability to successfully market its services.
The Company's entertainment, educational and counseling services will also
face intense competition from numerous other competing services and products
including, but not limited to, telephone services, in-person consultations,
newspapers, magazines, books, audio and video cassettes, as well as various
other forms of services which may be less expensive or provide other advantages
to consumers. There can be no assurance that the Company will be able to compete
successfully with other such products and services.
IMMEDIATE AND SUBSTANTIAL DILUTION. This Offering involves immediate and
substantial dilution to investors. As of March 31, 1996, the negative net
tangible book value of the Company was $40,392, or approximately, ($.03) per
share of Common Stock. Purchasers of shares of Common Stock in the Offering will
incur immediate dilution in net tangible book value of $3.89 per share of Common
Stock (attributing no value to the Warrants), which is approximately 70.7% based
on the initial public offering price of $5.50 per share. All of the Company's
present stockholders purchased their shares at a price substantially less than
the initial public offering price of the Common Stock. Accordingly, to the
extent that the Company incurs losses, the public investors will bear most of
the risk of such losses. See "Dilution".
BROAD DISCRETION IN USE OF PROCEEDS. Approximately 17.6% of the net proceeds
of this Offering will be applied to working capital and other general corporate
purposes. Accordingly, management of the Company will have broad discretion as
to the application of such proceeds. See "Use of Proceeds."
DEPENDENCE UPON MANAGEMENT; "KEY MAN LIFE INSURANCE"; ATTRACTION AND
RETENTION OF KEY PERSONNEL. The success of the Company will be dependent on the
efforts of Laurence Rosen, the Company's President and Chief Executive Officer.
The loss of the services of Mr. Rosen could have a material adverse effect on
the Company. The Company maintains "key man life insurance" on the life of Mr.
Rosen in the amount of $1,000,000. The Company's future success will depend in
part on its ability to attract and retain qualified personnel to manage the
development and future growth of the Company. There can be no assurance that the
Company will be successful in attracting and retaining such personnel.
10
<PAGE>
CONTROL BY MANAGEMENT. The Company's officers and directors currently own
and have the power to vote in excess of 61% of the total outstanding shares of
Common Stock. In addition, upon completion of this Offering, management of the
Company will continue to beneficially own shares of Common Stock representing in
excess of 40% of all votes entitled to be cast. Accordingly, management of the
Company will, as a practical matter, be in a position to elect a majority of the
directors of the Company and to control the Company's affairs.
POTENTIAL CONFLICTS OF INTEREST. The Company's advisors and service
providers may be employed by or work for others, and, accordingly, may devote
only a small portion of their time to the Company. In addition, these
individuals may have entered or may enter into employment, consulting or other
advisory arrangements with other entities and, as a result, their obligations to
these other entities may conflict or compete with their obligations to the
Company. The Company will seek to enter into non-compete and confidentiality
agreements with such persons. See "Management".
SHARES ELIGIBLE FOR FUTURE SALE. The Company currently has 1,700,000 shares
of Common Stock outstanding that are "restricted securities", as that term is
defined under Rule 144 promulgated under the Securities Act of 1933, as amended
(the "Securities Act"). In general, under Rule 144, a person who has satisfied a
two-year holding period may, under certain circumstances, sell within any three
month period a number of shares of Common Stock that does not exceed the greater
of 1% of the then outstanding shares of Common Stock or the average weekly
trading volume in such shares during the four calendar weeks prior to such sale.
Rule 144 also permits, under certain circumstances, the sale of shares without
any quantity or other limitation by a person who is not an affiliate of the
Company and who has satisfied a three-year holding period. All stockholders of
the Company have agreed not to publicly sell shares of the Company's Common
Stock for a period of two years from the date of this Prospectus without the
prior written consent of the Underwriter. Any substantial sale of restricted
securities under Rule 144 could have a significant adverse effect on the market
price of the Company's securities. See "Shares Eligible for Future Sale."
NO DIVIDENDS AND NONE ANTICIPATED. The holders of Common Stock are entitled
to receive dividends when, as and if declared by the Board of Directors, out of
funds legally available therefor. To date, no dividends have been declared or
paid on the Common Stock, and the Company does not intend to declare any
dividends in the foreseeable future. It is currently anticipated that earnings,
if any, will be used to develop and finance the Company's proposed business
operations. See "Dividend Policy."
NO ASSURANCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; VOLATILITY
OF STOCK PRICE. Prior to this Offering, there has been no market for any of the
Company's securities. There can be no assurance that a trading market will
develop after this Offering for any of the Company's securities or that, if
developed, it will be sustained. The initial public offering price of the
Securities and the exercise price and other terms of the Warrants were
established by negotiations between the Company and the Underwriter and do not
bear any direct relationship to the Company's assets, book value, results of
operations or any other criteria of value. See "Underwriting".
The stock market has, from time to time, experienced significant price and
volume fluctuations that may be unrelated to the operating performance of any
particular company. In addition, the market prices of the securities of many
publicly-traded companies in the Internet industry have in the past been, and
can in the future be expected to be, especially volatile. Various factors and
events, including future announcements of new service offerings by the Company
or its competitors, developments or disputes concerning, among other things,
government regulations in the United States, and economic and other external
factors, as well as fluctuations in the Company's financial results, could have
a significant impact on the market price of the Company's securities.
11
<PAGE>
NASDAQ ELIGIBILITY AND MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF
SECURITIES FROM NASDAQ MARKET; RISKS OF LOW-PRICED STOCKS. Prior to this
Offering, there has been no established public trading market for the Company's
securities and there is no assurance that a public trading market for the
Company's securities will develop after the completion of this Offering. If a
trading market does in fact develop for the securities offered hereby, there can
be no assurance that it will be sustained.
The Company has applied for listing of the Common Stock and Warrants on the
NASDAQ small capitalization market upon the Effective Date. The Commission has
approved rules for imposing criteria for listing of securities on NASDAQ,
including standards for maintenance of such listing. In order to qualify for
initial quotation of securities on the NASDAQ small capitalization market, a
company, among other things, must have at least $4,000,000 in total assets,
$2,000,000 in stockholders' equity, $1,000,000 in market value of the public
float and a minimum bid price of $3.00 per share. For continued listing, a
company, among other things, must have at least $2,000,000 in total assets,
$1,000,000 in stockholders' equity, $1,000,000 in market value of the public
float and a minimum bid price of $1.00 per share. If the Company is unable to
satisfy NASDAQ maintenance criteria for listing in the future, its securities
may be delisted from NASDAQ. In such event, trading, if any, in the Company's
securities would thereafter be conducted in the over-the-counter market in the
so-called "pink sheets" or the NASD's "Electronic Bulletin Board." As a
consequence of such delisting, an investor would likely find it more difficult
to dispose of, or to obtain quotations as to, the price of the Company's
securities.
PENNY STOCK REGULATION. In the event that the Company is unable to satisfy
the maintenance criteria requirements for NASDAQ, or its Common Stock falls
below the minimum bid price of $3.00 per share for the initial quotation,
trading would be conducted in the "Pink Sheets" or the NASD's Electronic
Bulletin Board. In the absence of the Common Stock being quoted on NASDAQ or the
Company's having $2,000,000 in stockholders' equity, trading in the Common Stock
would be covered by Rule 15g-9 promulgated under the Securities Exchange Act of
1934 (the "Exchange Act"), for non-NASDAQ and non-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 are exempt from this rule
if the market price is at least $5.00 per share.
The Commission has adopted regulations that generally define a "penny stock"
to be any equity security that has a market price of less than $5.00 per share
or an exercise price of less than $5.00 per share, subject to certain
exceptions. Such exceptions include an equity security listed on NASDAQ, and an
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 revenue of at
least $6,000,000 for the preceding three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a risk disclosure schedule explaining the penny
stock market and the risks associated therewith.
If the Company's securities were to become subject to the regulations
applicable to penny stocks, the market liquidity for the securities would be
severely affected, limiting the ability of broker-dealers to sell the securities
and the ability of purchasers in this Offering to sell their securities in the
secondary market. There is no assurance that trading in the Company's securities
will not be subject to these or other regulations that would adversely affect
the market for such securities.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants offered
hereby are redeemable, in whole or in part, at a price of $.05 per Warrant,
commencing one year after the Effective Date and prior to their expiration;
provided that (i) prior notice of not less than 30 days is given to the
12
<PAGE>
Warrantholders; (ii) the closing bid price of the Company's Common Stock for the
twenty (20) consecutive trading days immediately prior to the date on which the
notice of redemption is given, shall have exceeded $7.50 per share; and (iii)
Warrantholders shall have exercise rights until the close of the business day
preceding the date fixed for redemption. Notice of redemption of the Warrants
could force the holders to exercise the Warrants and pay the Exercise Price at a
time when it may be disadvantageous for them to do so, or to sell the Warrants
at the current market price when they might otherwise wish to hold them, or to
accept the redemption price, which may be substantially less than the market
value of the Warrants at the time of redemption. The Warrants may not be
exercised unless the registration statement pursuant to the Securities Act
covering the underlying shares of Common Stock is current and such shares have
been qualified for sale, or there is an exemption from applicable qualification
requirements, under the securities laws of the state of residence of the holder
of the Warrants. Although the Company does not presently intend to do so, the
Company reserves the right to call the Warrants for redemption whether or not a
current prospectus is in effect or such underlying shares are not, or cannot be,
registered in the applicable states. Such restrictions could have the effect of
preventing certain Warrantholders from liquidating their Warrants. See
"Description of Securities-- Warrants."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. Holders of the Warrants will have the right to exercise the Warrants
for the purchase of shares of Common Stock only if a current prospectus relating
to such shares is then in effect and only if the shares are qualified for sale
under the securities laws of the applicable state or states. The Company has
undertaken and intends to file and keep current a prospectus which will permit
the purchase and sale of the Common Stock underlying the Warrants, but there can
be no assurance that the Company will be able to do so. Although the Company
intends to seek to qualify for sale the shares of Common Stock underlying the
Warrants in those states in which the securities are to be offered, no assurance
can be given that such qualification will occur. In addition, purchasers may buy
Warrants in the aftermarket or may move to jurisdictions in which the shares of
Common Stock issuable upon exercise of the Warrants are not so registered or
qualified during the period that the Warrants are exercisable. In such event,
the Company would be unable to issue shares to those persons desiring to
exercise their Warrants unless and until the shares could be registered or
qualified for sale in the jurisdiction in which such purchasers reside, or an
exemption to such qualification exists or is granted in such jurisdiction. The
Warrants may lose or be of no value if a prospectus covering the shares issuable
upon the exercise thereof is not kept current or if such underlying shares are
not, or cannot be, registered in the applicable states. See "Description of
Securities--Warrants."
LACK OF EXPERIENCE OF THE UNDERWRITER. The Underwriter was organized in
August 1993, was registered as a broker dealer in June 1995, and became a member
firm of the NASD in June 1995. The Underwriter is principally engaged in retail
brokerage and market making activities and various corporate finance projects.
Although the Underwriter has acted as a placement agent in private offerings and
has participated as a member of the underwriting syndicate or as a selected
dealer in one public offering, it has not acted as the lead managing underwriter
in any public offerings of securities. While certain of the officers of the
Underwriter have significant experience in corporate finance and the
underwriting of securities, the Underwriter has not previously underwritten any
public offerings. No assurance can be given that the Underwriter's lack of
experience as a lead managing underwriter of public offerings will not adversely
affect this Offering and the subsequent development of a liquid public trading
market in the Company's securities.
RELATIONSHIP OF UNDERWRITER TO TRADING. The Underwriter may act as a broker
or dealer with respect to the purchase or sale of the Common Stock and the
Warrants in the over-the-counter market where each is expected to trade. The
Underwriter also has the right to act as the Company's exclusive agent in
connection with any future solicitation of warrantholders to exercise their
Warrants. Unless granted an exemption by the Commission from Rule 10b-6 under
the Exchange Act, the Underwriter
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<PAGE>
will be prohibited from engaging in any market-making activities or solicited
brokerage activities with regard to the Company's securities during a period
beginning nine business days prior to the commencement of any such solicitation
and ending on the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right the Underwriter may have to
receive a fee for the exercise of the Warrants following such solicitation. As a
result, the Underwriter and soliciting broker/dealers may be unable to continue
to make a market in the Company's securities during certain periods while the
exercise of Warrants is being solicited. Such a limitation, while in effect,
could impair the liquidity and market price of the Company's securities.
ISSUANCE OF PREFERRED STOCK: ANTI-TAKEOVER PROVISIONS. The Company's
Certificate of Incorporation permits its Directors to designate the terms of and
issue shares of Preferred Stock. The issuance of shares of Preferred Stock by
the Board of Directors could adversely effect the rights of holders of Common
Stock by, among other matters, establishing preferential dividends, liquidation
rights and voting power. Although the Company has no present intention to issue
shares of Preferred Stock (and is prohibited from issuing shares of Preferred
Stock for two years from the closing date of this Offering without the consent
of the Underwriter), the issuance thereof might render it more difficult, and
therefore discourage, an unsolicited takeover proposal such as a tender offer,
proxy contest or the removal of incumbent management, even if such actions would
be in the best interest of the Company's stockholders. See "Description of
Securities."
UNDERWRITER'S WARRANTS AND REGISTRATION RIGHTS. In connection with this
Offering, the Company has agreed to sell to the Underwriter, for $10, the
Underwriter's Warrants which entitle the Underwriter to purchase up to 90,000
shares of Common Stock and/or 60,000 Warrants, respectively. The securities
issuable upon exercise of the Underwriter's Warrants are identical to those
offered pursuant to this prospectus. The Underwriter's Warrants are exercisable
at $6.60 and $.12, respectively, for a period of four years commencing one year
from the Effective Date. The exercise of the Underwriter's Warrants and the
Warrants contained in the Underwriter's Warrants may dilute the value of the
shares of Common Stock to be acquired by holders of the Warrants, may adversely
affect the Company's ability to obtain equity capital, and, if the Common Stock
issuable upon the exercise of the Underwriter's Warrants and the Warrants
contained in the Underwriter's Warrants are sold in the public market, may
adversely affect the market price of the Common Stock. The Underwriter has been
granted certain "piggyback" and demand registration rights for a period of five
years from the Effective Date with respect to the registration under the
Securities Act of the securities directly or indirectly issuable upon exercise
of the Underwriter's Stock Warrants and Underwriter's warrants. The exercise of
such rights could result in substantial expense to the Company. See
"Underwriting."
DILUTION
The difference between the initial public offering price per share of Common
Stock and the pro forma net tangible book value per share of Common Stock after
this Offering constitutes the dilution to investors in this Offering. Net
tangible book value per share is determined by dividing the net tangible book
value of the Company (total tangible assets less total liabilities) by the
number of outstanding shares of Common stock. The following discussions allocate
no value to the Class A Warrants.
At March 31, 1996, the Company's liabilities exceeded its tangible assets by
$40,392 (giving effect to expenses of the Offering paid at such date) and
accordingly the Company's Common Stock had a negative net tangible book value of
($.03) per share. After giving effect to the receipt of the net proceeds from
the sale of the Common Stock offered hereby at an initial public offering price
of $5.50 per share of Common Stock (less underwriting discount and offering
expenses) the pro forma net tangible book value of the Company at March 31, 1996
would have been $4,189,656 or $1.61 per share, representing an immediate
increase in net tangible book value of $1.64 per share to the existing
stockholders, and
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<PAGE>
immediate dilution of $3.89 per share (70.7%) to new investors. The table on the
following page illustrates dilution to new investors on a per share basis:
Public offering price per share............................. $5.50
Net tangible book value (deficit) per share before
offering.................................................... ($.03)
Increase attributable to public investors................... $1.64
Pro forma net tangible book value per share after
offering.................................................... $1.61
-----
Dilution per share to public investors...................... $3.89
-----
-----
In the event the Underwriter exercises its Over-allotment Option in full,
the pro forma net tangible book value per share would be $1.77 which would
result in dilution to the public investors of $3.73.
The following table sets forth with respect to the existing stockholders and
public investors, a comparison of the number of shares of Common stock owned by
the existing stockholders, the number of shares of Common Stock to be purchased
from the Company by the purchasers of the Securities offered hereby and the
respective aggregate consideration paid to the Company and the average price per
share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ ------------------------- AVERAGE
APPROXIMATE APPROXIMATE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Public Investors................... 900,000 34.62% $4,950,000 86.46% $5.50
Present Stockholders............... 1,700,000 65.38% $ 774,936 13.54% $0.46
--------- ----------- ---------- -----------
Totals....................... 2,600,000 100.00% $5,724,936 100.00%
--------- ----------- ---------- -----------
--------- ----------- ---------- -----------
</TABLE>
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 900,000 Shares of
Common Stock and 600,000 Warrants offered hereby are estimated to be
approximately $3,909,200 ($4,563,005 if the Underwriter's Over-allotment Option
is exercised in full) after deducting underwriting commissions and discounts and
other expenses of the Offering and after giving effect to $25,500 of previously
paid Offering costs. The Company expects to use the net proceeds over the next
twelve months approximately as follows:
APPROXIMATE
PERCENTAGE
AMOUNT OF NET PROCEEDS
---------- ---------------
Advertising, Marketing and Promotion(1)......... $1,650,000 42.2%
On-Line Content Development(2).................. 400,000 10.2%
Software Development(3)......................... 700,000 17.9%
Capital Expenditures(4)......................... 275,000 7.0%
Licensing Fees(5)............................... 200,000 5.1%
Working Capital................................. 684,200 17.6%
---------- -------
TOTAL..................................... $3,909,200 100.0%
---------- -------
---------- -------
- ------------
(1) Represents anticipated costs associated with advertising and promotion,
including purchase of broadcast media, commercials, infomercials,
telemarketing and direct mail advertising in connection with the Company's
proposed videoconferencing and telephone entertainment services.
(2) Includes costs associated with development of multi-media resources related
to content of specific services proposed to be offered by the Company,
including payment of salaries, costs and fees for writers, artists and
materials to be incorporated as part of the Company's WWW sites.
(3) Includes costs associated with development of proprietary Internet software,
including payment of salaries for technical staff.
(4) Represents anticipated costs associated with purchasing equipment, including
computer hardware and videoconferencing equipment.
(5) Includes fees to be paid to celebrities and trademark owners for use of
their names and/or trademarks.
The foregoing represents the Company's current estimate of the allocation of
the net proceeds of the Offering based upon certain assumptions relating to the
costs associated with the implementation of the Company's proposed business
operations. Future events, including the problems, delays, expenses and
complications frequently encountered by companies which seek to develop new
technologies or establish new services or introduce services to a new market, as
well as changes in economic conditions, regulatory or competitive conditions,
and the success of the Company's marketing activities, may make shifts in the
allocation of funds necessary or desirable. There can be no assurance that the
Company's estimates will prove to be accurate or that unforeseen expenses will
not be incurred.
The Company believes that the net proceeds of this Offering will satisfy the
Company's capital requirements for approximately twelve months. During those
twelve months, the Company's efforts will be directed at developing and
implementing its proposed business operations.
Prior to expenditure, the net proceeds of this Offering will be invested
principally in high grade short-term interest-bearing investments. Any proceeds
received upon exercise of the Over-allotment Option or any of the Company's
warrants will be used for working capital.
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DIVIDEND POLICY
The Company has never paid any cash dividends. The payment of dividends, if
any, in the future is within the discretion of the Board of Directors and will
depend upon the Company's earnings, its capital requirements and financial
condition, and other relevant factors. The Board does not presently intend to
declare any dividends in the foreseeable future, but instead intends to retain
all earnings, if any, for use in the Company's business operations. See
"Description of Securities".
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CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996 and such capitalization as adjusted to give effect to (i) the sale of
the Securities offered hereby, and (ii) the anticipated use of the net proceeds
of this Offering in the manner contemplated under "Use of Proceeds". This table
should be read in conjunction with the historical financial statements and notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------
ACTUAL AS ADJUSTED(1) (2)
-------- ------------------
<S> <C> <C>
Liabilities
Total liabilities.............................. $250,631 $ 143,033
-------- ------------------
-------- ------------------
Stockholders' Equity
Preferred Stock, $.0001 par value: Authorized
1,000,000 shares; none issued.................... -- --
Common Stock, $.0001 par value: Authorized
19,000,000 shares; Issued and Outstanding--
1,700,000 and 2,600,000, respectively............ 150 260
Additional paid in capital....................... 289,661 4,625,376
Deficit accumulated during the development
stage............................................ (243,129) (431,760)
Deferred offering costs relating to Common Stock
issued for services related to intended IPO...... (14,875) 0
-------- ------------------
Stockholders' equity............................. $ 31,807 $4,193,876
-------- ------------------
-------- ------------------
</TABLE>
- ------------
(1) Gives effect to the sale of the Common Stock and Warrants offered hereby and
the receipt of $3,909,200 of net proceeds therefrom, after giving effect to
$25,500 of previously paid Offering costs.
(2) Reflects the issuance of 200,000 shares of Common Stock in connection with
the May 1996 private placement and the use of a portion of the proceeds of
such private placement to repay notes payable.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Prospectus.
OVERVIEW
The Company was incorporated on August 23, 1995. The Company is currently
developing an integrated World Wide Web commerce and videoconferencing system
that the Company intends to use to deliver live one-on-one videoconferenced
entertainment, educational and counseling services over the Internet. In tandem
with its ongoing technology development, the Company is developing the content
of the services that it proposes to deliver to consumers over the Internet. It
is anticipated that the Company's revenues will predominantly consist of fees
paid by consumers for delivery of entertainment, educational and counseling
services over the Internet. The Company intends, as part of its research and
development process, to continually evaluate the market viability of its
proposed services and a number of new and innovative services. This process
includes engaging experts in various disciplines to conduct preliminary analyses
and build prototypes of the various services that the Company is considering
introducing into the marketplace.
From inception on August 23, 1995 to the present time, the Company's
operating activities have related primarily to recruiting personnel, raising
capital, purchasing operating assets and performing research and development.
The Company has not yet completed development of its integrated web commerce
and videoconferencing system. Consequently, the Company has not had any sales or
revenues to date.
The basic component of the Company's business is the delivery of live
one-on-one videoconferenced entertainment, educational and counseling services
on a pay per minute basis to consumers via the Internet. The Company's strategy
is to identify certain niche service areas that offer consumers high added value
and therefore produce high profit margins for the Company. This strategy is
designed to maximize the revenue per minute that the Company's service
professionals will generate when they are on-line with customers.
All of the Company's planned videoconferencing services will utilize the
same integrated web commerce and videoconferencing system that the Company is
currently developing. The Company also plans to seek licensees for its web
commerce and videoconferencing system for use in service content areas that do
not compete with those in which the Company intends to operate.
In addition to the Company's planned videoconferencing services, the Company
also plans, in connection with its exclusive licensing agreement with Jeane
Dixon, to develop and market telephone entertainment services which will permit
customers to engage in live one-on-one conversations with psychics and to
receive personalized information responsive to their requests.
RESULTS OF OPERATIONS
Operating Expenses: The Company's operating expenses for the period from
August 23, 1995 (date of inception) to March 31, 1996 were $243,129. The Company
believes that continued expansion of operations is essential to achieving and
maintaining market leadership. As a consequence, the Company expects its
operating expenses to increase.
As of March 31, 1996, the Company has recorded accrued compensation of
approximately $90,000 related to the difference between the stated salaries and
consulting fees for certain of the Company's
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employees and consultants and the actual cash compensation that has been paid to
such persons to date. Such compensation continues to accrue. See Notes to
Consolidated Financial Statements.
Research and Development: Research and development expenses consist
primarily of salaries and consulting fees to support technology and services
content development. To date all of the software development costs have been
expensed as incurred. The Company believes that significant investment in
research and development will be required to remain competitive with respect to
its technology and the content of its services. As a consequence, the Company
intends to increase the absolute amount of its research and development
expenditures in the future.
Sales and Marketing: Sales and marketing expenses currently consist
primarily of salaries and consulting fees paid to develop the Company's
marketing strategy. It is anticipated that marketing expenses will in the future
include salaries, as well as an extensive national advertising campaign in both
traditional media such as direct sales, television, radio and print media, as
well as a significant expenditure on Internet advertising. The Company expects
that marketing expense will be the single largest expense for the Company,
averaging approximately $1,650,000 annually, including salaries, once the
Company begins to market its services to consumers.
INCOME TAXES
As of March 31, 1996, the Company had federal net operating loss
carryforwards of approximately $240,000. The federal net operating loss
carryforwards will expire in 2011 if not utilized. See Notes to Consolidated
Financial Statements.
FACTORS AFFECTING OPERATING RESULTS
As a result of the Company's limited operating history, the Company does not
have historical financial data for a significant number of periods on which to
base planned operating expenses. Additionally, the Company has not yet generated
any revenues from operations. Accordingly, the company's expense levels are
based entirely on its expectations as to future revenues and to a large extent
are fixed. The Company may be unable to adjust spending in a timely manner to
compensate for any unexpected delay in the development of its web commerce and
videoconferencing system or for any delay in the commencement of revenues from
operations. Accordingly, any unexpected delay in the completion of the
development of the Company's web commerce and videoconferencing system will have
a material adverse impact on the Company's business, operating results and
financial condition. The Company plans to increase its operating expenses to
fund greater levels of research and development and increase its marketing and
business development efforts. To the extent that such expenses are not
immediately followed by an infusion of capital from either financing activities
or from operating revenues, the Company's business, operating results and
financial condition will be materially adversely affected.
The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors, including demand
for the Company's services, introduction of new technological developments, the
introduction, enhancement and market acceptance of new and existing services,
the introduction of competing services, and general economic conditions. As a
result, the Company believes that period to period comparisons of its results of
operations will not necessarily be meaningful and should not be relied upon as
any indication of future performance. Because of all of the foregoing factors,
it is likely that in some future quarter the Company's operating results will be
below the expectations of public market analysts and investors. In such event,
the Company's Common Stock would likely be materially adversely affected.
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In connection with the issuance of 100,000 options to Dr. Vladislav Rysin,
the Company will record a charge to earnings of $300,000 over the term of Dr.
Rysin's employment agreement. See "Management--Employment Agreements."
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has primarily financed it operations through private
sales of equity and debt securities and through the contribution of capital by
its founders. The Company has not generated any revenues or other cash through
operations since its inception and it is unlikely that it will generate any cash
from operations in the foreseeable future. The Company completed a bridge
financing on March 20, 1996 which consisted of the sale of $250,000 in two year
promissory notes, 200,000 shares of Common Stock and 1,000,000 warrants to
purchase Common Stock. This initial bridge financing provided net proceeds to
the Company of approximately $199,500 after investment banking and legal fees.
The Company completed a second bridge financing on May 9, 1996 which consisted
of the sale of 200,000 shares of Common Stock at a price of $2.50 per share for
total gross proceeds to the Company of $500,000. This second financing provided
net proceeds to the Company of approximately $385,000. The Company used
approximately $262,000 to repay the principal and interest due on the $250,000
of promissory notes issued in the first bridge financing. In connection with the
repayment of the notes upon completion of the second bridge financing the
Company will record a charge to operations of approximately $165,000 for May
1996. The effective interest rate on the initial bridge financing was
approximately 1,235%.
Capital expenditures were approximately $33,000 for the period from August
23, 1995 (date of inception) to March 31, 1996. The Company has no material
commitments other than employment and consulting agreements, obligations to
UUNET Technologies Corporation, equipment leases and operating leases. See Notes
to Consolidated Financial Statements. The Company estimates that capital
expenditures through the fiscal year ending March 31, 1997 will be approximately
$275,000 of which approximately $130,000 is related to video station equipment
and related expenditures for the implementation of its first offering of
commercial service content.
The Company believes that the net proceeds from this Offering, together with
available funds will be sufficient to meet its anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
Thereafter, if the Company is unable to generate sufficient cash from operations
to satisfy the Company's liquidity requirements, the Company may sell additional
equity or debt securities or obtain new credit facilities. The sale of
additional equity or convertible debt securities will result in additional
dilution to the Company's stockholders.
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BUSINESS
NetLive Communications, Inc. (the "Company") is a development stage company
recently organized to provide live, one-on-one, videoconferenced entertainment,
educational and counseling services over the Internet. The Company is developing
and intends to utilize technologies that will allow customers to view and
communicate with the Company's professionals and entertainment performers over
the Internet in an interactive and user-friendly environment. It is intended
that, at such times as the Company either develops technology or licenses such
technology from others, customers will be able to simultaneously view and speak
with the Company's live professionals. The Company plans to bill its customers
according to the length of time that they remain on-line. No assurance can be
given as to when, if ever, such technology will be ready to be used commercially
or that it will be commercially accepted. To date, other than the continued
development and integration of its technology and business plan, and raising
financing, the Company has not conducted any business nor generated any revenues
or profits and no assurance can be given, that it will be able to do so in the
future. See "Risk Factors".
The Internet is a global web of computer networks. The expansion of this
information and communications medium has created a new consumer market. The
Company plans to service this market by providing live videoconferenced
one-on-one entertainment, educational and counseling services through the use of
technology designed to enable users to view live, individual, video broadcasts
over the Internet. The Company believes that the convergence of the growing
Internet medium and Internet-based videoconferencing technology presents a
unique opportunity to bring the Company's services directly into consumers'
homes.
It is intended that the Company's proposed entertainment, educational and
counseling services will initially include PsychicNet, TutorNet and TherapyNet.
However, the Company is continuously monitoring and evaluating the proposed
services it has under development in order to establish priorities and determine
the probabilities of each service's success. In addition, the Company is
reviewing additional services which it may consider offering. No assurance can
be given that the Company will fully develop or offer its currently proposed
services, or that, if developed and offered, such proposed services will be
accepted by consumers.
It is intended that computer users will be able to access the Company's
services over the Internet using a Netscape browser-based user interface. The
Company is developing its integrated WWW commerce server to provide for secure
transaction processing, efficient scheduling, and automated billing. The Company
also is designing its system to automatically collect and process market data.
The Company is developing and plans to maintain databases containing
profiles of all customers utilizing the Company's services. The Company believes
that this information will enable the Company to better understand its customer
base, to develop new and innovative services and to create targeted marketing
programs geared toward efficiently selling the Company's services. The Company
also intends to employ focused consumer marketing techniques and to track
marketing effectiveness utilizing advanced database and analytical methods. It
is intended that the Company will initially market its services worldwide over
the Internet and it plans, in the future, to market through traditional media in
targeted markets throughout North America. In addition, the Company plans, in
the future, to market through traditional media in targeted markets throughout
Europe and Asia.
JEANE DIXON'S PSYCHICNET
It is intended that PsychicNet will employ professional psychics to provide
live videoconferenced psychic advice including tarot card readings, astrological
chart analysis and general psychic guidance over the Internet. In May 1996, the
Company entered into a licensing agreement with Jeane Dixon, a world renowned
psychic, pursuant to which the Company has the exclusive worldwide right to use
Ms. Dixon's name, voice, likeness and image in connection with psychic guidance
and astrology services provided over the Internet, other on-line services and in
connection with live, psychic guidance and
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astrology services provided over the telephone. In addition, the Company has the
non-exclusive worldwide right to use Ms. Dixon's name, voice, likeness and image
in connection with any products sold in connection therewith and all
endorsements and promotions thereof. The agreement with Ms. Dixon is for a term
ending on August 31, 1999, which term is renewable, on 30 days written notice
from the Company following completion of the term (or the renewal terms, as the
case may be), at the option of the Company for additional one (1) year periods
provided certain financial performance levels are achieved. In connection with
the agreement, the Company has agreed to make certain royalty payments to Ms.
Dixon, which payments are based upon a percentage of the Company's sales in
connection with this service. The agreement is terminable (i) by the Company at
any time, without cause, upon ninety (90) days prior written notice, (ii) by Ms.
