AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1998
REGISTRATION NO. 333-39805
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
GALACTICOMM TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 7373 65-0624233
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
PETER BERG, CHIEF EXECUTIVE OFFICER
4101 S.W. 47TH AVENUE GALACTICOMM TECHNOLOGIES, INC.
SUITE 101 4101 S.W. 47TH AVENUE, SUITE 101
FT. LAUDERDALE, FLORIDA 33314 FT. LAUDERDALE, FLORIDA 33314
(954) 583-5990 (954) 583-5990
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (NAME AND ADDRESS OF AGENT FOR SERVICE)
</TABLE>
---------------
COPIES TO:
<TABLE>
<S> <C> <C>
LESLIE J. CROLAND, ESQ. PHILIP B. SCHWARTZ, ESQ. LAWRENCE B. FISHER, ESQ.
LUCIO, MANDLER, CROLAND, BRONSTEIN, AKERMAN, SENTERFITT & EIDSON, P.A. ORRICK, HERRINGTON & SUTCLIFFE, LLP
GARBETT, STIPHANY & MARTINEZ, P.A. ONE S.E. 3RD AVENUE, 28TH FLOOR 30 ROCKEFELLER PLAZA
701 BRICKELL AVENUE, SUITE 2000 MIAMI, FLORIDA 33131-1704 NEW YORK, NEW YORK 10112
MIAMI, FLORIDA 33131 (305) 374-5600 (212) 506-3660
(305) 579-0012 (305) 374-5095 (FAX) (212) 506-3730 (FAX)
(305) 375-8075 (FAX)
---------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
</TABLE>
As soon as reasonably practicable after the effective date of this Registration
Statement.
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)
or Rule 462(d) 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 delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Units, comprised of one share of Common
Stock, par value $.0001 per share, and one
Redeemable Common Stock Purchase
Warrant ("Warrant") exercisable for one
share of Common Stock(2) ................... 1,725,000 $ 6.10 $10,522,500 $ 3,104.14
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001(3)............ 1,725,000 $ 6.00 -- --
Warrants(4) ................................. 1,725,000 $ 0.10 -- --
- ---------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise
of Warrants(5) ............................. 1,725,000 $ 7.50 $12,937,500 $ 3,816.56
- ---------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of
Representatives' Warrants(6) ............... 150,000 $ 9.90 $ 1,485,000 $ 438.07
- ---------------------------------------------------------------------------------------------------------------------
Warrants issuable upon exercise of
Representatives' Warrants(6) ............... 150,000 $ 0.165 $ 24,750 $ 7.30
- ---------------------------------------------------------------------------------------------------------------------
Common Stock underlying Warrants
issuable upon exercise of
Representatives' Warrants(6) ............... 150,000 $ 12.375 $ 1,856,250 $ 547.60
- ---------------------------------------------------------------------------------------------------------------------
Total ....................................... $26,826,000 $ 7,913.67(7)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(FOOTNOTES ON NEXT PAGE)
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
(FOOTNOTES FROM PREVIOUS PAGE)
- ---------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes 225,000 Units subject to the Representatives' over-allotment
option.
(3) Includes 225,000 shares of common stock that the Underwriters have the
option to purchase to cover over-allotments, if any.
(4) Includes 225,000 Warrants that the Underwriters have the option to purchase
to cover over-allotments, if any.
(5) Includes 225,000 shares of common stock issuable upon the exercise of the
Warrants that the Underwriters have the option to purchase to cover
over-allotments, if any.
(6) In connection with the Registrant's sale of the securities, the Registrant
is granting to the Representatives of the several Underwriters warrants to
purchase 150,000 shares of common stock and 150,000 Warrants.
(7) Registrant has previously paid $6,597.26 towards such fee.
<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.
SUBJECT TO COMPLETION, DATED JULY 2, 1998
PROSPECTUS
GALACTICOMM TECHNOLOGIES, INC.
1,500,000 SHARES OF COMMON STOCK AND
1,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(AS UNITS, EACH CONSISTING OF ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT)
Galacticomm Technologies, Inc., a Florida corporation (the "Company"),
hereby offers 1,500,000 shares (the "Shares") of common stock, par value $.0001
per share (the "Common Stock"), and 1,500,000 redeemable common stock purchase
warrants (the "Warrants"), initially as units, each unit consisting of one
Share and one Warrant. The Shares and Warrants are sometimes hereinafter
collectively referred to as the "Securities." Until the completion of the
offering, the Shares and Warrants may only be purchased together on the basis
of one share of Common Stock and one Warrant, but each will be transferable
separately immediately following completion of the offering. Each Warrant
entitles the registered holder thereof to purchase one share of Common Stock at
an exercise price of $7.50 (subject to adjustment), during the period
commencing (the "First Exercise Date") one year after the date of this
Prospectus, or on such earlier date as may be determined by the Company and
Security Capital Trading, Inc. and First Equity Corporation of Florida (the
"Representatives"), as the representatives of the several Underwriters named
herein ("Underwriters"), and ending on the fifth anniversary of the date of
this Prospectus. No fractional shares will be issued upon exercise of the
Warrants. Outstanding Warrants are redeemable by the Company commencing 30 days
after the First Exercise Date, upon 30 days prior written notice to the holders
thereof, if the average closing bid and asked price of the Common Stock for a
period of 20 consecutive trading days ending three trading days prior to the
date of the redemption notice is at least equal to 150% of the initial public
offering price of the Common Stock (subject to adjustment).
Prior to the offering, there has been no public market for the Common
Stock or the Warrants. The Company has applied to list the Common Stock and the
Warrants on the Nasdaq SmallCap Stock Market ("Nasdaq") under the symbols
"GALA" and "GALAW," respectively. There can be no assurance that such
securities will be accepted for listing or, if accepted, that an active trading
market will develop or be sustained. See "Underwriting" for information
relating to the factors considered in determining the initial public offering
price.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK, SPECULATIVE SECURITIES AND
IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD ONLY BE CONSIDERED BY INVESTORS WHO
CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON
PAGE 8 AND "DILUTION" ON PAGE 19.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)(3)
<S> <C> <C> <C>
Per Unit .................. $ 6.10 $ .61 $ 5.49
Per Share of Common Stock $ 6.00 $ .60 $ 5.40
Per Warrant .............. $ .10 $ .01 $ .09
Total ..................... $9,150,000 $915,000 $8,235,000
</TABLE>
- --------------------------------------------------------------------------------
(1) Does not include additional compensation to the Representatives, including
the Company's agreement to: (i) pay the Representatives a non-accountable
expense allowance equal to 3% of the gross proceeds from the sale of the
Securities; (ii) sell to the Representatives, for nominal consideration,
five-year warrants (exercisable commencing one year after the closing of
the offering) to purchase up to 150,000 shares of Common Stock and/or
150,000 warrants; (iii) enter into a two-year financial consulting
agreement with the Representatives pursuant to which the Company will pay
the Representatives $120,000 at the closing of the offering; and (iv)
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933 (the "Securities Act"). See
"Underwriting."
(2) Before deducting offering expenses, estimated to be approximately $639,274,
the Representatives' 3% non-accountable expense allowance and the fee
payable to the Representatives pursuant to the financial consulting
agreement, all of which are payable by the Company in connection with the
offering.
(3) The Company has granted the Underwriters an option ("Over-allotment
Option") exercisable within 45 days after the date hereof to purchase up
to an additional 225,000 shares of Common Stock and/or an additional
225,000 Warrants on the same terms set forth above, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $10,522,500, $1,052,250 and $9,470,250, respectively. See
"Underwriting."
---------------
The Securities are being offered by the Underwriters subject to prior
sale, receipt and acceptance by the Underwriters, approval of certain matters
by counsel, and certain other conditions. The Underwriters reserve the right to
withdraw or cancel such offer and to reject any offer, in whole or in part. It
is expected that delivery of the certificates for the Securities offered hereby
will be made against payment therefor on or about , 1998.
---------------
SECURITY CAPITAL TRADING, INC. FIRST EQUITY CORPORATION
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[PICTURES]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND
THE WARRANTS, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
All trademarks, service marks, tradenames and related products referred to
in this Prospectus, other than as they relate directly to the Company's
products and services, are the property of their respective owners and the
Company disclaims ownership of same.
2
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS
PROSPECTUS. IN NOVEMBER 1996, THE COMPANY MERGED WITH TESSIER TECHNOLOGIES,
INC. ("TTI") AND ACQUIRED GALACTICOMM, INC., ITS OPERATING SUBSIDIARY. UNLESS
THE CONTEXT OTHERWISE REQUIRES OR UNLESS OTHERWISE NOTED: (I) ALL REFERENCES TO
THE "COMPANY" THROUGHOUT THIS PROSPECTUS REFER TO THE COMBINED OPERATIONS OF
THE COMPANY, GALACTICOMM, INC. AND TTI; (II) ALL FINANCIAL DATA IN THIS
PROSPECTUS REFLECTS THE PRO FORMA COMBINED OPERATIONS OF THE COMPANY,
GALACTICOMM, INC. AND TTI AS IF THE COMPANY HAD ACQUIRED SUCH COMPANIES ON
JANUARY 1, 1996; AND (III) ALL INFORMATION IN THIS PROSPECTUS GIVES EFFECT TO A
4.061771824 TO ONE REVERSE STOCK SPLIT WHICH OCCURRED IN SEPTEMBER 1997 AND A
1.657080842 TO ONE REVERSE STOCK SPLIT WHICH OCCURRED IN JUNE 1998.
THE COMPANY
Galacticomm Technologies, Inc., a Florida corporation (the "Company"),
develops, markets, licenses and supports software that enables users to
communicate and conduct business over the Internet, on intranets, and on other
online communications systems. The Company's flagship product is Worldgroup
v3.1 ("Worldgroup") for Windows NT and Windows 95, which is an integrated suite
of five applications: E-mail, Polls and Surveys, Threaded Discussion Groups
(newsgroups), a Document Retrieval Center and Chat. Worldgroup allows an
individual or enterprise to establish an online system, an intranet or a
website and to make such online system accessible through the World Wide Web
using a standard web browser such as Microsoft Internet Explorer or Netscape
Navigator. Worldgroup's out-of-the-box software can be utilized to create an
online system with features such as those described above, which features are
generally sought by persons or entities seeking to develop an online system.
The Company believes that Worldgroup offers, at a competitive price, many of
the features contained in more costly competitive software products.The Company
believes that since 1987, Worldgroup and its predecessor product, The Major
BBS, have been used to create more than 10,000 online systems worldwide,
including systems currently operated by Fortune 500 companies, financial and
educational institutions and government agencies. Versions of the Worldgroup
software are available in eight languages.
Worldgroup is not only an out-of-the-box product, but it is also a
development platform that can be configured to provide communications solutions
for many different businesses and industries. In conjunction with third party
developers, the Company has, using Worldgroup software, designed intranets and
other online systems for specific projects relating to education, small
business and online gaming. The Company and independent software vendors
currently offer over 100 products that add applications to the features already
included in Worldgroup, including add-ons that allow a Worldgroup online system
to offer: (i) outgoing online fax service; (ii) an online shopping mall; (iii)
form templates for workflow environments; (iv) video conferencing with
point-to-point broadcast, and video-on-demand; (v) group scheduling; (vi)
online publishing; and (vii) Internet access to users and optional support for
Radius security and accounting protocol for terminal server equipment.
In addition to Worldgroup, the Company currently markets the following
products, each of which utilizes the Worldgroup software platform:
WEBCAST. WebCast allows users to transmit real-time audio and visual
broadcasts, and to broadcast pre-recorded videos, on demand, over the Internet
to viewers who need only use a standard web browser to receive the broadcast.
The Company markets WebCast directly to individual consumers and to businesses
through value added resellers ("VARs"). The Company also seeks to enter into
bundling arrangements with camera and other hardware manufacturers. To date,
the Company has
3
<PAGE>
entered into agreements to bundle WebCast with cameras and other hardware sold
by Eastman Kodak Company, Boca Research, Inc., Specom Technologies Corp., and
Aztech New Media Corp.
ACTIBASE. ActiBase enables a company with a web site or an online system to
publish its own databases on its system. ActiBase is compatible with the most
common database software available in the market and can be used by persons with
only limited knowledge of computer database programming. ActiBase is offered as
an add on application to Worldgroup. It can also be used on a stand alone basis
to publish a company's database on a web site so that such database can be
accessed through the World Wide Web.
WORLDLINK. Worldlink allows Worldgroup online communities to link
electronically with other Worldgroup online communities.
The Company's objective is to become a leading developer of communications
software for the Internet and for other online systems including intranets and
online communications systems. The Company intends to achieve its objectives by
implementing the following strategies: (i) developing quality software
applications and customized solutions for the individual needs of customers
using Worldgroup as the foundation; (ii) continuing to upgrade Worldgroup and
its applications and offering new applications that deliver high levels of
performance, ease of use and multi-tiered authorization to information; (iii)
establishing strategic alliances to increase sales and facilitate market
acceptance of the Company's products; (iv) providing timely, high quality
technical support to meet the diverse needs of its customers, VARs and
resellers; and (v) increasing marketing efforts to promote Worldgroup as a
premier communications software product.
All references in this Prospectus to shares of Common Stock outstanding as
of the date hereof shall: (a) include 29,479 shares of Common Stock that will
be issued to Union Atlantic Partners I Limited ("UA Partners") upon the
automatic conversion on the date of this Prospectus of an outstanding
convertible promissory note (the "UA Partners Note"); and (b) exclude: (i)
223,284 shares of Common Stock reserved for issuance under the Company's 1997
Stock Option Plan (the "1997 Plan"), of which options to purchase 66,486 shares
of Common Stock at an exercise price of $6.00 per share are currently
outstanding; (ii) an aggregate of 357,946 shares of Common Stock reserved for
issuance upon the exercise of outstanding options outside of the 1997 Plan,
which have exercise prices ranging from $4.24 to $6.21 per share; (iii) 84,310
and 20,382 shares, respectively, of Common Stock reserved for issuance to Union
Atlantic L.C. ("Union Atlantic") upon the exercise of two warrants having
exercise prices of $4.24 and $6.20 per share, respectively; (iv) 577,886 shares
of Common Stock reserved for issuance upon the exercise of warrants ("1997
Financing Warrants") having an exercise price of $6.21 per share, which
warrants were issued in connection with a private financing completed by the
Company in October 1997 (the "1997 Financing"); (v) 100,579 shares of Common
Stock issuable upon conversion of a $125,000 secured convertible promissory
note (the "Kenworthy Note") held by Kenworthy Investments Limited
("Kenworthy"), a wholly-owned subsidiary of the Peder Sager Wallenberg
Charitable Trust (the "Wallenberg Trust"), which note may be converted, at the
option of the holder, on or before January 15, 1999; (vi) 1,500,000 shares
issuable upon the exercise of the Warrants; (vii) 450,000 shares of Common
Stock reserved for issuance upon the exercise of the Over-allotment Option and
the Warrants included as part of the Over-allotment Option; and (viii) 300,000
shares of Common Stock reserved for issuance upon the exercise of the
Representatives' Warrants and upon the exercise of the warrants underlying the
Representatives' Warrants. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Introduction"--"Liquidity and
Capital Resources," "Management--Compensation Arrangements with Chairman,"
"--Stock Option Plan," "Certain Transactions," "Principal Shareholders" and
"Underwriting."