Dixon in the event that the average monthly payments to Ms. Dixon do not exceed
certain minimum amounts, or (iii) by Ms. Dixon upon material breach by the
Company of the agreement.
The Company plans to incorporate computer generated special visual and audio
effects to enhance the nature of the service. It is intended that PsychicNet
customers will be able to actually see the results of their personalized
astrological and tarot card readings on their computer screen. No assurance can
be given when, if ever, such technology will be developed and available for
large scale commercial applications. Moreover, no assurance can be given that
such technology will ever be accepted by consumers. See "Risk Factors--New and
Uncertain Market" and "--Technological Change and New Services".
HOLISTICVISIONS
It is intended that HolisticVisions, in addition to PsychicNet, will employ
professional psychics to provide live video conferenced psychic advice including
tarot card readings, astrological chart analysis and general psychic guidance
over the Internet. In addition, the Company's proposed HolisticVisions WWW site
will offer consumers information on holistic health, spirituality, personal
fulfillment and other "New Age" related issues. "New Age" refers to paranormal,
mystical and spiritual phenomena which can be explained through the use of
horoscopes, tarot card and psychic readings and prognostications. In connection
with the Company's proposed HolisticVisions service and WWW site, the Company
has entered into a non-binding letter of intent with the New York Open Center, a
holistic learning center, regarding the Company's intention to work with the New
York Open Center to broadcast its seminars and lectures on the Internet via the
Company's proposed HolisticVisions WWW site. In addition, the Company has
retained the services of a consultant on a part-time basis, who is helping the
Company develop its proposed HolisticVisions service and WWW site. No assurance
can be given when, if ever, such technology will be developed and available for
large scale commercial applications. Moreover, no assurance can be given that
such technology will be accepted by consumers. See "Risk Factors--New and
Uncertain Market" and "--Technological Change and New Services."
TUTORNET
It is intended that TutorNet will provide live videoconferenced tutoring
services for students ranging from elementary school through graduate school. It
is intended that TutorNet will provide students with first-rate professional
instruction in a variety of academic subjects on demand. The Company plans to
employ professional tutors to provide live tutoring services to today's computer
literate students. It is intended that TutorNet's staff will assist students
with homework questions, writing assignments and exam preparation in a variety
of subjects. TutorNet also intends to offer instruction on popular standardized
tests, such as the PSAT, SAT, LSAT, GRE, GMAT and MCAT. The Company plans to
integrate whiteboard and document sharing technology that is intended to allow
the Company tutor and the customer to view and work together on the same written
documents. With the exception of having retained the services of two
consultants, on a part-time basis, to assist the Company in developing its
proposed TutorNet service and WWW site, the Company has not, as of the date
hereof, entered into any agreements with any professional tutors. No assurance
can be given when,
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if ever, such technology will be developed and available for large scale
commercial applications. Moreover, no assurance can be given that such
technology will ever be accepted by consumers. See "Risk Factors--New and
Uncertain Market" and "--Technological Change and New Services".
THERAPYNET
It is intended that TherapyNet will provide customers with counseling from
persons experienced in the mental health profession who will videoconference
directly to consumers in the privacy of their home or office. It is intended
that customers will be able to schedule regular weekly therapy sessions and may
also avail themselves of the Company's therapy services on demand. It is
intended that TherapyNet's staff will provide customers with a range of
immediate counseling from crisis intervention to advice for the lovelorn. With
the technology that the Company is in the process of developing, it is intended
that the consumer will initially be able to simultaneously view, listen and
communicate with the therapist. With the exception of having retained the
services of one consultant, on a part-time basis, to assist the Company in
developing its proposed TherapyNet service and WWW site, the Company has not, as
of the date hereof, entered into any agreement with any mental health
professionals, and no assurance can be given that it will be able to do so, or
that TherapyNet will be accepted by consumers. See "Risk Factors--New and
Uncertain Market" and "--Technological Change and New Services".
Additional proposed entertainment, educational and counseling services which
the Company is considering include FantasyNet, ModelNet, WebClinic and CookNet.
The following is a brief description of each of these proposed services.
FANTASYNET
It is intended that FantasyNet will offer an interactive, video theater
broadcast directly to consumers' homes throughout the world. It is intended that
customers will initially select from among a wide range of frequently changing
fantasy narratives, whereupon they will first engage in a free, recorded
interactive fantasy over the Internet's WWW. At a critical juncture in the
interactive fantasy, the consumer will then be encouraged to continue the
fantasy via a live video and voice connection with an on-line performer. It is
intended that the Company's videoconferencing technology will allow the customer
to segue from the multi-media interactive fantasy to live role-playing with a
professional actor. As of the date hereof, the Company has not entered into any
agreements or hired any persons experienced in the dramatic arts, and no
assurance can be given that it will in the future be able to do so, or that
FantasyNet will be accepted by consumers. See "Risk Factors--New and Uncertain
Market" and "--Technological Change and New Services".
MODELNET
It is intended that ModelNet will allow customers to engage in live
videoconferenced conversations with professional models on subjects including
the modeling industry, beauty tips or the life of a high fashion model. It is
intended that ModelNet will offer customers the rare and highly-coveted
opportunity to interact live with top agency models as they view them on their
computer screen. With this service, the Company intends to capitalize upon the
current fascination and glorification of fashion models in American society,
demonstrated by the top celebrity status of today's super-models. As of the date
hereof, the Company has not entered into any agreements or hired any persons
experienced in the modeling industry, and no assurance can be given that it will
in the future be able to do so, or that ModelNet will be accepted by consumers.
See "Risk Factors--New and Uncertain Market" and
"--Technological Change and New Services".
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WEBCLINIC
It is intended that WebClinic will make medical information accessible on
the desktop computers of the millions of Internet users. It is intended that
WebClinic will offer consumers a complete, teleconferenced managed care center.
The Company plans to provide teleconferenced health professionals to screen
medical problems and help customers determine the appropriate level of
consultation or evaluation. It is intended that patients will ask questions
regarding diagnosis, treatment and prevention of disease, as well as regarding
screening tests and immunizations. The Company also plans to offer an on-line
health and wellness store that will allow patients to purchase medication, home
diagnostic equipment and supplies over the Internet. As of the date hereof, the
Company has not entered into any agreements or hired any persons experienced in
clinical medicine, and no assurance can be given that it will in the future to
able to do so, or that WebClinic will be accepted by consumers. See "Risk
Factors-- New and Uncertain Market" and "--Technological Change and New
Services".
COOKNET
It is intended that CookNet will provide a resource on the Internet for
cooking aficionados. It is intended that CookNet will employ its
videoconferencing system to create a video cooking school on the Internet. It is
also intended that CookNet will provide a large database of recipes which will
be searchable by ingredients and will provide shopping lists and nutritional
analyses. The Company also intends for CookNet to provide customers with a
variety of nutritional information and the ability to videoconference, one to
one, with a qualified nutritionist. With the exception of having retained the
services of a consultant, on a part-time basis, to assist the Company in
developing its proposed CookNet service and WWW site, the Company has not, as of
the date hereof, entered into any written or other agreements with any
nutritionists, and no assurance can be given that it will be able to do so, or
that CookNet will be accepted by consumers. See "Risk Factors--New and Uncertain
Market" and
"--Technological Change and New Services".
TELEPHONE ENTERTAINMENT SERVICES
The Company plans to develop and market telephone entertainment services,
consisting primarily of live tarot card and astrological readings and live
psychic consultations. The Company has obtained the exclusive right to use Jeane
Dixon's name, likeness and image to market such services over the telephone. It
is intended that the Company's proposed telephone entertainment services will
permit customers to engage in live one-on-one conversations with psychics and to
receive personalized information responsive to their requests. The customer will
be able to access the Company's proposed telephone entertainment services by
dialing "900" numbers, which will be billed at premium rates, or by dialing
"800" numbers and providing credit card information. The Company intends to
market its proposed telephone entertainment services through television
commercials, as well as through the use of print media, direct mail and
telemarketing services. The Company also proposes to provide its telephone
entertainment services by offering club memberships for a monthly fee, although
no assurance can be given that it will be able to do so.
INDUSTRY BACKGROUND
The Internet
Developed over 25 years ago, the Internet is a global web of computer
networks that allows personal computer users to access a variety of information
and services. The Internet was developed for use by academic institutions, the
Department of Defense and government agencies primarily for obtaining remote
access to host computers, for transferring files, and for sending and receiving
e-mail. This early Internet usage has changed substantially. The Company
believes that the number of commercial domains on the Internet has surpassed the
number of government and academic domains.
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The Internet has been experiencing rapid growth as industry and individuals
discover its substantial information access abilities.
Individuals are connecting to the Internet directly through Internet access
services such as those provided by MCI, NETCOM, Performance Systems
International, Inc. ("PSI"), and UUNET Technologies, Inc. ("UUNET"). The Company
believes these services are expanding because easy-to-use software packages make
accessing the Internet as easy as getting onto the popular consumer on-line
services. Also, the consumer on-line services, including America On-line, Inc.
("AOL"), CompuServe, Inc. ("CompuServe") and Prodigy Services Co. ("Prodigy"),
previously independent computer networks, as well as Microsoft Corporation (the
Microsoft Network) have now introduced Internet access gateways for their
subscribers. With these gateways, the on-line services effectively become large
Internet "on-ramps," bringing great numbers of their subscribers onto the
Internet.
Videoconferencing Technology
The Company's intended business has been brought about by the recent
development of videoconferencing technology. One group of providers offers
videoconferencing systems that operate over the Internet. These systems require
that users possess only low cost Internet connections, a personal computer, a
modem and the provider's software. Because of the low cost, this technology
makes videoconferencing available to the consumer market. A second group of
system providers transmit video over "plain old telephone service" (POTS) lines.
These systems are also low cost, but are subject to the additional charge of
long distance telephone service. The final group of providers, composed chiefly
of large long distance telephone carriers such as AT&T, Sprint and MCI, as well
as other large scale enterprises, provide videoconferencing over Integrated
Service Digital Network (ISDN) lines and Local Area Networks (LANs). These lines
must be connected individually to each videoconference participant. Such
systems, the Company believes, can cost in excess of $25,000 for each user, and
thus are used principally by businesses. Because of the substantial growth of
the Internet, its low cost, its relative ease of use, and the proliferation of
high bandwidth connections, the Company believes that the Internet will become
the primary medium for videoconferenced services.
The Company has entered into an agreement with UUNET pursuant to which UUNET
will provide the Company with high speed access to the Internet, enabling the
Company to deliver its videoconferencing services through the Internet. The
agreement requires the Company to make monthly payments of $1,500 to UUNET. The
agreement expires in January 1997.
COMPANY STRATEGIES
Offer a Complete Line of High Quality, Live One-on-One Internet Services
The Company's goal is to be the leading provider of live, one-on-one
videoconferenced entertainment, educational and counseling services over the
Internet. The Company intends to recruit professionals in each service area and
to train them to work with, and communicate effectively over, the Internet.
Develop and Maintain Industry Leading Proprietary Technology
The Company is developing an integrated, commercial videoconferencing system
for use over the Internet. This proprietary system has several components,
including a Netscape browser based user interface, an advanced real time video
and audio delivery platform, and an automated marketing database and analytic
system. This advanced architecture is being designed to allow the customer to
access the Company's services directly from an Internet browser with a simple
point and click of a mouse. It is intended that PC users without Internet access
will be able to use the Company's services by connecting directly to the
Company's network using a modem.
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The Company integrates an advanced video compression-decompression ("CODEC")
technology into its videoconferencing and WWW commerce system. The Company's
system incorporates variable bandwidth capabilities. The Company believes this
will allow the Company to capture today's market of low bandwidth modem
connections, while positioning itself to capitalize on the rapid movement
towards high bandwidth Internet connections.
The Company intends for its WWW commerce server to allow for secure
transaction processing through an encrypted credit card validation and automated
billing system. The server also will include on-line scheduling software that
will efficiently route incoming customer calls to the appropriate professional.
The Company intends to develop a video station management system that will allow
scheduling control, status monitoring and transaction processing for
videoconference stations in remote studios from a central management base.
As it becomes commercially viable, the Company further plans to incorporate
Java, a new programming language recently introduced by Sun Microsystems, for
its WWW presence, as well as virtual reality modeling language ("VRML"), which
allows for the realistic presentation of three-dimensional spaces and images
over the Internet.
Maintaining state-of-the art technology is essential to the Company's
success. The Company intends to continue to increase the performance,
functionality and flexibility of all of its technologies to meet the evolving
needs of its customers. The Company is developing and integrating an enhanced
version of its videoconferencing and WWW commerce system which will offer higher
performance, greater stability, easier installation, and easier integration with
other applications. For example, the Company is developing software that will
allow customers to pan and zoom the camera remotely in order to achieve the
desired view of the Company's professionals. The Company will attempt to
maintain a leadership position by continually improving the performance and
versatility of its technology, including the enhancement of its video, graphics
and audio capabilities.
Provide Strong Customer Support
A key element in the Company's proposed business strategy is a commitment to
provide extensive support and service to its customers. This element of the
Company's proposed strategy is particularly important to the Company's success
since many of the Company's clients are, and much of the Internet community over
the next few years will be, new to the Internet. With the focus of the Company's
products on individualized service, the Company believes that maintaining a
strong customer support group will be vital to its success. The Company believes
that its high level of support will enable the Company to distinguish itself
from its competitors.
Provide Consistent Interfaces and Multi-Platform Support
All of the Company's proposed services are intended to utilize the same
broad technology. The Company intends to position itself to cross-sell existing
services and to introduce new services to its existing customer base. The
Company is designing its software to operate on most popular computer operating
systems.
Create and Leverage Brand Awareness
Although certain other companies may provide one or more of such services,
the Company believes that since it will be an early provider of a combined
package of live, one-on-one videoconferenced entertainment, educational and
counseling services over the Internet it will be well positioned to build
customer awareness of its brand name and logo. The Company's ability to
capitalize on its early entrance into the market is subject to several factors,
including its ability to raise sufficient funds to develop and market its
technology and services, and the viability and commercial acceptance of its
services. No assurance can be given that the Company's strategies will be
successful.
27
<PAGE>
Provide Enhanced Security
The Company's products will employ leading standards for data and
communications security and are designed to enable secure commerce and
communications over the Internet.
Marketing, Sales & Distribution
The Company intends to utilize various media and marketing programs to
stimulate demand for its services. These programs will be intended to focus on
the target market of individual PC users that have either gateway or direct
Internet connections. The Company's marketing operations will include market
research, marketing services and strategic partnerships.
Information on existing and proposed Company products and services will be
collected through a variety of sources. An automated customer registration
process contained in the Company's WWW site will provide a formatted and
quantifiable source of such information. Such information will also be collected
through automated follow-up e-mail to existing customers. Internet newsgroups as
well as responses to the Company's active postings in such newsgroups provide
further product feedback.
The Company is in the process of developing and plans to maintain databases
containing profiles of all customers utilizing its services. Customer
biographical, credit and preference information will be input directly from the
WWW home-page at the time of sale. Additional customer information will be
collected in conjunction with the offering of free trial memberships and other
promotions. The goal of these promotions is intended to identify and analyze
current and potential users of the Company's services, create an awareness of
new service offerings and generate leads for additional sales to other
customers.
This marketing information is intended to enable the Company to better
understand its customer base, to develop new and innovative services for its
customers and to create targeted marketing programs geared toward efficiently
selling the Company's services. The Company believes that these databases will
provide the Company with a distinct competitive advantage over new companies
entering this market and will permit the Company to evaluate the effectiveness
of its operations utilizing advanced database and analytical methods.
The Company intends to initially market its services over the Internet
itself utilizing several WWW sites. Customers will initially visit the WWW home
page of the particular Company service that they intend to use. Customers will
then be able to avail themselves of the Company's live entertainment,
educational or counseling services.
The Company intends to maintain a high profile on the Internet by actively
participating in various Internet user newsgroups. The Company also intends to
publish several "zines," or electronic magazines, to increase its marketing
exposure. These zines will highlight issues related to the particular service,
promote new company services, offer items of special value and feature news of
interest to the Company's customers. The Company has also developed specially
designed "mailbots," or mail robots, which are intended to automatically respond
to inquiries twenty-four hours a day. The Company intends to offer membership
options, pre-paid services and other marketing programs designed to increase
customer awareness and usage.
The Company also intends to utilize print media, cable television and radio
advertisements to promote its services. The Company plans to market its services
though various computer, technology and Internet-related publications, such as
Wired and Internet World, as well as other appropriate publications geared to
the Company's target markets for each of its individual services. The Company
also plans to market its services at computer and entertainment conventions and
trade shows.
28
<PAGE>
Competition
The Company's business is subject to significant competition. The Company
believes that it will face initial direct competition for its live, one-on-one
videoconferenced services over the Internet, as well as additional competition
in the future from companies that possess substantially greater technical,
financial, sales and marketing resources than that which the Company has.
Because the Internet is an open system designed to be freely available to
computer users worldwide and because of the increasing popularity of the
Internet, the Company anticipates that it will encounter substantial competition
from new entrants as the market for Internet services expands. Such increased
competition may have a material adverse effect on the Company's ability to
successfully market its services.
Competitive factors in the Internet-based entertainment, educational and
counseling market include core technology, product content, product quality,
marketing, distribution resources and customer support and services.
The Company's entertainment, educational and counseling services will also
face intense competition from numerous other competing services and products
including, but not limited to, telephone services, in-person consultations,
newspapers, magazines, books, audio and video cassettes, as well as various
other forms of services which may be less expensive or provide other advantages
to consumers. There can be no assurance that the Company will be able to compete
successfully with other such products and services.
Customer Support and Services
A key element of the Company's business is its commitment to provide
extensive customer support and service. The Company intends to hire, train and
maintain a customer support staff and to track all support requests through a
series of customer databases that will maintain current status reports as well
as historical logs of customer interaction. These reports will be evaluated by
management to determine how to best serve customer needs.
Proprietary Rights
The Company's success and ability to compete will depend in part upon its
ability to maintain the most up-to-date portfolio of videoconferencing and
related technologies. The Company is developing, and intends to license and
maintain such technologies and to enter into co-development arrangements for the
advancement of such systems with other corporations and research groups.
While the Company will rely partly upon its proprietary technology, the
Company believes that factors such as the technological and creative skills of
its personnel, new product developments, frequent product enhancements, name
recognition and reliable product maintenance will be more essential to
establishing and maintaining an industry leadership position. The Company also
intends to rely on trademark, trade secret and copyright laws to protect the
creative elements of its services. The Company intends to enter into
confidentiality or license agreements with its employees, consultants and
vendors and to control access to and distribution of this proprietary
information. The Company has and will continue to file as servicemarks the names
and logos of the Company and each of the existing services.
GOVERNMENT REGULATION
The Company's proposed telephone entertainment services will be subject to
extensive regulation at the federal, state and local levels, and the effect and
extent of such regulations has not been fully reviewed or addressed by the
Company. There can be no assurance that the Company will be able to comply with
applicable laws and regulations, that such laws and regulations will not change,
or that regulatory authorities will not take action to limit or prevent the
Company from advertising, marketing, promoting or offering its proposed
telephone entertainment services. Failure to comply with applicable
29
<PAGE>
laws and regulations could prevent the Company from offering its proposed
telephone entertainment services and could subject the Company to civil
remedies, including substantial fines, penalties and injunctions, as well as
possible criminal sanctions, which could have a material adverse effect on the
Company. See "Business-Government Regulations."
PROPERTIES
The Company's executive offices comprise approximately 3,500 gross square
feet and are located at 584 Broadway, New York, New York. The Company occupies
two offices at such location pursuant to separate leases that expire February 1,
1997 and November 30, 1998. The lease expiring February 1, 1997 covers
approximately 1,500 gross square feet and requires the Company to pay $1,270 per
month.
The lease expiring November 30, 1998 covers approximately 2,000 gross square
feet and requires the Company to pay $1,975 per month for the year ending
November 30, 1996. This amount is scheduled to increase incrementally throughout
the course of the lease to approximately $2,136 per month for the lease's final
year.
The Company believes that its facilities are adequate for its current needs
and that additional space will be available on acceptable terms when it is
required.
EMPLOYEES
As of July 1, 1996, the Company employed 17 persons, including 6 in
marketing and on-line content development, 6 in research and development and 5
administrative personnel. Of such 17 persons, 9 persons are full-time and 8
persons are part-time. None of these employees is covered by a collective
bargaining agreement. The Company believes that its labor relations are good.
LEGAL PROCEEDINGS
The Company is not party to any material legal proceedings.
30
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
- ---------------------------------- --- ----------------------------------
Laurence Rosen.................... 32 President, Chief Executive
Officer, Treasurer and Director
Michael Kharitonov................ 33 Chairman of the Board, Director of
Technology and Secretary
Ross S. Glatzer................... 49 Director
John E. Meier..................... 50 Director
Jeffrey Wolf...................... 33 Director
Richard Rosen..................... 29 Vice-President of Marketing
Vladislav Rysin................... 36 Senior Software Developer and
Project Manager
Set forth below is a brief background of the executive officers and
directors of the Company, based on information supplied by them.
LAURENCE ROSEN is a co-founder of the Company. He has been the President and
a Director of the Company since December 1995, Chief Executive Officer since
February 1996, and Treasurer since April 1996. From September 1995 through
December 1995, Mr. Rosen served as the Chief Financial Officer and General
Counsel of the Company. From October 1994 through August 1995, Mr. Rosen worked
in the corporate finance group at CIBC Wood Gundy, an investment banking firm.
From April 1992 through June 1993, Mr. Rosen was employed as an attorney at
McCarter & English, a New Jersey based law firm. From August 1991 through April
1992, Mr. Rosen was employed as an Assistant Federal Defender in the Office of
the Federal Defender. From October 1990 through August 1991, Mr. Rosen was
employed as a law clerk to the acting chief Judge of the United States District
Court of the Virgin Islands. From August 1988 through January 1990, Mr. Rosen
was employed as an attorney at Skadden, Arps, Slate, Meagher & Flom, a New York
City based law firm. Mr. Rosen received an M.B.A. from The University of Chicago
Graduate School of Business in 1994, a J.D. from New York University School of
Law in 1988 and a B.A. in economics from Emory University in 1985.
MICHAEL KHARITONOV, PH.D., is a co-founder of the Company. He has been the
Chairman of the Board, Director of Technology and Secretary of the Company since
April 1996. From November 1992 to April 1996, Dr. Kharitonov was employed by
D.E. Shaw & Co., an investment management firm, most recently having held the
position of vice president. From January 1986 through September 1987, Dr.
Kharitonov was appointed as a scientific associate at CERN, the European
Laboratory for Particle Physics. Dr. Kharitonov received a Ph.D. in computer
science from Stanford University in 1993 and a B.A. in computer science and
mathematics from the University of California at Berkeley in 1985.
ROSS S. GLATZER has been a Director of the Company since July 1996. From
1986 to April 1995, Mr. Glatzer was employed by Prodigy Services, Inc., a
leading consumer on-line service, most recently having held the positions of
President and Chief Executive Officer. Prior thereto, Mr. Glatzer served as
general merchandise manager for Sears Roebuck and Company from 1982 to 1986. Mr.
Glatzer received a B.A. in political science from the University of Georgia in
1968.
JOHN E. MEIER has been a Director of the Company since June 1996. From 1990
to 1996, Mr. Meier was employed by CompuServe, Incorporated, a leading consumer
on-line service, having held the positions of senior vice president of market
planning and development, and senior vice president of membership support and
retention. In addition, while working at CompuServe, Mr. Meier founded The
Electronic Mall, an on-line shopping service, and Compuserve Magazine. Mr. Meier
received a Certificate in Commercial Design from the Columbus College of Art and
Design in 1968.
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<PAGE>
JEFFREY WOLF is a co-founder of the Company. He has been a Director of the
Company since September 1995. From September 1995 through December 1995, Mr.
Wolf served as the President of the Company, and from September 1995 through
April 1996, Mr. Wolf served as the Treasurer of the Company. Mr. Wolf has been a
managing director of Athena Ventures, LLC, a New York City based venture capital
firm, since January 1996. From November 1994 through December 1995, Mr. Wolf was
the head of Berenson Minella Ventures, the venture capital division of Berenson
Minella and Company, a New York City based merchant bank. From July 1991 through
November 1994, Mr. Wolf was a vice president and managing director of The Castle
Group, Ltd., a New York-based venture capital firm. Prior thereto, Mr. Wolf was
a vice president of D.H. Blair & Co., Inc., a New York city based broker-dealer
registered with the NASD. Mr. Wolf co-founded Xenometrix, a public company
specializing in the development of novel biological-based information systems,
in February 1994, and served as a director of such company from February 1994
through November 1994. Mr. Wolf also co-founded Avigen, a San Francisco based
gene-therapy company in February 1994, and he served as a director of such
company from February 1994 through November 1994. Mr. Wolf also co-founded
Conversion Technologies, an environmental technology company focusing on the
treatment and conversion of hazardous waste, in February 1994, and he served as
chairman of such company from February 1994 through November 1994. Mr. Wolf
received an M.B.A. from Stanford Business School in 1990, a J.D. from New York
University School of Law in 1988 and a B.A. in economics from The University of
Chicago in 1985. Mr. Wolf devotes only a portion of his time to the Company.
RICHARD ROSEN has been the Vice-President of Marketing of the Company since
July 1996. From 1994 to 1996, Mr. Rosen was employed by Time Warner Inc. as
product manager of its WarnerVision Entertainment division. He served as an
assistant brand manager for Playboy Enterprises, Inc. in 1994. Mr. Rosen was
co-founder of First Job, Inc., where he served from 1992 through 1994, and he
was founder of Collegiate Marketing Concepts, Inc., where he was employed from
1986 through 1992. Mr. Rosen received a B.A. in Economics and an M.B.A. in
International Business from George Washington University in 1988 and 1991,
respectively.
VLADISLAV RYSIN, PH.D., has been the Senior Software Developer and Project
Manager of the Company since May 1996. From May 1993 to May 1996, Dr. Rysin
served as a vice president of Accomet Corporation, a company engaged in the
manufacturing and trading of metals. From May 1992 to May 1993, Dr. Rysin served
as a systems manager for Consist International, Inc., a software development
company. From February 1990 to May 1992, Dr. Rysin served as a project manager
for Atedeca Corporation, C.A., a software development company. Dr. Rysin
received an M.A. in Math and Computer Science from Kiev University in 1982 and a
Ph.D. in Computer Science from the Melnikov Laboratory of Moscow in 1986.
Directors serve until the next annual meeting of stockholders or until their
successors are elected and qualified. Officers serve at the discretion of the
Board of Directors. Except for Ross Glatzer and John Meier (who will each
receive $1,500 per meeting which they attend), directors do not currently
receive fees for their services as directors, but are reimbursed for travel
expenses.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information with respect to
the compensation paid to the Company's President and Chief Executive Officer for
services rendered in all capacities to the Company for the period ended March
31, 1996. The Company had no executive officer whose total annual salary and
bonus exceeded $100,000 for such fiscal year:
32
<PAGE>
SUMMARY COMPENSATION TABLE:
<TABLE>
<CAPTION>
FISCAL ALL OTHER
NAME AND PERIOD ENDED SALARY BONUS COMPENSATION
PRINCIPAL POSITION MARCH 31, ($) ($) OPTIONS ($)
- ------------------------------------- ------------ ------- ------- --------- ------------
<S> <C> <C> <C> <C> <C>
Laurence Rosen....................... 1996 $35,000 $29,167 330,648(2) (1)
Chief Executive Officer and
President
</TABLE>
- ------------
(1) Represents accrued salary and bonus, $25,000 of which was paid in March
1996. Mr. Rosen has agreed to defer the payment of the bonus until the
completion of the Company's proposed public offering. See "Employment
Agreements" below.
(2) Represents Non-Plan Options to purchase an aggregate of 93,158 shares of
Common Stock and options granted under the Company's Option Plan to purchase
an aggregate of 237,490 shares of Common Stock, all of which are not
currently exercisable or exercisable within 60 days. See "Management--1996
Stock Option Plan" and "--Non-Plan Stock Options".
EMPLOYMENT AGREEMENTS
Effective as of September 1, 1995, the Company entered into employment
agreements with Laurence Rosen and Jeffrey Wolf. In addition, effective as of
April 5, 1996, the Company entered into an employment agreement with Michael
Kharitonov, and, effective as of May 19, 1996, the Company entered into an
employment agreement with Vladislav Rysin. The employment agreement with Jeffrey
Wolf was amended effective May 1, 1996. In addition, the Company's employment
agreement with Michael Kharitonov was amended effective July 1, 1996.
Pursuant to the agreement with Mr. Rosen, the Company's President, Chief
Executive Officer, and Director, Mr. Rosen will receive a base salary of
$105,000 per year through August 31, 1996, and a salary of $115,000 per year for
the year commencing September 1, 1996 and $125,000 per year for the year
commencing September 1, 1997. In addition, Mr. Rosen will receive 93,158
options, 50% of which are exercisable upon the earlier of (i) the Company
achieving certain earnings standards or (ii) five years from the date of grant.
See "Management--Non-Plan Stock Options." The employment agreement will be
renewed for successive one year terms unless the Company gives 30 days prior
written notice of its intention not to renew the agreement. The employment
agreement may be terminated by the Company upon the death of Mr. Rosen or for
just cause, which includes a material breach by Rosen of the confidentiality
provisions, a material breach of the agreement which remains uncured or any
action by Rosen to intentionally harm the Company. Further, Mr. Rosen may also
terminate the employment agreement for just cause, which includes a material
breach of the agreement which remains uncured or any action by the Company to
intentionally harm Rosen. The employment agreement also provides for payments to
Mr. Rosen for a nine month period following termination equal to his base salary
and a pro-rata portion of any bonus to which he would have been entitled in the
event that the employment agreement is terminated other than as a result of the
death of Mr. Rosen, for just cause (as defined above) or for lack of renewal
thereof. The agreement with Mr. Rosen also includes certain confidentiality and
non-competitive provisions.
Pursuant to the agreement with Dr. Kharitonov, which was amended effective
July 1, 1996, as long as Dr. Kharitonov performs his duties as a full-time
employee of the Company, he will receive a base annual salary of $100,000 per
year through August 31, 1996, and a salary of $110,000 per year for the year
commencing September 1, 1996 and $120,000 per year for the year commencing
September 1, 1997. However, Dr. Kharitonov has the option to perform work for
the Corporation on a reduced hour basis. In the event that Dr. Kharitonov elects
to perform his duties on a reduced hour basis, his salary shall be adjusted so
that the Company shall pay him a base salary after such election at the rate of
$50,000 per annum through August 31, 1996, $55,000 from September 1, 1996
through August 31, 1997, $60,000 per annum from September 1, 1997 through August
31, 1998 and such equal or greater amount in each subsequent year of the term of
the employment agreement as may be determined by the
33
<PAGE>
Board of Directors, payable in equal installments on a semi-monthly basis in
arrears. Further, Dr. Kharitonov shall be paid a bonus of $30,000 on January 1,
1997. In addition, Dr. Kharitonov will receive 55,789 options, 50% of which are
exercisable upon the earlier of (i) the Company achieving certain earnings
standards or (ii) five years from the date of grant. See "Management--Non-Plan
Stock Options." The employment agreement will be renewed for successive one year
terms unless the Company gives 30 days prior written notice of its intention not
to renew the agreement. The employment agreement may be terminated by the
Company upon the death of Dr. Kharitonov or for just cause (as defined above).
Further, Dr. Kharitonov may also terminate the employment agreement for just
cause (as defined above). The employment agreement also provides for payments to
Dr. Kharitonov following termination as follows: (i) so long as Dr. Kharitonov
performs his duties as a full-time employee of the Company, upon termination Dr.
Kharitonov shall receive payments equal to his base salary and a pro-rata
portion of any bonus to which he would have been entitled for a nine month
period after termination in the event that the employment agreement is
terminated other than as a result of the death of Dr. Kharitonov, for just cause
(as defined above) or for lack of renewal thereof, or (ii) in the event that Dr.
Kharitonov elects to perform his duties on a reduced hour basis, upon
termination Dr. Kharitonov shall receive payments equal to the amount described
above but for the entire remaining term of the employment agreement. The
agreement with Dr. Kharitonov includes certain confidentiality and non-
competitive provisions.
Pursuant to the agreement with Jeffrey Wolf, which was amended effective as
of May 1, 1996, Mr. Wolf will receive a consulting fee of $50,000 per year
through August 31, 1996 and provides for a consulting fee of $55,000 per year
for the year commencing September 1, 1996 and $60,000 per year for the year
commencing September 1, 1997. In addition, Mr. Wolf will receive 73,860 options,
50% of which are exercisable upon the earlier of (i) the Company achieving
certain earnings standards or (ii) five years from the date of grant. See
"Management--Non-Plan Stock Options." The employment agreement will be renewed
for successive one year terms unless the Company gives 30 days prior written
notice of its intention not to renew the agreement. The employment agreement may
be terminated by the Company upon the death of Mr. Wolf or for just cause (as
defined above). Further, Mr. Wolf may also terminate the employment agreement
for just cause (as defined above). The employment agreement also provides for
payments to Mr. Wolf for a nine month period following termination equal to his
base salary and a pro-rata portion of any bonus to which he would have been
entitled in the event that the employment agreement is terminated other than as
a result of the death of Mr. Wolf, for just cause (as defined above) or for lack
of renewal thereof. The agreement does not currently require Mr. Wolf to devote
his time exclusively to the Company and also subjects Mr. Wolf to certain
confidentiality and non-competitive provisions.
Pursuant to the agreement with Dr. Rysin, the Company's Senior Software
Developer and Project Manager, Dr. Rysin will receive a base salary of $98,000
per year through May 18, 1997, and a salary of $108,000 per year for the year
commencing May 19, 1997 and $118,000 per year for the year commencing May 19,
1998. In addition, Dr. Rysin will receive 100,000 options which will vest
immediately, and one-third of which shall become exercisable one (1) year from
the date of his employment agreement, and an additonal one-sixth of which shall
become exercisable every six months thereafter. See "Management--1996 Stock
Option Plan." The employment agreement will be renewed for successive one year
terms unless the Company gives 30 days prior written notice of its intention not
to renew the agreement. The employment agreement may be terminated by the
Company upon the death of Dr. Rysin or for just cause (as defined above).
Further, Dr. Rysin may also terminate the employment agreement for just cause
(as defined above). The employment agreement also provides for payments to Dr.
Rysin for a nine month period following termination equal to his base salary and
a pro-rata portion of any bonus to which he would have been entitled in the
event that the employment agreement is terminated other than as a result of the
death of Dr. Rysin, for just cause (as defined above) or for lack of renewal
thereof. Further, Dr. Rysin shall be paid a bonus of $79,000 on the last day of
the month on each of the twelfth, twenty-fourth and thirty-sixth months of the
employment agreement. The agreement with Dr. Rysin includes certain
confidentiality and non-competitive provisions.
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<PAGE>
Currently, all of the officers of the Company perform their duties as
full-time employees of the Company.
1996 STOCK OPTION PLAN
Effective as of February 1996, the Board of Directors and stockholders of
the Company adopted the Company's 1996 Stock Option Plan (the "Option Plan").
The Option Plan is intended to recognize the contributions made to the Company
by key employees, officers and directors of the Company, to provide such persons
with additional incentive to devote themselves to the future success of the
Company, and to improve the ability of the Company to attract, retain, and
motivate individuals upon whom the Company's sustained growth and financial
success depend, by providing such persons with an opportunity to acquire or
increase their proprietary interest in the Company through receipt of rights to
acquire the Company's Common Stock.
The Company has reserved 800,000 shares of Common Stock for issuance upon
the exercise of options available for future grant under the Option Plan
designated as either (i) incentive stock options ("ISO's") under the Internal
Revenue Code of 1986, as amended (the "Code") or (ii) non-qualified stock
options ("NQSO's"). ISO's may be granted under the Option Plan to employees
(including directors) and officers of the Company. NQSO's may be granted to
non-employee directors, employees and officers of the Company. In certain
circumstances, the exercise of options granted under the Option Plan may have an
adverse effect on the market price of the Common Stock.
It is intended that the Option Plan will be administered by the Compensation
Committee (the "Committee"), composed of two or more persons appointed by the
Company's Board of Directors who are "disinterested persons" as defined under
Rule 16b-3 under the Exchange Act or "outside directors" as defined under
Section 162(m) of the Code. The Committee shall grant options in its discretion
and may consider the nature of the optionee's services and responsibilities, the
optionee's present and potential contribution to the Company's success and such
other factors as it may deem relevant. ISO's granted under the Option Plan may
not be granted at a price less than the fair market value of the Common Stock on
the date of grant (or 110% of fair market value in the case of persons holding
10% or more of the voting stock of the Company). The aggregate fair market value
of shares for which ISO's granted to any employee are exercisable for the first
time by such employee during any calendar year (under all stock option plans of
the Company and any related corporation) may not exceed $100,000. Options
granted under the Option Plan will expire not more than ten years from the date
of grant (five years in the case of ISO's granted to persons holding 10% or more
of the voting stock for the Company). Options granted under the Option Plan are
not transferable during an optionee's lifetime but are transferable at death by
will or by the laws of descent and distribution.
As of June 1996, the Company had granted ISO's under the Option Plan
exercisable for the purchase of an aggregate of 622,852 shares of Common Stock,
including (i) options to purchase 40,000 and 50,000 shares granted to Messrs.
Laurence Rosen and Michael Kharitonov, respectively, exercisable at a price of
$2.50 per share, and (ii) options to purchase 90,000 and 20,000 to Messrs.
Laurence Rosen and Michael Kharitonov, respectively, exercisable at a price of
$5.00 per share, which options vest immediately, but are not exercisable until
the date one year following the effective date of the Company's initial public
offering, and which become exercisable incrementally every six (6) months over
a three (3) year period commencing from their respective date of grant. In
addition, the Company also has granted options under the Option Plan to
purchase (i) 53,745, 32,186 and 42,611 shares to Messrs. Laurence Rosen, Michael
Kharitonov and Jeffrey Wolf, respectively, exercisable at a price of $2.50 per
share, and (ii) 53,745, 32,186 and 42,611 to Messrs. Laurence Rosen, Michael
Kharitonov and Jeffrey Wolf respectively, exercisable at a price of $5.50 per
share, which options vest immediately, but are not exercisable for a period of
one (1) year from the effective date of the initial public offering. The Company
has also agreed to issue 15,000 options to each of Messrs. John Meier and Ross
Glatzer, and 20,000 options to Richard Rosen, exercisable at $5.50 per share,
with such options to vest over a period of three years from their date of grant.
See "Principal Shareholders."
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<PAGE>
In addition to the foregoing, Vladislav Rysin was granted 100,000 NQSO's on
May 19, 1996. Mr. Rysin's NQSO's are exercisable at an exercise price of $2.50
per share as follows: one-third (33,333) on May 19, 1997 and one-sixth (11,111)
every six (6) months thereafter.
The Option Plan also contains certain change in control provisions which
could cause options and other awards to become immediately exercisable, and
restrictions and deferral limitations applicable to other awards to lapse, in
the event any "person," as such term is used in Sections 13(d) and 14(d) of the
Exchange Act, including a "group" as defined in Section 13(d), but excluding
certain shareholders of the Company, acquires beneficial ownership of more than
50.1% of the Company's outstanding shares of Common Stock.
NON-PLAN STOCK OPTIONS
As of the date of this Prospectus , the Company has issued options to
purchase up to an aggregate of 260,000 shares of Common Stock (the "Non-Plan
Options") outside of the Option Plan to certain executive officers, non-employee
directors and consultants. Although all of such Non-Plan Options have vested,
50% of such options are not exercisable until one year following their date of
grant and the right to exercise the remaining 50% of such Non-Plan Options
become exercisable on the earlier of (i) the Company achieving an after-tax net
income of at least $1,250,000 for a full fiscal year or (ii) five years
following their date of grant. See "Principal Stockholders." The following table
sets forth the information with respect to the Non-Plan Options issued to the
Company's executive officers and directors:
OPTION GRANTS DURING YEAR ENDED MARCH 31, 1996
[INDIVIDUAL GRANTS]
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL EXERCISE
SECURITIES UNDERLYING OPTIONS/SARS OR BASE
OPTIONS/SARS GRANTED TO PRICE EXPIRATION
NAME GRANTED (#) EMPLOYEES IN FISCAL YEAR ($/SH) DATE
- ----------------------------------- --------------------- ------------------------ -------- ----------
<S> <C> <C> <C> <C>
Laurence Rosen..................... 93,158 35.8% $ 2.50 2/27/06
Jeffrey Wolf....................... 73,860 28.4% $ 2.50 2/27/06
Michael Khartinov.................. 55,789 21.5% $ 2.50 2/27/06
</TABLE>
The Company may, in the future, file a registration statement on Form S-8
under the Securities Act registering the options and shares of Common Stock
underlying the options that may be issued under the plans.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Delaware General Corporation Law contains various provisions entitling
directors, officers, employees or agents of the Company to indemnification from
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys's fees, as the result of an action or proceeding (whether civil,
criminal, administrative or investigative) in which they may be involved by
reason of being or having been a director, officer, employee or agent of the
Company provided said persons acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interest of the Company (and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
that the conduct complained of was unlawful). The By-Laws of the Company provide
that the indemnification provisions of any applicable law are to be utilized to
the fullest extent permitted.
LIMITATION ON LIABILITY OF DIRECTORS
The Delaware General Corporation Law permits a corporation, through its
Certificate of Incorporation, to exonerate its directors from personal liability
to the corporation, or to its stockholders, for monetary damages for breach of
fiduciary duty of care as a director, with certain exceptions. The exceptions
include a breach of the director's duty of loyalty, acts or omissions not in
good faith or which involve intentional misconduct or knowing violation of law,
improper declarations of dividends, and transactions from which the directors
derived an improper personal benefit. The Company's Certificate
36
<PAGE>
of Incorporation exonerates its directors from monetary liability to the extent
permitted by this statutory provision. The Company has been advised that it is
the position of the Securities and Exchange Commission that insofar as the
foregoing provision may be invoked to disclaim liability for damages arising
under the Act, that provision is against public policy as expressed in the Act
and is therefore unenforceable.
PRINCIPAL STOCKHOLDERS
The following table sets forth, assuming the successful sale of the maximum
number of shares offered hereby, certain information concerning beneficial
ownership of shares of Common Stock with respect to (i) each person known to the
Company to own 5% or more of the outstanding shares of Common Stock, (ii) each
director of the Company, (iii) the executive officer(s) named in the Summary
Compensation table, and (iv) all directors and officers of the Company as a
group:
<TABLE>
<CAPTION>
NUMBER OF APPROXIMATE APPROXIMATE
SHARES PERCENTAGE OF PERCENTAGE OF
BENEFICIALLY COMMON STOCK COMMON STOCK
NAME OWNED BEFORE OFFERING AFTER OFFERING(8)
- ---------------------------------------------------- ------------ --------------- -----------------
<S> <C> <C> <C>
Laurence Rosen(1)(2)................................ 438,662 25.8% 16.9%
Jeffrey Wolf(1)(3).................................. 341,553 20.1% 13.1%
Michael Kharitonov(1)(4)............................ 266,210 15.7% 10.2%
Scott Wolf(5)....................................... 177,474 10.4% 6.8%
Dennis Sal(6)....................................... 90,000 5.3% 3.5%
All Officers and Directors as a Group (3
persons)(7)......................................... 1,046,427 61.6% 40.2%
</TABLE>
- ------------
Except as noted above, the address for the above identified officers and
directors of the Company is c/o NetLive Communications, Inc., 584 Broadway,
Suite 806, New York, New York 10012.
(1) May be deemed to be a "parent" and "promoter" of the Company as defined in
the Rules and Regulations of the Commission promulgated under the Act.
(2) Does not include Non-Plan Options to purchase an aggregate of 93,158 shares
of Common Stock or options granted under the Company's Option Plan to
purchase an aggregate of 237,490 shares of Common Stock, all of which are
not currently exercisable or exercisable within 60 days. See
"Management--1996 Stock Option Plan" and "--Non-Plan Stock Options".
(3) Does not include Non-Plan Options to purchase an aggregate of 73,860 shares
of Common Stock, or options granted under the Company's Stock Option Plan to
purchase an aggregate of 85,223 shares of Common Stock, all of which are not
currently exercisable or exercisable within 60 days. See "Management--1996
Stock Option Plan" and "--Non-Plan Stock Options".
(4) Does not include Non-Plan Options to purchase an aggregate of 55,789 shares
of Common Stock or options granted under the Company's Option Plan to
purchase an aggregate of 134,372 shares of Common Stock, all of which are
not currently exercisable or exercisable within 60 days. See
"Management--1996 Stock Option Plan" and "--Non-Plan Stock Options".
(5) Does not include performance options to purchase an aggregate of 37,193
shares of Common Stock, all of which are not currently exercisable or
exercisable within 60 days. See "Management--Non-Plan Stock Options". Scott
Wolf is the brother of Jeffrey Wolf, a director of the Company.
(6) Does not include options to purchase an aggregate of 250,000 shares of
Common Stock, all of which are not currently exercisable or exercisable
within 60 days.
(7) Does not include Non-Plan Options to purchase an aggregate of 222,807 shares
of Common Stock or options granted under the Company's Option Plan to
purchase an aggregate of 457,085 shares of Common Stock, all of which are
not currently exercisable or exercisable within 60 days. See
"Management--1996 Stock Option Plan" and "--Non-Plan Stock Options".
(8) Does not give effect to the sale of shares of Common Stock in connection
with an offering by certain Selling Securityholders of the Company (the
"Selling Securityholders Offering") which is being made concurrently with
this offering. In connection with the Selling Securityholders Offering, Mr.
Dennis Sal will be offering 90,000 shares of Common Stock of the Company for
sale. In the event that all 90,000 shares are sold by Mr. Sal, his
percentage ownership of Common Stock of the Company will be zero percent
(0%).
37
<PAGE>
CERTAIN TRANSACTIONS
The Company was originally incorporated under the laws of the State of
Delaware under the name of Netvisions Incorporated and subsequently changed its
name to NetLive Communications, Inc. In September 1995, December 1995 and
January 1996, certain executive officers, directors and/or principal
shareholders of the Company purchased shares of Common Stock for an aggregate
consideration of $6,750, $22,890 and $1.00, respectively. The following table
indicates the number of shares of Common Stock purchased by such persons and the
date of such purchases:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
SHARES PURCHASED SHARES PURCHASED SHARES PURCHASED
NAME IN SEPTEMBER 1995 IN DECEMBER 1995 IN JANUARY 1996
- --------------------------------------------- ----------------- ---------------- ----------------
<S> <C> <C> <C>
Scott Wolf................................... 132,268 45,206
Laurence Rosen............................... 263,699 88,737 1,674
Jeffrey Wolf................................. 263,699 88,737
Andrew Schwartz.............................. 45,206 45,206
Michael Kharitonov........................... 132,268 132,268 1,674
</TABLE>
In February 1996, Mr. Robert Friedman purchased 41,857 shares of the Company's
Common Stock for an aggregate consideration of $50,000. In addition, in February
1996, Mr. Robert Friedman purchased 5,860 and 10,883 shares of the Company's
Common Stock from Messrs. Laurence Rosen and Jeffrey Wolf, respectively. In
February 1996, Mr. Laurence Rosen purchased 90,412 shares of the Company's
Common Stock from Mr. Andrew Schwartz.
The Company believes that all transactions with officers, directors and
principal shareholders and their affiliates were made on terms no less favorable
to the Company than those available from unaffiliated parties. In addition, the
Company has adopted a policy that all future transactions, including loans
between the Company and its officers, directors, principal stockholders and
their affiliates must be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested outside directors on
the Board of Directors, and will be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 19,000,000 shares of Common Stock,
$.0001 par value per share. The holders of Common Stock are entitled to receive
dividends equally when, as and if declared by the Board of Directors, out of
funds legally available therefor.
The holders of the Common Stock have sole voting rights, one vote for each
share held of record, and are entitled upon liquidation of the Company to share
ratably in the net assets of the Company available for distribution. Shares of
the Company's Common Stock do not have cumulative voting rights and vote as a
class on all matters requiring stockholder approval. Therefore, the holders of a
majority of the shares of Common Stock may elect all of the directors of the
Company, control its affairs and day to day operations. The shares of Common
Stock are not redeemable and have no preemptive or similar rights. All
outstanding shares of the Company's Common Stock are fully paid for and
non-assessable.
WARRANTS
Each Warrant entitles its holder to purchase one share of Common Stock at an
exercise price of $5.50 per share, subject to adjustment, commencing two years
after the Effective Date until , 2001.
The Warrants will be issued pursuant to a warrant agreement (the "Warrant
Agreement") among the Company, the Underwriter and American Stock Transfer &
Trust Co., the warrant agent, and will be evidenced by warrant certificates in
registered form.
38
<PAGE>
The exercise price of the Warrants and the number and kind of shares of
Common Stock or other securities and property issuable upon exercise of the
Warrants are subject to adjustment in certain circumstances, including stock
splits, stock dividends, subdivisions, combinations, reclassification, or
issuances of stock at a price lower than the current market price. Additionally,
an adjustment will be made upon the sale of all or substantially all of the
assets of the Company in order to enable the holders of the Warrants to purchase
the kind and number of shares of stock or other securities or property
(including cash) receivable in such event by a holder of the number of shares of
Common Stock that might otherwise have been purchased upon exercise of the
Warrants.
The Warrants do not confer upon the holder any voting or any other rights of
a stockholder of the Company. Upon notice to the holders of the Warrants, the
Company has the right to reduce the exercise price or extend the expiration date
of the Warrants.
Warrants may be exercised upon surrender of the Warrant certificate
evidencing those Warrants on or prior to the expiration date (or earlier
redemption date) of the Warrants to the Warrant Agent, with the form of
"Election to Purchase" on the reverse side of the Warrant certificate completed
and executed as indicated, accompanied by payment of the full exercise price (in
United States funds, by cash or certified bank check payable to the order of the
Warrant Agent) for the number of Warrants being exercised.
No fractional shares will be issued upon exercise of the Warrants. However,
if a holder of a Warrant exercises all Warrants then owned of record by him, the
Company will pay to that holder, in lieu of the issuance of any fractional share
which would otherwise be issuable, an amount in cash based on the market value
of the Common Stock on the last trading day prior to the exercise date.
No Warrant will be exercisable unless at the time of exercise the Company
has filed with the Commission a current prospectus covering the issuance of
shares of Common Stock issuable upon exercise of the Warrants and the issuance
of shares has been registered or qualified or is deemed to be exempt from
registration or qualification under the securities laws of the state of
residence of the holder of the Warrant. The Company has undertaken to use its
best efforts to maintain a current prospectus relating to the issuance of shares
of Common Stock upon the exercise of the Warrants until the expiration of the
Warrants, subject to the terms of the Warrant Agreement. While it is the
Company's intention to maintain a current prospectus, there is no assurance that
it will be able to do so. See "Risk Factors--Current Prospectus and State Blue
Sky Registration Required to Exercise Warrants."
The Warrants are redeemable, in whole or in part, by the Company at a price
of $.05 per Warrant, commencing one year after the Effective Date and prior to
their expiration, provided that (i) prior written notice of not less than 30
days is given to the Warrantholders, (ii) the closing bid price (as defined) of
the Company's Common Stock for the twenty consecutive trading days immediately
prior to the date on which the notice of redemption is given, shall have
exceeded $7.50 per share, and (iii) Warrantholders shall have exercise rights
until the close of business the day preceding the date fixed for redemption. The
Warrants shall be exercisable until the close of the business day preceding the
date fixed for redemption. In addition, subject to the rules of the NASD, the
Company has agreed to engage the Underwriter as warrant solicitation agent, in
connection with which it would be entitled to a 5% fee upon exercise of the
Warrants. See "Underwriting."
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of "blank check"
Preferred Stock par value $.0001 per share ("Preferred Stock"). The Preferred
Stock may be issued from time to time, in one or more series, upon authorization
by the Company's Board of Directors. The Board of Directors, without further
approval of the stockholders, will be authorized to fix the dividend rights and
terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, and any other rights, preferences, privileges and
restrictions applicable to each series of Preferred Stock. The issuance of
Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of the holders of the Common
39
<PAGE>
Stock and, under certain circumstances, make it more difficult for a third party
to gain control of the Company, discourage bids for the Company's Common Stock
at a premium or otherwise adversely effect the market price of the Common Stock,
if the Common Stock is ever publicly traded, of which there are no assurances.
As of the date hereof, the Company has no plans to issue, or any present
intention to issue any such shares.
TRANSFER AGENT AND WARRANT AGENT
The Transfer Agent for the Company's Common Stock and the Warrant Agent for
the Company's A Warrants is American Stock Transfer & Trust Co., New York, New
York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this Offering, the Company will have 2,600,000 shares
of Common Stock outstanding (2,735,000 shares if the Underwriter's
over-allotment option is exercised in full). All of the shares of Common Stock
sold in this Offering will be freely tradeable without restriction or further
registration under the Securities act of 1933, as amended (the "Securities
Act"), except for any shares purchased by an "affiliate" of the Company which
will be subject to certain limitations of Rule 144 adopted under the Securities
Act.
The 1,700,000 presently outstanding shares of Common Stock are restricted
securities and will be subject to the resale limitations provided for in Rule
144. Under Rule 144, as currently in effect, subject to the satisfaction of
certain other conditions, a person, including an affiliate of the company, who
has owned restricted shares of Common Stock beneficially for at least two years,
is entitled to sell, within any three month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the Common stock is quoted on an exchange, the average weekly
trading volume during the four calendar weeks preceding the sale. A
non-affiliate who has not been an affiliate of the Company for at least the
three months immediately preceding the sale and who has beneficially owned
shares of Common Stock for at least three years is entitled to sell such shares
under Rule 144 without regard to any of the limitations described above. In
meeting the two and three year holding periods described above, a holder who has
purchased shares can include the holding periods of a prior owner who was not an
affiliate of the Company.
All Company's securityholders, on the date hereof, have agreed not to
publicly sell, for a period of 2 years from the date of this Prospectus, any
shares of the Company's Common Stock without the prior written consent of the
Underwriter .
Prior to this Offering, there has been no market for any securities of the
Company. The effect, if any, of public sales of the restricted shares of Common
Stock or the availability of such shares for future sale at prevailing market
prices cannot be predicted. Nevertheless, the possibility that substantial
amounts of restricted shares may be resold in the public market may adversely
affect prevailing market prices for the Common Stock and the Class A Warrants,
if any such market should develop.
40
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
between the Company and the Underwriter (a copy of which agreement is filed as
an exhibit to the Registration Statement of which this Prospectus forms a part),
the Company has agreed to sell to the Underwriter 900,000 shares of Common Stock
and 600,000 Warrants. All 900,000 shares and 600,000 Warrants offered must be
purchased by the Underwriter if any are purchased. The shares and Warrants are
being offered by the Underwriter subject to prior sale, when, as and if
delivered to and accepted by the Underwriters and subject to approval of certain
legal matters by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the shares
of Common Stock and the Warrants to the public at the offering prices set forth
on the cover page of this Prospectus and that the Underwriter may allow to
certain dealers who are members in good standing with the National Association
of Securities Dealers, Inc. ("NASD") concessions, not in excess of $ per
share of Common Stock and $ per Warrant. After the initial public offering,
the public offering price and concessions may be changed by the Underwriter.
While certain of the officers of the Underwriter have significant experience
in corporate finance and the underwriting of securities, the Underwriter has not
previously underwritten any public offerings. No assurance can be given that the
Underwriter's limited public offering experience will not affect the Company's
Offering of the Common Stock and Warrants and subsequent development of a
trading market, if any.
The Company has granted the Underwriter an option, exercisable for 45 days
from the date of this Prospectus, to purchase up to 135,000 Shares and 90,000
Warrants from it, at the public offering price less the underwriting discounts
set forth on the cover page of this Prospectus. The Underwriters may exercise
this option solely to cover over-allotments in the sale of the shares of Common
Stock and Warrants offered hereby.
The Company has agreed to pay the Underwriter a non-accountable expense
allowance of 3% of the gross proceeds of the shares of Common Stock and Warrants
sold in this Offering, of which $25,000 has been paid prior to the date hereof.
The underwriting agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain civil liabilities, including
liabilities under the Securities Act of 1933.
The Company has agreed to sell to the Underwriter or its designees, at a
price of $10, the Underwriter's Warrants, which entitle the Underwriter to
purchase up to 90,000 shares of Common Stock of the Company and/or 60,000
Warrants, respectively. The Underwriter's Warrants will be exercisable at a
price of $6.60 per share and $.12 per Warrant, respectively, for a period of
four years commencing one year from the date of this Prospectus, and they will
not be transferable except to underwriters and selected dealers and officers and
partners thereof. Any profit realized upon any resale of the Underwriter's
Warrants or upon any sale of the shares of Common Stock or Warrants underlying
same may be deemed to be additional underwriter's compensation. The Company has
agreed to register (or file a post-effective amendment with respect to any
registration statement registering) the Underwriter's Warrants and the
underlying securities under the Securities Act at its expense on one occasion,
and at the expense of the holders thereof on another occasion, upon the request
of a majority of the holders thereof. The Company has also agreed to certain
"piggy-back" registration rights for the holders of the Underwriter's Warrants
and the underlying securities.
The Company has agreed that for a period of three years, the Underwriter
will have the right to designate a person to be a non-voting advisor to the
Company's Board of Directors who will receive the same compensation as a member
of the Board of Directors and who will be indemnified by the Company against any
claims arising out of his participation at meetings of the Board of Directors.
The identity of
41
<PAGE>
such person has not been determined as of the date hereof, and it is not
expected that such right will be exercised in the immediate future.
The Underwriters have informed the Company that they do not expect sales of
shares and the Class A Warrants to be made to discretionary accounts to exceed
1% of the shares of Common Stock and Warrants offered hereby.
The Company will pay the Underwriter a commission equal to five percent (5%)
of the exercise price of the Warrants exercised, of which a portion may be
reallowed to any dealer who solicited the exercise, provided that (i) at the
time of exercise the market price of the Common Stock is greater than the
exercise price of the Warrants, (ii) the exercise of the Warrants was solicited
by the Underwriter, (iii) the Warrants exercised are not held in discretionary
accounts, (iv) disclosure of the compensation arrangements have been made both
at the time of this Offering and at the time of exercise, and (v) the
solicitation of the exercise of the Warrants is not in violation of Rule 10b-6
under the Securities Exchange Act of 1934. The Company has agreed not to solicit
the exercise of the Warrants other than through the Underwriter.
The Offering is subject to the agreement by all present stockholders of the
Company that they will not sell any shares of Common Stock to the public without
the prior written consent of the Underwriter for a period of twenty-four months.
The Company has agreed to enter into an agreement with the Underwriter
retaining them as a financial consultant for a period of three years from the
date hereof, pursuant to which they will receive fees aggregating $90,000 which
fees will be payable in full at closing.
CONCURRENT REGISTRATION OF SECURITIES
Concurrently with this Offering, 417,500 shares of Common Stock and
1,000,000 Warrants have been registered under the Securities Act for immediate
resale. None of the holders of such securities or their affiliates has ever held
any position or office with the Company or had any other material relationship
with the Company. The holders of such securities have agreed not to sell any of
the registerable securities for a period of 2 years from the Effective Date,
without the prior written consent of the Underwriter.
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for the
Company By Gusrae, Kaplan & Bruno, Esqs., New York, New York. The firm of
Gusrae, Kaplan & Bruno owns 17,500 shares of the Common Stock of the Company.
Certain legal matters in connection with this Offering will be passed upon for
the Underwriter by Gersten Savage Kaplowitz & Curtin, LLP, New York, New York.
EXPERTS
The financial statements of the company at March 31, 1996 and for the period
from August 23, 1995 (date of inception) to March 31, 1996 included in this
Prospectus have been included in reliance upon the report of Goldstein Golub
Kessler & Company, P.C., independent certified public accountants, given upon
the authority of said firm as experts in auditing and accounting.
42
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Washington, D.C. office of the Securities and
Exchange Commission a Registration Statement (the "Registration Statement")
under the Securities Act with respect to the securities offered by this
Prospectus. This Prospectus does not contain all the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and this Offering, reference is made to the Registration
Statement, including the exhibits filed therewith. Statements contained in the
Prospectus as to the contents of any contract or other document are not
necessarily complete and reference is made to each such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended. Reports and other information filed by the
Company can be inspected without charge or copies made at prescribed rates from
the Commission at its principal office at 450 Fifth Street, N.W., Washington,
D.C. 20549 or at its Midwest Regional Office located at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, or at its Northeast
Regional Office located at 7 World Trade Center, New York, New York 10048. The
Commission maintains a WWW site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission. The Commission's WWW site is located at http://www.sec.gov.
43
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INDEPENDENT AUDITOR'S REPORT..................................................... F-2
FINANCIAL STATEMENTS:
Balance Sheet.................................................................. F-3
Statement of Operations........................................................ F-4
Statement of Stockholders' Equity.............................................. F-5
Statement of Cash Flows........................................................ F-6
Notes to Financial Statements.................................................. F-7-F-12
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
NetLive Communications, Inc.
We have audited the accompanying balance sheet of NetLive Communications,
Inc. (a development stage company) as of March 31, 1996 and the related
statements of operations, stockholders' equity, and cash flows for the period
from August 23, 1995 (date of inception) to March 31, 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 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.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NetLive Communications, Inc.
as of March 31, 1996 and the results of its operations and its cash flows for
the period from August 23, 1995 (date of inception) to March 31, 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 9 to the
financial statements, the Company has had limited operations, has a working
capital deficiency and a deficit accumulated during the development stage 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 9. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Goldstein Golub Kessler & Company, P.C.
---------------------------------------
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
April 25, 1996, except for Note 8, as to
which the date is May 9, 1996,
and the next to last paragraph
of Note 6, as to which the date is
May 19, 1996
F-2
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
MARCH 31, 1996
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 1)............................................ $ 160,395
Prepaid expenses and other current assets..................................... 1,771
---------
TOTAL CURRENT ASSETS...................................................... 162,166
Property and Equipment, net (Notes 1 and 2)..................................... 46,001
Deferred Income Tax Asset, net of valuation allowance of $36,000 (Notes 1 and
5)............................................................................ --
Debt Issue Costs (Notes 1 and 4)................................................ 24,479
Deferred Offering Costs (Note 1)................................................ 43,500
Other Assets (Note 1)........................................................... 6,292
---------
TOTAL ASSETS.............................................................. $ 282,438
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses (Note 6)................................ $ 144,813
Notes payable (Note 4)........................................................ 88,348
Current portion of obligations under capital leases (Note 3).................. 5,190
---------
TOTAL CURRENT LIABILITIES................................................. 238,351
Obligations under Capital Leases, net of current portion (Note 3)............... 12,280
---------
TOTAL LIABILITIES......................................................... 250,631
---------
Commitments (Notes 3, 4 and 6)
Stockholders' Equity (Notes 7, 8 and 9):
Preferred stock--$.0001 par value; authorized 1,000,000 shares, none issued... --
Common stock--$.0001 par value; authorized 19,000,000 shares, issued and
outstanding 1,500,000 shares................................................. 150
Additional paid-in capital.................................................... 289,661
Deficit accumulated during the development stage.............................. (243,129)
Deferred offering costs relating to common stock issued for services related
to intended IPO (Note 1).................................................... (14,875)
---------
STOCKHOLDERS' EQUITY...................................................... 31,807
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................ $ 282,438
---------
---------
</TABLE>
The accompanying notes and independent auditor's report should be read
in conjunction with the financial statements.