The Company's executive offices are located at 4101 S.W. 47th Avenue,
Suite 101, Fort Lauderdale, Florida 33314. The Company can be reached by
telephone at (954) 583-5990 or through its website at http://www.gcomm.com.
None of the information contained on the Company's website shall be deemed a
part of this Prospectus.
4
<PAGE>
THE OFFERING
SECURITIES OFFERED................. 1,500,000 Shares of Common Stock and
1,500,000 Warrants. The Shares and the
Warrants will be separately transferable
immediately following the completion of
this offering.
THE WARRANTS....................... Each Warrant entitles a holder to
purchase one share of Common Stock at an
exercise price per share equal to $7.50
per share. The Warrants will be
exercisable during the period commencing
("First Exercise Date") one year after the
date of this Prospectus, or on such
earlier date as may be determined by the
Company and the Representatives, and
ending on the fifth anniversary of the
date of this Prospectus. The Warrants will
be redeemable by the Company, commencing
30 days after the First Exercise Date,
upon 30 days written notice, if the
average of the closing bid and asked price
of the Common Stock for 20 consecutive
trading days ending three trading days
prior to the date of the redemption notice
is at least equal to 150% of the initial
public offering price of the Common Stock.
The Warrants are subject to adjustment
under certain circumstances. See
"Description of Securities--Warrants."
COMMON STOCK OUTSTANDING PRIOR TO
THE OFFERING...................... 2,922,849 shares
COMMON STOCK OUTSTANDING AFTER
THE OFFERING...................... 4,422,849 shares
WARRANTS OUTSTANDING AFTER
THIS OFFERING...................... 1,500,000
USE OF PROCEEDS.................... The Company intends to use the net
proceeds from the offering for, among
other things: (i) repayment of
indebtedness, including, in part,
indebtedness due to management and due to
a shareholder of the Company; (ii) sales
and marketing; (iii) product development;
(iv) capital expenditures; and (v) working
capital. See "Use of Proceeds."
PROPOSED NASDAQ SMALLCAP
MARKET SYMBOLS.................... Common Stock--"GALA"
Warrants--"GALAW"
5
<PAGE>
RISK FACTORS...................... The Securities offered hereby are
speculative and involve a high degree
of risk and immediate, substantial
dilution and should not be purchased by
investors who cannot afford the loss of
their entire investment. Prospective
investors are urged to carefully review
the "Risk Factors" starting on page 8
before making an investment decision.
FOR CALIFORNIA RESIDENTS ONLY...... Each purchaser of the Securities in
California must satisfy one of the
following suitability standards: (i) a
minimum net worth (exclusive of home, home
furnishings and automobiles) of at least
$250,000 and, during the last taxable year
(or such purchaser estimates that he or
she will have during the current taxable
year), gross income of at least $65,000,
(ii) minimum net worth (exclusive of home,
home furnishings and automobiles) of
$500,000 or $1,000,000 (inclusive of home,
home furnishings and automobiles); or
(iii) during the last taxable year (or
such purchaser estimates that he or she
will have during the current taxable year)
gross income of at least $200,000.
6
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following summary historical financial data for the two years ended
December 31, 1997 has been derived from the Company's Consolidated Financial
Statements as of December 31, 1996 and 1997 and for the two years ended
December 31, 1997, which are included elsewhere herein. The following summary
historical unaudited financial data of the Company as of March 31, 1998 and for
the three months ended March 31, 1997 and 1998, has been derived from the
unaudited historical consolidated financial statements of the Company included
elsewhere herein which, in the opinion of management, include all adjustments
(consisting of only normal recurring adjustments) necessary for a fair and
consistent presentation of such data. Results for the three months ended March
31, 1998 are not necessarily indicative of the results which can be expected
for the year ending December 31, 1998.
The following unaudited pro forma financial data gives effect to the
Company's November 1996 acquisition of Galacticomm, Inc. and its merger with
TTI as if such transactions were consummated on January 1, 1996. The pro forma
data is unaudited and is not necessarily indicative of the results of
operations of the Company had the Company actually acquired Galacticomm, Inc.
and TTI on January 1, 1996.
The following summary historical and unaudited pro forma financial data
should be read in conjunction with "Selected Historical and Unaudited Pro Forma
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited and unaudited financial statements
of the Company contained elsewhere herein.
<TABLE>
<CAPTION>
GALACTICOMM TECHNOLOGIES, INC.
---------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, QUARTERS ENDED MARCH 31,
------------------------------------------------- -------------------------------
PROFORMA
(UNAUDITED) (UNAUDITED)
1996 1996 1997 1997 1998
--------------- ----------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ..................................... $ 1,692,743 $ 6,189,505 $ 3,418,057 $ 969,435 $ 428,043
Total operating costs and expenses ........... 2,721,022 9,789,737 6,762,775 1,322,392 1,392,803
------------ ------------- ------------ ---------- ------------
Loss from operations ......................... (1,028,279) (3,600,232) (3,344,718) (352,957) (964,760)
Other (expense) income, net .................. (60,312) (655,321) (409,317) 28,164 (236,137)
------------ ------------- ------------ ---------- ------------
Net loss ..................................... $ (1,088,591) $ (4,255,553) $ (3,754,035) $ (324,793) $ (1,200,897)
============ ============= ============ ========== ============
Basic and diluted net loss per share ......... $ (1.12) $ (1.99) $ (1.72) $ (0.16) $ (0.45)
Shares used in computing basic and
diluted net loss per share ................. 973,649 2,139,443 2,188,474 2,078,687 2,639,463
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------
DECEMBER 31, 1997 ACTUAL AS ADJUSTED(1)
------------------ ----------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Cash ................................... $ 226,281 $ 17,900 $ 4,815,619
Working capital (deficiency) ........... (665,855) (3,470,393) 4,018,058
Goodwill, net of amortization .......... 1,723,266 1,605,690 1,605,690
Total assets ........................... 3,850,567 3,284,600 7,628,478
Short-term obligations ................. 218,594 2,354,490 17,422
Long-term obligations .................. 2,571,762 652,649 2,649
Shareholders' equity (deficit) ......... $ (35,417) $ (1,236,314) $ 6,328,296
</TABLE>
- ----------------
(1) Adjusted to give effect to: (a) the sale of the Shares and Warrants offered
hereby and the application of the net proceeds therefrom; (b) the
automatic conversion of the UA Partners Note on the date of this
Prospectus; (c) the issuance subsequent to March 31, 1998 of 253,907
shares of Common Stock in settlement of certain litigation; and (d) the
write-off of deferred financing costs and original issue discount related
to the 1997 Financing in the aggregate amount of $531,616, which amount
will be expensed in the quarter in which the offering is completed. See
"Use of Proceeds," "Capitalization," "Business--Legal Proceeding" and
"Certain Transactions--Consulting Agreements with Union Atlantic."
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW THE FOLLOWING RISK FACTORS. THIS
INVESTMENT IS NOT RECOMMENDED FOR THOSE WHO CANNOT BEAR THE RISKS DESCRIBED
BELOW.
THIS PROSPECTUS CONTAINS "FORWARD-LOOKING" STATEMENTS. FORWARD LOOKING
STATEMENTS ARE STATEMENTS ABOUT EVENTS THAT HAVE NOT OCCURRED. THEY INCLUDE
STATEMENTS ABOUT THE COMPANY'S FUTURE PLANS, GROWTH STRATEGIES AND INDUSTRY
TRENDS. THEY ALSO INCLUDE STATEMENTS WITH WORDS SUCH AS "ANTICIPATE," "INTEND,"
"BELIEVE," "PLAN," "ESTIMATE" AND "EXPECT." THESE FORWARD LOOKING STATEMENTS
ARE BASED LARGELY ON THE COMPANY'S EXPECTATIONS AND ARE SUBJECT TO MULTIPLE
RISKS AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THESE FORWARD LOOKING STATEMENTS AS A
RESULT OF THE FACTORS DESCRIBED IN THE FOLLOWING SECTION, AS WELL AS THE RISKS
DESCRIBED ELSEWHERE IN THIS PROSPECTUS. IN LIGHT OF THESE RISKS AND
UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS
CONTAINED IN THIS PROSPECTUS WILL IN FACT PROVE TO BE ACCURATE.
INDEPENDENT AUDITOR'S REPORT CONTAINS GOING CONCERN QUALIFICATION; LOSSES FROM
OPERATIONS; ACCUMULATED DEFICIT
The report of the Company's independent public accountants contains an
explanatory paragraph which states that the Company has suffered recurring
losses from operations and has negative working capital, which raise
substantial doubt about the Company's ability to continue as a going concern.
At March 31, 1998, the Company had an accumulated deficit of $6,062,624 and the
Company's current liabilities exceeded its current assets by $3,470,393. The
Company (on a historical basis) has incurred substantial net losses of
$1,088,591 and $3,754,035 for the years ended December 31, 1996 and 1997,
respectively, and $1,200,897 for the three months ended March 31, 1998. As part
of its strategy, the Company intends to continue to make expenditures on new
product introductions, marketing and product development, all of which will
adversely affect operating results until revenues from sales of products reach
a level at which operating costs can be supported. The Company does not expect
to generate cash flows from operating activities during 1998 sufficient to
offset its operating expenditures. The Company's operations to date have been
financed primarily through sales of its debt and equity securities. The Company
anticipates, based on its currently proposed plans and assumptions relating to
operations, that the net proceeds from the sale of the Securities offered
hereby, together with projected cash flow from operations, will be sufficient
to satisfy the Company's contemplated cash requirements for at least 12 months
following the consummation of this offering. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and the Notes thereto.
LIMITED OPERATING HISTORY; RISKS ASSOCIATED WITH NEW BUSINESS IN EVOLVING
MARKET
The Company was incorporated in December 1995 and has only had a limited
operating history. Although the Company's subsidiary, Galacticomm, Inc., has
conducted operations since 1985, the business and operations of Galacticomm,
Inc. have only been operated by the Company and its management team since
November 1996. Furthermore, the Company's business plan is significantly
different from and larger in scope than the historic business of Galacticomm,
Inc. Accordingly, the Company's prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stage of development, particularly companies in new and rapidly evolving
markets such as computer software and the Internet. To address these risks, the
Company must, among other things, respond to competitive developments, endeavor
to attract, retain and motivate qualified personnel, and continue to upgrade
its technologies and commercialize products incorporating its technologies.
There can be no assurance that the Company will be successful.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly operating results have varied significantly in the
past and the Company expects that they will continue to vary in the future.
Sales in any one quarter may fluctuate based upon
8
<PAGE>
a number of factors, including: (i) the timing of the release of new products
or product upgrades by the Company or its competitors, (ii) the size and timing
of individual orders by customers, (iii) deferral of orders by customers in
anticipation of new products or product upgrades, (iv) technological changes in
the operating systems upon which the Company's products run, and (v) changes in
the Internet or other networking technology. Fluctuations in operating results
may also occur as a result of the Company's business strategy to develop and
sell customized applications to larger customers to meet such customers'
specific requirements. The Company believes it will be difficult to predict the
timing of these types of sales because they are subject to both designing the
solution to meet the customer's needs and convincing the customer to purchase
the products, and other risks over which the Company has little or no control.
The Company's operating expenses for each quarter are generally fixed and the
Company is generally unable to adjust its spending quickly enough to compensate
for unexpected shortfalls in revenues. Consequently, a significant shortfall in
revenues in any quarter could adversely impact the Company's operating results
for that quarter. As a result, the Company believes that period-to-period
comparisons of its operating results will not necessarily be meaningful and
should not be relied upon as an indication of future performance.
PRODUCT CONCENTRATION
Revenues from sales of Worldgroup software (and related tools and
applications) accounted for approximately 57% and 38%, respectively, of the
Company's total revenues for the year ended December 31, 1997 and the three
months ended March 31, 1998. Although the Company has introduced several new
software products in an effort to, among other things, diversify its sources of
revenues, the Company expects that sales of and licenses for the use of
Worldgroup (and other software products based on the Worldgroup platform) will
continue to account for a substantial portion of the Company's future revenues.
Additionally, all of the Company's other products are either add-ons to, or
based upon, the Worldgroup software. Consequently, declines in demand for
Worldgroup and related products, whether as a result of competition,
technological change or otherwise, will likely have a material adverse effect
on the Company's business, operating results and financial condition.
NEW PRODUCT DEVELOPMENT AND RAPID TECHNOLOGICAL CHANGE
The market for the Company's software is characterized by rapidly changing
technology and industry standards. The introduction of products embodying new
technologies and the emergence of new industry standards can quickly render
existing software obsolete and unmarketable. The Company's future success will
depend in part on its ability to enhance existing products and to develop and
introduce new products to meet changing customer demands. Specifically, the
Company's new products (and enhancements) must: (i) incorporate new and
evolving industry standards, (ii) continue to offer improved performance and
features, (iii) respond to evolving customer needs, and (iv) achieve market
acceptance. The development of new products or enhanced versions of existing
products entails significant technical risks. There can be no assurance that
the Company will be successful in developing and marketing product enhancements
or new products that respond to technological change or evolving industry
standards, that the Company will not experience difficulties that could delay
or prevent the successful development, introduction and marketing of these
products, or that its new products will adequately meet the requirements of the
marketplace and achieve market acceptance. If the Company is unable, for
technological or other reasons, to develop and introduce new products in a
timely and cost-effective manner or to address compatibility, inoperability or
other issues raised by technological changes or new industry standards, the
Company's business, operating results and financial condition could be
materially and adversely affected.
LENGTH OF SALES CYCLES
A component of the Company's current business strategy is to develop
customized applications using its Worldgroup software as a platform. The
Company intends to develop customized products on its own or with third party
software developers and then to seek to sell these products to companies,
educational institutions, government agencies or other organizations which can
utilize these products.
9
<PAGE>
The final sale to these customers often requires a long lead time, and approval
by both the buyer's technical and management personnel, including approval of
the chief executive officer (for companies), a review board (for government
agencies) or a senior administrator or committee (for educational
institutions), who tend to carefully review their software purchases and
require the Company to educate them about how the product works. The Company
expects to invest a significant amount of time and resources in the sales
process for these customers before it completes any such sales. Thus, the
Company's revenues for a particular period may be impacted if sales to such
customers forecasted to close in a particular period are delayed by reason of
the education or approval process, or if such sales as are forecast do not
otherwise occur.
DEPENDENCE ON THE INTERNET
The success of the Company's products and services depends on the
continued development and growth of the Internet and on the need of businesses
and other organizations to continue to develop private intranets and other
online communication systems. The Internet is evolving and may not develop into
the large commercial marketplace that many predict. The following factors could
slow the growth of the Internet: (i) inadequate development of the necessary
infrastructure, (ii) untimely development of affordable complementary products,
such as high speed modems, (iii) delays in the development or adoption of new
standards to handle increased levels of Internet activity, or (iv) increased
government regulation. The number of Internet and intranet users has grown
significantly over the last few years, and such number is expected to continue
to grow. No assurance can be given that the Internet infrastructure will
continue to support the demands placed on it by this continued growth. The
Company's financial condition and consolidated results of operations could be
adversely impacted if the Internet does not become a large commercial
marketplace. See "Business--Industry Background."
POTENTIAL FOR UNDETECTED ERROR
The Company's software may contain undetected errors or "bugs" when first
introduced or when new versions are released. To minimize defects, the Company
tests its products before they are commercially released. Despite its quality
control efforts, it is possible that the Company may release new products (or
upgrades of existing products) that contain bugs. The Company's inadvertent
release of products containing bugs could result in: (i) revenue loss, (ii)
delay in market acceptance of the product and possibly the Company's other
products, (iii) increased service costs, and (iv) damage to the Company's
reputation.
COMPETITION
The Company faces intense and increasing competition from other software
companies. Many of the Company's competitors are substantially larger than the
Company, have greater financial resources and name recognition than the
Company, have longer operating histories in the Internet, intranet and online
communications markets and have greater technical and marketing resources than
the Company. As a result, such competitors may have a competitive advantage
over the Company in that they may be able to respond more quickly than the
Company to new or emerging technologies and changes in customer needs, or to
devote greater resources than the Company to the development, promotion and
sale of their products. Worldgroup faces competition from a number of products
that permit information exchange in ways similar to Worldgroup, including
Microsoft Back Office, Lotus Domino, and Novell's Intranet Ware. WebCast, the
Company's web broadcast software, competes with products offered by, among
others, White Pine Software, Inc., Progressive Networks, Vxtreme, Inc., Xing
Technology Corporation, NetSpeak Corporation, VocalTec, Inc., Vivo Software,
Inc. and VDOnet Corporation. See "Business--Competition."
UNCERTAINTY REGARDING TRADEMARK PROTECTION
Although the Company has five pending trademark applications with the
United States Patent and Trademark Office (the "PTO"), the Company has only one
federal registration, for the trademark
10
<PAGE>
"Galacticomm." No assurance can be given that the PTO will grant registrations
for the Company's pending trademark applications. Among other things, it is
possible that the Company's trademarks could be deemed to be generic by the
PTO, in which case neither the Company nor any third party could claim
exclusive rights to such term. In such event, the Company intends to associate
the generic term with registrable or registered trademarks or logos in order to
seek to gain trademark protection over the resulting composite mark.
In July 1997, the Company became aware of the existence of a third party
which may claim a prior right in the trademark "Worldgroup." The Company and
the third party have had discussions regarding a co-existence arrangement
whereby the Company would have the right, without the payment of a royalty, to
continue to use the trademark "Worldgroup" on its present products and
services. Although the third party does not presently distribute products that
compete with the Company's products, the licensing arrangement presently under
discussion would not preclude the third party from using the "Worldgroup"
trademark in competition with the Company. When the Company releases its next
version of its Worldgroup software, which is anticipated to occur in the first
quarter of 1999, the Company may elect to use a name other than Worldgroup, in
order to resolve this issue and also to reflect what it believes will be the
wider array of features that the next version of Worldgroup is expected to
offer to users. There can be no assurance, however, that a change of name will
not adversely impact the Company's revenues and thereby the Company's operating
results and financial condition. See "Business--Proprietary Rights and
Intellectual Property."
In July 1997, the Company also became aware that several third parties had
filed applications for registration for the trademark "WebCast" prior to the
Company's application for such tradename with the PTO. If "WebCast" is
determined not to be a generic term and one of such third party applications is
accepted for registration, then such third party would have superior rights to
the Company in the name "WebCast." There can be no assurance that the Company
will be able to continue to use the name "WebCast" or that it will not have to
change the name of such product.
If a court were to find that the Company unintentionally infringed a third
party's mark, the Company's liability would be limited to its actual net profit
from the sale of infringing products, the third party's actual damages, and
injunctive relief. Further, if a court were to find that the Company wilfully
infringed a third party's trademark, the Company could be enjoined from further
use of the trademark and could be liable, under the federal Lanham Act, for the
lesser of: (i) the Company's net profit stemming from the sale of infringing
products and (ii) the third party's actual damages, plus three times the
greater of: (a) the Company's profit from the sale of the infringing product,
and (b) the third party's actual damages, plus prejudgment interest, attorneys'
fees, and the cost of litigation. See "Business--Proprietary Rights and
Intellectual Property."
UNCERTAINTY REGARDING INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company regards its software as proprietary and attempts to protect it
with copyrights, restrictions on disclosure, copying and transferring title,
and enforcement of trade secret laws. Despite these precautions, it is possible
for unauthorized third parties to copy the Company's products and it may be
possible for them to obtain and use information that the Company regards as
proprietary. In addition, existing copyright laws give only limited protection
to its software and some foreign countries' laws do not protect proprietary
rights to the same extent as United States laws. Consistent with the general
practice of software developed for retail sale, the Company licenses its
products primarily under "shrink wrap" license agreements that are not signed
by licensees and therefore may be unenforceable under the laws of certain
jurisdictions. Except to the extent noted above with respect to certain
trademark matters, the Company is not aware that it is infringing or violating
any proprietary rights of any third party relating to the Company or the
Company's products. The computer software market is characterized by frequent
and substantial intellectual property litigation and it is possible that third
parties might assert infringement claims against the Company in the future. If
this occurs, the Company might be forced into costly litigation or have to
obtain a license to the intellectual property rights of others. It is possible
that such licenses may not be available on reasonable terms, or at all.
11
<PAGE>
The Company currently licenses some of its technology from third parties.
For a description of the material terms of the Company's third party licenses,
see "Business--Proprietary Rights and Intellectual Property." In the future,
such third party technology licenses may not be available to the Company on
commercially reasonable terms, if at all. If the Company cannot maintain any of
these technology licenses, it is possible that product shipments could be
delayed and the Company's financial condition could be adversely impacted. See
"Business--Proprietary Rights and Intellectual Property."
DEPENDENCE ON KEY EMPLOYEES AND CONSULTANT
The Company's success depends on the performance of the senior management,
particularly Chief Executive Officer, Peter Berg, President, Yannick Tessier,
and David Manovich, a consultant who is serving as Chairman of the Company's
Board of Directors. Mr. Berg and Mr. Tessier are two of the principal
shareholders of the Company. Although the Company has entered into employment
agreements with each of Mr. Berg and Mr. Tessier which do not expire until
November 20, 1999, such employment agreements may be terminated by the employee
upon not less than 45 days' prior written notice for any reason. The agreement
with Mr. Manovich can be terminated by the Company six months after the
completion of this offering, upon 90 days' prior written notice. In such event,
the Company is required to pay Mr. Manovich $60,000 in a lump sum. The
Company's success also depends on its ability to retain and motivate other key
employees, particularly software developers, software programmers and customer
support personnel. Competition for these types of employees is intense and no
assurance can be given that the Company will be able to attract or retain
satisfactory personnel. The loss of the services of Messrs. Berg, Tessier,
Manovich or other key personnel could adversely impact the Company's prospects
for success. The Company carries key man life insurance on Messrs. Berg and
Tessier in the amount of $1.0 million each. See "Management--Employment
Agreements" and "--Compensation Arrangements with Chairman" and "Principal
Shareholders."
MANAGEMENT OF A GROWING BUSINESS
The Company's growth strategy will place significant demands on the
Company's executive officers and financial resources. To be successful, the
Company must implement and improve its operational and financial systems and
expand, train and manage its employee base. No assurance can be given that
management will be able to successfully manage a growing business as will be
required to accomplish the Company's goals. Furthermore, the Company may
acquire companies or assets in the future, although the Company does not
presently have any understandings, commitments or arrangements with respect to
any acquisition. Acquisitions involve many unique risks including assimilating
acquired operations and products and the diversion of management's attention
from the Company's primary business.
ANTI-TAKEOVER PROVISION--ARTICLES OF INCORPORATION
The Company's Articles of Incorporation contain a provision that may have
the effect of discouraging transactions involving an actual or threatened
change of control of the Company. The Company's Articles of Incorporation
authorize the issuance of 1,000,000 shares of "blank check" preferred stock
with such designations, rights and preferences as may be determined from time
to time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without shareholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights that could materially
adversely affect the voting power or other rights of the holders of the Common
Stock. In the event of issuance, the preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying, or preventing a
change in control of the Company. Although the Company has no present intention
to designate a series or issue any shares of its preferred stock, there can be
no assurance that the Company will not do so in the future. To the extent
takeover attempts are discouraged by the foregoing provisions, temporary
fluctuations in the market price of the Common Stock, which may result from
actual or rumored takeover attempts, may be inhibited. See "Description of
Securities--Certain Provisions of the Articles and Bylaws."
12
<PAGE>
ABSENCE OF DIVIDENDS
The Company has not paid any dividends and does not expect to pay any
dividends in the foreseeable future and intends to retain earnings, if any, to
provide funds for general corporate purposes and the implementation of the
Company's business plan. In addition, until all amounts due under the Kenworthy
Note have been paid, the Company is prohibited from paying any dividends to its
shareholders. See "Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION OF 82% TO PUBLIC INVESTORS
The initial public offering price of the Shares substantially exceeds the
net tangible book value of a share of the Common Stock (which at March 31, 1998
was negative). Assuming a $6.00 offering price per Share, purchasers will
experience immediate and substantial dilution in the adjusted net tangible book
value per share after this offering in the amount of $4.93 per share or 82% of
the offering price per Share. In addition, the Company may issue a substantial
number of additional shares of Common Stock in the future upon the exercise of
options and warrants having an exercise price below the initial public offering
price of the Shares. The issuance of a material number of such shares may have
the effect of increasing the dilution to new investors in this offering. See
"Dilution."
DETERMINATION OF OFFERING PRICE; NO ASSURANCE OF PUBLIC MARKET
Prior to this offering, there has been no public market for the Common
Stock or the Warrants. The Company has applied to list the Common Stock and the
Warrants for quotation on the Nasdaq SmallCap Market. No assurance can be given
that such securities will be accepted for listing, or, if accepted, that a
trading market for such securities will develop, or be sustained. The initial
public offering price of the Shares and Warrants and the exercise price and
other terms of the Warrants have been determined by negotiation between the
Company and the Representatives and may not be indicative of the market price
for such securities after the offering. The market prices for securities of
emerging companies, especially those involved in high technology and software
development, have historically been highly volatile and may be unrelated or
disproportionate to the operating performance of such companies. Future
announcements concerning the Company or its competitors, including
technological innovations or new commercial products, may have a significant
impact on the market price of the Common Stock and/or the Warrants. See
"Business--Competition" and "Underwriting."
CURRENT PROSPECTUS AND STATE REGISTRATION NEEDED TO EXERCISE WARRANTS
The Warrants may only be exercised if a current prospectus relating to the
Common Stock is then in effect under the Securities Act. While the Company will
use its best efforts to maintain the effectiveness of a current prospectus, the
Company cannot guarantee that it will be able to do so. After a registration
statement becomes effective, it may require continuous updating by the filing
of post-effective amendments. A post-effective amendment is required (i) when,
for a prospectus that is used more than nine months after the effective date of
the registration statement, the information contained therein (including the
certified financial statements) is as of a date more than 16 months prior to
the use of the prospectus, (ii) when facts or events have occurred which
represent a fundamental change in the information contained in the registration
statement, or (iii) when any material change occurs in the information relating
to the plan of distribution of the securities registered by such registration
statement. Furthermore, the Warrants may only be exercised if the Common Stock
is qualified for sale or exempt from qualification in the state where the
holder of the Warrant resides. The Warrants may have no value if the Common
Stock underlying the Warrants is not qualified or exempt from qualification in
a particular state, or if a prospectus is not kept current. See "Description of
Securities--Warrants."
REDEMPTION OF WARRANTS
The Warrants are subject to redemption by the Company, for nominal
consideration, at any time commencing 30 days after the First Exercise Date
upon 30 days' prior written notice to the holders
13
<PAGE>
thereof, if the average of the closing bid and asked price for the Common Stock
for a period of 20 consecutive trading days ending three trading days prior to
the date of the redemption notice is at least equal to 150% of the initial
public offering price of the Common Stock. In the event that the Warrants are
called for redemption by the Company, Warrant holders will have 30 days during
which they may exercise their rights to purchase shares of Common Stock. In the
event a current prospectus is not available, the Warrants may not be exercised
and the Company will be precluded from redeeming the Warrants. If holders of
the Warrants elect not to exercise the Warrants upon notice of redemption, and
the Warrants are subsequently redeemed prior to exercise, the holders would
lose the benefit of the difference between the market price of the underlying
Common Stock as of such date and the exercise price of such Warrants, as well
as any possible future price appreciation in the Common Stock. In addition, as
a result of an exercise of the Warrants, existing shareholders would be diluted
and the market price of the Common Stock may be adversely affected. See
"Description of Securities--Warrants."
ADJUSTMENTS TO WARRANT EXERCISE PRICE AND EXERCISE DATE AND IMPACT OF WARRANT
EXERCISE ON MARKET
The Company, in its sole discretion, and in accordance with the terms of
the Warrant Agreement with the Warrant Agent, may reduce the exercise price of
the Warrants and extend the time within which the Warrants may be exercised,
depending on such things as current market conditions, the market price of the
Common Stock and the Company's need for additional capital. Further, in the
event that the Company issues certain securities or makes certain distributions
to the holders of its Common Stock, the exercise price of the Warrants (and the
shares of Common Stock issuable on exercise thereof) may be proportionately
reduced. Any such price reductions (assuming exercise of the Warrants) will
provide less money for the Company and could possible adversely affect the
market price of the Company's securities. Furthermore, if a substantial number
of Warrants are exercised within a reasonably short period of time after the
right to exercise commences, the resulting increase in the amount of Common
Stock of the Company in the trading market could substantially affect the
market price of the Common Stock. See "Description of Securities--Warrants."
CONTINUING RELATIONSHIP WITH REPRESENTATIVES; POTENTIAL INFLUENCE
Following this offering, the Company will have certain continuing
relationships with the Representatives. The Company has agreed with the
Representatives to: (i) sell the Representatives, for nominal consideration, the
Representatives' Warrants; (ii) grant the Representatives the right, for a
period of three years after the closing of this offering, to nominate a designee
to the Company's Board of Directors; and (iii) enter into a two-year financial
consulting agreement with the Representatives, commencing on the closing of the
offering. The foregoing relationships may allow the Representatives to have a
continuing influence over the Company's operations. See "Description of
Securities" and "Underwriting."
EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS
In addition to the 1,500,000 Warrants to be issued in connection with this
offering (1,725,000 Warrants if the Over-allotment Option is exercised in
full), the Company, upon completion of this offering, will sell the
Representatives the Representatives' Warrants, which will entitle the
Representatives to purchase 150,000 shares of Common Stock and/or 150,000
warrants. See "Underwriting."