F-3
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
PERIOD FROM AUGUST 23, 1995 (DATE OF INCEPTION) TO MARCH 31, 1996
<TABLE>
<CAPTION>
Selling, general and administrative expenses:
<S> <C>
Salaries (Note 6)............................................................... $ 160,714
Professional fees............................................................... 27,812
Rent (Note 6)................................................................... 9,724
Depreciation and amortization................................................... 4,727
Interest expense and financing costs............................................ 5,189
Other........................................................................... 34,963
---------
Net loss........................................................................ $(243,129)
---------
---------
Net loss per common share....................................................... $ (.16)
---------
---------
Weighted average number of common shares outstanding (Note 1)................... 1,543,385
---------
---------
</TABLE>
The accompanying notes and independent auditor's report should be read
in conjunction with the financial statements.
F-4
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM AUGUST 23, 1995 (DATE OF INCEPTION) TO MARCH 31, 1996
<TABLE>
<CAPTION>
DEFERRED OFFERING
DEFICIT COSTS RELATING TO
COMMON STOCK ACCUMULATED COMMON STOCK
------------------ ADDITIONAL DURING THE ISSUED FOR PRICE
NUMBER PAID-IN DEVELOPMENT SERVICES RELATED STOCKHOLDERS' PER
DATE OF SHARES AMOUNT CAPITAL STAGE TO INTENDED IPO EQUITY SHARE
-------- --------- ------ ---------- ----------- ----------------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuances of
common stock for
cash............ 9/2/95 837,140 $ 84 $ 6,666 -- -- $ 6,750 $ .01
12/18/95 400,154 40 22,850 -- -- 22,890 .06
1/11/96 3,349 -- -- -- -- -- --
2/1/96 41,857 4 49,996 -- -- 50,000 1.19
Contributed
property and
equipment and
expenses paid by
stockholders,
contributed to
the Company (Note
7)................ -- -- 30,296 -- -- 30,296 --
Issuance of common
stock for
services related
to intended
IPO.............. 2/19/96 17,500 2 14,873 -- $ (14,875) -- $ .85
Issuance of common
stock in
connection with
private placement
(Note 4).......... 3/20/96 200,000 20 149,980 -- -- 150,000 $ .75
Issuance of
warrants in
connection with
private placement
(Note 4).......... 3/20/96 -- -- 15,000 -- -- 15,000 --
Net loss.......... -- -- -- $(243,129) -- (243,129) --
--------- ------ ---------- ----------- ------- ------------- -----
Balance at March
31, 1996......... 1,500,000 $150 $289,661 $(243,129) $ (14,875) $ 31,807 --
--------- ------ ---------- ----------- ------- ------------- -----
</TABLE>
The accompanying notes and independent auditor's report should be read
in conjunction with the financial statements.
F-5
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
PERIOD FROM AUGUST 23, 1995 (DATE OF INCEPTION) TO MARCH 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss...................................................................... $(243,129)
Adjustments to reconcile net loss to net cash used in operating activities:
Expenses paid by stockholders, contributed to the Company (Note 7)........ 12,006
Depreciation and amortization............................................. 4,727
Amortization of debt issue costs and discount on notes payable............ 3,869
Changes in operating assets and liabilities:
Increase in prepaid expenses and other current assets................... (1,771)
Increase in other assets................................................ (2,175)
Increase in accounts payable and accrued expenses....................... 144,813
---------
NET CASH USED IN OPERATING ACTIVITIES................................. (81,660)
---------
Cash flows from investing activities:
Purchase of property and equipment............................................ (14,703)
Acquisition of intangibles.................................................... (4,220)
---------
CASH USED IN INVESTING ACTIVITIES..................................... (18,923)
---------
Cash flows from financing activities:
Capital contributions......................................................... 79,640
Principal payments on obligations under capital leases........................ (162)
Proceeds from issuance of notes payable....................................... 250,000
Debt issue costs.............................................................. (25,000)
Deferred offering costs....................................................... (43,500)
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES............................. 260,978
---------
Cash and cash equivalents at end of period...................................... $ 160,395
---------
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest...................................... $ 70
---------
---------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Contributed property and equipment (Note 7)................................... $ 18,290
---------
---------
Capital lease obligations incurred............................................ $ 17,632
---------
---------
Common stock issued for services related to intended IPO...................... $ 14,875
---------
---------
</TABLE>
The accompanying notes and independent auditor's report should be read
in conjunction with the financial statements.
F-6
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. PRINCIPAL BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES:
NetLive Communications, Inc. (a development stage company) (the "Company")
was incorporated on August 23, 1995 under the laws of the State of Delaware. The
Company is developing and intends to utilize technologies that will provide
live, one-on-one, videoconferenced entertainment, educational and counseling
services over the Internet.
Property and equipment are recorded at cost. Depreciation is provided for by
the straight-line method over the estimated useful lives of the property and
equipment.
Trademarks are being amortized over 10 years using the straight-line method
and are included in other assets in the accompanying balance sheet.
The Company recognizes revenue when services are provided.
Research and development expenses, consisting primarily of salaries and
consulting fees to support technology and services content development, are
expensed as incurred.
The Company employs the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 109, under
which method recorded deferred income taxes reflect the tax consequences on
future years of temporary differences (differences between the tax basis of
assets and liabilities and their financial amounts at year-end). The Company
provides a valuation allowance that reduces deferred tax assets to their net
realizable value.
Debt issue costs associated with the March 1996 private placement financing
described in Note 4 will be amortized by the straight-line method over the terms
of the related debt. Accumulated amortization was $521 at March 31, 1996.
Deferred offering costs represent costs incurred through March 31, 1996
attributable to the May 1996 private placement offering and an intended initial
public offering ("IPO") (see Notes 8 and 9). The Company intends to offset these
costs against the proceeds from these transactions. In the event that these
transactions are not completed, these costs will be charged to operations.
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts.
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of estimates by management.
Net loss per share of common stock has been computed using the weighted
average number of shares of common stock outstanding. For purposes of this
computation shares of common stock issued prior to the initial filing of the
Registration Statement relating to the IPO and shares issuable upon the exercise
of all common stock purchase options outstanding, with exercise prices below the
IPO price, have been included in weighted average number of shares outstanding,
since inception, utilizing the treasury stock method.
F-7
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. PRINCIPAL BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES:--
(CONTINUED)
The Company intends to measure compensation cost using Accounting Principles
Board Opinion No. 25 ("APB 25") as is permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation," effective for financial statements with fiscal years
beginning after December 31, 1995.
The Company intends to adopt SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," for its 1997
fiscal year. Management of the Company believes that the adoption of this
pronouncement will not have a material effect on the Company's financial
statements.
2. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following:
ESTIMATED
USEFUL LIFE
-----------
Furniture and equipment................................ $ 1,364 5 years
Computer and video equipment........................... 31,629 3 years
Equipment acquired under capital leases (Note 3)....... 17,632 3 years
-------
50,625
-------
Less accumulated depreciation and amortization:
Equipment acquired under capital leases.............. 97
Other................................................ 4,527
-------
4,624
-------
$46,001
-------
-------
3. OBLIGATIONS UNDER CAPITAL LEASES:
The Company is the lessee of equipment acquired under capital leases
expiring in 1999. The Company is required to make monthly payments aggregating
$585 with interest at 12% per annum.
Minimum future payments under these leases are as follows:
Year ending March 31,
1997....................................................... $ 7,029
1998....................................................... 7,029
1999....................................................... 6,794
-------
20,852
Less amount representing interest................................ 3,382
-------
$17,470
-------
-------
F-8
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. NOTES PAYABLE:
In March 1996, the Company completed a private placement for which it
received in the aggregate $250,000 and in exchange issued 200,000 shares of
common stock, 1,000,000 redeemable common stock purchase warrants and $250,000
aggregate principal amount of its 12% redeemable promissory notes with interest
payable upon repayment. The notes are due and payable at the earlier of the
completion of the Company's proposed IPO, March 1998, or the date of closing of
a sale of securities by the Company in an amount of $500,000 or greater, as
defined. Accordingly, the notes were repaid in May 1996 (see Note 8). The
Company will record a charge to operations of approximately $165,000 in May
1996. In connection with this private placement, the Company incurred costs
amounting to $25,000.
In accordance with paragraph 16 of APB Opinion No. 14 "Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants" ("APB 14") values
were assigned to each part of the transaction based on an allocation of the
relative fair values of the securities at the time of issuance. The fair value
of the promissory notes were based on a 24% discount rate after effecting for
the costs of the offering. The fair value of the common stock was determined to
be $2.50 per share which was the price at which 200,000 shares of common stock
were sold in May 1996 (see Note 8). The fair value of the warrants was estimated
at $.05 per warrant. Accordingly, a value of $85,000 was assigned to the
promissory notes, a value of $150,000 was assigned to the common stock and a
value of $15,000 was assigned to the warrants.
The redeemable common stock purchase warrants are not exercisable until one
year from the effective date of the proposed IPO and expire three years from the
effective date of the proposed IPO. Each warrant entitles the holder to purchase
one share of common stock for $5.50 per share. The
Company may call these warrants for redemption on the earlier of one year from
the effective date of the IPO or any time after September 1, 1996, provided the
Company has not consummated an IPO of its securities by that time, as defined.
In the event the Company does not consummate an IPO by September 1, 1996,
the Company may redeem the common stock and common stock purchase warrants at an
aggregate redemption price equal to 85% of the principal amount remaining
outstanding on the promissory note.
5. INCOME TAXES:
The tax effects of loss carryforwards and the valuation allowance that give
rise to deferred tax assets at March 31, 1966 are as follows:
Net operating losses............................................. $ 36,000
Less valuation allowance......................................... (36,000)
--------
DEFERRED TAX ASSETS........................................ $ 0
--------
--------
As of March 31, 1996, the Company had net operating loss carryforwards
available to offset future taxable income of approximately $240,000 which expire
in the year 2011. The Company uses the lowest marginal U.S. corporate tax of 15%
to determine deferred tax amounts and the related valuation allowance because
the Company has had no taxable earnings through March 31, 1996.
F-9
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. COMMITMENTS:
The Company leases office space under noncancelable operating leases which
expire at various dates through November 1998. A lease is subject to escalations
for the Company's share of increases in real estate taxes.
Minimum future obligations under the leases are as follows:
Year ending March 31,
1997....................................................... $36,616
1998....................................................... 24,976
1999....................................................... 17,090
-------
$78,682
-------
-------
Rent expense charged to operations for the period from August 23, 1995 (date
of inception) to March 31, 1996 amounted to $9,724.
The Company has entered into employment agreements with a consultant and
executive officers of the Company which provide for compensation through May 18,
1999 as follows:
Year ending March 31,
1997..................................................... $ 355,333
1998..................................................... 480,333
1999..................................................... 322,834
2000..................................................... 93,750
----------
$1,252,250
----------
----------
At March 31, 1996, approximately $90,000 of such compensation has been
accrued and included in accounts payable and accrued expenses.
7. STOCKHOLDERS' EQUITY:
Effective March 5, 1996, the Company's Board of Directors approved an
approximate 837.14 for 1 stock split, whereby the number of shares of
outstanding common stock was increased from 1,532 to 1,282,500. The stated par
value of each share was not changed from $.0001. A total of $130 was
reclassified from the Company's additional paid-in capital account to the
Company's common stock account. All share and per share amounts have been
restated to retroactively reflect the stock split.
The cash cost of the contributed property and equipment and expenses paid by
stockholders aggregated $30,296. Contributed property and equipment aggregating
$18,290 which mainly consisted of computer and video equipment have been
recorded at the stockholders' cost. Expenses paid by stockholders aggregating
$12,006 consisted of consulting expense, travel expense and other miscellaneous
costs.
During February 1996, the Board of Directors of the Company adopted the 1996
Stock Option Plan (the "Plan") which authorizes the granting of options to
purchase up to an aggregate of 800,000
F-10
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. STOCKHOLDERS' EQUITY:--(CONTINUED)
shares of common stock to employees, officers and directors of the Company. Both
nonqualified options and options intended to qualify as incentive stock options
("ISOs") under the Internal Revenue Code of 1986, as amended, may be granted
under the Plan. ISOs granted under the Plan may not be granted at a price less
than the fair market value of the common stock on the date of the option grant,
provided that the exercise price of such option granted to a stockholder owning
more than 10% of the outstanding common stock of the Company may not be less
than 110% of the fair market value of the common stock on the date of the option
grant. The term of each option and the manner of exercise are determined by a
committee appointed by the Board of Directors, but in no case can the options be
exercised in excess of 10 years beyond the grant date, as defined.
In March 1996, options to purchase 622,854 shares of common stock at
exercise prices ranging from $2.50 to $5.00 per share were granted under the
Plan. A portion of the options become exercisable one year following the
effective date of the Company's intended IPO and the balance of the options
become exercisable incrementally every six months for a three-year period.
In February 1996, the Company issued options to purchase an aggregate of
260,000 shares of common stock outside the Plan to certain executive officers,
nonemployee directors and consultants. The options will be exercisable at $2.50
per share of common stock commencing one year from the date of grant. Options to
purchase 130,000 shares of common stock are exercisable at the earlier of five
years from the date of grant or when the Company achieves net income, as
defined, of at least $1,250,000 for a full fiscal year. Options to purchase the
remaining 130,000 shares are exercisable one year from the date of grant.
In accordance with APB 25, no compensation expense has been recorded on the
option grants since the exercise price of each option granted was the fair
market value of the common stock on the date of the option grant.
8. SUBSEQUENT EVENT:
During May 1996, the Company completed a private placement offering of
securities, whereby the Company issued 200,000 shares of common stock at an
offering price of $2.50 per share. Costs incurred in connection with the private
placement were approximately $123,000. A portion of the proceeds from this
private placement was used to repay notes payable (see Note 4).
9. INITIAL PUBLIC OFFERING AND GOING CONCERN:
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has had limited
operations, has a working capital deficiency and a deficit accumulated during
the development stage that raise substantial doubt about the Company's ability
to continue as a going concern.
The Company intends to file a Registration Statement on Form SB-2 under the
Securities Act of 1933. The Registration Statement contemplates an offering of
900,000 shares of common stock at an estimated offering price of $5.50 per share
and 600,000 Class A warrants at an offering price of $.10 per warrant, each
warrant to purchase one share of common stock at a price of $5.50 per share.
F-11
<PAGE>
NETLIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. INITIAL PUBLIC OFFERING AND GOING CONCERN:--(CONTINUED)
Management believes that the successful completion of the proposed IPO will
allow the Company to continue as a going concern. If the proposed IPO is not
successfully completed, the Company would not have the capital resources
necessary to continue the development of its business which would significantly
impact the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
F-12
<PAGE>
[INSIDE BACK COVER OF PROSPECTUS]
[PICTURE]
Netscape Communications, Inc., the Netscape Communications logo, Netscape, and
Netscape Navigator are trademarks of Netscape Communications Corporation.
Netscape has not endorsed or otherwise sponsored the advertised product or
service.
<PAGE>
=========================================== ===================================
- ------------------------------------------- -----------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS
BEEN AUTHORIZED IN CONNECTION WITH THIS
OFFERING TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR A
SOLICITATION IN ANY JURISDICTION TO ANY 900,000 SHARES
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OF COMMON STOCK AND
OFFER OR SOLICITATION. NEITHER THE DELIVERY 600,000 COMMON STOCK
OF THIS PROSPECTUS NOR ANY SALE MADE PURCHASE WARRANTS.
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE CIRCUMSTANCES OF THE COMPANY OR
THE FACTS HEREIN SET FORTH SINCE THE DATE
HEREOF.
-------------------
TABLE OF CONTENTS
PAGE [LOGO]
----
Prospectus Summary................... 3
Risk Factors......................... 7
Dilution............................. 14
Use of Proceeds...................... 16
Dividend Policy...................... 17
Capitalization....................... 18
Managements's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 19
Business............................. 22
Management........................... 31 ----------------
Principal Stockholders............... 37 PROSPECTUS
Certain Transactions................. 38 ----------------
Description of Securities............ 38
Shares Eligible for Future Sale...... 40
Underwriting......................... 41
Concurrent Registration of
Securities........................... 42
Legal Matters........................ 42
Experts.............................. 42
Additional Information............... 43 MAY DAVIS GROUP, INC.
Financial Statements................. F-1
- -------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE
OF THE PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A , 1996
PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
=========================================== ===================================
- ------------------------------------------- -----------------------------------
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
SUBJECT TO COMPLETION, DATED AUGUST , 1996
[LOGO]
417,500 SHARES OF COMMON STOCK AND
1,000,000 COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to the sale by certain selling securityholders (the
"Selling Securityholders") of 417,500 Shares of common stock, par value $.0001
per share (the "Common Stock") and 1,000,000 common stock purchase warrants (the
"Warrants") of NetLive Communications, Inc., a Delaware corporation (the
"Company"). None of the proceeds from the sale of the Common Stock and Warrants
by the Selling Securityholders will be received by the Company. The Company will
bear all expenses (other than selling commissions and fees and expenses of
counsel or other advisors to the Selling Securityholders) in connection with the
registration and sale of the Common Stock and Warrants being offered by the
Selling Securityholders.
The Common Stock and Warrants will be offered by the Selling Securityholders
in transactions in the over-the-counter market, in negotiated transactions or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. The Selling Securityholders
may effect such transactions by selling the Common Stock and Warrants to or
through broker/dealers, and such broker/dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Securityholders
and/or the purchasers of the Common Stock and Warrants for whom such
broker/dealers may act as agent or to whom they sell as principal, or both. The
Selling Securityholders may be deemed to be "underwriters" as defined in the
Securities Act of 1933, as amended (the "Securities Act"). If any broker/dealers
are used by the Selling Securityholders, any commission paid to broker/dealers
and, if broker/dealers purchase any Common Stock or Warrants as principals, any
profits received by such broker/dealers on the resales of the Securities may be
deemed to be underwriting discounts or commissions under the Securities Act. In
addition, any profits realized by the Selling Securityholders may be deemed to
be underwriter commissions. All costs, expenses and fees in connection with the
registration of the Common Stock and Warrants offered by Selling Securityholders
will be borne by the Company. Brokerage commissions, if any, attributable to the
sale of the Common Stock and Warrants will be borne by the Selling
Securityholders. See "Selling Securityholders" and "Plan of Distribution".
The Company has applied for listing of the Common Stock and Warrants on the
NASDAQ SmallCap Market ("NASDAQ") under the symbols "NETL" and "NETLW,"
respectively.
Concurrently with the commencement of this offering, the Company offered by
separate Prospectus 900,000 shares of Common Stock and 600,000 Warrants (the
"Public Securities"). The Company's offering (the "Public Offering") is being
made through May Davis Group, Inc. (the "Underwriter").
-------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS," COMMENCING ON PAGE 8 AND
"DILUTION".
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE 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 DATE OF THIS PROSPECTUS IS , 1996
<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.
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
With the exception of having retained the services of Jeane Dixon and
certain consultants, on a part-time basis, who are helping the Company develop
its proposed PsychicNet, HolisticVisions, TutorNet and TherapyNet services and
WWW sites, the Company has not, as of the date hereof, entered into any
agreements with any professional tutors or mental health professionals.
Additional proposed entertainment, educational and counseling services which
the Company is considering include FantasyNet, ModelNet, WebClinic and CookNet.
See "Business."
The Company is continuously monitoring and evaluating the proposed services
it has under development in order to establish priorities and determine the
probabilities of success. In addition, the Company is reviewing additional
services which it may consider offering. No assurance can be given that the
Company will fully develop or offer its currently proposed services, or that, if
developed and offered, such proposed services will be accepted by consumers.
It is intended that computer users will be able to access the Company's
services over the Internet using a Netscape browser based user interface. The
Company intends for its integrated WWW commerce server to provide for secure
transaction processing, efficient scheduling, and automated billing. The Company
also is designing its system to automatically collect and process market data.
The Company is developing and plans to maintain databases containing
profiles of all customers utilizing the Company's services. The Company believes
that this information will enable the Company to better understand its customer
base, to develop new and innovative services and to create targeted marketing
programs geared toward efficiently selling the Company's services. The Company
also intends to employ focused consumer marketing techniques and to track
marketing effectiveness utilizing advanced database and analytical methods. It
is intended that the Company will initially market its services worldwide over
the Internet and through traditional media in targeted markets throughout North
America. In addition, the Company plans, in the future, to market through
traditional media in targeted markets throughout Europe and Asia.
The Company was organized in the State of Delaware on August 23, 1995. The
Company's executive offices are located at 584 Broadway, New York, New York
10012, and its telephone number at that address is (212) 343-7082.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered(1)........................ 417,500 shares of Common Stock and 1,000,000
Warrants. See "Description of Securities."
Common Stock Outstanding Before Public
Offering..................................... 1,700,000 shares.
Common Stock Outstanding After Public
Offering(1)(2)............................... 2,600,000 shares.
Warrants to be Issued in the Public
Offering..................................... 1,000,000 Warrants.
Exercise Terms............................... Each Warrant entitles the holder thereof to
purchase one share of Common Stock for $5.50,
during the three year period commencing two
years after the Effective Date, subject to
adjustment in certain circumstances. See
"Description of Securities--Warrants".
Expiration Date.............................. , 2001 (five years after the Effective Date).
</TABLE>
4
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
<TABLE>
<S> <C>
Redemption................................... Redeemable by the Company, in whole or in
part, at a price of $.05 per Warrant, upon
not less than 30 days prior written notice to
the holders of such Warrants, provided that
the closing bid price (as defined) of the
Company's Common Stock for the twenty
consecutive trading days immediately prior to
the date on which the notice of redemption is
given, shall have exceeded $7.50 per share.
Use of Proceeds.............................. The Company will receive none of the proceeds
from this offering. See "Use of Proceeds".
Risk Factors................................. Investment in the securities offered hereby
involves a high degree of risk and immediate
substantial dilution. See "Risk Factors" and
"Dilution".
Proposed NASDAQ Symbols:(2)
Common Stock............................... NETL
Warrants................................... NETLW
</TABLE>
- ------------
(1) Does not include (i) 135,000 shares of Common Stock and 90,000 Warrants,
subject to the Underwriters' Over-allotment Option; (ii) 1,000,000 shares of
Common Stock issuable upon the exercise of the outstanding Warrants, (iii)
150,000 shares of Common Stock issuable upon the exercise of the
Underwriters' Stock Warrants and Underwriters' Warrants; (iv) 800,000 shares
of Common Stock reserved for issuance pursuant to the Company's incentive
stock option plan; or (v) 260,000 shares of Common Stock reserved for
issuance pursuant to certain other options. See "Management", "Underwriting"
and "Description of Securities".
(2) The proposed trading symbols do not imply that a liquid and active market
will be developed or sustained for the securities upon completion of the
Public Offering.
5
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
SUMMARY FINANCIAL INFORMATION
The following summary of financial information should be read in conjunction
with the Unaudited Financial Statements and notes thereto appearing elsewhere in
this Memorandum.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 23, 1995
(DATE OF
INCEPTION)
TO MARCH 31, 1996
-----------------
<S> <C>
Selling, General and Administrative Expenses............... $243,129
Net loss................................................... (243,129)
Net loss per share......................................... (0.16)
Weighted average number of common shares outstanding(1).... 1,543,385
</TABLE>
- ------------
(1) Reflects incorporation of the Company on August 23, 1995. See "Certain
Transactions."
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------
<S> <C> <C>
(ACTUAL) (AS ADJUSTED)(1)(2)
-------- -------------------
<CAPTION>
<S> <C> <C>
Current Assets................................... $162,166 $ 4,224,616
Total Assets..................................... 282,438 4,336,909
Total Liabilities................................ 250,631 143,033
Deficit Accumulated During the Development
Stage............................................ (243,129) (431,760)
</TABLE>
- ------------
(1) Adjusted to give effect to the sale of 900,000 shares of Common Stock and
600,000 Warrants offered hereby and the receipt of $3,909,200 of net
proceeds, after giving effect to $25,500 of previously paid Public Offering
costs.
(2) Reflects the issuance of 200,000 shares of Common Stock in connection with
the May 1996 private placement and the use of a portion of the proceeds of
such private placement to repay notes payable.
6
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
RISK FACTORS
An investment in the securities offered hereby is speculative in nature,
involves a high degree of risk and should not be made by any investor who cannot
afford the loss of his entire investment. Each prospective purchaser should
carefully consider the following risks and speculative factors associated with
this Offering, as well as other factors described elsewhere in this Prospectus,
before making an investment.
DEVELOPMENT STAGE COMPANY. The Company is in the development stage, has been
engaged primarily in organizational activities and has had limited operations.
As a result, the likelihood of success of the Company's operations must be
considered in view of all of the risks, expenses and delays inherent in the
establishment of a new business, including, but not limited to, unforeseen
expenses, complications and delays, the initiation of marketing activities, the
uncertainty of market acceptance of new services, intense competition from
larger more established competitors and other factors. Accordingly, there can be
no assurance that the business of the Company will be successful. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
EXPLANATORY PARAGRAPH IN INDEPENDENT AUDITORS REPORT; DEPENDENCE UPON PUBLIC
OFFERING PROCEEDS. The Company incurred a net loss of $243,129 for the period
from August 23, 1995 (date of inception) to March 31, 1996. In addition, the
Company had a working capital deficiency of $76,185 and a deficit accumulated
during the development state of $243,129 at such date. As a result of the
Company's working capital deficiency and deficit accumulated during the
development stage, the Company's independent auditors' report on the Company's
financial statements for the period from August 23, 1995 (date of inception) to
March 31, 1996 contains an explanatory paragraph discussing the fact that there
is substantial doubt about the Company's ability to continue as a going concern.
The Company has an immediate need for the net proceeds of the Public Offering,
or other financing in order to continue the development of its proposed
services, and to commence its operations and the marketing of its services. The
Company believes that the proceeds of the Public Offering will be sufficient to
fund the Company's operations for a period of approximately one year from the
date of this Prospectus, including the commencement of its operations and
marketing of its services. This estimate is based upon the Company's limited
operations to date and its estimates as to cash flow. However, in the event that
such estimates are inaccurate or future events prevent the Company from
implementing its plans as anticipated, the Company may be materially and
adversely effected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Financial Statements."
ANTICIPATED INITIAL LOSSES; WORKING CAPITAL DEFICIT; NO ASSURANCE OF
PROFITABILITY. During the period from August 23, 1995 (date of inception) to
March 31, 1996, the Company incurred a net loss of $243,129. In addition, at
March 31, 1996, the Company had a working capital deficit of $76,185 and a
deficit accumulated during the development stage of $243,129. The Company has
not derived any revenues and has continued to incur losses. There can be no
assurance that the Company will be able to profitably implement and market its
proposed services. It is anticipated that until the Company is able to generate
significant revenues, the Company will sustain additional losses. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Use of Proceeds" and "Proposed Business."
NEED FOR ADDITIONAL FINANCING. Although the Company believes that the net
proceeds from the sale of the Public Securities offered hereby will be
sufficient to fund the Company's operations for a period of approximately one
year, such belief cannot give rise to an assumption that the Company's cost
estimates are accurate or that the proceeds to be received from the Public
Offering will provide sufficient working capital for at least one year of
operations. In addition, in the event of delays or unanticipated costs or
problems in the development and marketing of the Company's proposed services,
the Company may require substantial additional financing. Further, the Company's
ability to continue operations after one year
7
<PAGE>
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POTENTIAL LIABILITY AND INSURANCE. The Company may be subject to substantial
liability as a result of claims made by consumers arising out of services
provided by the Company's independent contractors and employees. The Company is
aware that claims have been made against other companies engaged in providing
telephone entertainment services on the basis of advice or prognostications
disseminated through such services. While the Company does not currently
maintain insurance, the Company intends to attempt to purchase such insurance at
such time as it has sufficient funds available for such purpose. There can be no
assurance that the Company will be able to obtain such insurance, or if
obtained, that such insurance will be sufficient to cover potential claims or
that an adequate level of coverage will be available in the future at a
reasonable cost. The Company will seek to limit any such potential liability by
providing disclaimers in connection with its services. There can be no
assurance, however, that the Company will not face claims resulting in
substantial liability for which the Company is partially or completely
uninsured. A partially or completely uninsured claim against the Company, if
successful and of sufficient magnitude, would have a material adverse effect on
the Company.
COMPETITION. The market for Internet services is new, intensely competitive,
rapidly evolving and subject to rapid technological change. The Company expects
to encounter significant competition from numerous companies, many of which may
possess substantially greater technical, financial, sales and marketing
resources than the Company. The Company believes that competition from new
entrants is expected to increase as commercial acceptance and use of the
Internet expands. Such increased competition may have a material adverse effect
on the Company's ability to successfully market its services.
The Company's entertainment, educational and counseling services will also
face intense competition from numerous other competing services and products
including, but not limited to, telephone services, in-person consultations,
newspapers, magazines, books, audio and video cassettes, as well as various
other forms of services which may be less expensive or provide other advantages
to consumers. There can be no assurance that the Company will be able to compete
successfully with other such products and services.
IMMEDIATE AND SUBSTANTIAL DILUTION. The Public Offering involves immediate
and substantial dilution to investors. As of March 31, 1996, the negative net
tangible book value of the Company was $40,392, or approximately, ($.03) per
share of Common Stock. Purchasers of shares of Common Stock in the Public
Offering will incur immediate dilution in net tangible book value of $3.89 per
share of Common Stock (attributing no value to the Warrants), which is
approximately 70.7% based on the initial public offering price of $5.50 per
share. All of the Company's present stockholders purchased their shares at a
price substantially less than the initial public offering price of the Common
Stock. Accordingly, to the extent that the Company incurs losses, the public
investors will bear most of the risk of such losses. See "Dilution".
BROAD DISCRETION IN USE OF PROCEEDS. Approximately 17.5% of the net proceeds
of the Public Offering will be applied to working capital and other general
corporate purposes. Accordingly, management of the Company will have broad
discretion as to the application of such proceeds. See "Use of Proceeds."
DEPENDENCE UPON MANAGEMENT; "KEY MAN LIFE INSURANCE"; ATTRACTION AND
RETENTION OF KEY PERSONNEL. The success of the Company will be dependent on the
efforts of Laurence Rosen, the Company's President and Chief Executive Officer.
The loss of the services of Mr. Rosen could have a material adverse effect on
the Company. The Company maintains "key man life insurance" on the life of Mr.
Rosen in the amount of $1,000,000. The Company's future success will depend in
part on its ability to attract and retain qualified personnel to manage the
development and future growth of the Company. There can be no assurance that the
Company will be successful in attracting and retaining such personnel.
10
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
CONTROL BY MANAGEMENT. The Company's officers and directors currently own
and have the power to vote in excess of 61% of the total outstanding shares of
Common Stock. In addition, upon completion of the Public Offering, management of
the Company will continue to beneficially own shares of Common Stock
representing in excess of 40% of all votes entitled to be cast. Accordingly,
management of the Company will, as a practical matter, be in a position to elect
a majority of the directors of the Company and to control the Company's affairs.
POTENTIAL CONFLICTS OF INTEREST. The Company's advisors and service
providers may be employed by or work for others, and, accordingly, may devote
only a small portion of their time to the Company. In addition, these
individuals may have entered or may enter into employment, consulting or other
advisory arrangements with other entities and, as a result, their obligations to
these other entities may conflict or compete with their obligations to the
Company. The Company will seek to enter into non-compete and confidentiality
agreements with such persons. See "Management".
SHARES ELIGIBLE FOR FUTURE SALE. The Company currently has 1,700,000 shares
of Common Stock outstanding that are "restricted securities", as that term is
defined under Rule 144 promulgated under the Securities Act of 1933, as amended
(the "Securities Act"). In general, under Rule 144, a person who has satisfied a
two-year holding period may, under certain circumstances, sell within any three
month period a number of shares of Common Stock that does not exceed the greater
of 1% of the then outstanding shares of Common Stock or the average weekly
trading volume in such shares during the four calendar weeks prior to such sale.