In October 1997, the Company issued the 1997 Financing Warrants to
purchase an aggregate of 577,886 shares of Common Stock at an exercise price of
$6.21 per share until October 27, 2000. In May 1998, the Company issued a
secured convertible promissory note in the aggregate principal amount of
$125,000 to Kenworthy, a wholly-owned subsidiary of the Wallenberg Trust, which
is convertible into 100,579 shares of Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Certain Transactions--Wallenberg
Trust and UA Partners Investments" and "Description of Securities--Registration
Rights and Sales by
14
<PAGE>
Certain Shareholders." The Company has 66,486 options outstanding under the
1997 Plan with an exercise price of $6.00 per share and options and warrants to
purchase an aggregate of 462,638 shares of Common Stock outside the 1997 Plan,
of which 210,204 options and warrants are exercisable at prices below the
estimated initial public offering price of the Shares. See "Description of
Securities--Outstanding Options, Warrants and Convertible Securities."
It may be expected that all of such options and warrants will be exercised
only if it is advantageous to the holders thereof. Therefore, during the period
in which such options and warrants may be exercised, the holders thereof are
given the opportunity to profit from a rise in the market price of the Common
Stock. To the extent that such options and warrants are exercised, dilution to
the interests of the Company's shareholders will occur. Further, the terms upon
which the Company will be able to obtain additional capital may be adversely
affected since the holders of such options and warrants can be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain any needed capital on terms more favorable to the Company than those
provided in such options and warrants.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public
market following the offering could adversely affect the market price for the
Common Stock. Immediately prior to the date of this Prospectus, there were
2,922,849 shares of Common Stock issued and outstanding. Of such amount,
shareholders owning an aggregate of approximately 2,580,000 shares of Common
Stock have agreed not to sell or otherwise dispose of their shares of Common
Stock for a period of one year from the date of this Prospectus but subject to
any restrictions imposed by Nasdaq. Subject to such lock-up period, the
outstanding shares of Common Stock may be sold without registration under the
Securities Act in compliance with Rule 144. In general, under Rule 144, a person
who has satisfied a one-year holding period may under certain circumstances
sell, within any three-month period, a number of shares which does not exceed
the greater of 1% of the outstanding shares of Common Stock or the reported
average weekly trading volume in the four weeks preceding the sale. Rule 144
also permits, under certain circumstances, the sale of shares without any
quantity limitation by a person who is not an affiliate of the company and who
has satisfied a two year holding period. See "Description of Securities--Shares
Eligible for Future Sale." In addition, the Company has granted certain demand
and registration rights with respect to 1,244,512 shares of issued and
outstanding Common Stock and 814,122 shares of Common Stock underlying the 1997
Financing Warrants, the Representatives' Warrants and other options, warrants
and rights to acquire Common Stock; provided, however, the shares of Common
Stock underlying the 1997 Financing Warrants may not be sold prior to 12 months
from the date of this Prospectus. The exercise of such registration rights would
permit a large number of shares to become freely tradeable without restriction
(subject to any lock-up arrangements) under the Securities Act immediately upon
effectiveness of such registration. See "Description of Securities--Registration
Rights and Sales by Certain Shareholders."
POSSIBLE DELISTING OF COMMON STOCK FROM NASDAQ AND RISKS OF COMMON STOCK
TRADING BELOW $5.00 PER SHARE.
Upon consummation of the offering, the Shares and Warrants are expected to
be listed on the Nasdaq SmallCap Market. In order to qualify for continued
listing on the Nasdaq SmallCap Market, the Company will be subject to compliance
with maintenance and corporate governance requirements, including: (i) net
tangible assets of at least $2 million, market capitalization of $35 million, or
net income of $500,000; (ii) a public float of at least 500,000 shares valued at
$1.0 million or more; (iii) at least two market makers; (iv) at least 300
shareholders; and (v) a minimum bid price of $1.00 per share. The corporate
governance requirements for the Nasdaq SmallCap Market require distribution of
annual and interim reports to shareholders, a minimum of two independent
directors, an audit committee comprised of a majority of independent directors,
an annual shareholder meeting, a quorum requirement, solicitations of proxies,
review of conflicts of interest, shareholder approval for certain corporate
actions and voting rights protection. If the Company is unable to satisfy the
requirements for
15
<PAGE>
continued quotation on Nasdaq, trading in the Securities would be conducted in
the over-the-counter market in what are commonly referred to as the "pink
sheets" or on the OTC Bulletin Board. As a result, an investor may find it more
difficult to dispose of or obtain accurate quotations as to the price of the
Shares or Warrants. In addition, if the listing of the Shares is suspended or
terminated from Nasdaq and at such time the Shares have a market price of less
than $5.00 per share, then the sale of the Securities would become subject to
certain "penny stock" regulations adopted by the Securities and Exchange
Commission which impose sales practice requirements on broker-dealers. For
example, broker-dealers selling the Securities would, prior to effecting the
transaction, be required to provide their customers with a document which
discloses the risks of investing in the Securities. Furthermore, if the person
purchasing the Securities is someone other than an accredited investor or an
established customer of the broker-dealer, the broker-dealer must also approve
the potential customer's account by obtaining information concerning the
customer's financial situation, investment experience and investment objectives.
The broker-dealer must also make a determination whether the transaction is
suitable for the customer and whether the customer has sufficient knowledge and
experience in financial matters to be reasonably expected to be capable of
evaluating the risk of transactions in the Securities. Accordingly, if the
listing of the Shares is suspended or terminated from Nasdaq and is trading for
less than $5.00 per share, the penny stock regulations may restrict the ability
of broker-dealers to sell the Securities and may affect the ability of
purchasers in this offering to sell the Securities in the secondary market.
QUALIFICATION IN CALIFORNIA
This offering was approved in California on the basis of a limited
offering qualification where offers and sales can only be made to proposed
offerees based upon their meeting certain suitability standards as described
under "Summary--The Offering" and the Company did not have to demonstrate
compliance with any of the merit regulations of the California Department of
Corporations found in Title 10, CA Code of Regulations, Rule 60.140 et seq. The
exemption for secondary trading available under California Corporations Code
Section 25104(h) will be withheld by the Department of Corporations, but there
may be other exemptions to cover private sales by the bona fide owner for his
or her own account without advertising and without being effected by or through
a broker dealer in a public offering.
LACK OF EXPERIENCE OF REPRESENTATIVE
Security Capital Trading, Inc. ("Security Capital"), one of the
Representatives, commenced operations in June 1995. Security Capital has
co-managed and participated as an underwriter in only two previous public
offerings of securities. Accordingly, Security Capital has limited experience
as a co-manager or underwriter of public offerings of securities. In addition,
no assurance can be given that Security Capital will be able to participate as
a market maker of the Securities or that any broker-dealer will become a market
maker for any of the Securities. See "Underwriting."
16
<PAGE>
USE OF PROCEEDS
The net proceeds which the Company will receive from the sale of the
Securities offered hereby, based upon an assumed offering price of $6.00 per
Share and $.10 per Warrant and after deduction of underwriting discounts, the
non-accountable expense allowance and other offering expenses, will be
approximately $7,201,200 ($8,395,300 if the Over-allotment Option is exercised
in full). The Company intends to use the net proceeds of the offering as
follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPLICATION OF PROCEEDS DOLLAR AMOUNT PERCENTAGE
- ----------------------- ------------- ----------
<S> <C> <C>
REPAYMENT OF DEBT
Repayment of Financing Notes(1) ........................... $ 2,275,000 31.6%
Repayment of Indebtedness to Bank(2) ...................... $ 200,000 2.8%
Repayment of Indebtedness to Shareholders(3) .............. $ 146,875 2.0%
Repayment of Indebtedness to Management(4) ................ $ 100,000 1.4%
----------- ----
2,721,875 37.8%
COMPANY OPERATIONS
Sales and Marketing(5) .................................... $ 1,500,000 20.8%
Product Development(6) .................................... $ 1,200,000 16.7%
Capital Expenditures(7) ................................... $ 525,000 7.3%
Accounts Payable(8) ....................................... $ 500,000 6.9%
Working Capital and General Corporate Purposes(9) ......... $ 754,325 10.5%
----------- ----
$ 4,479,325 62.2%
----------- ----
Total ................................................... $ 7,201,200 100%
=========== ====
</TABLE>
- ----------------
(1) Repayment of principal and estimated interest on the Financing Notes, which
were sold in October 1997 and bear interest at a rate of 10% per year and
are due and payable at the closing of this offering. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for a description of the
terms of this debt.
(2) Represents the outstanding amount owed under a line of credit issued to the
Company by a financial institution. Interest is payable monthly. The
Company's financial obligations under the line of credit are guaranteed by
Peter Berg, the Chief Executive Officer of the Company, and Yannick
Tessier, the President of the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" for a description of the terms of the debt.
(3) Represents payment of: (i) $125,000 of fees and expenses due to Union
Atlantic under its consulting agreements with the Company, and (ii)
interest (approximately $21,875) accrued under the 10% convertible secured
UA Partners Note, which interest is due and payable within five days after
the effective date of this Prospectus. The principal amount of the UA
Partners Note will be automatically converted into an aggregate of 29,479
shares of Common Stock on the date of this Prospectus. See "Certain
Transactions--Consulting Agreements with Union Atlantic" for a description
of the terms of this debt.
(4) Represents: (i) repayment of a 10% note in the amount of $50,000 to Mr.
Tessier which is payable by the Company on the effective date of this
offering, and (ii) payment of $50,000 of fees and expenses due to David
Manovich pursuant to his consulting agreement with the Company. See
"Certain Transactions--Tessier Transaction" and "Management--Compensation
Arrangements with Chairman" for a description of terms of these debts.
(5) Includes expenditures for trade shows, product catalogs, print advertising,
cooperative dealer advertising, public relations and the hiring of
additional sales and marketing personnel.
(6) Includes the hiring of additional product development personnel and the
purchase of software development tools and related equipment. See
"Business--Product Development."
(7) For leasehold improvements, office furniture and modules, computer
equipment, Year 2000 compliance and software.
(8) Represents outstanding vendor obligations.
(9) Proceeds from the exercise of the Over-allotment Option, if any, will be
used for general corporate purposes.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds from the offering based upon the current state of the
Company's business operations, its current plans and current economic
conditions. Based on the Company's current proposed plans and assumptions
relating to the implementation of the Company's business strategy, the Company
anticipates that the net proceeds from the offering, together with projected
cash flow from operations, will be sufficient to satisfy contemplated cash
requirements for at least 12 months following the consummation of the
offering. Future events, including the problems, delays, expenses and
complications frequently encountered by software companies as well as changes
in regulatory, political and competitive conditions affecting the Company's
business and the success or lack thereof of the Company's business strategy,
may necessitate shifts in the allocation of funds. The Company also reserves
the right to allocate the net proceeds for acquisitions, although the Company
does not have any present understandings, commitments or arrangements with
respect to an acquisition.
Pending use of the proceeds of the offering, the Company may invest such
funds in interest bearing accounts, certificates of deposit, money market funds
or similar short-term investments.
17
<PAGE>
CAPITALIZATION
The following table represents the capitalization of the Company as of
March 31, 1998 and as adjusted to give effect to: (i) the automatic conversion
at the date of this Prospectus of the UA Partners Note into 29,479 shares of
Common Stock, and (ii) the sale of Securities offered hereby and the application
of the net proceeds therefrom. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and the notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------
ACTUAL AS ADJUSTED
--------------- -----------------------
<S> <C> <C>
Note Payable and Short-Term Borrowings ................ $ 217,422 17,422
Notes Payable--Shareholder ............................ 50,000 --
Long-Term Liabilities ................................. 652,649 2,649(1)
Financing Notes ....................................... 2,087,068 --
------------ --------
Total Debt .......................................... 3,007,139 20,071
Shareholders' (Deficit) Equity:
Preferred Stock, par value $.001 per share,
Authorized--1,000,000 shares; Issued--None ......... -- --
Common Stock, par value $.0001 per share,
Authorized--20,000,000 shares;
Issued and outstanding--2,639,463 shares
actual, 4,422,849 as adjusted ...................... 264 442
Additional Paid-in Capital ............................ 4,826,046 12,922,094
Accumulated Deficit ................................... (6,062,624) (6,594,240)(2)
------------ ------------
Total Shareholders' (Deficit) Equity ................ (1,236,314) 6,328,296
------------ ------------
Total Capitalization ................................ $ 1,770,825 $ 6,348,367
============ ================
</TABLE>
- ----------------
(1) Reflects the issuance subsequent to March 31, 1998 of 253,907 shares of
Common Stock to settle certain litigation. See "Business--Legal Proceeding"
and Note 10(e) of Notes to Consolidated Financial Statements.
(2) Reflects the write-off of (a) Original Issue Discount of $137,932 in
connection with the 1997 Financing; and (b) Deferred Financing Costs of
$393,684, upon the repayment in full, subsequent to March 31, 1998, of the
Financing Notes with the net proceeds of the offering. This expense will
be recorded in the quarter in which the offering is completed.
DIVIDEND POLICY
Holders of the Common Stock are entitled to cash dividends when, as and if
declared by the Board of Directors out of funds that are legally available to
pay such dividends. The Company does not anticipate the declaration or payment
of any dividends in the foreseeable future. The Company intends to retain
earnings, if any, to finance the development and expansion of its business.
Dividends will be subject to the discretion of the Board of Directors and will
be contingent upon future earnings, if any, the Company's financial condition,
capital requirements, general business conditions and such other factors as the
Board of Directors deems relevant. Until all amounts due under the Kenworthy
Note have been paid, the Company is prohibited from paying any dividends to its
shareholders. See "Certain Transactions--Wallenberg Trust and UA Partners
Investments." Moreover, dividend payments in the future may also be subject to
covenants contained in loan agreements, other financing documents or the terms
of any preferred stock. Therefore, there can be no assurance that dividends of
any kind will ever be paid.
18
<PAGE>
DILUTION
Dilution is the difference between the price paid for the Shares and the
"net tangible book value" per share of the Common Stock before the offering.
Net tangible book value per share represents the amount of the Company's
tangible assets less the amount of its liabilities, divided by the number of
outstanding shares of Common Stock.
At March 31, 1998, the Company had a negative net tangible book value of
$3,421,521, or ($1.30) per share. After giving effect to the sale of 1,500,000
Shares offered hereby at an assumed offering price of $6.00 per share
(excluding the Warrants being offered hereby at $.10 per Warrant) and the
Company's receipt of the proceeds from the offering, less underwriting
discounts, the non-accountable expense allowance and other estimated offering
expenses, and without giving effect to the exercise of the Warrants, the
Over-allotment Option, the Representatives' Warrants or the exercise of any
other outstanding options or warrants, the net tangible book value of the
Company, as adjusted at March 31, 1998, would have been approximately
$4,716,930, or $1.07 per share. Accordingly, the cash investment by investors
in this offering of $6.00 per share will be diluted immediately by
approximately $4.93 per share or 82%. The aggregate increase in the net
tangible book value to the present shareholders, at no additional cost to them,
will be approximately $2.37 per share. The following table illustrates the per
share dilution effect:
<TABLE>
<S> <C> <C>
Public offering price per share .......................................... $ 6.00
Pro forma net tangible book value per share before offering .............. $ (1.30)
-------
Increase per share attributable to payments by public investors .......... 2.37
-------
Adjusted pro forma net tangible book value per share after offering ...... 1.07
-------
Dilution of net tangible book value per share to public investors ........ $ 4.93
=======
</TABLE>
If the Over-allotment Option is exercised in full, the net tangible book
value per share at March 31, 1998, as adjusted for this offering, would be
$1.27, and dilution of net tangible book value per share to public investors
would be $4.73, or 79%.
The following table summarizes the difference between public investors and
current shareholders of the Company with respect to the number of shares
purchased from the Company, the total consideration paid to the Company (based
upon an assumed offering price of $6.00 per Share and before deduction of
underwriting discounts, the non-accountable expense allowance and other
estimated offering expenses) and the applicable average purchase price per
share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- ----------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
----------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Public Investors(1) .......... 1,500,000 33.9% $ 9,000,000 61.6% $ 6.00
Current Shareholders ......... 2,922,849 66.1% $ 5,601,310 38.4% $ 1.92
--------- ---- ----------- ---- ------
Total ........................ 4,422,849 100% $14,601,310 100%
========= ==== =========== ====
</TABLE>
- ----------------
(1) Attributes no value to the Warrants.
19
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following selected historical financial data of: (i) the Company for
the two years ended December 31, 1997, has been derived from the Company's
Consolidated Financial Statements as of December 31, 1996 and 1997 and for the
two years ended December 31, 1997, and (ii) Galacticomm, Inc. for the ten
months ended October 31, 1996, has been derived from Galacticomm, Inc.'s
financial statements for the ten months ended October 31, 1996, which are
included elsewhere herein. The following selected historical unaudited
financial data of the Company as of March 31, 1998 and for the three months
ended March 31, 1997 and 1998, has been derived from the unaudited historical
consolidated financial statements of the Company included elsewhere herein
which, in the opinion of management, include all adjustments (consisting of
only normal recurring adjustments) necessary for a fair and consistent
presentation of such data. Results for the three months ended March 31, 1998
are not necessarily indicative of results which can be expected for the year
ending December 31, 1998.
The following 1996 unaudited pro forma financial data gives effect to the
Company's November 1996 acquisition of Galacticomm, Inc. and its merger with
TTI as if such transactions were consummated on January 1, 1996. The pro forma
data is unaudited and is not necessarily indicative of the results of
operations of the Company had the Company actually acquired Galacticomm, Inc.
and TTI on January 1, 1996.
The following selected historical and unaudited pro forma financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited and unaudited
consolidated financial statements of the Company and Galacticomm, Inc. and the
notes thereto contained elsewhere herein.
<TABLE>
<CAPTION>
GALACTICOMM, INC. GALACTICOMM TECHNOLOGIES, INC.
------------------- -----------------------------------------------
YEARS ENDED
DECEMBER 31,
-----------------------------------------------
TEN
MONTHS PRO FORMA
ENDED (UNAUDITED)
OCTOBER 31, 1996 1996 1996 1997
------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................................ $ 3,293,876 $ 1,692,743 $ 6,189,505 $ 3,418,057
----------- ----------- ----------- -----------
Cost of revenues .................................... 1,005,595 758,050 2,515,462 869,252
Selling, general and administrative ................. 2,382,613 1,531,130 4,381,252 4,096,757
Depreciation ........................................ 150,185 47,533 415,452 163,221
Goodwill amortization ............................... -- 36,607 574,733 505,577
Compensation expense on warrants and shares ......... 529,139 49,381 578,520 143,760
Customer support .................................... 387,797 72,772 460,569 398,137
Research and development ............................ 638,200 225,549 863,749 586,071
----------- ----------- ----------- -----------
Total operating expense ........................... 5,093,529 2,721,022 9,789,737 6,762,775
----------- ----------- ----------- -----------
Loss from operations ................................ (1,799,653) (1,028,279) (3,600,232) (3,344,718)
Other income,net .................................... (468,153) (60,312) (655,321) (409,317)
----------- ----------- ----------- -----------
Net loss ............................................ $(2,267,806) $(1,088,591) $(4,255,553) $(3,754,035)
=========== =========== =========== ===========
Basic and diluted net loss per share ................ $ (1.12) $ (1.99) $ (1.72)
=========== =========== ===========
Shares used in computing basic and diluted net
loss per share ..................................... 973,649 2,139,443 2,188,474
=========== =========== ===========
<CAPTION>
GALACTICOMM TECHNOLOGIES, INC.
-------------------------------
THREE MONTHS ENDED
MARCH 31,
-------------------------------
(UNAUDITED)
1997 1998
-------------- ----------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................................ $ 969,435 $ 428,043
--------- -----------
Cost of revenues .................................... 271,393 140,027
Selling, general and administrative ................. 635,328 904,326
Depreciation ........................................ 42,477 56,947
Goodwill amortization ............................... 108,860 117,576
Compensation expense on warrants and shares ......... -- --
Customer support .................................... 114,943 56,305
Research and development ............................ 149,391 117,622
--------- -----------
Total operating expense ........................... 1,322,392 1,392,803
--------- -----------
Loss from operations ................................ (352,957) (964,760)
Other income,net .................................... 28,164 (236,137)
--------- -----------
Net loss ............................................ $(324,793) $(1,200,897)
========= ===========
Basic and diluted net loss per share ................ $ (0.16) $ (0.45)
========= ===========
Shares used in computing basic and diluted net
loss per share ..................................... 2,078,687 2,639,463
========= ===========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------
DECEMBER 31, 1997 ACTUAL AS ADJUSTED(1)
------------------ --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA
Cash ................................... $ 226,281 $ 17,900 $4,815,619
Working capital (deficiency) ........... (665,855) (3,470,393) 4,018,058
Goodwill, net of amortization .......... 1,723,266 1,605,690 1,605,690
Total assets ........................... 3,850,567 3,284,600 7,628,478
Short-term obligations ................. 218,594 2,354,490 17,422
Long-term obligations .................. 2,571,762 652,649 2,649
Shareholders' (deficit) equity ......... $ (35,417) $ (1,236,314) $6,328,296
</TABLE>
- ---------------
(1) Adjusted to give effect to: (a) the sale of the Securities offered
hereby and the application of the net proceeds therefrom; (b) the
automatic conversion of the UA Partners Note on the date of this
Prospectus into 29,479 shares of Common Stock, (c) the issuance in June
1998 of 253,907 shares of Common Stock in settlement of certain
litigation and (d) the write-off of deferred financing costs and
original issue discount related to the 1997 Financing in the aggregate
amount of $531,616, which amount will be expensed in the quarter in
which the offering is completed. See "Use of Proceeds,"
"Capitalization," "Business--Legal Proceeding" and "Certain
Transactions--Consulting Agreements with Union Atlantic."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company was incorporated in December 1995 under the name i-View
Software, Inc. and acquired its primary operating subsidiary, Galacticomm,
Inc., on November 21, 1996. In April 1997, the Company changed its name to
Galacticomm Technologies, Inc.
The Company acquired Galacticomm, Inc. through the issuance of an
aggregate of 116,565 shares of Common Stock and $668,413 in cash. The
acquisition was financed through the sale of Common Stock and the issuance of
convertible notes to UA Partners and Hemingfold Investments Limited
("Hemingfold"), which has transferred its interest in such notes to the
Wallenberg Trust, an affiliate of Hemingfold. See "Certain
Transactions--Wallenberg Trust and UA Partners Investments." Immediately prior
to the Company's acquisition of Galacticomm, Inc., the Company acquired TTI by
merger.
The Company's revenues and operating results have varied substantially from
period to period, are likely to continue to vary in the future and should not be
relied upon as an indication of future results. The Company has historically
operated with no significant backlog. The Company's quarterly results in the
future may also be affected by the Company's focus on customized software for
use by specific customers or specific industries. See "Business--Worldgroup
Customized Applications."
At March 31, 1998, the Company had a net goodwill balance of $1,605,690 as
a result of its merger with TTI and the acquisition of Galacticomm, Inc. The
goodwill associated with the TTI merger (approximately $85,176 at March 31,
1998) is being amortized over a three year period. The goodwill associated with
the Galacticomm, Inc. acquisition is being amortized over a five year period.
Consequently, results of operations of the Company will be negatively impacted
by the non-cash amortization of goodwill of approximately $474,000 per year
until 1999 and $422,000 per year thereafter until 2001.
RECENT DEVELOPMENT
In May 1998, the Company issued the Kenworthy Note in the principal amount
of $125,000. The Kenworthy Note is convertible into 100,579 shares of Common
Stock. See "Certain Transactions--Wallenberg Trust and UA Partners Investments"
and "Description of Securities--Registration Rights and Sales by Certain
Shareholders." The difference between the conversion price of this promissory
note ($1.24) and the fair value of the Common Stock ($6.00) on the date this
promissory note was issued to Kenworthy will be recorded by the Company in the
second quarter of 1998 as a non-cash charge to the Company's consolidated
statement of operations and as a corresponding decrease to additional
paid-in-capital of approximately $480,000. See Note 11(b) of Notes to
Consolidated Financial Statements of the Company.
RESULTS OF OPERATIONS
The results of operations set forth below for the year ended December 31,
1996 reflect the operations of the Company combined with the operations of
Galacticomm, Inc. and TTI as if the Company had actually acquired such
companies on January 1, 1996. The Company has not provided a comparative
discussion with respect to the historical results of the Company for the year
ended December 31, 1996, since it does not believe that such comparisons are
meaningful. The pro forma financial information included herein is unaudited
and is not necessarily indicative of the results that would have actually
occurred had the Company acquired Galacticomm, Inc. and TTI at January 1, 1996,
nor is it necessarily indicative of future results of operations. Among other
things, the business and cost structure of the pro forma combined companies for
the year ended December 31, 1996 was significantly different than the business
and cost structure of the Company on a historical basis for the year ended
December 31, 1997, including significant differences between such periods in
the number of persons employed, occupancy costs, products and services sold and
marketing strategies.
21
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997
Net revenues for the three months ended March 31, 1998 decreased 56%, from
$969,435 for the three month period ended March 31, 1997 to $428,043 for the
comparable period in 1998. The four components of the Company's net revenues
during these periods were software sales of Worldgroup, service fees, sales of
third-party hardware and royalties. For the three months ended March 31, 1997
these components generated sales of approximately $473,000 (plus $33,000 of
revenues from sales of Webcast), $293,000, $124,000 and $46,000, respectively.
For the three months ended March 31, 1998, these components generated sales of
approximately $185,000 (plus sales of approximately $64,000 for ActiBase and
WebCast), $149,000, $16,000 and $14,000, respectively.
The release in December 1996 of Worldgroup v3.0 had a positive effect on
software sales in the three month period ended March 31, 1997, while results
for the first quarter of 1998 were adversely impacted by the delay until March
1998 of the Company's release of Worldgroup v3.1 from its originally announced
release date of December 1997. The Company has historically experienced
increased software product revenues in the quarter after the introduction of
new versions of Worldgroup and reductions in sales after announcing upgrades
until such upgrade is released.
The reduction in sales of third-party hardware and service fees from
period to period was reflective of the Company's strategy to rely on VARs for
the sale of third-party hardware compatible with the Company's software and to
emphasize software sales. Software sales generate higher profit margins than
the three other areas of the Company's business. In the future, revenues from
software sales, as a percentage of net revenues, are expected to increase and
service fees and sales of third-party hardware, as a percentage of net
revenues, are expected to decrease, as the Company places greater emphasis on
the development and marketing of Worldgroup and Worldgroup based products.
Cost of revenues consists primarily of software product costs, hardware
purchased for resale and costs for billing and collection. For the three month
period ended March 31, 1998, cost of revenues decreased 48% from $271,393 in
the 1997 period to $140,027 in the 1998 period. This decrease was primarily
attributed to fewer hardware purchases and lower costs for billing and
collection services as a result of lower service revenues for the 1998 period.
Since the primary focus of the Company in the future will be on software sales,
costs of revenues, as a percentage of revenues, is expected to be lower in the
future.
Selling, general, and administrative ("SG&A") expenses for the three month
period ended March 31, 1998 increased 42%, from $635,328 in 1997 to $904,326 in
1998. SG&A expenses consist primarily of employee compensation, marketing
expenses, professional services and office expenses. The increase in SG&A
expenses is due primarily to the following factors: (i) an $85,300 write-off
of various trade receivables in the first quarter of 1998; (ii) $39,600 of
costs incurred in the first quarter of 1998 associated with an acquisition that
the Company did not complete; (iii) $35,000 in consulting fees incurred in 1998
but not in 1997; (iv) the lease during the first quarter of 1998 of a T-3
fiber-optic circuit for $73,000; and (v) $47,000 in increased legal expenses
during the first quarter of 1998 primarily relating to certain settled
litigation; offset in part by approximately $53,000 in reduced trade show and
direct mail expenses from period to period.
Depreciation and amortization for the three month period ended March 31,
1998 increased 15% from $151,337 in 1997 to $174,523 in 1998. Amortization of
intangibles, which primarily represents the amortization of goodwill resulting
from the Company's acquisitions of TTI and Galacticomm, Inc., is being
amortized over periods of three to five years.
Customer support expenses for the three month period ended March 31, 1998
decreased 51%, from $114,943 in 1997 to $56,305 in 1998. The decrease was
primarily caused by a decrease in customer support employees from period to
period, through both termination and transfer of personnel to other
departments. The Company expects that customer support expenses will increase
in the future as software sales increase.
22
<PAGE>
Research and development expenses for the three month period ended March
31, 1998 decreased 21%, from $149,391 in 1997 to $117,622 in 1998, as a result
of the Company's lack of funding. The Company expects that product development
expenses will increase in the future when the Company has funds available to
further expand its product development activities. See "Business--Product
Development."
Net other income (expense), for the three month period ended March 31,
1998 was $(236,137) as compared to $28,164 for the three months ended March 31,
1997. The increase in net other expense was due to the following factors: (i)
increased interest expense during the first quarter of 1998 of $239,501 from
the issuance of the Financing Notes ($182,354 of which is non cash amortization
of deferred debt issuance costs and original issue discount); and (ii) a
decrease of $55,000 in other income.
As a result of the foregoing factors, the Company's net loss for the three
month period ended March 31, 1998 increased $876,104, from $324,793 in 1997
($.16 per basic and diluted share) to $1,200,897 in 1998 ($.45 per basic and
diluted share).