Rule 144 also permits, under certain circumstances, the sale of shares without
any quantity or other limitation by a person who is not an affiliate of the
Company and who has satisfied a three-year holding period. All stockholders of
the Company have agreed not to publicly sell shares of the Company's Common
Stock for a period of two years from the date of this Prospectus without the
prior written consent of the Underwriter. Any substantial sale of restricted
securities under Rule 144 could have a significant adverse effect on the market
price of the Company's securities. See "Shares Eligible for Future Sale."
NO DIVIDENDS AND NONE ANTICIPATED. The holders of Common Stock are entitled
to receive dividends when, as and if declared by the Board of Directors, out of
funds legally available therefor. To date, no dividends have been declared or
paid on the Common Stock, and the Company does not intend to declare any
dividends in the foreseeable future. It is currently anticipated that earnings,
if any, will be used to develop and finance the Company's proposed business
operations. See "Dividend Policy."
NO ASSURANCE OF PUBLIC MARKET; DETERMINATION OF PUBLIC OFFERING PRICE;
VOLATILITY OF STOCK PRICE. Prior to the Public Offering, there has been no
market for any of the Company's securities. There can be no assurance that a
trading market will develop after the Public Offering for any of the Company's
securities or that, if developed, it will be sustained. The initial public
offering price of the Public Securities and the exercise price and other terms
of the Warrants were established by negotiations between the Company and the
Underwriter and do not bear any direct relationship to the Company's assets,
book value, results of operations or any other criteria of value. See
"Underwriting".
The stock market has, from time to time, experienced significant price and
volume fluctuations that may be unrelated to the operating performance of any
particular company. In addition, the market prices of the securities of many
publicly-traded companies in the Internet industry have in the past been, and
can in the future be expected to be, especially volatile. Various factors and
events, including future announcements of new service offerings by the Company
or its competitors, developments or disputes concerning, among other things,
government regulations in the United States, and economic and other external
factors, as well as fluctuations in the Company's financial results, could have
a significant impact on the market price of the Company's securities.
11
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
NASDAQ ELIGIBILITY AND MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF
SECURITIES FROM NASDAQ MARKET; RISKS OF LOW-PRICED STOCKS. Prior to the Public
Offering, there has been no established public trading market for the Company's
securities and there is no assurance that a public trading market for the
Company's securities will develop after the completion of the Public Offering.
If a trading market does in fact develop for the securities offered hereby,
there can be no assurance that it will be sustained.
The Company has applied for listing of the Common Stock and Warrants on the
NASDAQ small capitalization market upon the Effective Date. The Commission has
approved rules for imposing criteria for listing of securities on NASDAQ,
including standards for maintenance of such listing. In order to qualify for
initial quotation of securities on the NASDAQ small capitalization market, a
company, among other things, must have at least $4,000,000 in total assets,
$2,000,000 in stockholders' equity, $1,000,000 in market value of the public
float and a minimum bid price of $3.00 per share. For continued listing, a
company, among other things, must have at least $2,000,000 in total assets,
$1,000,000 in stockholders' equity, $1,000,000 in market value of the public
float and a minimum bid price of $1.00 per share. If the Company is unable to
satisfy NASDAQ maintenance criteria for listing in the future, its securities
may be delisted from NASDAQ. In such event, trading, if any, in the Company's
securities would thereafter be conducted in the over-the-counter market in the
so-called "pink sheets" or the NASD's "Electronic Bulletin Board." As a
consequence of such delisting, an investor would likely find it more difficult
to dispose of, or to obtain quotations as to, the price of the Company's
securities.
PENNY STOCK REGULATION. In the event that the Company is unable to satisfy
the maintenance criteria requirements for NASDAQ, or its Common Stock falls
below the minimum bid price of $3.00 per share for the initial quotation,
trading would be conducted in the "Pink Sheets" or the NASD's Electronic
Bulletin Board. In the absence of the Common Stock being quoted on NASDAQ or the
Company's having $2,000,000 in stockholders' equity, trading in the Common Stock
would be covered by Rule 15g-9 promulgated under the Securities Exchange Act of
1934 (the "Exchange Act"), for non-NASDAQ and non-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 are exempt from this rule
if the market price is at least $5.00 per share.
The Commission has adopted regulations that generally define a "penny stock"
to be any equity security that has a market price of less than $5.00 per share
or an exercise price of less than $5.00 per share, subject to certain
exceptions. Such exceptions include an equity security listed on NASDAQ, and an
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 revenue of at
least $6,000,000 for the preceding three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a risk disclosure schedule explaining the penny
stock market and the risks associated therewith.
If the Company's securities were to become subject to the regulations
applicable to penny stocks, the market liquidity for the securities would be
severely affected, limiting the ability of broker-dealers to sell the securities
and the ability of purchasers in the Public Offering to sell their securities in
the secondary market. There is no assurance that trading in the Company's
securities will not be subject to these or other regulations that would
adversely affect the market for such securities.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants offered
hereby are redeemable, in whole or in part, at a price of $.05 per Warrant,
commencing one year after the Effective Date and prior to their expiration;
provided that (i) prior notice of not less than 30 days is given to the
12
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
Warrantholders; (ii) the closing bid price of the Company's Common Stock for the
twenty (20) consecutive trading days immediately prior to the date on which the
notice of redemption is given, shall have exceeded $7.50 per share; and (iii)
Warrantholders shall have exercise rights until the close of the business day
preceding the date fixed for redemption. Notice of redemption of the Warrants
could force the holders to exercise the Warrants and pay the Exercise Price at a
time when it may be disadvantageous for them to do so, or to sell the Warrants
at the current market price when they might otherwise wish to hold them, or to
accept the redemption price, which may be substantially less than the market
value of the Warrants at the time of redemption. The Warrants may not be
exercised unless the registration statement pursuant to the Securities Act
covering the underlying shares of Common Stock is current and such shares have
been qualified for sale, or there is an exemption from applicable qualification
requirements, under the securities laws of the state of residence of the holder
of the Warrants. Although the Company does not presently intend to do so, the
Company reserves the right to call the Warrants for redemption whether or not a
current prospectus is in effect or such underlying shares are not, or cannot be,
registered in the applicable states. Such restrictions could have the effect of
preventing certain Warrantholders from liquidating their Warrants. See
"Description of Securities-- Warrants."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. Holders of the Warrants will have the right to exercise the Warrants
for the purchase of shares of Common Stock only if a current prospectus relating
to such shares is then in effect and only if the shares are qualified for sale
under the securities laws of the applicable state or states. The Company has
undertaken and intends to file and keep current a prospectus which will permit
the purchase and sale of the Common Stock underlying the Warrants, but there can
be no assurance that the Company will be able to do so. Although the Company
intends to seek to qualify for sale the shares of Common Stock underlying the
Warrants in those states in which the securities are to be offered, no assurance
can be given that such qualification will occur. In addition, purchasers may buy
Warrants in the aftermarket or may move to jurisdictions in which the shares of
Common Stock issuable upon exercise of the Warrants are not so registered or
qualified during the period that the Warrants are exercisable. In such event,
the Company would be unable to issue shares to those persons desiring to
exercise their Warrants unless and until the shares could be registered or
qualified for sale in the jurisdiction in which such purchasers reside, or an
exemption to such qualification exists or is granted in such jurisdiction. The
Warrants may lose or be of no value if a prospectus covering the shares issuable
upon the exercise thereof is not kept current or if such underlying shares are
not, or cannot be, registered in the applicable states. See "Description of
Securities--Warrants."
LACK OF EXPERIENCE OF THE UNDERWRITER. The Underwriter was organized in
August 1993, was registered as a broker dealer in June 1995, and became a member
firm of the NASD in June 1995. The Underwriter is principally engaged in retail
brokerage and market making activities and various corporate finance projects.
Although the Underwriter has acted as a placement agent in private offerings and
has participated as a member of the underwriting syndicate or as a selected
dealer in one public offering, it has not acted as the lead managing underwriter
in any public offerings of securities. While certain of the officers of the
Underwriter have significant experience in corporate finance and the
underwriting of securities, the Underwriter has not previously underwritten any
public offerings. No assurance can be given that the Underwriter's lack of
experience as a lead managing underwriter of public offerings will not adversely
affect the Public Offering and the subsequent development of a liquid public
trading market in the Company's securities.
RELATIONSHIP OF UNDERWRITER TO TRADING. The Underwriter may act as a broker
or dealer with respect to the purchase or sale of the Common Stock and the
Warrants in the over-the-counter market where each is expected to trade. The
Underwriter also has the right to act as the Company's exclusive agent in
connection with any future solicitation of warrantholders to exercise their
Warrants. Unless granted an exemption by the Commission from Rule 10b-6 under
the Exchange Act, the Underwriter
13
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
will be prohibited from engaging in any market-making activities or solicited
brokerage activities with regard to the Company's securities during a period
beginning nine business days prior to the commencement of any such solicitation
and ending on the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right the Underwriter may have to
receive a fee for the exercise of the Warrants following such solicitation. As a
result, the Underwriter and soliciting broker/dealers may be unable to continue
to make a market in the Company's securities during certain periods while the
exercise of Warrants is being solicited. Such a limitation, while in effect,
could impair the liquidity and market price of the Company's securities.
ISSUANCE OF PREFERRED STOCK: ANTI-TAKEOVER PROVISIONS. The Company's
Certificate of Incorporation permits its Directors to designate the terms of and
issue shares of Preferred Stock. The issuance of shares of Preferred Stock by
the Board of Directors could adversely effect the rights of holders of Common
Stock by, among other matters, establishing preferential dividends, liquidation
rights and voting power. Although the Company has no present intention to issue
shares of Preferred Stock (and is prohibited from issuing shares of Preferred
Stock for two years from the closing date of the Public Offering without the
consent of the Underwriter), the issuance thereof might render it more
difficult, and therefore discourage, an unsolicited takeover proposal such as a
tender offer, proxy contest or the removal of incumbent management, even if such
actions would be in the best interest of the Company's stockholders. See
"Description of Securities."
UNDERWRITER'S WARRANTS AND REGISTRATION RIGHTS. In connection with the
Public Offering, the Company has agreed to sell to the Underwriter, for $10, the
Underwriter's Warrants which entitle the Underwriter to purchase up to 90,000
shares of Common Stock and/or 60,000 Warrants, respectively. The securities
issuable upon exercise of the Underwriter's Warrants are identical to those
offered pursuant to this prospectus. The Underwriter's Warrants are exercisable
at $6.60 and $.12, respectively, for a period of four years commencing one year
from the Effective Date. The exercise of the Underwriter's Warrants and the
Warrants contained in the Underwriter's Warrants may dilute the value of the
shares of Common Stock to be acquired by holders of the Warrants, may adversely
affect the Company's ability to obtain equity capital, and, if the Common Stock
issuable upon the exercise of the Underwriter's Warrants and the Warrants
contained in the Underwriter's Warrants are sold in the public market, may
adversely affect the market price of the Common Stock. The Underwriter has been
granted certain "piggyback" and demand registration rights for a period of five
years from the Effective Date with respect to the registration under the
Securities Act of the securities directly or indirectly issuable upon exercise
of the Underwriter's Stock Warrants and Underwriter's warrants. The exercise of
such rights could result in substantial expense to the Company. See
"Underwriting."
DILUTION
The difference between the initial public offering price per share of Common
Stock and the pro forma net tangible book value per share of Common Stock after
the Public Offering constitutes the dilution to investors in the Public
Offering. Net tangible book value per share is determined by dividing the net
tangible book value of the Company (total tangible assets less total
liabilities) by the number of outstanding shares of Common stock. The following
discussions allocate no value to the Class A Warrants.
At March 31, 1996, the Company's liabilities exceeded its tangible assets by
$40,392 (giving effect to expenses of the Offering paid at such date) and
accordingly the Company's Common Stock had a negative net tangible book value of
($.03) per share. After giving effect to the receipt of the net proceeds from
the sale of the Common Stock offered hereby at an initial public offering price
of $5.50 per share of Common Stock (less underwriting discount and offering
expenses) the pro forma net tangible book value of the Company at March 31, 1996
would have been $4,189,656 or $1.61 per share, representing
14
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
an immediate increase in net tangible book value of $1.64 per share to the
existing stockholders, and immediate dilution of $3.89 per share (70.7%) to new
investors. The table on the following page illustrates dilution to new investors
on a per share basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price per share............................. $5.50
Net tangible book value (deficit) per share before
offering.................................................... ($.03)
Increase attributable to public investors................... $1.64
Pro forma net tangible book value per share after
offering.................................................... $1.61
-----
Dilution per share to public investors...................... $3.89
-----
-----
</TABLE>
In the event the Underwriter exercises its Over-allotment Option in full,
the pro forma net tangible book value per share would be $1.77 which would
result in dilution to the public investors of $3.73.
The following table sets forth with respect to the existing stockholders and
public investors, a comparison of the number of shares of Common stock owned by
the existing stockholders, the number of shares of Common Stock to be purchased
from the Company by the purchasers of the Public Securities and the respective
aggregate consideration paid to the Company and the average price per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ ------------------------- AVERAGE
APPROXIMATE APPROXIMATE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Public Investors................... 900,000 34.62% $4,950,000 86.46% $5.50
Present Stockholders............... 1,700,000 65.38% $ 774,936 13.54% $0.46
--------- ----------- ---------- -----------
Totals....................... 2,600,000 100.00% $5,724,936 100.00%
--------- ----------- ---------- -----------
--------- ----------- ---------- -----------
</TABLE>
15
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996 and such capitalization as adjusted to give effect to (i) the sale of
the Public Securities offered hereby, and (ii) the anticipated use of the net
proceeds of the Public Offering in the manner contemplated under "Use of
Proceeds". This table should be read in conjunction with the historical
financial statements and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------
ACTUAL AS ADJUSTED(1) (2)
-------- ------------------
<S> <C> <C>
Liabilities
Total liabilities.............................. $250,631 $ 143,033
-------- ------------------
-------- ------------------
Stockholders' Equity
Preferred Stock, $.0001 par value: Authorized
1,000,000 shares; none issued.................... -- --
Common Stock, $.0001 par value: Authorized
19,000,000 shares; Issued and Outstanding--
1,700,000 and 2,600,000, respectively............ 150 260
Additional paid in capital....................... 289,661 4,625,376
Deficit accumulated during the development
stage............................................ (243,129) (431,760)
Deferred offering costs relating to Common Stock
issued for services related to intended IPO...... (14,875) 0
-------- ------------------
Stockholders' equity............................. $ 31,807 $4,193,876
-------- ------------------
-------- ------------------
</TABLE>
- ------------
(1) Gives effect to the sale of the Common Stock and Warrants offered hereby and
the receipt of $3,909,200 of net proceeds therefrom, after giving effect to
$25,500 of previously paid Public Offering costs.
(2) Reflects the issuance of 200,000 shares of Common Stock in connection with
the May 1996 private placement and the use of a portion of the proceeds of
such private placement to repay notes payable.
18
<PAGE>
[Alternate Page for Selling Securityholders' Prospectus]
In connection with the issuance of 100,000 options to Dr. Vladislav Rysin,
the Company will record a charge to earnings of $300,000 over the term of Dr.
Rysin's employment agreement. See "Management--Employment Agreements."
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has primarily financed it operations through private
sales of equity and debt securities and through the contribution of capital by
its founders. The Company has not generated any revenues or other cash through
operations since its inception and it is unlikely that it will generate any cash
from operations in the foreseeable future. The Company completed a bridge
financing on March 20, 1996 which consisted of the sale of $250,000 in two year
promissory notes, 200,000 shares of
Common Stock and 1,000,000 warrants to purchase Common Stock. This initial
bridge financing provided net proceeds to the Company of approximately $199,500
after investment banking and legal fees. The Company completed a second bridge
financing on May 9, 1996 which consisted of the sale of 200,000 shares of Common
Stock at a price of $2.50 per share for total gross proceeds to the Company of
$500,000. This second financing provided net proceeds to the Company of
approximately $385,000. The Company used approximately $262,000 to repay the
principal and interest due on the $250,000 of promissory notes issued in the
first bridge financing. In connection with the repayment of the notes upon
completion of the second bridge financing, the Company will record a charge to
operations of approximately $165,000 for May 1996. The effective interest rate
on the initial bridge financing was approximately 1235%.
Capital expenditures were approximately $33,000 for the period from August
23, 1995 (date of inception) to March 31, 1996. The Company has no material
commitments other than employment and consulting agreements, obligations to
UUNET Technologies Corporation, equipment leases and operating leases. See Notes
to Consolidated Financial Statements. The Company estimates that capital
expenditures through the fiscal year ending March 31, 1997 will be approximately
$275,000 of which approximately $130,000 is related to video station equipment
and related expenditures for the implementation of its first offering of
commercial service content.
The Company believes that the net proceeds from the Public Offering,
together with available funds will be sufficient to meet its anticipated cash
needs for working capital and capital expenditures for at least the next 12
months. Thereafter, if the Company is unable to generate sufficient cash from
operations to satisfy the Company's liquidity requirements, the Company may sell
additional equity or debt securities or obtain new credit facilities. The sale
of additional equity or convertible debt securities will result in additional
dilution to the Company's stockholders.
21
<PAGE>
[ALTERNATE PAGE FOR PRINCIPAL STOCKHOLDERS]
of Incorporation exonerates its directors from monetary liability to the extent
permitted by this statutory provision. The Company has been advised that it is
the position of the Securities and Exchange Commission that insofar as the
foregoing provision may be invoked to disclaim liability for damages arising
under the Act, that provision is against public policy as expressed in the Act
and is therefore unenforceable.
PRINCIPAL STOCKHOLDERS
The following table sets forth, assuming the successful sale of the maximum
number of shares offered hereby, certain information concerning beneficial
ownership of shares of Common Stock with respect to (i) each person known to the
Company to own 5% or more of the outstanding shares of Common Stock, (ii) each
director of the Company, (iii) the executive officer(s) named in the Summary
Compensation table, and (iv) all directors and officers of the Company as a
group:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
NUMBER OF PERCENTAGE OF PERCENTAGE OF
SHARES COMMON STOCK COMMON STOCK
BENEFICIALLY BEFORE PUBLIC AFTER PUBLIC
NAME OWNED OFFERING OFFERING(8)
- ---------------------------------------------------- ------------ --------------- -----------------
<S> <C> <C> <C>
Laurence Rosen(1)(2)................................ 438,662 25.8% 16.9%
Jeffrey Wolf(1)(3).................................. 341,553 20.1% 13.1%
Michael Kharitonov(1)(4)............................ 266,210 15.7% 10.2%
Scott Wolf(5)....................................... 177,474 10.4% 6.8%
Dennis Sal(6)....................................... 90,000 5.3% 3.5%
All Officers and Directors as a Group (3
persons)(7)......................................... 1,046,427 61.6% 40.2%
</TABLE>
- ------------
Except as noted above, the address for the above identified officers and
directors of the Company is c/o NetLive Communications, Inc., 584 Broadway,
Suite 806, New York, New York 10012.
(1) May be deemed to be a "parent" and "promoter" of the Company as defined in
the Rules and Regulations of the Commission promulgated under the Act.
(2) Does not include Non-Plan Options to purchase an aggregate of 93,158 shares
of Common Stock or options granted under the Company's Option Plan to
purchase an aggregate of 237,490 shares of Common Stock, all of which are
not currently exercisable or exercisable within 60 days. See
"Management--1996 Stock Option Plan" and "--Non-Plan Stock Options".
(3) Does not include Non-Plan Options to purchase an aggregate of 73,860 shares
of Common Stock, or options granted under the Company's Stock Option Plan to
purchase an aggregate of 85,223 shares of Common Stock, all of which are not
currently exercisable or exercisable within 60 days. See "Management--1996
Stock Option Plan" and "--Non-Plan Stock Options".
(4) Does not include Non-Plan Options to purchase an aggregate of 55,789 shares
of Common Stock or options granted under the Company's Option Plan to
purchase an aggregate of 134,372 shares of Common Stock, all of which are
not currently exercisable or exercisable within 60 days. See
"Management--1996 Stock Option Plan" and "--Non-Plan Stock Options".
(5) Does not include performance options to purchase an aggregate of 37,193
shares of Common Stock, all of which are not currently exercisable or
exercisable within 60 days. See "Management--Non-Plan Stock Options". Scott
Wolf is the brother of Jeffrey Wolf, a director of the Company.
(6) Does not include options to purchase an aggregate of 250,000 shares of
Common Stock, all of which are not currently exercisable or exercisable
within 60 days.
(7) Does not include Non-Plan Options to purchase an aggregate of 222,807 shares
of Common Stock or options granted under the Company's Option Plan to
purchase an aggregate of 457,085 shares of Common Stock, all of which are
not currently exercisable or exercisable within 60 days. See
"Management--1996 Stock Option Plan" and "--Non-Plan Stock Options".
(8) Does not give effect to the sale of shares of Common Stock in connection
with this offering. In connection with this offering, Mr. Dennis Sal will be
offering 90,000 shares of Common Stock of the Company for sale. In the event
that all 90,000 shares are sold by Mr. Sal, his percentage ownership of
Common Stock of the Company will be zero percent (0%).
37
<PAGE>
ALTERNATE PAGE FOR SHARES ELIGIBLE FOR FUTURE SALE
Stock and, under certain circumstances, make it more difficult for a third party
to gain control of the Company, discourage bids for the Company's Common Stock
at a premium or otherwise adversely effect the market price of the Common Stock,
if the Common Stock is ever publicly traded, of which there are no assurances.
As of the date hereof, the Company has no plans to issue, or any present
intention to issue any such shares.
TRANSFER AGENT AND WARRANT AGENT
The Transfer Agent for the Company's Common Stock and the Warrant Agent for
the Company's A Warrants is American Stock Transfer & Trust Co., New York, New
York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Public Offering, the Company will have 2,600,000
shares of Common Stock outstanding (2,735,000 shares if the Underwriter's
over-allotment option is exercised in full). All of the shares of Common Stock
sold in the Public Offering will be freely tradeable without restriction or
further registration under the Securities act of 1933, as amended (the
"Securities Act"), except for any shares purchased by an "affiliate" of the
Company which will be subject to certain limitations of Rule 144 adopted under
the Securities Act.
The 1,700,000 presently outstanding shares of Common Stock are restricted
securities and will be subject to the resale limitations provided for in Rule
144. Under Rule 144, as currently in effect, subject to the satisfaction of
certain other conditions, a person, including an affiliate of the company, who
has owned restricted shares of Common Stock beneficially for at least two years,
is entitled to sell, within any three month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the Common stock is quoted on an exchange, the average weekly
trading volume during the four calendar weeks preceding the sale. A
non-affiliate who has not been an affiliate of the Company for at least the
three months immediately preceding the sale and who has beneficially owned
shares of Common Stock for at least three years is entitled to sell such shares
under Rule 144 without regard to any of the limitations described above. In
meeting the two and three year holding periods described above, a holder who has
purchased shares can include the holding periods of a prior owner who was not an
affiliate of the Company.
All Company's securityholders, on the date hereof, have agreed not to
publicly sell, for a period of 2 years from the date of this Prospectus, any
shares of the Company's Common Stock without the prior written consent of the
Underwriter.
Prior to the Public Offering, there has been no market for any securities of
the Company. The effect, if any, of public sales of the restricted shares of
Common Stock or the availability of such shares for future sale at prevailing
market prices cannot be predicted. Nevertheless, the possibility that
substantial amounts of restricted shares may be resold in the public market may
adversely affect prevailing market prices for the Common Stock and the Class A
Warrants, if any such market should develop.
40
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
CONCURRENT PUBLIC OFFERING OF SECURITIES
Concurrently with this offering, the Company is offering 900,000 shares of
Common Stock and 600,000 Warrants in a public offering through the Underwriter.
USE OF PROCEEDS
The Company will not receive any proceeds from this offering. The net
proceeds to the Company from the sale of the Public Securities offered are
estimated to be approximately $3,909,200 ($4,563,005 if the Underwriter's
over-allotment option is exercised in full) after deducting underwriting
commissions and discounts and other expenses of the Public Offering. The Company
expects to use the net proceeds from the Public Offering as follows:
<TABLE>
<CAPTION>
APPROXIMATE
PERCENTAGE
AMOUNT OF NET PROCEEDS
---------- ---------------
<S> <C> <C>
Advertising, Marketing and Promotion(1)......... $1,650,000 42.2%
On-Line Content Development(2).................. 400,000 10.2%
Software Development(3)......................... 700,000 17.9%
Capital Expenditures(4)......................... 275,000 7.0%
Licensing Fees(5)............................... 200,000 5.1%
Working Capital................................. 684,200 17.6%
---------- -------
TOTAL..................................... $3,909,200 100.0%
---------- -------
---------- -------
</TABLE>
- ------------
(1) Represents anticipated costs associated with advertising and promotion,
including purchase of broadcast media, commercials, infomercials,
telemarketing and direct mail advertising in connection with the Company's
proposed Internet videoconferencing and telephone entertainment services.
(2) Includes costs associated with development of multi-media resources related
to content of specific services proposed to be offered by the Company,
including payment of salaries, costs and fees for writers, artists and
materials to be incorporated as part of the Company's WWW sites.
(3) Includes costs associated with development of proprietary Internet software,
including payment of salaries for technical staff.
(4) Represents anticipated costs associated with purchasing equipment, including
computer hardware and videoconferencing equipment.
(5) Includes fees to be paid to celebrities and trademark owners for use of
their names and/or trademarks.
The foregoing represents the Company's current estimate of the allocation of
the net proceeds of the Public Offering based upon certain assumptions relating
to the costs associated with the implementation of the Company's proposed
business operations. Future events, including the problems, delays, expenses and
complications frequently encountered by companies which seek to develop new
technologies or establish new services or introduce services to a new market, as
well as changes in economic conditions, regulatory or competitive conditions,
and the success of the Company's marketing activities, may make shifts in the
allocation of funds necessary or desirable. There can be no assurance that the
Company's estimates will prove to be accurate or that unforeseen expenses will
not be incurred.
The Company believes that the net proceeds of the Public Offering will
satisfy the Company's capital requirements for approximately twelve months.
During those twelve months, the Company's efforts will be directed at developing
and implementing its proposed business operations.
41
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
Prior to expenditure, the net proceeds of this Offering will be invested
principally in high grade short-term interest-bearing investments. Any proceeds
received upon exercise of the Over-allotment Option or any of the Company's
warrants will be used for working capital.
SELLING SECURITYHOLDERS
The following table sets forth the number of shares of the Common Stock of
the Company beneficially owned by each Selling Securityholders and the number of
shares of Common Stock included for sale in this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
AND WARRANTS
BENEFICIALLY OWNED
NUMBER OF SHARES AFTER THE SELLING
OF COMMON STOCK NUMBER OF WARRANTS SECURITY HOLDERS
NAME BENEFICIALLY OWNED BENEFICIALLY OWNED OFFERING
- ------------------------------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Eaglehurst Corporation, N.V.(1)............ 50,000 250,000 0
Celestial Dreams Corporation, N.V.(2)...... 50,000 250,000 0
Jasminville Corporation, N.V.(3)........... 12,500 62,500 0
Davstar II Managed Investments Corp.,
N.V.(4).................................... 37,500 187,500 0
Dennis Sal................................. 90,000 250,000 0
Arlene Horowitz............................ 10,000 0 0
Lon Rubackin............................... 10,000 0 0
Edwin S. Osias............................. 20,000 0 0
Cliff Feldstein............................ 10,000 0 0
Georgia M. Rodgers......................... 10,000 0 0
Ulysses Flemming........................... 10,000 0 0
Phil Settles............................... 20,000 0 0
Farid K. Farida............................ 20,000 0 0
Robert B. Sauter........................... 20,000 0 0
Balch and Bingham
Money Purchase Pension Plan FBO
Harold Bowron.............................. 10,000 0 0
Annetta D'Amico Bolson..................... 10,000 0 0
Ben Shabtai................................ 10,000 0 0
Gusrae, Kaplan & Bruno..................... 17,500 0 0
</TABLE>
- ------------
(1) Eaglehurst Corporation, N.V. is beneficially owned by Mr. Vivecenzo Minucci.
(2) Celestial Dreams Corporation, N.V. is beneficially owned by Mr. Umberto
Frascati.
(3) Jasminville Corporation, N.V. is beneficially owned by over 30 European
Investors.
(4) Davstar II Managed Investments Corp., N.V., is beneficially owned by over 30
European investors.
PLAN OF DISTRIBUTION
Each Selling Securityholder is free to offer and sell his or her Common
Stock and Warrants at such time, in such manner and at such prices as he or she
shall determine. Such Common Stock and Warrants may be offered by Selling
Securityholders in one or more types of transactions, which may or may not
involve brokers, dealers or cash transactions. There is no underwriter or
coordinating broker
42
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
acting in connection with the proposed sale of Common Stock and Warrants by the
Selling Securityholders.
The Selling Securityholders have advised the Company that sales of Common
Stock and Warrants may be effected from time to time in transactions, through
the writing of options on the Securities, or a combination of such methods of
sale, at fixed price which may be changed, at market prices prevailing at the
time of sale, or at negotiated prices, the Selling Securityholders may effect
such transactions by selling Common Stock and Warrants directly to purchasers or
to or through broker/dealers which may act as agents or principals. Such
broker/dealer may receive compensation in the form of discounts, concessions, or
commissions from the Selling Securityholders and/or the purchasers of Common
Stock and Warrants for whom such broker/dealers may act as agents or to whom thy
sell as principal, or both (which compensation as to a particular broker/dealer
that act in connection with the sale of the Common Stock and Warrants might 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 on the
resale of the Common Stock and Warrants as principal might be deemed to be
underwriting discounts and commissions under the Securities Act. The Selling
Securityholders may agree to indemnify any agent, dealer or broker/dealer that
participates in transactions involving sales of the Common Stock and Warrants
against certain liabilities, including liabilities arising under the Securities
Act.
Because Selling Securityholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Common Stock and Warrants, they will be
subject to prospectus delivery requirements under the Securities Act.
Furthermore, in the event of a "distribution" of his or her Securities, any
Selling Securityholder, any selling broker/dealer and any "affiliated
purchasers" may be subject to Rule 10b-7 under the Exchange Act which prohibits
any "stabilizing bid" or "stabilizing purchase" for the purpose of pegging,
fixing or stabilizing the price of the Common Stock and Warrants in connection
with the Offering.
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for the
Company By Gusrae, Kaplan & Bruno, Esqs., New York, New York. The firm of
Gusrae, Kaplan & Bruno owns 17,500 shares of the Common Stock of the Company.
Certain legal matters in connection with this Offering will be passed upon for
the Underwriter by Gersten Savage Kaplowitz & Curtin, LLP, New York, New York.
EXPERTS
The financial statements of the company at March 31, 1996 and for the period
from August 23, 1995 (date of inception) to March 31, 1996 included in this
Prospectus have been included in reliance upon the report of Goldstein Golub
Kessler & Company, P.C., independent certified public accountants, given upon
the authority of said firm as experts in auditing and accounting.
43
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITYHOLDERS' PROSPECTUS]
ADDITIONAL INFORMATION
The Company has filed with the Washington, D.C. office of the Securities and
Exchange Commission a Registration Statement (the "Registration Statement")
under the Securities Act with respect to the securities offered by this
Prospectus. This Prospectus does not contain all the information set forth in
the Registration State-ment, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and this Offering, reference is made to the Registration
Statement, including the exhibits filed therewith. Statements contained in the
Prospectus as to the contents of any contract or other document are not
necessarily complete and reference is made to each such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended. Reports and other information filed by the
Company can be inspected without charge or copies made at prescribed rates from
the Commission at its principal office at 450 Fifth Street, N.W., Washington,
D.C. 20549 or at its Midwest Regional Office located at Citicorp. Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, or at its Northeast
Regional Office located at 7 World Trade Center, New York, New York 10048. The
Commission maintains a WWW site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission. The Commission's WWW site is located at http://www.sec.gov.