YEAR ENDED DECEMBER 31, 1997 AS COMPARED WITH PRO FORMA YEAR ENDED DECEMBER 31,
1996 (ASSUMES THE ACQUISITION OF GALACTICOMM, INC. AND TTI HAD OCCURRED ON
JANUARY 1, 1996)
Net revenues for the year ended December 31, 1997 decreased 45%, from
$6,189,505 for 1996 to $3,418,057 for 1997. The decrease in revenue was
primarily attributable to: (i) the Company's divestiture of its adult
entertainment business in November 1996 ($1.4 million in 1996 revenue was
attributable to that business); (ii) the Company's decision to de-emphasize the
sale of modems and certain other third- party hardware products in late 1996,
resulting in reduced hardware sales of $582,000 from period to period; and
(iii) a reduction in software sales of $850,000. The reduction in software
sales arises for two reasons: (a) sales were hampered during 1997 due to the
fact that not all of the applications of the Company's Worldgroup v3.0 were
available during 1997 with Active HTML interface, and (b) the Company did not
have sufficient funds to properly market its products during 1997.
For the year ended December 31, 1997, cost of revenues decreased 65%, from
$2,515,462 in the 1996 period to $869,252 in the 1997 period. This decrease was
primarily attributable to fewer hardware purchases and lower costs for billing
and collection services as a result of lower service revenues from period to
period.
Selling, general, and administrative expenses for the year ended December
31, 1997 decreased 6% from $4,381,252 in 1996 to $4,096,757 in 1997 primarily
due to a decrease in expenditures for marketing in order to conserve cash.
Depreciation and amortization for the year ended December 31, 1997
decreased 32%, from $990,185 in 1996 to $668,798 in 1997. Such decrease
resulted primarily from a decrease of $252,231 in depreciation expense due to
the change in the depreciable life of computer equipment from five to three
years and the resultant full depreciation of certain assets during 1996.
Stock-related compensation expense for the years ended December 31, 1996
and 1997 amounted to $578,520 and $143,760, respectively. The 1997 non-cash
expense was a result of the issuance of warrants by two of the Company's
officers, directors and shareholders to another shareholder of the Company.
These warrants expired unexercised. See Note 8(c) to Notes to the Company's
Consolidated Financial Statements. The 1996 non-cash expense related to the
conversion of phantom stock units by former employees of Galacticomm, Inc. into
shares of common stock and the issuance to Mr. Tessier of 733,669 shares of
Common Stock pursuant to the Stock Issuance Agreement dated August 26, 1996.
See "Certain Transactions--Tessier Transaction."
Customer support expenses for the year ended December 31, 1997 decreased
14% from $460,569 in 1996 to $398,137 in 1997. This decrease was primarily
caused by lower telecommunications costs and lower payroll in the 1997 period.
23
<PAGE>
Research and development expenses for the year ended December 31, 1997
decreased 32% from $863,749 in 1996 to $586,071 in 1997. The decrease was due
to a lack of funds available for research and development.
Other expense, net for the year ended December 31, 1997 decreased 38%,
from $655,321 in 1996 to $409,317 in 1997. Such decrease resulted primarily
from a penalty of $380,000 for early termination of a lease of office space in
1996, which was offset by an expense of approximately $86,000 related to the
issuance in August 1997 of an aggregate of 13,794 shares of Common Stock to
five persons to cancel certain royalty rights. See Note 6(a) to Notes to
Consolidated Financial Statements of the Company.
As a result of the foregoing factors, the net loss for the year ended
December 31, 1997 decreased $501,518, (or 11.8%) from $4,255,553 in 1996 to
$3,754,035 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company financed the acquisition of Galacticomm, Inc. in November 1996
and has financed its operations since such time primarily through the sale of
its debt and equity securities in private transactions.
The Company acquired 99.9 percent of the outstanding common stock of
Galacticomm, Inc. in November 1996 and in February 1997 through the issuance of
an aggregate of 116,565 shares of Common Stock and $668,413 in cash
consideration. The cash portion of the acquisition of Galacticomm, Inc. was
financed through investments in the Company by the Wallenberg Trust and UA
Partners, pursuant to which the Company received net proceeds of $2,610,641 from
the sale of 324,267 shares of Common Stock and the issuance of secured
convertible promissory notes in the aggregate principal amount of $1,375,000.
One of these notes in the principal amount of $1,250,000, plus accrued interest
thereon, was converted on December 31, 1997 into 328,224 shares of Common Stock.
The second note in the principal amount of $125,000 will be automatically
converted into 29,479 shares of Common Stock on the date of this Prospectus. See
"Certain Transactions--Wallenberg Trust and UA Partners Investments."
In June 1997, the Company received net proceeds of $844,553 from the sale
of 156,783 shares of Common Stock to nine persons in a private transaction (the
"June 1997 Private Placement"). The Company used $100,000 of the proceeds to
repay its existing credit facility with a financial institution and allocated
the balance of such funds for working capital and general corporate purposes.
In October 1997, the Company completed the 1997 Financing by issuing 42
units of its securities ("Financing Units"), each Financing Unit consisting of
an unsecured non-negotiable promissory note in the principal amount of $50,000
("Financing Note") and a three year warrant (the "1997 Financing Warrant")
exerciseable until October 27, 2000 ("Warrant Expiration Date") to purchase
11,466 shares of Common Stock at $6.21 per share. The Financing Notes, which
bear interest at the rate of 10% per year, are due and will be paid at the
closing of, and from the proceeds of, this offering. See "Use of Proceeds."
Interest payments under the Financing Notes of $140,959 and $105,288 are to be
paid semi-annually on June 30 and December 31, 1998, respectively. The unpaid
principal and accrued interest under the Financing Notes are required to be
paid on the earlier to occur of January 4, 1999 or the closing of this
offering. The holders of the 1997 Financing Warrants have agreed not to
transfer the 1997 Financing Warrants or the shares of Common Stock underlying
such warrants for a period of 12 months following this offering. In exchange
for serving as the placement agent for the 1997 Financing, the Company paid
First Equity Corporation of Florida (one of the Representatives): (i) cash
compensation equal to 10 percent of the principal amount of the Financing
Notes; (ii) a non-accountable expense allowance equal to three percent of the
principal amount of the Financing Notes and certain accountable expenses
totaling $10,000; and (iii) warrants to purchase 96,314 shares of Common Stock
on terms substantially the same as the Financing Warrants. After deducting
these expenses and other expenses of the 1997 Financing, the Company received
net proceeds of approximately $1,682,000. The Company used approximately
$272,500 from the net proceeds of the 1997 Financing to repay certain
indebtedness, including approximately $200,000 of outstanding amounts under the
Company's line of credit with a financial
24
<PAGE>
institution. Approximately $40,000 of the net proceeds from the 1997 Financing
were allocated to build out and make improvements to the Company's office
space, and the balance was allocated for working capital and general corporate
purposes.
The Company is in the process of obtaining a waiver of default from the
holders of the Financing Notes for the Company's failure to make the scheduled
June 30, 1998 interest payment due under the Financing Notes. In exchange for
waiving such default, the Company intends to: (i) issue to each of the holders
of the Financing Notes another warrant to purchase 7,534 shares of Common Stock
at a price of $6.00 per share exercisable until four years from the date of this
Prospectus, (ii) extend the Warrant Expiration Date to coincide with the
expiration date of the additional warrants and (iii) reduce the exercise price
of all of the 1997 Financing Warrants to $6.00 per share. The Company
anticipates that the additional warrants will be on substantially the same terms
as the 1997 Financing Warrants, except as set forth herein.
In May 1998, the Company borrowed $125,000 from Kenworthy. The unpaid
principal balance of the Kenworthy Note bears interest at the rate of 10% per
annum. All principal and accrued interest under the Kenworthy Note is required
to be paid on January 1, 1999, unless the aggregate principal and accrued
interest under the note is converted, at the option of Kenworthy, into shares
of Common Stock at the rate of $1.24 per share. The Company used the proceeds
from the loan for working capital. See "--Recent Development" above.
In June 1998, the Company borrowed $175,000 from Peter Berg, the Chief
Executive Officer of the Company, and $125,000 Yannick Tessier, the President
of the Company. The Company used the proceeds from such loans to pay certain
accrued accounting and legal fees and other payables associated with this
offering. The aggregate principal amount of the loans accrue interest at the
rate of seven percent per annum. All principal and accrued interest is required
to be paid upon the earlier to occur of September 30, 1999 or 12 months from
the completion of this offering. See "Certain Transactions--Berg and Tessier
Transaction."
The Company has a $200,000 line of credit with a bank, which line of
credit is guaranteed by Galacticomm, Inc. and Messrs. Berg and Tessier. As of
March 31, 1998, the Company had borrowed the full amount available under the
line of credit. Borrowings under the line of credit accrue interest at an
annual rate of 1.5% above the applicable prime rate.
The report of the Company's independent public accountants contains an
explanatory paragraph which states that the Company has suffered recurring
losses from operations and has negative working capital, which raises
substantial doubt about the Company's ability to continue as a going concern.
At March 31, 1998, the Company had an accumulated deficit of $6,062,624 and its
current liabilities exceeded its current assets by $3,470,393. In addition, the
Company is not currently generating positive cash flow from operations and
there can be no assurance that the Company will achieve or sustain positive
cash flow from operations or profitability. See "Risk Factors--Independent
Auditor's Report Contains Going Concern Qualification; Losses from Operations;
Accumulated Deficit."
The Company anticipates, based on its currently proposed plans and
assumptions relating to operations, that the net proceeds from the sale of the
Securities offered hereby, together with projected cash flow from operations,
will be sufficient to satisfy the Company's contemplated cash requirements for
at least 12 months following the consummation of the offering.
The Company has no material commitments for capital expenditures or lease
obligations other than the lease of a T-3 fiberoptic digital circuit for
$17,500 per month until April 15, 2000 and the lease of its office space. See
"Business--Facilities." The Company intends to use approximately $525,000 of
the net proceeds from this offering to build out and make improvements to its
office space, complete its Year 2000 compliance expenditures and to acquire
office furniture and modules and computer equipment.
25
<PAGE>
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 compliance issue. As
the year 2000 approaches, such systems may be unable to accurately process
certain date-based information.
The Company believes that all of the software products which it sells are
Year 2000 compliant. However, hardware and administrative software which the
Company uses in its business will require modification to ensure Year 2000
Compliance. Internal and external resources will be used to make the required
modifications and test Year 2000 compliance. The Company plans to complete the
testing and modification of such hardware and software by June 30, 1999. The
Company estimates that the cost to address Year 2000 issues could be up to
$100,000.
In addition, the Company is communicating with its external service
providers to ensure that such providers are taking the appropriate action to
address Year 2000 issues. However, there can be no assurance that the systems
of third parties on which the Company's systems rely will convert, or that a
conversion that is incompatible with the Company's systems would not have an
adverse effect on the Company's systems.
26
<PAGE>
BUSINESS
INTRODUCTION
The Company develops, markets, licenses and supports software that enables
users to communicate and conduct business over the Internet, intranets, or other
online communications systems. The majority of the Company's software products
are derived from the Company's flagship product, Worldgroup v3.1 ("Worldgroup")
for Windows NT and Windows 95, which is an integrated suite of five
applications: E-mail, Polls and Surveys, Threaded Discussion Groups
(newsgroups), a Document Retrieval Center and Chat. Worldgroup allows an
individual or enterprise to establish an online system, an intranet or website
and to make such an online system accessible through the World Wide Web using a
standard web browser, such as Microsoft Internet Explorer or Netscape Navigator.
The Company estimates that since 1987 Worldgroup and its predecessor product,
The Major BBS, have been installed on more than 10,000 online systems worldwide,
including systems currently operated by Fortune 500 companies, financial and
educational institutions and government agencies.
Worldgroup features an open (non-proprietary) set of interfaces, a
scalable infrastructure that can grow with a company's needs, and multiple
means of connectivity, including connectivity to the Internet. Such features
allow Worldgroup to serve as a development platform for specific communication
solutions in a variety of businesses and industries. In conjunction with third
party developers, the Company has designed intranets and other online systems
for specific applications relating to education, small business and online
gaming. Worldgroup's open set of interfaces has allowed third party developers
to design and sell add-ons that supplement Worldgroup's standard features. As a
result, more than 30 independent software developers have designed more than
100 available products including add-ons, that enhance online systems which
utilize Worldgroup. Worldgroup is available in eight languages.
In addition to Worldgroup, the Company currently markets the following
products, each of which utilizes the Worldgroup software platform:
WEBCAST. WebCast allows users to transmit real-time audio and visual
broadcasts, and broadcast pre-recorded videos on demand, over the Internet to
viewers who need only use a standard web browser to receive the broadcast. The
Company markets WebCast directly to individual consumers and to businesses
through VARs and bundling arrangements with camera and other hardware
manufacturers. The Company also seeks to enter into bundling arrangments with
camera and other manufacturers. To date, the Company has entered into
agreements to bundle WebCast with cameras and other hardware sold by Eastman
Kodak Company, Boca Research, Inc., Specom Technologies Corp. and Aztech New
Media Corp.
ACTIBASE. ActiBase enables a company with a web site or an online system to
publish its own databases on its system. ActiBase is compatible with most common
database software available in the market and can be used by persons with only
limited knowledge of computer database programming. ActiBase is offered as an
additional application to Worldgroup. It can also be used on a stand alone basis
to publish a company's database on a web site so such database can be accessed
through the World Wide Web.
WORLDLINK. Worldlink allows a Worldgroup online community to link with
other Worldgroup online systems. The Company believes that the future
development and organization of online communities will result in additional
online systems using Worldgroup.
The Company's objective is to become a leading developer of communications
software for the Internet and for other online systems, including intranet and
online communications systems. The Company intends to achieve its objective by
implementing the following strategies: (i) developing quality software
applications and customized solutions for the individual needs of customers,
using Worldgroup as the foundation; (ii) continuing to upgrade Worldgroup and
its applications and offering new applications that deliver high levels of
performance, ease of use and multi-tiered
27
<PAGE>
authorization to information; (iii) establishing strategic alliances to
increase sales and facilitate market acceptance of the Company's products; (iv)
providing timely, high quality technical support to meet the diverse needs of
its customers, VARs and resellers; and (v) increasing marketing efforts to
promote Worldgroup as a premier communications software product.
INDUSTRY BACKGROUND
THE INTERNET AND THE WORLD WIDE WEB
Online communication has grown dramatically since 1987, when the Company
first began offering communications software. BUSINESS WEEK (May 5, 1997)
reported that it is estimated that over 40 million people exchange information
and communicate electronically using personal computers. By the year 2000, this
number is expected to increase to over 200 million.
The convergence of communications and computers was greatly accelerated in
the 1990s by the market acceptance and commercialization of the Internet, a
global web of computer networks. Developed in 1969, this "network of networks"
allows any computer connected to the Internet to communicate with any other
computer using a common telecommunication protocol. Originally subsidized by
the United States government, funding for the Internet infrastructure and
backbone operations shifted to the private sector in the 1990s as the number of
commercial entities relying on the Internet for business communications and
commerce increased. The rapid growth of the Internet has been caused by the
emergence of a network of servers and information available on the Internet
called the World Wide Web (the "Web"). The Web, which is based on a
client-server model and a set of standards for information access and
navigation, can be accessed using software that allows non-technical users to
exploit the capabilities of the Internet. Electronic documents are published on
Web servers in a common format called the Hypertext Markup Language ("HTML").