44
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In general, Section 145 of the Delaware General Corporation Law provides
that persons who are officers or directors of a corporation may be indemnified
by the corporation for acts performed in their capacities as such. The
Registrant's by-Laws authorize indemnification in accordance with and to the
extent permitted by said statute.
The Company's Certificate of Incorporation and By-Laws provide for
indemnification to the fullest extent permitted by law.
Reference is also made to Section 8 of the Underwriting Agreement filed as
Exhibit 1.1 to this Registration Statement, pursuant to which the Underwriter
agrees to indemnify the directors and certain officers of the Company and
certain other persons against civil liability.
Except as hereinafter set forth, there is no charter provision, by-law,
contract, arrangement or statute under which any director or officer of the
Company is indemnified in any manner against any liability which he may incur in
his capacity as such.
Article VI of the Company's Articles of Incorporation provides as follows:
A director of the corporation shall not be liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence by the stockholders of the
corporation shall not adversely affect, any right or protection of a
director of the corporation in respect of any act or commission occuring
prior to the time of such amendement, modification or repeal.
Article X of the Company's By-Laws provides as follows:
The Corporation shall indemnify to the full extent authorized by law any
person made or threatened to be made a party to an action or proceeding,
whether civil, criminal, administrative or investigative, by reason of the
fact that he, his testator or intestate is or was a director, officer or
employee or agent of the Corporation or any predecessor of the Corporation
or serves or served any other enterprise as a director, officer or employee
or agent at the request of the Corporation or any predecessor of the
Corporation.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of this Offering all of which are to be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered are as follows:
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 6,363.05
NASD filing fee............................................... 1,555.37
NASDAQ listing and Filing fee................................. 10,000.00
Printing and engraving expenses............................... 100,000.00*
Accounting fees and expenses.................................. 75,000.00*
Legal fees and expenses....................................... 100,000.00*
Blue sky fees and expenses.................................... 50,000.00*
Transfer agent fees........................................... 10,000.00*
Miscellaneous expenses........................................ 31,831.58*
-----------
Total......................................................... $385,000.00*
-----------
-----------
</TABLE>
- ------------
* Estimated.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Except as set forth below, there were no sales of unregistered securities by
the Registrant during the past three years:
Effective as of September 1995, the Registrant sold 132,268, 263,699,
263,699, 45,206 and 132,268 shares of the Company's Common Stock to Messrs.
Scott Wolf, Laurence Rosen, Jeffrey Wolf, Andrew Schwartz and Michael
Kharitonov, respectively, for aggregate consideration of $6,750. These
transactions were exempt from registration under the Securities Act of 1933, as
amended (the "Act"), under Section 4(2) of the Act as not involving a public
offering.
Effective as of December 1995, the Registrant sold 45,206, 88,737, 88,737,
45,206 and 132,268 shares of the Company's Common Stock, to Messrs. Scott Wolf,
Laurence Rosen, Jeffrey Wolf, Andrew Schwartz and Michael Kharitonov,
respectively, for an aggregate consideration of approximately $22,890. These
transactions were exempt from registration under the Act, under Section 4(2) of
the Act as not involving a public offering.
On or about February 1, 1996, the Registrant sold 41,857 shares of the
Company's Common Stock to Mr. Robert Friedman for an aggregate consideration of
$50,000. This transaction was exempt from registration under the Act, under
Section 4(2) of the Act as not involving a public offering.
Effective as of January 1996, the Company sold 1,674 shares of the Company's
Common Stock to each of Messrs. Laurence Rosen and Michael Kharitonov for an
aggregate consideration of $1.00. These transactions were exempt from
registration under the Act, under Section 4(2) of the Act as not involving a
public offering.
On or about February 28, 1996, the Company sold 17,500 shares of the
Company's Common Stock to Gusrae Kaplan & Bruno in consideration for services
rendered. This transaction was exempt from registration under the Act, under
Section 4(2) of the Act as not involving a public offering.
In March 1996, the Registrant issued an aggregate of $250,000 principal
amount twelve percent (12%) promissory notes, 200,000 shares of Common Stock and
1,000,000 Warrants to a total of four private investors, who paid total gross
consideration of $250,000. These transactions were exempt from registration
under the Act, under Section 4(2) and Rule 506 of Regulation D of the Act as not
involving a public offering. May Davis Group, Inc. acted as Placement Agent for
these issuances and received an aggregate of $25,000 in commissions (10%). The
recipients of all of the foregoing securities represented that such securities
were being acquired for investment and not with a view to the distribution
thereof. In addition, the certificates evidencing such securities bear
restrictive legends.
In May 1996, the Registrant issued an aggregate of 200,000 shares of Common
Stock to a total of 13 private investors, who paid total gross consideration of
$500,000. These transactions were exempt from registration under the Act, under
Section 4(2) and Rule 506 of Regulation D of the Act as not involving a public
offering. May Davis Group, Inc. acted as Placement Agent for these issuances and
received an aggregate of $65,000 in commissions (10%) and non-accountable
expense allowances (3%). The recipients of all of the foregoing securities
represented that such securities were being acquired for investment and not with
a view to the distribution thereof. In addition, the certificates evidencing
such securities bear restrictive legends.
II-2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
(a) Exhibits
1.1 Form Underwriting Agreement**
1.2 Form of Selected Dealers Agreement
3.1 Articles of Incorporation, as amended to date**
3.2 By-Laws**
4.1 Form of Underwriter's Warrant
4.2 Form of Financial Advisory and Investment Banking Agreement with the Underwriter**
4.3 Form of Common Stock Certificate
4.4 Form of Common Stock Purchase Warrant
4.5 Form of Common Stock Purchase Warrant used for Bridge Loans**
4.6 Form of Warrant Agreement
5.1 Opinion of Gusrae Kaplan & Bruno
10.1 Employment Agreement with Laurence Rosen**
10.2 Employment Agreement with Michael Kharitonov**
10.3 Employment Agreement with Jeffrey Wolf, as amended**
10.4 Amendment No. 1 to Employment Agreement with Michael Kharitonov**
10.5 Employment Agreement with Vladislav Rysin**
10.6 License Agreement with Jeane Dixon**
10.7 Registrant's 1996 Incentive Stock Option Plan**
23.1 Consent of Gusrae, Kaplan & Bruno (to be included in Exhibit 5.1)
23.2 Consent of Goldstein Golub Kessler & Company, P.C.
</TABLE>
- ------------
** Previously filed
All other schedules are omitted, as the required information is either
inapplicable or presented in the financial statements or related notes.
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes:
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
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 small business issuer 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 of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(2) The Registrant will provide to the underwriters, immediately after the
closing of this Offering, stock and warrant certificates in such denominations
and registered in such names as to permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form SB-2 and authorized this amendment to the
registration statement to be signed on its behalf by the undersigned in the City
of New York, State of New York August 2, 1996.
NETLIVE COMMUNICATIONS, INC.
By: /s/ LAURENCE ROSEN
..................................
Laurence Rosen,
President
In accordance with the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed by the following persons
in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------------ ----------------
<S> <C> <C>
/s/ LAURENCE ROSEN Chief Executive Officer, President, August 2, 1996
.................................... Treasurer and Director (Principal
Laurence Rosen Accounting and Financial Officer)
/s/ MICHAEL KHARITONOV Chairman of the Board, Director of August 2, 1996
.................................... Technology and Secretary
Michael Kharitonov
.................................... Director August , 1996
Ross S. Glatzer
.................................... Director August , 1996
John E. Meier
/s/ JEFFREY WOLF Director August 2, 1996
....................................
Jeffrey Wolf
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<C> <S> <C>
1.1 Form Underwriting Agreement**
1.2 Form of Selected Dealers Agreement
3.1 Articles of Incorporation, as amended to date**
3.2 By-Laws**
4.1 Form of Underwriter's Warrant
4.2 Form of Financial Advisory and Investment Banking Agreement with the
Underwriter**
4.3 Form of Common Stock Certificate
4.4 Form of Common Stock Purchase Warrant
4.5 Form of Common Stock Purchase Warrant used for Bridge Loans**
4.6 Form of Warrant Agreement
5.1 Opinion of Gusrae Kaplan & Bruno
10.1 Employment Agreement with Laurence Rosen**
10.2 Employment Agreement with Michael Kharitonov**
10.3 Employment Agreement with Jeffrey Wolf, as amended**
10.4 Amendment No. 1 to Employment Agreement with Michael Kharitonov**
10.5 Employment Agreement with Vladislav Rysin**
10.6 License Agreement with Jeane Dixon**
10.7 Registrant's 1996 Incentive Stock Option Plan**
23.1 Consent of Gusrae, Kaplan & Bruno (to be included in Exhibit 5.1)
23.2 Consent of Goldstein Golub Kessler & Company, P.C.
</TABLE>
- ------------
** Previously filed
Exhibit 1.2
NETLIVE COMMUNICATIONS, INC.
900,000 Shares of Common Stock
and 600,000 Common Stock Purchase Warrants
SELLING AGREEMENT
Dear Sirs:
1. NetLive Communications, Inc. (the "Company") is offering for
sale 900,000 shares of Common Stock and 600,000 Common Stock Purchase
Warrant (the "Firm Securities"), which we (the "Underwriter") have agreed
to purchase from the Company and are offering for sale. In addition, the
Company has granted an option to purchase from the Company up to an
additional 135,000 shares of Common Stock and 75,000 Common Stock Purchase
Warrants (referred to as the "Option Securities"). The Firm Securities and
the Option Securities are herein called the "Securities." The Securities
and the terms under which they are to be offered for sale by the
Underwriter are more particularly described in the prospectus in connection
with the offering (the "Prospectus").
2. The Securities are to be offered to the public by the
Underwriter at the price per Security set forth on the cover page of the
Prospectus (the "Public Offering Price"), in accordance with the terms of
offering thereof set forth in the Prospectus.
3. The Underwriter is offering, subject to the terms and
conditions hereof, a portion of the Securities for sale to certain dealers
who are actually engaged in the investment banking or securities business
and who are either (i) members in good standing of the National
<PAGE>
Association of Securities Dealers, Inc. (the "NASD") or (ii) dealers with
their principal places of business located outside the United States, its
territories and its possessions and not registered as brokers or dealers
under the Securities Exchange Act of 1934, as amended (the "1934 Act") who
have agreed not to make any sales within the United States, its territories
or its possessions or to persons who are nationals thereof or residents
therein (such dealers who shall agree to purchase Securities hereunder
being herein called "Selected Dealers"), at the respective Public Offering
Prices, less selling concessions (which may be changed) of not in excess of
$.275 per Share and $.005 per Warrant, payable as hereinafter provided, out
of which concessions in an amount to be determined by the Selected Dealers
may be reallowable to members of the NASD or foreign dealers qualified as
aforesaid. In the event that within the period ending 90 days from the
date hereof, the Underwriter purchases or contracts to purchase, in the
open market or otherwise, any of the Securities delivered to you, the
Underwriter reserves the right to charge you and you agree to repay us on
demand the amount of the dealer's selling concession allowed to you. The
Selected Dealers have agreed to comply with the provisions of Section 24 of
Article III of the Rules of Fair Practice of the NASD, and if any such
dealer is a foreign dealer and not a member of the NASD, such Selected
Dealer also has agreed to comply with the NASD's interpretation with
respect to free-riding and withholding, to comply, as though it were a
member of the NASD, with the provisions of Section 8 and 36 of Article III
of such Rules of Fair Practice, and to comply with Section 25 of Article
III thereof as that Section applies to non-member foreign dealers.
-2-
<PAGE>
4. The Underwriter shall have full authority to take such action
as the Underwriter may deem advisable in respect of all matters pertaining
to the public offering of the Securities.
5. If you desire to purchase any of the Securities, your
application should reach us promptly by telephone or telecopy at our office
at 20 Exchange Place, New York, New York 10005, Attention: Syndicate
Department, Telephone Number (212) 480-2710; Telecopy Number (212) 480-
2757. The Underwriter reserves the right to reject subscriptions in whole
or in part, to make allotments and to close the subscription books at any
time without notice. The Securities allotted to you will be confirmed
subject to the terms and conditions of this Agreement.
6. Any Securities purchased by you under the terms of this
Agreement may be immediately referred to the public in accordance with the
terms of offering thereof set forth herein and in the Prospectus, subject
to the securities or blue sky laws of the various states or other
jurisdictions.
You agree to pay us on demand an amount equal to the Selected
Dealer concession as to any Securities purchased by you hereunder which,
prior to the termination of this Agreement, we may purchase or contract to
purchase and, in addition, we may charge you with any broker's commission
and transfer tax paid in connection with such purchase or contract to
purchase. Certificates for the Securities delivered on such repurchases
need not be the identical certificates originally purchased.
-3-
<PAGE>
You agree to advise us from time to time, upon request, of the
number of Securities purchased by you hereunder and remaining unsold at the
time of such request, and, if in our opinion any such Securities shall be
needed to make delivery of the Securities sold or over-allotted for our
account you will, forthwith upon our request, grant to us for our account
the right, exercisable promptly after receipt of notice from you that such
right has been granted, to purchase, at the applicable Public Offering
Prices less the selling concession or such part thereof as we shall
determine, such number of Securities owned by you as shall have been
specified in our request.
No expense shall be charged to Selected Dealers. A single
transfer tax, if payable, upon the sale of the Securities by the
Underwriter to you will be paid when such Securities are delivered to you.
However, you shall pay any transfer tax on sales of Securities by you and
you shall pay your proportionate share of any transfer tax (other than the
single transfer tax described above) in the event that any such tax shall
from time to time be assessed against you and other Selected Dealers as a
group or otherwise.
Neither you nor any other person is or has been authorized to
give any information or to make any representation in connection with the
sale of the Securities other than as contained in the Prospectus.
7. The first three paragraphs of Section 6 hereof will terminate
when we shall have determined that the public offering of the Securities
has been completed and upon telegraphic notice to you of such termination,
but, if not theretofore terminated, they will terminate at the close of
business on the 45th full business day after the date hereof; provided,
-4-
<PAGE>
however, that we shall have the right to extend such provisions for a
further period or periods, not exceeding an additional 30 full business
days in the aggregate upon telegraphic notice to you.
8. For the purpose of stabilizing the market in the Securities,
we have been authorized to make purchases and sales of the Securities of
the Company, in the open market or otherwise, for long or short account,
and, in arranging for sales, to over-allot.
9. On becoming a Selected Dealer, and in offering and selling
the Securities, you agree to comply with all the applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act"), and the 1934 Act.
You confirm that you are familiar with Rule 15c2-B under the 1934 Act
relating to the distribution of preliminary and final prospectuses for
securities of an issuer (whether or not the issuer is subject to the
reporting requirements of Section 13 or 15(d) of the 1934 Act) and confirm
that you have complied and will comply therewith.
We hereby confirm that we will make available to you such number
of copies of the Prospectus (as amended or supplemented) as you may
reasonably request for the purposes contemplated by the 1933 Act or the
1934 Act, or the rules and regulations thereunder.
10. Upon request, you will be informed as to the states and
other jurisdictions in which we have been advised that the Securities are
qualified for sale under the respective securities or blue sky laws of such
states and other jurisdictions, but we assume no obligation or
responsibility as to the right of any Selected Dealer to sell the
Securities in any state or other jurisdiction or as to the eligibility of
the Securities for sale therein. The Underwriter will, if required, file
Further State Notices in respect of the Securities pursuant to Article 23-A
of the General Business Law of the State of New York.
-5-
<PAGE>
11. No Selected Dealer is authorized to act as our agent or
otherwise to act on our behalf, in offering or selling the Securities to
the public or otherwise or to furnish any information or make any
representation except as contained in the Prospectus.
12. Nothing herein will constitute an association or partnership
with the Underwriter, but you will be responsible for your share of any
liability or expense based on any claim to the contrary. The Underwriter
shall not be under any liability for or in respect of value, validity or
form of the Securities or the delivery of the certificates for the
Securities, or the performance by anyone of any agreement on either of
their parts, or the qualification of the Securities for sale under the laws
of any jurisdiction, or for or in respect of any other matter relating to
this Agreement, except for lack of good faith and for obligations expressly
assumed by us in this Agreement and no obligation on the part of the
Underwriter shall be implied herefrom. The foregoing provisions shall not
be deemed a waiver of any liability imposed under the 1933 Act.
Payment for the Securities sold to you hereunder is to be made at
the applicable Public Offering Prices less the above-mentioned selling
concessions at such time and date as we may advise by "Fed Funds" wire,
payable to the order of May Davis Group, Inc., against delivery of
certificates for the Securities. If such payment is not made at such time,
you agree to pay us interest on such funds at the prevailing brokers' loan
rate.
-6-
<PAGE>
13. Notices should be addressed to us at the office of May Davis
Group, Inc., as stated in paragraph 12 above and mailed to such address or
telecopied to (212) 480-2757. Notices to you shall be deemed to have been
duly given if telegraphed or mailed to you at the address to which this
letter is addressed.
14. If you desire to purchase any Securities, please confirm
your application by signing and returning to us your confirmation on the
duplicate copy of this letter enclosed herewith, even though you may have
previously advised us thereof by telephone or telegraph. Our signature
hereon may be by facsimile.
Very truly yours,
MAY DAVIS GROUP, INC.
By:______________________________________
-7-
<PAGE>
We hereby subscribe for _______________ Shares and
----------
Warrants of NetLive Communications, Inc. in accordance with the terms and
conditions stated in the foregoing letter. We hereby acknowledge receipt
of the Prospectus referred to in the first paragraph thereof relating to
said Securities. We further state that in purchasing said Securities we
have relied upon said Prospectus and upon no other statement whatsoever,
whether written or oral. We confirm that we are a dealer actually engaged
in the investment banking or securities business and that we are either (i)
a member in good standing of the National Association of Securities
Dealers, Inc. (the "NASD") or (ii) a dealer with its principal place of
business located outside the United States, its territories and its
possessions and not registered as a broker or dealer under the Securities
Exchange Act of 1934, as amended, who hereby agrees not to make any sales
within the United States, its territories or its possessions or to persons
who are nationals there or of residents therein. We hereby agree to comply
with the provisions of Section 24 of Article III of the rules of Fair
Practice of the NASD, and if we are a foreign dealer and not a member of
the NASD, we also agree to comply with the NASD's interpretation with
respect to free-riding and withholding, to comply, as though we were a
member of the NASD, with provisions of Sections 8 and 36 of Article III of
such Rules of Fair Practice, and to comply with Section 25 of Article III
thereof as that Section applies to non-member foreign dealers.
By:___________________________
Address:
---------------------
--------------------
---------------------
Dated:____________________
-8-
Exhibit 4.1
UW-001 WARRANTS
-----------
UNDERWRITER'S WARRANT
Dated: , 1996
---------------
THIS CERTIFIES THAT May Davis Group, Inc. (the "Holder") is
entitled to purchase from NETLIVE COMMUNICATIONS, INC., a Delaware
corporation (the "Company"), up to 90,000 shares of the Company's common
stock, $.0001 par value (the "Shares"), and/or 60,000 redeemable common
stock purchase warrants (the "Redeemable Warrants"; together with the
Shares, the "Securities") to purchase one share of Common Stock at $6.00
per share (the "Redeemable Warrant Exercise Price") at a purchase price of
$6.60 per Share (the "Share Exercise Price") and $.12 per Redeemable
Warrant (the "Warrant Exercise Price," collectively, with the Share
Exercise Price, the "Exercise Prices"), subject to adjustment as provided
in paragraph 8 hereof, at any time during the 48 month period commencing 12
months from the effective date of the Registration Statement (defined
below). This Underwriter's Warrant (the "Underwriter's Warrant") is
exercisable to purchase an aggregate of 90,000 Shares and 60,000 Redeemable
Warrants, issued pursuant to an Underwriting Agreement dated ,
-------------
1996, between the Company and May Davis Group, Inc. (the "Underwriter") (as
defined in the Underwriting Agreement), in connection with a public
offering, through the Underwriter, of 900,000 shares of Common Stock and
600,000 Redeemable Warrants as therein described (and up to an additional
135,000 shares of Common Stock and 75,000 Redeemable Warrants (the "Option
Securities" covered by an over-allotment option granted by the Company and
the Selling Stockholders (as defined in the Underwriting Agreement) to the
Underwriter) hereinafter referred to together with the Option Securities,
as the "Public Securities") and in consideration of $10.00 received by the
Company for the Underwriter's Warrant. The Shares and Redeemable Warrants
issuable pursuant to the Underwriter's Warrant shall have same terms and
conditions as the shares of Common Stock and Redeemable Warrants making up
the Public Securities, as described under the caption "Description of
Securities" in the Company's Registration Statement on Form SB-2, File No.
33-296-NY (the "Registration Statement"), except that the Holder shall have
registration rights under the Securities Act of 1933 (the "Act"), for the
Underwriter's Warrant, the Shares and Redeemable Warrants.
1. The rights represented by this Underwriter's Warrant shall
be exercised at the price, subject to adjustment in accordance with
paragraph 8 hereof, and during the periods as follows:
(a) During the period from the date hereof to ,
------------
1997 [12 months from the effective date] (the "Initial
Period"), inclusive, the Holder shall have no right to
purchase any Securities hereunder.
<PAGE>
(b) Between , 1997 and , 2001 [5
------------- -------------
years from the effective date] (the "Expiration Date")
inclusive, the Holder shall have the option to purchase
Shares hereunder at a price of $6.00 per Share and to
purchase Redeemable Warrants at a price of $.12 per
Redeemable Warrant [120% above the public offering
price of the Shares and Redeemable Warrants], subject
to adjustment as provided in paragraph 8 hereof.
(c) After the Expiration Date, the Holder shall have no
right to purchase any Securities hereunder.
2. (a) The rights represented by this Underwriter's Warrant
may be exercised at any time within the periods above specified, in whole
or in part, by (i) the surrender of the Underwriter's Warrant (with the
purchase form at the end hereof properly executed) at the principal
executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the
address of the Holder appearing on the books of the Company); (ii) payment
to the Company of the exercise price then in effect for the number of
Securities specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any; and (iii) delivery to the Company
of a duly executed agreement signed by the person(s) designated in the
purchase form to the effect that such person(s) agree(s) to be bound by the
provisions of paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7
hereof. The Underwriter's Warrant shall be deemed to have been exercised,
in whole or in part to the extent specified, immediately prior to the close
of business on the date the Underwriter's Warrant is surrendered and
payment is made in accordance with the foregoing provisions of this
paragraph 2, and the person or persons in whose name or names the
certificates for Shares and/or Redeemable Warrants shall be issuable upon
such exercise shall become the holder or holders of record of such Shares
and Redeemable Warrants at that time and date. Certificates representing
the Shares and Redeemable Warrants so purchased shall be delivered to the
Holder within a reasonable time, not exceeding ten (10) days, after the
rights represented by this Warrant shall have been so exercised.
(b) Notwithstanding anything to the contrary contained in
subparagraph (a) of paragraph 2, the Holder may elect to exercise this
Underwriter's Warrant in whole or in part by receiving Shares and/or
Redeemable Warrants equal to the value (as determined below) of this
Underwriter's Warrant at the principal office of the Company together with
notice of such election in which event the Company shall issue to the
Holder a number of Shares and/or Redeemable Warrants computed using the
following formula:
2
<PAGE>
X = Y(A-B)
----------
A
--
Where: X = the number of Shares and/or Warrants to be issued
------ --- -------------------------------------------------
to the Holder;
--------------
Y = the number of Shares and/or Warrants to be
exercised under this Underwriter's Warrant;
A = the current fair market value of one share of
Common Stock and/or one Warrant (calculated as
described below); and
B = the Share Exercise Price and/or the Warrant
Exercise Price, as the case may be.
As used herein, the current fair market value of one share of
Common Stock shall mean the greater of (x) the average of the closing
prices of the Company's Common Stock sold on all securities exchanges on
which the Common Stock may at the time be listed and the NASDAQ National
Market, or, if there have been no sales on any such exchange or the NASDAQ
National Market on such day, the average of the highest bid and lowest
asked price on such day on The Nasdaq Stock Market or otherwise in the
domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization (the "Market
Price"), on the trading day immediately preceding the date notice of
exercise of this Underwriter's Warrant is given or (y) the average of the
Market Price per share of Common Stock for the five trading days
immediately preceding the date notice of exercise of this Underwriter's
Warrant is given. If on any date for which the Market Price per share of
Common Stock is to be determined the Common Stock is not listed on any
securities exchange or quoted on the NASDAQ National Market or on The
Nasdaq Stock Market or otherwise in the over-the-counter market, the Market
Price per share of Common Stock shall be the highest price per share which
the Company could then obtain from a willing buyer (not a current employee
or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by the Board of
Directors of the Company, unless prior to such date the Company has become
subject to a merger, acquisition or other consolidation pursuant to which
the Company is not the surviving party, in which case the Market Price per
share of Common Stock shall be deemed to be the value received by the
holders of the Company's Common Stock for each share thereof pursuant to
the Company's acquisition.
The current fair market value of one Redeemable Warrant shall be
determined in a like manner, with reference to the prices per Redeemable
Warrant.
3. The Underwriter's Warrant shall not be transferred, sold,
assigned, or hypothecated (other than by will or pursuant to the laws of
descent and distribution) for a period
3
<PAGE>
of one year commencing , 1996, except that it may be
------------
transferred to successors of the Holder, and may be assigned in whole or in
part to any person who is an officer or director of the Holder or to any
member of the selling group and/or the officers/directors or partners
thereof during such period. Any such assignment shall be effected by the
Holder by (i) executing the form of assignment at the end hereof and (ii)
surrendering the Underwriter's Warrant for cancellation at the office or
agency of the Company referred to in paragraph 2 hereof, accompanied by a
certificate (signed by an officer of the Holder if the Holder is a
corporation), stating that each transferee is a permitted transferee under
this paragraph 3; whereupon the Company shall issue, in the name or names
specified by the Holder (including the Holder) a new Underwriter's Warrant
or Warrants of like tenor and representing in the aggregate rights to
purchase the same number of Securities as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Common
Stock which may be purchased hereunder or upon exercise of the Redeemable
Warrants will, upon issuance against payment of the purchase price
therefor, be duly and validly issued, fully paid and nonassessable, and no
personal liability will attach to the holder thereof. The Company further
covenants and agrees that, during the periods within which the
Underwriter's Warrant may be exercised, the Company will at all times have
authorized and reserved a sufficient number of shares of its Common Stock
to provide for the exercise of the Underwriter's Warrant and the Redeemable
Warrants.
5. The Underwriter's Warrant shall not entitle the Holder to
any voting rights or other rights as stockholders of the Company.
6. (a)(i) The Company shall advise the Holder or its
transferees, whether the Holder holds the Underwriter's Warrant or has
exercised the Underwriter's Warrant and holds shares of Common Stock and/or
Redeemable Warrants, by written notice at least four weeks prior to the
filing of any post-effective amendment to the Registration Statement or of
any new registration statement or post-effective amendment thereto under
the Act covering any securities of the Company, for its own account or for
the account of others, except for any registration statement filed on Form
S-4 or S-8 (including a Form S-3 related to a Form S-8) and will, for a
period of five years from the Effective Date, upon the request of the
Holder, and subject to subparagraph 6(a)(ii), include in any such post-
effective amendment to the Registration Statement or in any new
registration statement such information as may be required to permit a
public offering of the Underwriter's Warrant, the Common Stock issuable
upon the exercise thereof or upon exercise of the Redeemable Warrants and
the Redeemable Warrants (collectively, the "Registrable Securities"). The
Company shall supply prospectuses and such other document as the Holder may
reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities, use its best efforts to register
and qualify any of the Registrable Securities for sale in such states as
the Holder designates and do any and all other acts and things which may be
necessary or desirable to enable the Holder to consummate the public sale
or other disposition of the Registrable Securities, all at no expense to
the Holder or the Underwriter, and furnish indemnification in the manner
provided in paragraph 7 hereof. The Holder shall furnish information and
indemnification as set forth in paragraph 7.
4
<PAGE>
(ii) If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holder as a part of the written notice given
pursuant to subparagraph 6(a)(i). If the managing underwriter determines
that a limitation of the number of shares to be underwritten is required,
the underwriter may exclude some or all Registrable Securities from such
registration (the "Excluded Registrable Securities"); provided, however,
that no other security-holder may include any such securities in such
Registration Statement if any of the Registrable Securities have been
excluded from such registration; and further provided that the Company will
file a new Registration Statement covering the Excluded Registrable
Securities, at the Company's expense, within six months after the
completion of such underwritten offering.
(b) On any one occasion only, any 50.1% Holder (as defined
below) shall give notice to the Company at any time to the effect that such
Holder desires to register under the Act any or all of the Registrable
Securities under such circumstances that a public distribution (within the
meaning of the Act) of any such securities will be involved, then the
Company will promptly, but no later than eight weeks after receipt of such
notice, file a post-effective amendment to the current Registration
Statement or a new registration statement pursuant to the Act, so that such
designated Registrable Securities may be publicly sold under the Act as
promptly as practicable thereafter and the Company will use its best
efforts to cause such registration to become and remain effective
(including the taking of such steps as are necessary to obtain the removal
of any stop order) within 90 days after the receipt of such notice,
provided, that such Holder shall furnish the Company with appropriate
information in connection therewith as the Company may reasonably request
in writing. Inclusive of this demand right shall be that the 50.1% Holder
may, at its option, request the filing of a post-effective amendment to the
current Registration Statement or a new registration statement under the
Act, inclusive of the right granted by subparagraph 6(a) on one occasion
only during the four-year period beginning one year from the effective date
of the Registration Statement (the "Effective Date"). The 50.1% Holder
may, at its option, request the registration of the Underwriter's Warrant
and/or any of the securities underlying the Underwriter's Warrant in a
registration statement made by the Company as contemplated by subparagraph
6(a) or in connection with a request made pursuant to this subparagraph
6(b) prior to acquisition of the shares of Common Stock and/or Redeemable
Warrants issuable upon exercise of the Underwriter's Warrant. The 50%
Holder may, at its option, request such post-effective amendment or new
registration statement during the described period with respect to the
Underwriter's Warrant, or separately as to the Common Stock and/or
Redeemable Warrants issuable upon the exercise of the Underwriter's
Warrant, and such registration rights may be exercised by the 50% Holder
prior to or subsequent to the exercise of this Underwriter's Warrant.
Within ten days after receiving any such notice pursuant to this
subparagraph 6(b), the Company shall give notice to any other Holder of the
Underwriter's Warrant, advising that the Company is proceeding with such
post-effective amendment or registration statement and offering to include
therein the securities underlying the Underwriter's Warrants held by the
other Holder, provided that they shall furnish the Company with such
appropriate information (relating to the intentions of such Holder) in
connection therewith as the Company shall reasonably request in writing.
All costs and expenses of the post-effective amendment or new registration
statement shall be borne by the Company, except that the Holder(s) shall
bear the fees of their own counsel and any underwriting discounts or
commissions applicable to any of the securities
5
<PAGE>
sold by them. The Company will maintain such registration statement or
post-effective amendment current under the Act for a period of at least
nine months (and for up to an additional three months if requested by the
Holder(s)) from the effective date thereof. The Company shall provide
prospectuses, and such other documents as the Holder(s) may request in
order to facilitate the public sale or other disposition of the Registrable
Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states as such Holder(s) designate
and furnish indemnification in the manner provided in paragraph 7 hereof.
(c) The term "50.1% Holder" as used in this paragraph 6
shall mean the Holder(s) of at least 50.1% of the Underwriter's Warrant
and/or the Common Stock underlying the Underwriter's Warrant and the
Redeemable Warrants and shall include any owner or combination of owners of
such securities, which ownership shall be calculated by determining the
number of shares of Common Stock held by such owner or owners as well as
the number of shares then issuable upon exercise of the Underwriter's
Warrant and the Redeemable Warrants.
(d) If at any time prior to the effectiveness of the
registration statement filed in connection with an offering pursuant to
this paragraph 6 the 50% Holder shall determine not to proceed with the
registration, upon notice to the Company and the payment to the Company by
the 50% Holder of the Company's expenses, if any, theretofore incurred in
connection with the registration statement, the 50% Holder may terminate
its participation in the offering, and the registration statement
previously filed shall not be counted against the number of demand
registrations permitted under this paragraph 6.
(e) Notwithstanding the foregoing, if the Company shall
furnish to such 50% Holder a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors
it would be seriously detrimental to the Company or its stockholders for a
registration statement to be filed in the near future containing the
disclosure of material information required to be included therein by
reason of the federal securities laws, then the Company's obligation to use
its best efforts to file a registration statement shall be deferred for a
period during which such disclosure would be seriously detrimental,
provided that this period will not exceed 30 days and provided further,
that the Company shall not defer its obligation in this matter more than
once in any 12 month period.
7. (a) Whenever pursuant to paragraph 6 a registration
statement relating to the Underwriter's Warrant or any Common Stock issued
or issuable upon the exercise of the Underwriter's Warrant or the
Redeemable Warrants, or any Redeemable Warrants is filed under the Act,
amended or supplemented, the Company will indemnify and hold harmless each
Holder of the securities covered by such registration statement, amendment
or supplement (such Holder being hereinafter called the "Distributing
Holder"), and each person, if any, who controls (within the meaning of the
Act) the Distributing Holder, and each underwriter (within the meaning of
the Act) of such securities and each person, if any, who controls (within
the meaning of the Act) any such underwriter, against any losses, claims,
damages or liabilities, joint or several, to which the Distributing Holder,
any such controlling person or any such underwriter
6
<PAGE>
may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities, or actions in respect thereof, arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement or any
preliminary prospectus or final prospectus constituting a part thereof or
any amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading and will reimburse the Distributing Holder or such controlling
person or underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in said registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in
conformity with written information furnished by such Distributing Holder
or any other Distributing Holder for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed said registration statement and such amendments and supplements
thereto, and each person, if any, who controls the Company (within the
meaning of the Act) against any losses, claims, damages or liabilities,
joint or several, to which the Company or any such director, officer or
controlling person may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities, or actions in respect
thereof, arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment or
supplement, or arises out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to
the extent, but only to the extent, that such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in said registration
statement, said preliminary prospectus, said final prospectus or said
amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in the
preparation thereof; and will reimburse the Company or any such director,
officer 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.
(c) Promptly after receipt by an indemnified party under
this paragraph 7 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party, give the indemnifying party notice of the
commencement thereof, but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under this paragraph 7.
(d) In case any such action is brought against any
indemnified party, and it notified an indemnifying party of the
commencement thereof, the indemnifying party will
7
<PAGE>
be entitled to participate in and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this paragraph 7 for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation.
8.(A) The Share Exercise Price in effect at any time and the
number and kind of securities purchasable upon the exercise of the
Underwriter's Warrant shall be subject to adjustment from time to time upon
the happening of certain events hereinafter described; provided, however,
that no adjustment shall be required in respect of the shares issuable upon
exercise of the Redeemable Warrants.
(i) In case the Company shall (a) declare a dividend or
make a distribution on its outstanding shares of Common Stock in shares of
Common Stock, (b) subdivide or reclassify its outstanding shares of Common
Stock into a greater number of shares, or (c) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, or (d)
the outstanding shares of Common Stock of the Company are at any time
changed into or exchanged for a different number or kind of shares or other
security of the Company or of another corporation through reorganization,
merger, consolidation, liquidation or recapitalization, then appropriate
adjustments in the number and kind of such securities subject to this
Underwriter's Warrant shall be made and the Share Exercise Price in effect
at the time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination, reclassification,
reorganization, merger, consolidation, liquidation or recapitalization
shall be proportionately adjusted so that the Holder of this Underwriter's
Warrant exercised after such date shall be entitled to receive the
aggregate number and kind of securities which, if this Underwriter's
Warrant had been exercised by such Holder immediately prior to such date,
they would have owned upon such exercise and been entitled to receive upon
such dividend, distribution, subdivision, combination, reclassification,
reorganization, merger, consolidation, liquidation or recapitalization. For
example, if the Company declares a 2 for 1 stock distribution and the Share
Exercise Price immediately prior to such event was $5.00 per Share and the
number of Shares purchasable upon exercise of this Underwriter's Warrant
was 110,000, the adjusted Share Exercise Price immediately after such event
would be $2.50 per Share and the adjusted number of Shares purchasable upon
exercise of this Warrant would be 220,000. Such adjustment shall be made
successively whenever any event listed above shall occur.
(ii) Whenever the Share Exercise Price payable upon exercise
of the Underwriter's Warrant is adjusted pursuant to subparagraphs 8(A)(i),
or the Warrant Exercise Price payable upon exercise of the Underwriter's
Warrant pursuant to paragraph 8(B), the number of shares of Common Stock or
Redeemable Warrants, as the case may be, purchasable upon exercise of this
Underwriter's Warrant shall simultaneously be adjusted by multiplying the
number of shares of Common Stock or Redeemable Warrants, as the case may
be, issuable upon
8
<PAGE>
exercise of this Underwriter's Warrant by the Share Exercise Price or
Warrant Exercise Price, as the case may be, in effect on the date hereof
and dividing the product so obtained by the Share Exercise Price or Warrant
Exercise Price, as adjusted.
(iii) No adjustment in the Share Exercise Price or
Warrant Exercise Price shall be required (a) in the event of the sale of
the Company's securities in a future bona fide underwritten public
offering; or (b) unless such adjustment would require an increase or
decrease of at least five cents ($0.05) in the Share Exercise Price;
provided, however, that any adjustments which by reason of this
subparagraph (iii) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be made
hereunder. All calculations under this paragraph 8(A) shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may
be. Anything in this Section 8(A) to the contrary notwithstanding, the
Company shall be entitled, but shall not be required, to make such changes
in the Share Exercise Price or Warrant Exercise Price, in addition to those
required by this Section 8(A) or 8(B), as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in
shares of Common Stock or Redeemable Warrants, or any subdivision,
reclassification or combination thereof, hereafter made by the Company
shall not result in any federal income tax liability to the holders of
Common Stock or securities convertible into Common Stock (including the
Redeemable Warrants issuable upon exercise of the Underwriter's Warrant).
(iv) Whenever the Exercise Prices are adjusted, as herein
provided, the Company shall promptly cause a notice setting forth the
adjusted Exercise Prices and adjusted the number of shares of Common Stock,
Redeemable Warrants or other securities purchasable upon exercise of the
Underwriter's Warrant to be mailed to the Holder, at the addresses listed
on the books of the Company, and shall cause a certified copy thereof to be
mailed to the Company's transfer agent, if any. The Company may retain a
firm of independent certified public accountants selected by the Board of
Directors (who may be the regular accountants employed by the Company) to
make any computation required by this paragraph 8, and a certificate signed
by such firm shall be conclusive evidence of the correctness of such
adjustment.
(v) In the event that at any time, as a result of an
adjustment made pursuant to the provisions of this paragraph 8, the Holder
of the Underwriter's Warrant thereafter shall become entitled to receive
any securities of the Company, other than Common Stock and the Redeemable
Warrants, thereafter the exercise price and number of such other securities
so receivable upon exercise of the Underwriter's Warrant shall be subject
to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the number of shares of Common Stock,
Redeemable Warrants or other securities purchasable upon exercise of the
Underwriter's Warrant to be mailed to the Holder, at the addresses listed
on the books of the Company, and shall cause a certified copy thereof to be
mailed to the Company's transfer agent, if any. The Company may retain a
firm of independent certified public accountants selected by the Board of
Directors (who may be the regular accountants employed by the Company) to
make any computation required by this paragraph 8, and a
9
<PAGE>
certificate signed by such firm shall be conclusive evidence of the
correctness of such adjustment.
(vi) In the event that at any time, as a result of an
adjustment made pursuant to the provisions of this paragraph 8, the Holder
of the Underwriter's Warrant thereafter shall become entitled to receive
any securities of the Company, other than Common Stock and the Redeemable
Warrants, thereafter the exercise price and number of such other securities
so receivable upon exercise of the Underwriter's Warrant shall be subject
to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common
Stock contained in subparagraphs 8(A), inclusive of this paragraph (vi).
8.(B) In the event of an adjustment in the Share Exercise Price
and the number of Shares of Common Stock issuable upon the exercise of the
Underwriter's Warrant, pursuant to paragraph 8(A), then there shall be a
proportional adjustment in the Warrant Exercise Price and the number of
Redeemable Warrants issuable upon the exercise of the Underwriter's
Warrant.
9. This Agreement shall be governed by and in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, NETLIVE COMMUNICATIONS, INC. has caused this
Underwriter's Warrant to be signed by its duly authorized officers, and
this Underwriter's Warrant to be dated as of the date first above written.
NETLIVE COMMUNICATIONS, INC.
By: ______________________________
Name:
Title:
10
<PAGE>
PURCHASE FORM
-------------
(To be signed only upon exercise of Underwriter Warrant)
The undersigned, the holder of the foregoing Underwriter's Warrant,
hereby irrevocably elects to exercise the purchase rights represented by
such Warrant for, and to purchase thereunder, ______________ Shares of
NETLIVE COMMUNICATIONS, INC., par value $0.001 per share, and/or
-----------
Redeemable Common Stock Purchase Warrants to purchase one (1) share of
- -
Common Stock, and herewith makes payment of $_____________________ therefor
(or hereby surrenders and delivers that portion of the Underwriter's
Warrant having equivalent value (as determined in accordance with the
provisions of subparagraph (d) of paragraph 2 of the Underwriter's
Warrant)), and requests that the certificates for shares of Common Stock
and/or Redeemable Warrants be issued in the name(s) of, and delivered to
_____________________, whose address(es) is (are):
Dated: _________________________, 19_________
_________________________________________________
Signature
_________________________________________________
(Print name under signature)
(Signature must conform in all respects to the
name
of holder as specified on the face of the
Underwriter's Warrant).
_________________________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant)
FOR VALUE RECEIVED
-----------------------------------------------
hereby sells, assigns and transfers unto
----------------------------------
(Please print name and address of transferee)
this Warrant, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint
---------------------------------
Attorney, to transfer the within Warrant on the books of NETLIVE COMMUNICATIONS,
INC., with full power of substitution.
Dated:
--------------------------
Signature
--------------------------------
____________________________
(Print name under signature)
(Signature must conform in all respects
to the name of holder as specified
on the face of the Underwriter's
Warrant.
______________________________
(Insert Social Security or Other
Identifying Number of Holder)
12
Exhibit 4.3
[FORM OF FACE OF STOCK CERTIFICATE]
[LOGO]
NETLIVE COMMUNICATIONS, INC.
Number Shares
NLS - See Reverse For
Certain Definintions
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.0001 PAR VALUE, OF
NETLIVE COMMUNICATIONS, INC.
(herinafter called the Corporation) transferable on the books of the
Coporation by the holder hereof in person or by duly authorized attorney
upon surrender of this certificate properly endorsed. This certificate is
not valid until countersigned and registered by the Transfer Agent and
Registrar.
Witness the facsimile signatures of the Corporation's duly authorized
officers.
Dated:
PRESIDENT AND CHAIRMAN OF THE BOARD
CHIEF EXECUTIVE OFFICER AND SECRETARY
<PAGE>
[FORM OF REVERSE OF STOCK CERTIFICATE]
NETLIVE COMMUNICATIONS, INC.
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limtations or restrictions of such
preferences and/or rights.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full accordng to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM- as tenants in common UNIF GIFT MIN ACT- _______ Custodian _______
TEN ENT- as tenants by the entireties (Cust) (Minor)
JT TEN- as joint tenants with
right of survivorship and under Uniform Gifts to Minors Act
not as tenants in common
_________________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
Please insert social security or other
identifying number of assignee
[ ] ___________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT ____________________________________________
ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED
CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED, ________________ X ______________________________________________
X ______________________________________________
Notice: The signature(s) to this assignment
must correspond with the names(s) as written
upon the face of the certificate, in every
particular, without alteration or
enlargement, or any change whatsoever.
SIGNATURE
GUARANTEED:_______________________________________________________
The signature(s) should be guaranteed by an eligible
guarantor institution (banks, stockbrokers, savings and
loan associations and credit unions with membership in
an approved signature guarantee medallion program),
pursuant to S.E.C. Rul 17Ad-15
Exhibit 4.4
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W ________ (_____) Warrants
VOID AFTER , 2001
--------------
REDEEMABLE COMMON STOCK WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK OF
PRIDE AUTOMOTIVE GROUP, INC.
This certifies that FOR VALUE RECEIVED _______________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Common Stock Purchase Warrants (the "Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject
to the terms and conditions set forth in this Certificate and the Warrant
Agreement (as hereinafter defined), one fully paid and nonassessable share
of Common Stock, $.0001 par value, of NetLive Communications, Inc., a
Delaware corporation (the "Company"), at any time between , 1998 and
-------
the Expiration Date (as hereinafter defined), upon the presentation and
surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of American Stock
Transfer & Trust Co., as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $5.50 per share (the "Purchase Price")
in lawful money of the United States of America in cash or by official bank
or certified check made payable to the Warrant Agent.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"),
dated as of , 1996, by and among the Company, the Warrant
-------------
Agent and the Underwriter.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby
are subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued.
In the case of the exercise of less than all the Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor, which the Warrant Agent shall
countersign, for the balance of such Warrants.
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (Eastern time) on
-----
, 2001, or such earlier date as the Warrants shall be redeemed. If
- -------
such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall be 5:00 p.m.
(Eastern time) the next day which in the State of New York is not a holiday
or a day in which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, with respect to such securities is effective. The
Company has covenanted and agreed that it will file a registration
statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a
new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant
Certificates to represent such number of Warrants as shall be designated by
such Registered Holder at the time of such surrender. Upon due presentment
together with any tax or other governmental charge imposed in connection
therewith, for registration of transfer of this Warrant Certificate at such
office, a new Warrant Certificate or Warrant 8Certificates representing an
equal aggregate number of Warrants will be issued to the transferee in
exchange therefor, subject to the limitations provided in the Warrant
Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of
the Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Commencing , 1997, this Warrant may be redeemed at the
---------------
option of the Company, at a redemption price of $0.05 per Warrant, provided
the closing bid price of the Company's Common Stock on the NASDAQ SmallCap
Market as reported by the National Quotation Bureau, Incorporated exceeds
$7.50 per share for at least 20 consecutive trading days ending not more
than 15 days prior to the date of the notice of redemption. Notice of
redemption shall be given not later than the thirtieth (30th) day before
the date fixed for redemption, all as provided in the Warrant Agreement.
On and after the date fixed for redemption, the Registered Holder shall
have no rights with respect to this Warrant except to receive the $0.05 per
Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof,
<PAGE>
the Company and the Warrant Agent may deem and treat the Registered Holder
as the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by
anyone other than a duly authorized officer of the Company or the Warrant
Agent) for all purposes and shall not be affected by any notice to the
contrary.
The Company has agreed to pay a fee of five (5%) percent of the
Purchase Price upon certain conditions as specified in the Warrant
Agreement upon the exercise of this Warrant.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two (2) of its officers
thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
Dated: _______________
NETLIVE COMMUNICATIONS, INC.
By: _______________________________
President
By:_________________________________
Secretary
[seal]
Countersigned:
AMERICAN STOCK TRANSFER
& TRUST CO.
By: _____________________________________
Authorized Officer
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
-----------------
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise __________________ (________________) Warrants represented by this
Warrant Certificate, and to purchase the securities issuable upon the
exercise of such Warrants, and requests that certificates for such
securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
and be delivered to
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by
this Warrant Certificate, that a new Warrant Certificate for the balance of
such Warrants be registered in the name of, and delivered to, the
Registered Holder at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by
---------------------------------------
(Indicate the name of the soliciting
broker)
Dated: _________________________ ________________________________
Signature
________________________________
Street Address
________________________________
City, State and Zip Code
________________________________
Taxpayer ID Number
Signature Guaranteed:
________________________________
<PAGE>
ASSIGNMENT
----------
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_________________________________
_________________________________
_________________________________
_________________________________
[please print or type name and address]
___________________ (_____________) of the Warrants represented by this
Warrant Certificate, and hereby irrevocably constitutes and appoints
____________________ Attorney to transfer this Warrant Certificate on the
books of the Company, with full power of substitution in the premises.
Dated: ______________________ ________________________________
Signature Guaranteed:
________________________________
THE SIGNATURE MUST BE GUARANTEED BY A MEDALLION BANK.
Exhibit 4.6
WARRANT AGREEMENT
-----------------
AGREEMENT, dated as of , 1996 by and among NETLIVE
------------
COMMUNICATIONS, INC., (the "Company"), AMERICAN STOCK TRANSFER & TRUST CO.,
as Warrant Agent (the "Warrant Agent"), and MAY DAVIS GROUP, INC.
("Underwriter").
W I T N E S S E T H
WHEREAS, in connection with a public offering pursuant to a
registration statement (the "Registration Statement") on Form SB-2 declared
effective by the Securities and Exchange Commission on , 1996, of
----------
up to 900,000 shares of the Company's Common Stock, par value $.0001 per
share ("Common Stock") and 600,000 Redeemable Common Stock Purchase
Warrants (the "Warrants") (and up to 135,000 additional shares of Common
Stock and/or 90,000 additional Warrants covered by an over-allotment option
granted by the Company to the Underwriter) pursuant to an underwriting
agreement (the "Underwriting Agreement") dated , 1996, between
-----------
the Company and the Underwriter, the issuance to the Underwriter or its
designees of warrants to purchase up to an aggregate of 90,000 shares of
Common Stock and/or 60,000 Warrants, dated as of , 1996 (the
------------
"Underwriter's Warrant"), and the conversion of 1,000,000 warrants owned by
certain Selling Stockholders the Company will issue up to an aggregate of
1,750,000 Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf
of the Company, and the Warrant Agent is willing to so act, in connection
with the issuance, registration, transfer, exchange and redemption of the
Warrants, the issuance of certificates representing the Warrants, the
exercise of the Warrants, and the rights of the holders thereof.
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms
and provisions of the Warrants and the certificates representing the
Warrants and the respective rights and obligations thereunder of the
Company, the holders of certificates representing the Warrants and the
Warrant Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms
-----------
shall have the following meanings, unless the context shall otherwise
require:
(a) "Common Stock" shall mean the authorized stock of the
Company of any class, whether now or hereafter authorized,
<PAGE>
which has the right to participate in the distribution of earnings and
assets of the Company without limit as to amount or percentage, which at
the date hereof consists of 19,000,000 shares of Common Stock, $.0001 par
value per share.
(b) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located on the date hereof
at Middletown, New Jersey.
(c) "Exercise Date" shall mean, as to any Warrant, the date
on which the Warrant Agent shall have received both (a) the Warrant
Certificate representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized
in writing, and (b) payment in cash, or by official bank or certified check
made payable to the Warrant Agent, of an amount in lawful money of the
United States of America equal to the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean, as to each
Warrant, , 1998.
--------------
(e) "Purchase Price" shall mean the price to be paid upon
exercise of each Warrant in accordance with the terms hereof, which price
shall be $5.50, subject to adjustment from time to time pursuant to the
provisions of Section 9.
(f) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the
terms hereof, which price shall be $0.05 per Warrant, subject to adjustment
from time to time pursuant to the provisions of Section 9.
(g) "Registered Holder" shall mean the person in whose name
any certificate representing Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(h) "Selling Stockholders" shall have the same meaning as
set forth in the Underwriting Agreement.
(i) "Transfer Agent" shall mean Continental Stock Transfer
& Trust Company, as the Company's transfer agent, or its authorized
successor, as such.
(j) "Warrant Expiration Date" shall mean, with respect to
each Warrant, 5:00 p.m. (Eastern time) on , 2001, or the
---------
Redemption Date as defined in Section 8, whichever is earlier; provided
that if such date shall in the State of New York be a holiday or a day on
which banks are authorized to close, then 5:00 p.m. (Eastern time) on the
next following day which in the
2
<PAGE>
State of New York is not a holiday or a day on which banks are authorized
to close.
SECTION 2. Warrants and Issuance of Warrant Certificates.
---------------------------------------------
(a) Each Warrant shall initially entitle the Registered
Holder of the Warrant Certificate representing such Warrant to purchase one
(1) share of Common Stock upon the exercise thereof, in accordance with the
terms hereof, subject to modification and adjustment as provided in Section
9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting
Agreement shall be executed by the Company and delivered to the Warrant
Agent. Upon written order of the Company signed by its President or
Chairman or a Vice President and by its Secretary or an Assistant
Secretary, the Warrant Certificates shall be countersigned, issued and
delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date,
the Transfer Agent shall countersign and deliver stock certificates in
required whole number denominations representing up to an aggregate of
1,750,000 shares of Common Stock, subject to adjustment as described
herein, upon the exercise of Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date,
the Warrant Agent shall countersign and deliver Warrant Certificates in
required whole number denominations to the persons entitled thereto in
connection with any transfer or exchange permitted under this Agreement;
provided that no Warrant Certificates shall be issued except (i) those
initially issued hereunder, (ii) those issued on or after the Initial
Warrant Exercise Date, upon the exercise of fewer than all Warrants
represented by any Warrant Certificate, to evidence any unexercised
Warrants held by the exercising Registered Holder, (iii) those issued upon
any transfer or exchange pursuant to Section 6; (iv) those issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7; (v) those issued pursuant to the Underwriter's
Warrant; and (vi) at the option of the Company, in such form as may be
approved by its Board of Directors, to reflect any adjustment or change in
the Purchase Price, the number of shares of Common Stock purchasable upon
exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 9.
3
<PAGE>
(e) Pursuant to the terms of the Underwriter's
Warrant, the Underwriter and its designees may purchase up to an aggregate
of 90,000 shares of Common Stock and/or 60,000 Warrants.
SECTION 3. Form and Execution of Warrant Certificates.
------------------------------------------
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A and may have such letters, numbers or
other marks of identification or designation and such legends, summaries or
endorsements printed, lithographed or engraved thereon as the Company may
deem appropriate and as are not inconsistent with the provisions of this
Agreement or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
stock exchange on which the Warrants may be listed, or to conform to usage.
The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange or in lieu of mutilated,
lost, stolen, or destroyed Warrant Certificates) and issued in registered
form. Warrants shall be numbered serially with the letter W on the
Warrants.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and
by its Secretary or an Assistant Secretary, by mutual signatures or by
facsimile signatures printed thereon, and shall have imprinted thereon a
facsimile of the Company's seal. Warrant Certificates shall be manually
countersigned by the Warrant Agent and shall not be valid for any purpose
unless so countersigned. In case any officer of the Company who shall have
signed any of the Warrant Certificates shall cease to be such officer of
the Company before the date of issuance of the Warrant Certificates or
before countersignature by the Warrant Agent and issue and delivery
thereof, such Warrant Certificates may nevertheless be countersigned by the
Warrant Agent, issued and delivered with the same force and effect as
though the person who signed such Warrant Certificates had not ceased to be
such officer of the Company. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the
Registered Holder without further action by the Company, except as
otherwise provided by Section 4(a).
SECTION 4. Exercise
--------
(a) Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Warrant Exercise Date, but not
after the Warrant Expiration Date, upon the terms and subject to the
conditions set forth herein and in the applicable Warrant Certificate. A
Warrant shall be deemed to have been exercised immediately prior to the
close of business on the
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Exercise Date and the person entitled to receive the securities deliverable
upon such exercise shall be treated for all purposes as the holder upon
exercise thereof as of the close of business on the Exercise Date. As soon
as practicable on or after the Exercise Date, the Warrant Agent shall
deposit the proceeds received from the exercise of a Warrant and shall
notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five (5) days after the date of such
notice from the Warrant Agent, the Warrant Agent, on behalf of the Company,
shall cause to be issued and delivered by the Transfer Agent, to the person
or persons entitled to receive the same, a certificate or certificates for
the securities deliverable upon such exercise (plus a Warrant Certificate
for any remaining unexercised Warrants of the Registered Holder) unless
prior to the date of issuance of such certificates the Company shall
instruct the Warrant Agent to refrain from causing such issuance of
certificates pending clearance of checks received in payment of the
Purchase Price pursuant to such Warrants. Notwithstanding the foregoing,
in the case of payment made in the form of a check drawn on an account of
Mason or such other investment banks and brokerage houses as the Company
shall approve in writing to the Warrant Agent, certificates shall
immediately be issued without prior notice to the Company or any delay.
Upon the exercise of any Warrant and clearance of the funds received, the
Warrant Agent shall promptly remit the payment received for the Warrant to
the Company or as the Company may direct in writing.
(b) If, at the Exercise Date in respect of the exercise of
any Warrant at any time on or after the first anniversary of the date
hereof (i) the market price of the Company's Common Stock is greater than
the then Purchase Price of the Warrant, (ii) the exercise of the Warrant
was solicited by the Underwriter, (iii) the Warrant was not held in a
discretionary account, (iv) disclosure of compensation arrangements was
made both at the time of the original offering and at the time of exercise;
and (v) the solicitation of the exercise of the Warrant was not in
violation of Rule 10b-6 (as such rule or any successor rule as may be in
effect as of such time of exercise) promulgated under the Securities
Exchange Act of 1934, then the Warrant Agent, simultaneously with the
distribution of proceeds to the Company received upon exercise of the
Warrant(s) so exercised shall, on behalf of the Company, pay from the
proceeds received upon exercise of the Warrant(s), a fee of five (5%)
percent of the Purchase Price to the Underwriter. Within five days after
the exercise the Warrant Agent shall send to the Underwriter a copy of the
reverse side of each Warrant exercised. The Underwriter shall reimburse
the Warrant Agent, upon request, for its reasonable expenses relating to
compliance with this Section 4(b). In addition, the Underwriter and the
Company may at any time during business hours, examine the records of the
Warrant Agent, including its ledger of original Warrant certificates
returned to the Warrant Agent upon exercise of Warrants. The provisions of
this paragraph may not be
5
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modified, amended or deleted without the prior written consent of the
Underwriter and the Company.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes;
-------------------------------------------------
etc.
- ----
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon exercise of Warrants, such number of shares of
Common Stock as shall then be issuable upon the exercise of all outstanding
Warrants. The Company covenants that all shares of Common Stock which
shall be issuable upon exercise of the Warrants shall, at the time of
delivery, be duly and validly issued, fully paid, nonassessable and free
from all taxes, liens and charges with respect to the issuance thereof
(other than those which the Company shall promptly pay or discharge) and
that upon issuance such shares shall be listed on each national securities
exchange, if any, on which the other shares of outstanding Common Stock of
the Company are then listed.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require
registration with, or approval of, any governmental authority under any
federal securities law before such securities may be validly issued or
delivered upon such exercise, then the Company will in good faith and as
expeditiously as reasonably possible, endeavor to secure such registration
or approval. The Company will use reasonable effort to obtain appropriate
approvals or registrations under state "blue sky" securities laws with
respect to any such securities. However, Warrants may not be exercised by,
or shares of Common Stock issued to, any Registered Holder in any state in
which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to
the issuance of Warrants, or the issuance or delivery of any shares upon
exercise of the Warrants; provided, however, that if the shares of Common
Stock are to be delivered in a name other than the name of the Registered
Holder of the Warrant Certificate representing any Warrant being exercised,
then no such delivery shall be made unless the person requiring the same
had paid to the Warrant Agent the amount of transfer taxes or charges
incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock required upon exercise of the Warrant,
and the Company will authorize the Transfer Agent to comply with all such
proper requisitions. The Company will file with the Warrant Agent a
statement setting forth the name and address of the Transfer Agent of the
Company for
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shares of Common Stock issuable upon exercise of the Warrants, unless the
Warrant Agent and the Transfer Agent are the same entity.
SECTION 6. Exchange and Registration of Transfer
-------------------------------------
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to
be exchanged shall be surrendered to the Warrant Agent at its Corporate
Office, and upon satisfaction of all the terms and provisions hereof, the
Company shall execute and the Warrant Agent shall countersign, issue and
deliver in exchange therefor the Warrant Certificate or Certificates which
the Registered Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance with
its regular practice. Upon due presentment for registration of transfer of
any Warrant Certificate at such office, the Company shall execute and the
Warrant Agent shall issue and deliver to the transferee or transferees a
new Warrant Certificate or Certificates representing an equal aggregate
number of Warrants of the same class.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription
form on the reverse thereof shall be duly endorsed, or be accompanied by a
written instrument or instruments of transfer and subscription, in form
satisfactory to the Company and the Warrant Agent, duly executed by the
Registered Holder or his attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent
for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such holder of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or
for exchange in case of mutilated Warrant Certificates shall be promptly
cancelled by the Warrant Agent and thereafter retained by the Warrant Agent
until termination of this Agreement or resignation as Warrant Agent, or,
with the prior written consent of the Underwriter, disposed of or
destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the
Registered Holder of any Warrant Certificate as the
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absolute owner thereof and of each Warrant represented thereby
(notwithstanding any notations of ownership or writing thereon made by
anyone other than a duly authorized officer of the Company or the Warrant
Agent) for all purposes and shall not be affected by any notice to the
contrary. The Warrants, which are being publicly offered with shares of
Common Stock pursuant to the Underwriting Agreement, may be purchased
separately from the shares and will be transferable separately from the
Common Stock immediately upon issuance.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and
------------------
the Warrant Agent of evidence satisfactory to them of the ownership of and
loss, theft, destruction or mutilation of any Warrant Certificate and (in
case of loss, theft or destruction) of indemnity satisfactory to them, and
(in the case of mutilation) upon surrender and cancellation thereof, the
Company shall execute and the Warrant Agent shall (in the absence of notice
to the Company and/or Warrant Agent that the Warrant Certificate has been
acquired by a bona fide purchaser) countersign and deliver to the
Registered Holder in lieu thereof a new Warrant Certificate of like tenor
representing an equal aggregate number of Warrants. Applicants for a
substitute Warrant Certificate shall comply with such other reasonable
regulations and pay such other reasonable charges as the Warrant Agent may
prescribe.
SECTION 8. Redemption
----------
(a) Commencing one year from the effective date of the
Registration Statement, on not less than thirty (30) days prior written
notice, the Warrants may be redeemed, at the option of the Company, at a
redemption price of $0.05 per Warrant, provided the closing bid price of
the Company's Common Stock on The NASDAQ Stock Market as reported by the
National Quotation Bureau Incorporated exceeds $7.50 for at least 20
consecutive trading days ending not more than 15 days prior to the date of
the notice of redemption. All Warrants must be redeemed if any of the
Warrants are redeemed.
(b) In case the Company shall desire to exercise its right
to so redeem the Warrants, it shall request the Warrant Agent, or the
Underwriter, if the date fixed for redemption is on or after the first
anniversary of the date hereof, to mail a notice of redemption to each of
the Registered Holders of the Warrants to be redeemed, first class, postage
prepaid, not later than the thirtieth (30th) day before the date fixed for
redemption, at their last address as shall appear on the records of the
Warrant Agent. Any notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given whether or not the Registered
Holder receives such notice.