Web client software (known as browsers) can retrieve these documents across the
Internet by making requests using a standard protocol called Hypertext Transfer
Protocol ("HTTP"). The most common commercial browsers currently in use are
Microsoft Internet Explorer and Netscape Navigator.
The growth of online communications has created increasing demand for
software solutions that enable users to interact and communicate more
efficiently and effectively. In 1996, Forrester Research, Inc. estimated that
the worldwide Internet software market would increase from $382 million in 1996
to $8.5 billion in 1999. Uses for such software include the following:
INTRANETS AND OTHER ONLINE SYSTEMS
Businesses and other enterprises use personal computers to help their
employees communicate and collaborate with each other. Organizations have
developed Bulletin Board Systems ("BBSs"), local area networks (LANs) and Wide
Area Networks (WANs) and other closed systems (collectively, "Online Systems")
to electronically connect their employees as well as their customers. In
addition, the technology and protocols of the Internet have been applied to
expand the use of private data networks through the development of intranets.
An intranet is a network using the applicable protocol of the Internet that
connects an organization's computers in a way that makes information more
accessible and facilitates a user's navigation through all the resources and
applications of the organization's computing environment. In many instances,
the same software applications in use on the Internet and Online Systems can be
applied to intranets, thereby broadening the market for such software
applications. See "--Worldgroup Customized Applications."
ONLINE COMMERCE
Commercial uses of the Internet and Online Systems include
business-to-business and business-to-consumer transactions, product marketing,
advertising, entertainment, electronic publishing, electronic services and
customer support. This medium offers innovative opportunities for retail and
mail order businesses to target and manage a wider customer base. Companies
from many industries are using the
28
<PAGE>
Web to publish product and company information, provide customer support, allow
customers to buy products online, and to collect customer feedback and
demographic information interactively. The Company uses the Internet and Online
Systems to offer technical support for products and save shipping costs by
making software updates available electronically through copying or
"downloading" procedures. Other businesses, such as financial institutions and
brokerage firms, are also appearing online as the Internet provides access to a
growing base of home, business and education customers.
ONLINE COMMUNITIES
Online "communities" are one of the fastest growing areas of the Internet,
according to a report by BUSINESS WEEK (May 5, 1997). An online community is a
network of users that communicate with one another via computer. Online
communities may be commercial or private, small or large. Prior to the advent
of the Internet, online communities existed through Bulletin Board Systems,
which consist of a personal computer running a software program onto which
users would typically connect through a standard telephone line. Many
applications that are now standard on the Internet such as newsgroups, file
transfers and E-mail were initially introduced on BBSs. Software that enabled
the creation of online communities included the Company's "The Major BBS"
software, which the Company offered from 1987 until 1995, when the Company
introduced Worldgroup. The Company believes that, based upon a report on the
Company prepared by an independent third party, The Major BBS, the predecessor
to Worldgroup, was, by 1994, the industry leader in the corporate market
segment for BBS software.
Until recently, online communities were primarily organized for
non-commercial purposes. The attraction to members of these communities is the
ability to interact with users with similar interests locally or worldwide.
Members engage in real-time conversation in chat rooms, post messages on a
variety of topics in newsgroups or on bulletin boards or play interactive
games, known as MUDs. Increasingly, businesses are creating commercial online
communities to attract and make sales to consumers. The premise behind these
commercial online communities is that consumers will visit and stay longer at a
website or Online System where they can interact with others who share a common
interest. To encourage interaction between consumers and to retain users at
their site, businesses have added online chat rooms, bulletin boards, e-mail
and other software applications to their commercial website or Online System.
WORLDGROUP
The Company's communication software applications are designed to connect
people and information over the Internet, intranets and Online Systems. The
majority of the Company's software applications are based on the Company's
flagship product, Worldgroup, a comprehensive software and development tool
that allows users in different locations to exchange ideas and information
using a variety of connection methods, including the Internet, dial up modem,
LANs, WANs, integrated services digital network (ISDN) and serial connection.
Using Worldgroup, businesses can establish an interactive web site (or improve
an existing website), organizations can establish intranets and exchange data
with remote employees, suppliers and customers, and entrepreneurs can create
their own online community similar to services such as America Online, as well
as offer their customers access to the Internet. The Company estimates that
since 1987 Worldgroup software and its predecessor product, "The Major BBS,"
have been installed on over 10,000 online servers worldwide, including systems
currently operated by Symantec Corporation, Motorola, Inc., 3Com Corporation,
Citibank, N.A., the United States Air Force and the National Weather Service.
These servers reach an estimated 1.1 million end-users who use and interact
with the Company's software. Worldgroup software is available in eight
languages.
Worldgroup is both an out-of-the-box product and a development platform
that can be configured to provide communications solutions for different
businesses and industries. One of Worldgroup's main features is its security
architecture, which allows the system operator or administrator to create
multi-tiered authorization to information within the system. Out-of-the-box,
Worldgroup is a suite of popular client/server and web-based applications,
including:
29
<PAGE>
ELECTRONIC MAIL. Electronic mail or E-mail allows users to deliver a
private message to others who need not be there when the message arrives.
Worldgroup's E-mail has the following features: file attachments, carbon
copies, mail forwarding, distribution lists, offline filing cabinets, "new
mail" notification, and return receipt.
POLLS AND SURVEYS. This feature allows the Worldgroup system operator or
administrator ("Worldgroup Administrator") to create questionnaires,
application forms or opinion polls to ascertain market research and other
information about customers and other users, and to instantly tabulate and
display the results through the web and other formats.
THREADED DISCUSSIONS. Popularly known as newsgroups, threaded discussions
allow users to post messages and respond to messages posted by others.
DOCUMENT RETRIEVAL CENTER. This application allows users to share programs
and document files. Users can search files by library, category, file
names, file date, and descriptive words. A Worldgroup Administrator can
limit user access to particular files or programs.
CHAT. This application allows users to establish real-time conversations.
Chat enables group meetings where participants can exchange files in real
time with other users while continuing the conversation. The Worldgroup
Administrator can create different channels, each with its own moderator
and topic.
Worldgroup has Active HTML interfaces which permit access to a Worldgroup
server through the Internet using only a standard Web browser. The Company
believes that this "thin client" access, where there is no need to download
client software or employ other controls, makes access to a Worldgroup system
as convenient as accessing any website.
In addition to its thin client capabilities, all Worldgroup applications
continue to be available using the Company's proprietary client software,
Worldgroup Manager. The Company believes that the use of Worldgroup Manager has
many practical advantages over current thin client technology, including
reduced bandwidth needs, greater real time interactivity between users, and the
ability to compute "offline." The Company's client software is offered at no
cost, can be downloaded through the Web and can be launched from the Web
directly through the Worldgroup plug-in for Netscape Navigator and Microsoft
Internet Explorer.
Worldgroup has been designed for multiple connectivity. Users can access a
Worldgroup system through dial-up modems, ISDN and Novell-based networks (SPX),
as well as the Internet and TCP/IP based networks. The Company believes that
multiple connectivity has several advantages over Internet-only connectivity,
including enabling fixed bandwidth connections, alternative access routes if
the primary route is "down" or otherwise not available, and better security for
private transactions. Worldgroup is designed to run on DOS, as well as the
Windows NT and Windows 95 operating systems. The Company believes that
Worldgroup is compatible with Windows 98.
In addition to being an out-of-the-box product, Worldgroup is a
development platform. The Company believes that one of Worldgroup's key
strengths is its standard set of interfaces and open architecture. Through
Worldgroup's application programming interfaces (APIs) and development kits,
more than 30 independent software vendors have developed and marketed
applications that can be added to an Internet or Online System using
Worldgroup's software. This allows Worldgroup users to pick and choose
additional applications for a Worldgroup system depending on their needs. For
example, if a group calendar/scheduling program is desired, an add-on
application can be integrated into the Worldgroup system. The Company and
independent software vendors currently offer over 100 add-on applications for
Worldgroup, including add-ons that allow a Worldgroup system to offer: (i)
outgoing online fax service; (ii) an online shopping mall; (iii) form templates
for workflow environments; (iv) video conferencing with point-to-point
broadcast, and video-on-demand; (v) group scheduling; (vi) online publishing;
and (vii) Internet access to users and optional support for Radius
30
<PAGE>
security and accounting protocol for terminal server equipment. Several of
these add-on applications are embedded in the Worldgroup software and therefore
can be electronically distributed to and immediately launched by a Worldgroup
user upon payment of a fee. To allow independent software vendors, system
operators and system integrators to create such add-ons as well as other
customized client-side applications, the Company offers a Worldgroup developer
kit for $699, which contains the source code for the five core Worldgroup
applications and in-depth developer information.
The Company believes that while most sales of Worldgroup have been to
domestic customers, significant opportunities will exist in the future for the
sale of Worldgroup into emerging international markets. It is estimated that
80% of the total demand for Internet access originates in the United States.
One of the primary reasons for the lack of Internet access in other countries
is cost. Consequently, the Company believes that the Worldgroup product
operating as a bulletin board using existing telephone systems (as opposed to
high speed Internet networks) offers an attractive and economically feasible
solution in emerging markets. The Company intends to seek to develop a loyal
customer base in such markets. The Company currently sells its products
worldwide. Worldgroup's ability to offer advanced communications technology to
third world countries has been recognized by the United Nations Development
Programme Global Technology Group, which, in January 1997, selected Worldgroup
to the United Nations Flag Technology Program.
The suggested retail price for Worldgroup for access by eight simultaneous
users is $695. The number of simultaneous users can be increased to up to 256
simultaneous users through the purchase of additional single user packs, at a
price of $49 per pack.
WORLDGROUP CUSTOMIZED APPLICATIONS
Using Worldgroup as the foundation, the Company, working in conjunction
with third party developers, has designed intranets and other online
communications systems for a number of industries and customers, including the
following:
EDUCATION
The Company has designed its Worldgroup software to be used in creating a
classroom intranet designed to connect teachers, students, parents and
administrators to a virtual community. This software offers "managed" Internet
access to schools, enabling students to browse the World Wide Web, but only to
sites approved by teachers and school administrators. The Company's software is
being sold to school systems in the State of Alabama through a VAR specializing
in the education marketplace. In January 1998, the Company entered into a
non-exclusive reseller agreement with Simon & Schuster, Inc., pursuant to which
Simon & Schuster, Inc. acts as a reseller of the Company's education software.
SMALL BUSINESS
The Company, using the Worldgroup platform, is developing a web software
solution called Imodule for small businesses. The Imodule software is being
designed to allow businesses to establish interactive web sites which offer
customers and vendors a means to interact and purchase goods and services from
the Company's data bases and personnel. The software is being developed under a
joint venture agreement with Express Web, Inc. The Imodule software is expected
to be available for shipping in the first quarter of 1999.
ONLINE GAMING
Worldgroup is currently being utilized in the development of online casino
games for both the entertainment and casino marketplace. The Company sells its
software to Aries Consulting which offers a program called Aces Casino. Aces
Casino is marketed to domestic and international casinos who want to provide a
non-monetary form of casino gaming to their casino customers to encourage
patronage. The Company has no intent to offer gaming activities online.
31
<PAGE>
OTHER PRODUCTS
The Company also currently markets the following products, each of which
utilizes the Worldgroup software platform:
WEBCAST
Introduced in March 1997, WebCast is an Internet multi-media software
product which enables users to broadcast real-time or pre-recorded audio and
video and other information displayed on the user's monitor over the Internet
to viewers who need only use a standard web browser to receive the broadcast.
Business and other applications of WebCast include: (i) the ability to have
customer service representatives or technicians talking live with customers,
(ii) the ability to have staff meetings with remote offices, and (iii) parents
away from home checking on their children or other family members. In October
1997, the Company released WebCast v2.0 offering video on demand and audio
capabilities without the need for client software.
The Company currently offers two WebCast products--WebCast Personal and
WebCast Add-on. WebCast Personal is designed for individual users and allows up
to four simultaneous viewers. In addition to its audio and video capabilities,
WebCast Personal provides Chat, caller ID, call blocking and password
authorization. The suggested retail price of WebCast Personal is $49.95.
WebCast Add-on is designed for commercial applications and allows up to
254 simultaneous viewers. The suggested retail price of WebCast Add-on is $995.
The Company markets WebCast directly to individual consumers and to
businesses through VARs and bundling arrangements with camera and other
hardware manufacturers. To date, the Company has entered into agreements to
bundle WebCast with cameras and other hardware sold by Eastman Kodak Company,
Boca Research, Inc., Specom Technologies Corp. and Aztech New Media Corp.
In August 1997, the Company entered into a licensing agreement with Boca
Research, Inc., pursuant to which the Company has granted Boca Research, Inc. a
license to include WebCast and related technology in their modems, video
conferencing and other hardware products, in exchange for royalty payments that
are determined based on the amount and type of product sold by Boca Research,
Inc.
ACTIBASE
ActiBase is an ODBC compliant database connectivity program which is fully
integrated with Worldgroup. ActiBase enables a company to publish its own
database, using the most common database software, directly onto the Web, with
only limited knowledge of computer programming or HTML. ActiBase features
include dynamically generated SQL (structured query language) and HTML Code, a
drag and drop form editor and security options. ActiBase, as a stand alone
product, includes support for eight simultaneous users with user count upgrades
available. ActiBase is also offered as an add-on to Worldgroup.
WORLDLINK
The Company believes that there are at present approximately 500 Worldgroup
communities operating with the Company's Worldgroup and/or The Major BBS
software. Unlike larger Online Systems such as America Online and Microsoft
Network, the Company believes that Worldgroup communities are typically formed
by users and entrepreneurs with a common interest in a particular subject (e.g.
horse racing) or by users who are located in the same geographic area. The
Company believes that localized service is attractive to users in much the same
way that a local newspaper appeals to many readers over a national one.
To meet this need, the Company has created Worldlink in order to connect
online Worldgroup systems to each other creating a global network of Worldgroup
communities. Worldlink has been
32
<PAGE>
developed to act as a central hub that enables users of an online Worldgroup
system in one location to interact and communicate with users of a different
online Worldgroup system. One of the Company's objectives is to ultimately
create a global network of Worldgroup communities. The ability of the Company
to successfully launch a global network of Worldgroup communities is subject to
a number of risks, many of which (such as the participation of individual
Worldgroup communities) are beyond the control of the Company. No assurance can
be given that the Company will be successful in promoting the development of a
global community of Worldgroup systems.
SALES, MARKETING AND DISTRIBUTION
The Company markets and distributes its products worldwide through VARs,
resellers and directly to consumers. The Company markets its products on its
Web site, which contains demonstrations, free downloads of certain products and
significant other information regarding the Company's products. The Company
participates annually in trade shows, which typically include Comdex, PC Expo
and Internet World.