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<PAGE>
(c) The notice of redemption shall specify (i)
the redemption price, (ii) the date fixed for redemption, (iii) the place
where the Warrant Certificates shall be delivered and the redemption price
paid, (iv) that Mason will assist each Registered Holder of a Warrant in
connection with the exercise thereof (if Mason has conducted, or caused to
be conducted, the mailing) and (v) that the right to exercise the Warrant
shall terminate at 5:00 p.m. (Eastern time) on the business day immediately
preceding the date fixed for redemption shall be the Redemption Date. No
failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such redemption
except as to a holder (a) to whom notice was not mailed or (b) whose notice
was defective. An affidavit of the Warrant Agent or of the Secretary or an
Assistant Secretary of Mason or the Company that notice of redemption has
been mailed shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
(d) Any right to exercise a Warrant that has been called
for redemption shall terminate at 5:00 p.m. (Eastern time) on the business
day immediately preceding the Redemption Date. On and after the Redemption
Date, Holders of the redeemed Warrants shall have no further rights except
to receive, upon surrender of the redeemed Warrant, the Redemption Price.
(e) From and after the date specified for redemption, the
Company shall, at the place specified in the notice of redemption, upon
presentation and surrender to the Company by or on behalf of the Registered
Holder thereof of one or more Warrants to be redeemed, deliver or cause to
be delivered to or upon the written order of such Holder a sum in cash
equal to the redemption price of each such Warrant. From and after the
date fixed for redemption and upon the deposit or setting aside by the
Company of a sum sufficient to redeem all the Warrants called for
redemption, such Warrants shall expire and become void and all rights
hereunder and under the Warrant Certificates, except the right to receive
payment of the redemption price, shall cease.
SECTION 9. Adjustment of Purchase Price and Number of Shares of
------------------------------------------ ---------
Common Stock or Warrants.
- ------------------------
(a) Subject to the exceptions referred to in Section 9(g),
in the event the Company shall, at any time or from time to time after the
date hereof, sell any shares of Common Stock for a consideration per share
less than the then current Purchase Price or issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser
number of shares (any such sale, issuance, subdivision or combination being
herein called a "Change or Shares"), then, and thereafter upon each further
Change of Shares, the applicable Purchase Price
9
<PAGE>
in effect immediately prior to such Change of Shares shall be changed to a
price (including any applicable fraction of a cent) determined by
multiplying the Purchase Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of (a) the total number
of shares of Common Stock outstanding immediately prior to such Change of
Shares and (b) the number of shares of Common Stock which the aggregate
consideration received by the Company upon such sale, issuance, subdivision
or combination (determined in accordance with subsection f(vi) below) could
have purchased at the then current Purchase Price, and the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such Change of Shares.
Upon each adjustment of applicable Purchase Price pursuant
to this Section 9, the total number of shares of Common Stock purchasable
upon the exercise of each Warrant shall (subject to the provisions
contained in Section 9(b)) be such number of shares (calculated to the
nearest tenth) purchasable at the applicable Purchase Price immediately
prior to such adjustment multiplied by a fraction, the numerator of which
shall be the applicable Purchase Price in effect immediately prior to such
adjustment and the denominator of which shall be the applicable Purchase
Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the
applicable Purchase Price hereunder, to adjust the number of Warrants
outstanding, in lieu of adjusting the number of shares of Common Stock
purchasable upon the exercise of each Warrant as hereinabove provided, so
that each Warrant outstanding after such adjustment shall represent the
right to purchase one share of Common Stock. Each Warrant held of record
prior to such adjustment of the number of Warrants shall become that number
of Warrants (calculated to the nearest tenth) determined by multiplying the
number one by a fraction, the numerator of which shall be the applicable
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the applicable Purchase Price in effect
immediately after such adjustment. Upon each such adjustment of the number
of Warrants, the Redemption Price in effect immediately prior to such
adjustment also shall be adjusted by multiplying such Redemption Price by a
fraction, the numerator of which shall be the Purchase Price in effect
immediately after such adjustment and the denominator of which shall be the
Purchase Price in effect immediately prior to such adjustment. Upon each
adjustment of the number of Warrants pursuant to this Section 9, the
Company shall, as promptly as practicable, cause to be distributed to each
Registered Holder of Warrant Certificates on the date of such adjustment
Warrant Certificates evidencing, subject to Section 10, the number of
additional Warrants, if any, to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the
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<PAGE>
date of adjustment (and upon surrender thereof, if required by the Company)
new Warrant Certificates evidencing the number of Warrants to which such
Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization
or other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common
Stock), or in case of any sale or conveyance to another corporation of the
property of the Company as, or substantially as, an entirety (other than a
sale/leaseback, mortgage or other financing transaction), the Company shall
cause effective provision to be made so that each holder of a Warrant then
outstanding shall have the right thereafter, by exercising such Warrant, to
purchase the kind and number of shares of stock or other securities or
property (including cash) receivable upon such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance
by a holder of the number of shares of Common Stock that might have been
purchased upon exercise of such Warrant, immediately prior to such
reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 9. The foregoing provisions shall
similarly apply to successive reclassifications, capital reorganizations
and other changes of outstanding shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable upon
exercise of the Warrants, the Warrant Certificates theretofore and
thereafter issued shall, unless the Company shall exercise its option to
issue new Warrant Certificates pursuant to Section 2(f), continue to
express the applicable Purchase Price per share, the number of shares
purchasable thereunder and the Redemption Price therefor as the Purchase
Price per share, and the number of shares purchasable thereunder and the
Redemption Price therefor as were expressed in the Warrant Certificates
when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to
this Section 9, the Company will promptly prepare a certificate signed by
the Chairman or President, and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary, of the Company setting forth:
(i) the applicable Purchase Price as so adjusted, (ii) the number of shares
of Common Stock purchasable upon exercise of each Warrant after such
adjustment, and, if the Company shall have elected to adjust
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<PAGE>
the number of Warrants, the number of Warrants to which the registered
holder of each Warrant shall then be entitled, and the adjustment in
Redemption Price resulting therefrom, and (iii) a brief statement of the
facts accounting for such adjustment. The Company will promptly file such
certificate with the Warrant Agent and cause a brief summary thereof to be
sent by ordinary first class mail to the Underwriter and to each registered
holder of Warrants at his last address as it shall appear on the registry
books of the Warrant Agent. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity thereof except
as to the holder to whom the Company failed to mail such notice, or except
as to the holder whose notice was defective. The affidavit of an officer
of the Warrant Agent or the Secretary or an Assistant Secretary of the
Company that such notice has been mailed shall, in the absence of fraud, be
prima facie evidence of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the
following provisions (i) to (vi) shall also be applicable:
(i) The number of shares of Common Stock outstanding
at any given time shall include shares of Common Stock owned or held by or
for the account of the Company and the sale or issuance of such treasury
shares or the distribution of any such treasury shares shall not be
considered a Change of Shares for purposes of said sections.
(ii) No Adjustment of the Purchase Price shall be made
unless such adjustment would require an increase or decrease of at least
$0.05 in such price; provided that any adjustments which by reason of this
clause (ii) are not required to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment
which, together with any adjustment(s) so carried forward, shall require an
increase or decrease of at least $0.05 in the Purchase Price then in effect
hereunder.
(iii) In case of (1) the sale by the Company solely for
cash of any rights or warrants to subscribe for or purchase, or any options
for the purchase of, Common Stock or any securities convertible into or
exchangeable for Common Stock without the payment of any further
consideration other than cash, if any (such convertible or exchangeable
securities being herein called "Convertible Securities"), or (2) the
issuance by the Company, without the receipt by the Company of any
consideration therefor, of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, in each case, if (and only if) the consideration payable to the
Company upon the exercise of such rights, warrants or options shall consist
solely of cash, whether or not such rights, warrants or options, or the
right to convert or exchange such Convertible Securities, are immediately
exercisable, and the
12
<PAGE>
price per share for which Common Stock is issuable upon the exercise of
such rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum aggregate
consideration payable to the Company upon the exercise of such rights,
warrants or options, plus the consideration received by the Company for the
issuance or sale of such rights, warrants or options, plus, in the case of
such Convertible Securities, the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities, payable upon
the conversion or exchange thereof, by (y) the total maximum number of
shares of Common Stock issuable upon the exercise of such rights, warrants
or options or upon the conversion or exchange of such Convertible
Securities issuable upon the exercise of such rights, warrants or options)
is less than the then current Purchase Price immediately prior to the date
of the issuance or sale of such rights, warrants or options, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (as of the date of the issuance or sale of such
rights, warrants or options) shall be deemed to be outstanding shares of
Common Stock for purposes of Sections 9(a) and 9(b) hereof and shall be
deemed to have been sold for cash in an amount equal to such price per
share.
(iv) In case of the sale by the Company solely for cash
of any Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per share for
which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration,
if any, other than such Convertible Securities, payable upon the conversion
or exchange thereof, by (y) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of such Convertible
Securities) is less than the then Purchase Price immediately prior to the
date of the sale of such Convertible Securities, then the total maximum
number of shares of Common Stock issuable upon the conversion or exchange
of such Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be outstanding shares of Common
Stock for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to
have been sold for cash in an amount equal to such price per share.
(v) If the exercise or purchase price provided for in
any right, warrant or option referred to in clause (iii) above, or the rate
at which any Convertible Securities referred to in clause (iii) or (iv)
above are convertible into or exchangeable for Common Stock, shall change
at any time (other than under or by reason of provisions designed to
protect against dilution), the Purchase Price then in effect hereunder
shall forthwith be
13
<PAGE>
readjusted to such Purchase Price as would have been obtained (1) had the
adjustments made upon the issuance or sale of such rights, warrants,
options or Convertible Securities been made upon the basis of the issuance
of only the number of shares of Common Stock theretofore actually delivered
(and the total consideration received therefor) upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities, (2) had adjustments been made on the basis of the
Purchase Price as adjusted under clause (1) for all transactions (which
would have affected such adjusted Purchase Price) made after the issuance
or sale of such rights, warrants, options or Convertible Securities, and
(3) had any such rights, warrants, options or Convertible Securities then
still outstanding been originally issued or sold at the time of such
change. On the expiration of any such right, warrant or option or the
termination of any such right to convert or exchange any such Convertible
Securities, the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained (a) had the
adjustments made upon the issuance or sale of such rights, warrants,
options or Convertible Securities been made upon the basis of the issuance
of only the number of shares of Common Stock theretofore actually delivered
(and the total consideration received therefor) upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities and (b) had adjustments been made on the basis of
the Purchase Price as adjusted under clause (a) for all transactions (which
would have affected such adjusted Purchase Price) made after the issuance
or sale of such rights, warrants, options or Convertible Securities.
(vi) In case of the sale for cash of any shares of
Common Stock, any Convertible Securities, any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common Stock
or Convertible Securities, the consideration received by the Company
therefore shall be deemed to be the gross sales price therefor without
deducting therefrom any expense paid or incurred by the Company or any
underwriting discounts or commissions or concessions paid or allowed by the
Company in connection therewith.
(g) No adjustment to the Purchase Price or to the number of
shares of Common Stock purchasable upon the exercise of each Warrant will
be made, however:
(i) upon the grant or exercise of any other options
which may hereafter be granted or exercised under any employee benefit plan
of the Company as described in the Registration Statement; or
(ii) upon the sale or exercise of the Warrants,
including without limitation the sale or exercise of any of the Warrants
underlying the Underwriter's Warrant; or
14
<PAGE>
(iii) upon the sale of any shares of Common Stock in the
public offering pursuant to the Registration Statement, including, without
limitation, shares sold upon the exercise of any over-allotment option
granted to the Underwriter in connection with such offering; or
(iv) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common Stock
or Convertible Securities, outstanding on the date of the original sale of
the Warrants;
(v) upon the issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities outstanding on the
date of the original sale of the Warrants, whether or not any adjustment in
the Purchase Price was made or required to be made upon the issuance or
sale of such Convertible Securities; or
(vi) upon any amendment to or change in the terms of
any rights or warrants to subscribe for or purchase, or options for the
purchase of, Common Stock or Convertible Securities or in the terms of any
Convertible Securities, including, but not limited to, any extension of any
expiration date of any such right, warrant or option, any change in any
exercise or purchase price provided for in any such right, warrant or
option, any extension of any date through which any Convertible Securities
are convertible into or exchangeable for Common Stock or any change in the
rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock (other than rights, warrants, options or
Convertible Securities issued or sold after the close of business on the
date of the original issuance of the shares of Common Stock and the
Warrants (i) for which an adjustment in the Purchase Price then in effect
was theretofore made or required to be made, upon the issuance or sale
thereof, or (ii) for which such an adjustment would have been required had
the exercise or purchase price of such rights, warrants or options at the
time of the issuance or sale thereof or the rate of conversion or exchange
of such Convertible Securities, at the time of the sale of such Convertible
Securities, or the issuance or sale of rights or warrants to subscribe for
or purchase, or options for the purchase of, such Convertible Securities,
been the price or rate as changed, in which case the provisions of Section
9(f)(v) hereof shall be applicable if, but only if, the exercise or
purchase price thereof, as changed, or the rate of conversion or exchange
thereof, as changed, consists solely of cash or requires the payment of
additional consideration, if any, consisting solely of cash or requires the
payment of additional consideration, if any, consisting solely of cash and
the Company did not receive any consideration other than cash, if any, in
connection with such change).
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(h) As used in this Section 9, the term "Common
Stock" shall mean and include the Company's Common Stock authorized on the
date of the original issue of the Units and shall also include any capital
stock of any class of the Company thereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends and in the distribution of
assets upon the voluntary liquidation, dissolution or winding up of the
Company; provided, however, that the shares issuable upon exercise of the
Warrants shall include only shares of such class designated in the
Company's Certificate of Incorporation as Common Stock on the date of the
original issue of the shares of Common Stock and Warrants or (i), in the
case of any reclassification, change, consolidation, merger, sale or
conveyance of the character referred to in Section 9(c) hereof, the stock,
securities or property provided for in such section or (ii), in the case of
any reclassification or change in the outstanding shares of Common Stock
issuable upon exercise of the Warrants as a result of a subdivision or
combination or consisting of a change in par value, or from par value to no
par value, or from no par value to par value, such shares of Common Stock
as so reclassified or changed.
(i) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or as
to the amount of any such adjustment, if required, shall be binding upon
the holders of the Warrants and the Company if made in good faith by the
Board of Directors of the Company.
(j) If and whenever the Company shall grant to the holders
of Common Stock, as such, rights or warrants to subscribe for or to
purchase, or any options for the purchase of, Common Stock or securities
convertible into or exchangeable for or carrying a right, warrant or option
to purchase Common Stock, the Company shall concurrently therewith grant to
each of the then Registered Holders of the Warrants all of such rights,
warrants or options to which each such holder would have been entitled if,
on the date of determination of stockholders entitled to the rights,
warrants or options being granted by the Company, such holder were the
holder of record of the number of whole shares of Common Stock then
issuable upon exercise (assuming, for purposes of this Section 9(j), that
exercise of Warrants is permissible during periods prior to the Initial
Warrant Exercise Date) of his Warrants. Such grant by the Company to the
holders of the Warrants shall be in lieu of any adjustment which otherwise
might be called for pursuant to this Section 9.
16
<PAGE>
SECTION 10. Fractional Warrants and Fractional Shares.
-----------------------------------------
(a) If the number of shares of Common Stock purchasable
upon the exercise of each Warrant is adjusted pursuant to Section 9 hereof,
the Company shall nevertheless not be required to issue fractions of
shares, upon exercise of the Warrants or otherwise, or to distribute
certificates that evidence fractional shares. With respect to any fraction
of a share called for upon any exercise hereof, the Company shall pay to
the Holder an amount in cash equal to such fraction multiplied by the
current market value of such fractional share, determined as follows:
(i) If the Common Stock is listed on a National
Securities Exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on the NASDAQ National Market, the current
value shall be the last reported sale price of the Common Stock on such
exchange on the last business day prior to the date of exercise of the
Warrant, or if no such sale is made on such day, the average of the closing
bid and asked prices for such day on such exchange; or
(ii) If the Common Stock is not listed or admitted to
unlisted trading privileges, the current value shall be the mean of the
last reported bid and asked prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the exercise of
the Warrant; or
(iii) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are not so
reported, the current value shall be an amount determined in such
reasonable manner as may be prescribed by the Board of Directors of the
Company.
SECTION 11. Warrant Holders Not Deemed Stockholders. No holder
---------------------------------------
of Warrants shall, as such, be entitled to vote or to receive dividends or
be deemed the holder of Common Stock that may at any time be issuable upon
exercise of such Warrants for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the holder of Warrants, as
such, any of the rights of a stockholder of the Company or any right to
vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issue or
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription rights, until
such Holder shall have exercised such Warrants and been issued shares of
Common Stock in accordance with the provisions hereof.
17
<PAGE>
SECTION 12. Rights of Action. All rights of action with respect
----------------
to this Agreement are vested in the respective Registered Holders of the
Warrants, and any Registered Holder of a Warrant, without consent of the
Warrant Agent or of the holder of any other Warrant, may, in his own behalf
and for his own benefit, enforce against the Company his right to exercise
his Warrants for the purchase of shares of Common Stock in the manner
provided in the Warrant Certificates and this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of a
----------------------------
Warrant, by his acceptance thereof, consents and agrees with the Company,
the Warrant Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry
books of the Warrant Agent by the Registered Holder thereof in person or by
his attorney duly authorized in writing and only if the Warrant
Certificates representing such Warrants are surrendered at the office of
the Warrant Agent, duly endorsed or accompanied by a proper instrument of
transfer satisfactory to the Warrant Agent and the Company in their sole
discretion, together with payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat
the person in whose name the Warrant Certificate is registered as the
holder and as the absolute, true and lawful owner of the Warrants
represented thereby for all purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice or knowledge to the contrary,
except as otherwise expressly provided in Section 7 hereof.
SECTION 14. Cancellation of Warrant Certificates. If the
------------------------------------
Company shall purchase or acquire any Warrant or Warrants, the Warrant
Certificate or Warrant Certificates evidencing the same shall thereupon be
delivered to the Warrant Agent and cancelled by it and retired. The
Warrant Agent shall also cancel Common Stock following exercise of any or
all of the Warrants represented thereby or delivered to it for transfer,
split-up, combination or exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent
----------------------------
acts hereunder as agent and in a ministerial capacity for the Company, and
its duties shall be determined solely by the provisions hereof. The
Warrant Agent shall not, by issuing and delivering Warrant Certificates or
by any other act hereunder be deemed to make many representations as to the
validity, value or authorization of the Warrant Certificates or the
Warrants represented thereby or of any securities or other property
18
<PAGE>
delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price or the Redemption Price provided
in this Agreement, or to determine whether any fact exists which may
require any such adjustments, or with respect to the nature or extent of
any such adjustment, when made, or with respect to the method employed in
making the same. It shall not (i) be liable for any recital or statement
of facts contained herein or for any action taken, suffered or omitted by
it in reliance on any Warrant Certificate or other document or instrument
believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any
failure on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in any Warrant Certificate, or
(iii) be liable for any act or omission in connection with this Agreement
except for its own negligence or willful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company or for the
Underwriter) and shall incur no liability or responsibility for any action
taken, suffered or omitted by it in good faith in accordance with the
opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board, President, any Vice President, its
Secretary, or Assistant Secretary, (unless other evidence in respect
thereof is herein specifically prescribed). The Warrant Agent shall not be
liable for any action taken, suffered or omitted by it in accordance with
such notice, statement, instruction, request, direction, order or demand
believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; it further agrees to indemnify the Warrant
Agent and save it harmless against any and all losses, expenses and
liabilities, including judgments, costs and counsel fees, for anything done
or omitted by the Warrant Agent in the execution of its duties and powers
hereunder except losses, expenses and liabilities arising as a result of
the Warrant Agent's negligence or willful misconduct.
In the event of a dispute under this Agreement between the
Company and the Underwriter regarding proceeds received by the Warrant
Agent from the exercise of the Warrants, the Warrant Agent shall have the
right, but not the obligation, to bring an interpleader action to resolve
such dispute.
19
<PAGE>
The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as
a result of the Warrant Agent's own negligence or willful misconduct),
after giving 30 days' prior written notice to the Company. At least 15
days prior to the date such resignation is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at the Company's expense.
Upon such resignation, or any inability of the Warrant Agent to act as such
hereunder, the Company shall appoint a new warrant agent in writing. If
the Company shall fail to make such appointment within a period of 15 days
after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may
apply to any court of competent jurisdiction for the appointment of a new
warrant agent. Any new warrant agent, whether appointed by the Company or
by such a court shall be a bank or trust company having a capital and
surplus as shown by its last published report to its stockholders, of not
less than Ten Million ($10,000,000.00) Dollars, or a stock transfer
company. After acceptance in writing of such appointment by the new
warrant agent is received by the Company, such new warrant agent shall be
vested with the same powers, rights, duties and responsibilities as if it
had been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be
necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the
Company and shall be legally and validly executed and delivered by the
resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning
Warrant Agent and shall forthwith cause a copy of such notice to be mailed
to the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be
a party or any corporation succeeding to the trust business of the Warrant
Agent shall be a successor warrant agent under this Agreement without any
further act, provided that such corporation is eligible for appointment as
successor to the Warrant Agent under the provisions of the preceding
paragraph. Any such successor warrant agent shall promptly cause notice of
its succession as warrant agent to be mailed to the Company and to the
Registered Holder of each Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the
same manner and to the same extent and with like effects as though it were
not Warrant Agent. Nothing herein shall
20
<PAGE>
preclude the Warrant Agent from acting in any other capacity for the
Company or for any other legal entity.
SECTION 16. Modification of Agreement. Subject to the
-------------------------
provisions of Section 4(b), the Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement
(i) that they shall deem appropriate to cure any ambiguity or to correct
any defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Warrant
Certificates; provided, however, that this Agreement shall not otherwise be
--------
modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders of Warrant Certificates representing not
less than 50% of the Warrants then outstanding; and provided, further, that
-----------------
no change in the number or nature of the securities purchasable upon the
exercise of any Warrant, or the Purchase Price therefor, or the
acceleration of the Warrant Expiration Date, shall be made without the
consent in writing of the Registered Holder of the Warrant Certificate
representing such Warrant, other than such changes as are specifically
prescribed by this Agreement as originally executed.
SECTION 17. Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing and shall be deemed to have
been made when delivered or mailed first class registered or certified
mail, postage prepaid as follows: if to the Registered Holder of a Warrant
Certificate, at the address of such holder as shown on the registry books
maintained by the Warrant Agent; if to the Company, at NetLive
Communications, Inc., 584 Broadway, New York, New York 10012, Attention:
President, or at such other address as may have been furnished to the
Warrant Agent in writing by the Company; if to the Warrant Agent, at
-------
; if to the Underwriter, 20 Exchange
- ----------------------------------
Place, New York, New York 10005, Attention: President.
SECTION 18. Governing Law. This Agreement shall be governed by
-------------
and construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding
--------------
upon and inure to the benefit of the Company, the Warrant Agent and the
Underwriter, and their respective successors and assigns, and the holders
from time to time of the Warrant Certificates. Nothing in this Agreement
is intended or shall be construed to confer upon any other person any
right, remedy or claim, in equity or at law, or to impose upon any other
person any duty, liability or obligation.
21
<PAGE>
SECTION 20. Termination. This Agreement shall terminate at the
-----------
close of business on the Expiration Date of all the Warrants of such
earlier date upon which all Warrants have been exercised, except that the
Warrant Agent shall account to the Company for cash held by it and the
provisions of Section 15 hereof shall survive such termination.
SECTION 21. Counterparts. This Agreement may be executed in
------------
several counterparts, which taken together shall constitute a single
document.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed as of the date first above written.
NETLIVE COMMUNICATIONS, INC.
By: ______________________________________
Authorized Officer
AMERICAN STOCK TRANSFER & TRUST CO.
By: ______________________________________
Authorized Officer
MAY DAVIS GROUP, INC.
By: ______________________________________
Authorized Officer
As Representative of the several
Underwriters named on Exhibit B
22
<PAGE>
EXHIBIT A
---------
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W ________ (_____) Warrants
VOID AFTER , 2001
--------------
REDEEMABLE COMMON STOCK WARRANT CERTIFICATE
FOR PURCHASE OF COMMON STOCK OF
PRIDE AUTOMOTIVE GROUP, INC.
This certifies that FOR VALUE RECEIVED _______________________ or
registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Common Stock Purchase Warrants (the "Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject
to the terms and conditions set forth in this Certificate and the Warrant
Agreement (as hereinafter defined), one fully paid and nonassessable share
of Common Stock, $.0001 par value, of NetLive Communications, Inc., a
Delaware corporation (the "Company"), at any time between , 1998 and
-------
the Expiration Date (as hereinafter defined), upon the presentation and
surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of American Stock
Transfer & Trust Co., as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $5.50 per share (the "Purchase Price")
in lawful money of the United States of America in cash or by official bank
or certified check made payable to the Warrant Agent.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"),
dated as of , 1996, by and among the Company, the Warrant
-------------
Agent and the Underwriter.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby
are subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued.
In the case of the exercise of less than all the Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor, which the Warrant Agent shall
countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (Eastern time) on
-----
, 2001, or such earlier date as the Warrants shall be redeemed. If
- -------
such date shall in the State of New York be a
<PAGE>
holiday or a day on which the banks are authorized to close, then the
Expiration Date shall be 5:00 p.m. (Eastern time) the next day which in the
State of New York is not a holiday or a day in which banks are authorized
to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, with respect to such securities is effective. The
Company has covenanted and agreed that it will file a registration
statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a
new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Warrants, each of such new Warrant
Certificates to represent such number of Warrants as shall be designated by
such Registered Holder at the time of such surrender. Upon due presentment
together with any tax or other governmental charge imposed in connection
therewith, for registration of transfer of this Warrant Certificate at such
office, a new Warrant Certificate or Warrant 8Certificates representing an
equal aggregate number of Warrants will be issued to the transferee in
exchange therefor, subject to the limitations provided in the Warrant
Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of
the Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Commencing , 1997, this Warrant may be redeemed at the
---------------
option of the Company, at a redemption price of $0.05 per Warrant, provided
the closing bid price of the Company's Common Stock on the NASDAQ SmallCap
Market as reported by the National Quotation Bureau, Incorporated exceeds
$7.50 per share for at least 20 consecutive trading days ending not more
than 15 days prior to the date of the notice of redemption. Notice of
redemption shall be given not later than the thirtieth (30th) day before
the date fixed for redemption, all as provided in the Warrant Agreement.
On and after the date fixed for redemption, the Registered Holder shall
have no rights with respect to this Warrant except to receive the $0.05 per
Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by
anyone other than a duly authorized officer of the
<PAGE>
Company or the Warrant Agent) for all purposes and shall not be affected by
any notice to the contrary.
The Company has agreed to pay a fee of five (5%) percent of the
Purchase Price upon certain conditions as specified in the Warrant
Agreement upon the exercise of this Warrant.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two (2) of its officers
thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
Dated: _______________
NETLIVE COMMUNICATIONS, INC.
By: _______________________________
President
By:_________________________________
Secretary
[seal]
Countersigned:
AMERICAN STOCK TRANSFER
& TRUST CO.
By: _____________________________________
Authorized Officer
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
-----------------
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise __________________ (________________) Warrants represented by this
Warrant Certificate, and to purchase the securities issuable upon the
exercise of such Warrants, and requests that certificates for such
securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
and be delivered to
_____________________________
_____________________________
_____________________________
_____________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by
this Warrant Certificate, that a new Warrant Certificate for the balance of
such Warrants be registered in the name of, and delivered to, the
Registered Holder at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by
---------------------------------------
(Indicate the name of the soliciting
broker)
Dated: _________________________ ________________________________
Signature
________________________________
Street Address
________________________________
City, State and Zip Code
________________________________
Taxpayer ID Number
Signature Guaranteed:
________________________________
<PAGE>
ASSIGNMENT
----------
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_________________________________
_________________________________
_________________________________
_________________________________
[please print or type name and address]
___________________ (_____________) of the Warrants represented by this
Warrant Certificate, and hereby irrevocably constitutes and appoints
____________________ Attorney to transfer this Warrant Certificate on the
books of the Company, with full power of substitution in the premises.
Dated: ______________________ ________________________________
Signature Guaranteed:
________________________________
THE SIGNATURE MUST BE GUARANTEED BY A MEDALLION BANK.
Exhibit 5.1
GUSRAE, KAPLAN & BRUNO
120 Wall Street
New York, New York 10005
(212) 269-1400
August 1, 1996
TO THE BOARD OF DIRECTORS OF:
- -----------------------------
NetLive Communications, Inc.
584 Broadway
New York, New York 10012
Re: NetLive Communications, Inc.
Form SB-2
SEC File No. 333-04057
----------------------------
Gentlemen:
We have acted as counsel to NetLive Communications, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing
by the Company of a registration statement (the "Registration Statement")
on Form SB-2, File No. 333-04057, under the Securities Act of 1933,
relating to the public offering of 900,000 shares of the Company's Common
Stock, $.0001 par value (the "Common Stock") and 600,00 Common Stock
Purchase Warrants (the "Warrants"), each exercisable to purchase one share
of Common Stock. The offering also involves the grant to the Underwriter of
an option to purchase an additional 90,000 shares of Common Stock and
60,000 Warrants to cover over-allotments in connection with the offering,
the sale to the Underwriter of warrants for the purchase of 135,000 shares
of Common Stock and 90,000 Warrants and an aggregate of 417,500 shares of
Common Stock and 1,000,000 Warrants to be sold by certain selling
securityholders, as well as the Warrants themselves.
We have examined the Certificate of Incorporation and By-Laws of the
Company, the minutes of the various meetings and consents of the Board of
Directors of the Company, drafts of the Underwriting Agreement relating to
the offering of the shares of Common Stock and Warrants, drafts of the
Warrant Agreement, the Underwriters' Warrants, forms of certificates
representing the Common Stock and the Warrants, originals or copies of all
such records of the Company, certificates of public officials, certificates
of officers and representatives of the Company and others, and such other
documents, certificates, records, authorizations, proceedings, statutes,
judicial decisions and opinions of counsel as we have deemed necessary to
form the basis of the opinion expressed below. In such examination, we
have assumed the genuineness of all
<PAGE>
signatures, the authenticity of all documents submitted to us as originals
and the conformity to originals of all documents submitted to us as copies
thereof. As to various questions of fact material to such opinion, we have
relied upon statements and certificates of officers and representatives of
the Company and others.
Based upon the foregoing, we are of the opinion that:
1. All of the foregoing shares of Common Stock have been duly
authorized and, when issued and sold in accordance with the terms described
in the Prospectus forming a part of the Registration Statement
("Prospectus") will be validly issued, fully paid and non-assessable.
2. All of the Warrants have been duly authorized and are validly
issued and the Underwriters' Warrants have been duly authorized and, when
issued and sold in accordance with the terms described in the Prospectus,
will be validly issued.
3. The shares of Common Stock of the Company issuable upon exercise
of the Warrants and the Underwriters' Warrants have been duly authorized
and reserved for issuance and, when issued in accordance with the terms of
the Warrants and the Underwriters' Warrants, as the case may be, will be
validly issued, fully paid and non-assessable.
We hereby consent to our firm being named in the Registration
Statement and the Prospectus in the section entitled "Legal Matters".
We further consent to your filing a copy of this opinion as an exhibit
to the Registration Statement.
Very truly yours,
/s/GUSRAE, KAPLAN & BRUNO
__________________________
GUSRAE, KAPLAN & BRUNO
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
TO THE BOARD OF DIRECTORS
NETLIVE COMMUNICATIONS, INC.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our report dated April 25, 1996, on the
financial statements of NetLive Communications, Inc. as of March 31, 1996 and
for the period from August 23, 1995 (date of inception) to March 31, 1996, which
appear in such Prospectus. We also consent to the reference to our firm under
the caption "Experts" in such Prospectus.
/s/ GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
---------------------------------------
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
August 2, 1996
New York, New York