The Company intends to increase the sales and distribution of WebCast and
its other products by incorporating promotional versions of the Company's
software into computer hardware, such as web cameras and modems, that are
manufactured and marketed by other companies. Through these bundling
arrangements, end purchasers of the computer hardware have an opportunity to
try the Company's software and, if desired, to purchase a fully-functional
version of the Company's software. These arrangements generally provide that
the Company's software is, at no cost to the Company, advertised on the package
for the hardware product and that the hardware manufacturer receives a
percentage of the purchase price of any software purchased from the Company as
a result of such arrangement. To date, the Company has entered into agreements
with Eastman Kodak Company, Boca Research, Inc., Aztech New Media Corp. and
Specom Technologies Corp. to bundle WebCast with cameras and other computer
hardware products offered by such companies.
The Company is also working with Simon & Schuster, Inc. and several VARs
to sell the Company's software in the education market. The Company intends to
pursue additional VARs and resellers in the education marketplace and will seek
to license and co-brand its products, when appropriate.
The Company's marketing and sales efforts are supported by a sales and
marketing force of five people, three of whom are based at the Company's
headquarters in Ft. Lauderdale, Florida and one each is based in Mexico City,
Mexico and Sao Paulo, Brazil. The Company intends to add up to seven more
employees in sales and marketing following the closing of the offering. There
can be no assurance that such expansion will be successfully completed, or that
the cost of such expansion will not exceed the revenues generated.
PRODUCT DEVELOPMENT
The market for the Company's products is characterized by rapidly changing
technology and frequent new product introductions. The Company's future success
depends on its ability to enhance its existing products and to develop new
products that: (i) incorporate new and evolving industry standards, (ii)
respond to evolving customer requirements, and (iii) achieve market acceptance.
The primary aim of the Company's product development efforts is to identify
emerging online communications technology and standards and develop products
that address evolving market needs. Specifically, the Company intends to
improve and upgrade its existing products, and to develop and introduce new
products that deliver to customers high levels of performance, ease of use and
security.
The Company has incurred significant research and development costs over
the past two years to convert the Company's software to the Internet and
intranet markets. Research and development costs, on a combined pro forma
basis, were $863,749 and $586,071 for the fiscal years ended December 31, 1996
and 1997, respectively, and $117,622 for the three month period ended March 31,
1998. The Company believes that, consistent with its business strategy, it will
need to spend significant funds for product development in the future to
successfully implement its business strategy. See "Use of Proceeds."
33
<PAGE>
SERVICES
SUPPORT PROGRAMS
The Company has made a commitment to provide timely, high quality
technical support to meet the diverse needs of its customers and VARs and to
facilitate the purchase and use of its products. Technical support is presently
included at no additional charge with each purchase of the Company's products.
Support for non-current products is charged at a flat rate of $29 per incident.
The Company also publishes a list of answers to frequently asked questions and
hosts a customer support forum on its website.
TRAINING
The Company offers several different training courses to system operators,
integrators and VARs. Topics covered in these courses include system
installation, configuration, administration, security and troubleshooting.
COMPETITION
The communications software industry is intensely competitive. Many of the
Company's competitors are substantially larger and have much greater financial
resources and name recognition than the Company, have longer operating
histories in the Internet, intranet markets and online communications markets
and have greater technical and marketing resources than the Company. To
maintain or increase its position in the industry, the Company will need to
continually enhance its current product line, and introduce new products. There
can be no assurance, however, that the Company will be able to compete
successfully in the future, or that competition will not have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Competition."
Worldgroup faces competition from a number of products that provide for
the exchange of information in ways similar to the applications under
Worldgroup. These include e-mail from Microsoft Exchange, EudoraPro, Netscape
and Lotus Notes and bulletin board servers from Ichat, Eshare and Mirabulis.
Other applications of Worldgroup can also be custom programmed using Microsoft
C++ and other programming languages. While these and other competitive products
offer features similar to Worldgroup, the Company believes that Worldgroup
maintains a competitive advantage over these products in terms of price,
multi-tiered authorization to information, accounting, ease of use, flexibility
and administration, particularly for small user groups.
WebCast competes with products offered by White Pine Software, Inc.,
Progressive Networks, Vxtreme, Inc., Xing Technology Corporation, NetSpeak,
Corporation, VocalTec, Inc., Vivo Software, Inc. and VDOnet Corporation. The
Company competes against these products in terms of price and the fact that no
special client software, other than Netscape Navigator 2.0 or above or
Microsoft Internet Explorer 4.0 or above web browser, is required to view the
WebCast video or audio broadcast stream. See "--Other Products--WebCast."
ActiBase, the Company's Internet database connectivity program, competes
with, among others, Claris' Filemaker Pro, Microsoft's InterDev and Topspeed's
Clarion. The Company competes against these products in terms of price and
product features.
PROPRIETARY RIGHTS AND INTELLECTUAL PROPERTY
The Company regards its software as proprietary and attempts to protect it
with copyrights, trademarks, restrictions on disclosure, copying and
transferring title and enforcement of trade secret laws. Despite these
precautions, it is possible for unauthorized third parties to copy the
Company's products and it may be possible for them to obtain and use
information that the Company regards as
34
<PAGE>
proprietary. In addition, existing copyright laws give only limited protection
to its software and some foreign countries' laws do not protect proprietary
rights to the same extent as United States laws. Consistent with the general
practice of software developed for retail sale, the Company licenses its
products primarily under "shrink wrap" license agreements that are not signed
by licensees and therefore may be unenforceable under the laws of certain
jurisdictions. Although the Company has five pending trademark applications
with the United States Patent and Trademark Office (the "PTO"), the Company has
only one federal registration, for the trademark "Galacticomm." No assurance
can be given that the PTO will grant registrations for the Company's pending
trademark applications. Among other things, it is possible that the Company's
trademarks could be deemed to be generic by the PTO, in which case neither the
Company nor any third party could claim exclusive rights to such term. In such
event, the Company intends to associate the generic term with registrable or
registered trademarks or logos in order to gain trademark protection over the
resulting composite mark.
In July 1997, the Company became aware of the existence of a third party
which may claim a prior right in the trademark "Worldgroup." The Company and the
third party have had discussions regarding a co-existence arrangement whereby
the Company would have the right, without the payment of a royalty, to continue
to use the trademark "Worldgroup" on its present products and services. Although
the third party does not presently distribute products that compete with the
Company's products, the licensing arrangement presently under discussion would
not preclude the third party from using the "Worldgroup" trademark in
competition with the Company. When the Company releases its next version of
Worldgroup, which is anticipated to occur in the first quarter of 1999, the
Company may elect to use a name other than Worldgroup in order to resolve this
issue and also to reflect what it believes will be the wider array of solutions
that the next version of Worldgroup is expected to offer to users. There can be
no assurance, however, that the change of name will not adversely impact the
Company's revenues and thereby the Company's operating results or financial
condition.
In July 1997, the Company also became aware that several other third
parties filed applications for registration for the trademark "WebCast," before
the Company filed its application. If "WebCast" is determined not to be a
generic term and one of the third party applications is accepted for
registration, then such third party will have superior rights to the Company in
the name "WebCast." See "Risk Factors--Uncertainty Regarding Trademark
Protection."
If a third party has superior rights to any of the Company's trademarks,
the Company believes that when the Company first commenced use of its
trademarks, it acted innocently, unintentionally, and without knowledge of the
existence of any third party's purported rights in such marks. Furthermore, if
the third party user of the "Worldgroup" name decides to enforce its trademark
rights through an infringement action, the Company believes that valid defenses
exist with respect to any such action, including, without limitation, waiver,
estoppel and laches and that as a result thereof, any liability of the Company
should be limited to injunctive relief prohibiting the Company from future use
of such mark.
Trademark litigation is expensive and complex and the outcome of such
litigation is difficult to predict. Generally, if a court were to find that the
Company unintentionally infringed a third party's mark, the Company's liability
would be limited to its actual net profit from the sale of infringing products,
the third party's actual damages, and injunctive relief. However, if a court
were to find that the Company wilfully infringed a third party's trademark, the
Company could be enjoined from further use of the trademark and could be
liable, under the federal Lanham Act, for the lesser of: (i) the Company's net
profit stemming from the sale of infringing products and (ii) the third party's
actual damages, plus three times the greater of: (a) the Company's profit from
the sale of the infringing product, and (b) the third party's actual damages,
plus prejudgment interest, attorneys' fees, and the cost of litigation.
Except to the extent noted above with respect to certain trademarks, the
Company does not believe that its products infringe on the rights of third
parties. The computer software market is characterized by frequent and
substantial intellectual property litigation and it is possible that third
parties might assert infringement claims against the Company in the future. If
this occurs, the Company might be forced into costly litigation or have to
obtain a license to the intellectual property rights of others. It is possible
that such licenses may not be available on reasonable terms, or at all.
35
<PAGE>
The Company currently licenses the following technology from third
parties: (i) audio playback for java receiver software from Vosaic LLC
("Vosaic") allows WebCast users to hear live audio through a standard web
browser, pursuant to a Software License Agreement, dated September 19, 1997,
for which the Company pays Vosaic a royalty equal to 7% of the reseller's price
of any WebCast product that includes such software; (ii) multimedia graphical
display technology from Lead Technology, Inc., pursuant to an agreement, for
which the Company pays Lead Technology, Inc. a royalty of $75 for each sale of
Worldgroup Developer's Kit and $20 for each upgrade; (iii) TCP/IP data
transport for Worldgroup for DOS from Pacific Softworks Inc., for which
royalties are limited to a maximum of $30,000; (iv) a database engine for
Worldgroup, ActiBase and WebCast from Novell, Inc. for which no royalties are
paid or payable; and (v) VBX technology for the Worldgroup Manager from
Sheridan Software, for which no royalties are paid or payable. In the future,
these third party technology licenses may not be available to the Company on
commercially reasonable terms, if at all. If the Company cannot maintain any of
these technology licenses, it is possible that product shipments could be
delayed and the Company's financial condition and results of operations could
be adversely impacted.
GOVERNMENT REGULATIONS
The Company does not believe that its business activities are currently
subject to direct regulation by any government agency, other than regulations
applicable to business generally, and there are currently few laws or
regulations directly applicable to access to or commerce on the Internet.
However, due to the increasing popularity and use of the Internet, it is
possible that laws and regulations may be adopted in the future with respect to
the Internet, covering issues such as user privacy, pricing and characteristics
and quality of products and services. For example, Congress recently passed the
Communications Decency Act of 1996 prohibiting the distribution of obscene or
indecent material over the Internet, although this law was recently held
unconstitutional by the United States Supreme Court. The adoption of any such
laws or regulations may decrease the growth of the Internet, which could in
turn decrease the demand for the Company's products and increase the Company's
cost of doing business or otherwise have an adverse effect on the Company's
business, operating results or financial condition.
Furthermore, the application of existing laws governing issues such as
property ownership, libel and personal privacy on the Internet is uncertain.
Because material may be downloaded by an online or Internet service facilitated
by the Company, there is a potential risk that claims may be made against the
Company for defamation, negligence, copyright or trademark infringement or
other theories based on the nature and content of such materials. Although the
Company carries general liability insurance, the Company's insurance may not
cover potential claims of this type, or may not be adequate to indemnify the
Company for all liability that may be imposed. Any imposition of liability that
is not covered by insurance or is in excess of insurance coverage could have a
material adverse effect on the Company's business, results of operations and
financial condition.
FACILITIES
The Company leases 11,129 square feet of office space for its corporate
headquarters in Fort Lauderdale, Florida. The monthly rent under this lease is
$9 per square foot (plus applicable taxes), which amount increases annually by
four percent. The Company has options to extend the lease for up to an
additional six years past its present expiration date in 2001. The Company
intends to use a portion of the proceeds from this offering to further build
out and improve its leasehold to meet the Company's future requirements. See
"Use of Proceeds."
EMPLOYEES
As of the date of this Prospectus, the Company employs 21 persons,
including 10 in engineering and support, five in sales and marketing, one in
production and five in executive administration and accounting. None of the
Company's employees is currently represented by a union or any other form of
collective bargaining unit. The Company regards its relations with employees as
good.
36
<PAGE>
LEGAL PROCEEDING
A suit was filed against the Company on December 16, 1997 in the United
States District Court for the District of New Mexico (the "Court") by DataSafe
Publications, Inc. ("DataSafe"), a reseller of the Company's products, alleging
price fixing, price discrimination, resale price maintenance, predatory
practices, breach of contract and economic coercion by the Company under
federal antitrust laws and New Mexico state laws. DataSafe sought treble the
amount of its actual damages alleged to be in excess of $1.5 million and costs
and expenses.
On June 1, 1998, the Company and DataSafe entered into a settlement
agreement, pursuant to which DataSafe has filed with the Court a dismissal of
the litigation with prejudice. In consideration of DataSafe's dismissal of the
litigation, the Company has placed in escrow with a third party escrow agent
253,907 shares of Common Stock. DataSafe and the Company have agreed that one
year from the closing of this offering (the "Distribution Date"), the escrow
agent will disburse to DataSafe the lesser of 253,907 shares or the number of
shares of Common Stock determined by dividing $650,000 by the market price (as
defined in the agreement) on the Distribution Date of a share of the Common
Stock. As part of the settlement, the Company has also granted DataSafe certain
demand registration rights with respect to the shares of Common Stock issued to
DataSafe. DataSafe may exercise such rights, commencing 12 months from, and
ending 18 months from, the closing of this offering. While the shares of Common
Stock are in escrow, DataSafe is deemed the owner of such shares with all
attendant voting rights and other privileges. Because litigation of the type
brought by DataSafe is inherently complex and expensive, the costs to defend a
similar action brought by any other reseller or customer of the Company could
have a material adverse effect on the financial condition of the Company.
The Company is also subject to certain other litigation arising in the
ordinary course of business which, in the opinion of management, will not have
a material adverse effect on the financial position and results of operations
of the Company.
37
<PAGE>
MANAGEMENT
DIRECTORS, OFFICERS AND KEY EMPLOYEES OF THE COMPANY
The following table sets forth certain information concerning the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Peter Berg ............... 43 Chief Executive Officer, Secretary, and Director
Yannick Tessier .......... 29 President and Director
David Manovich ........... 46 Chairman of the Board
Timothy Mahoney .......... 41 Director
T. Michael Love .......... 32 Chief Financial Officer
</TABLE>
PETER BERG has served as Chief Executive Officer and Secretary of the
Company since November 1996 and as Chairman of the Board from November 1996
until April 1998. From December 1995 to November 1996, Mr. Berg was the
President of the Company. From 1992 to 1995, Mr. Berg was the Senior Vice
President of Marketing of Integrated Communications Network, Inc. (and its
predecessor company Visions Communications, Inc.), a direct response marketing
firm. Mr. Berg received his bachelor of science degree, Magna Cum Laude, from
Florida State University.
YANNICK TESSIER has served as the President of the Company since November
1996 when TTI was merged into the Company. Prior to joining the Company, Mr.
Tessier was the Chief Executive Officer of TTI, which he founded in 1989. Mr.
Tessier has over 12 years of experience in online software development, systems
integration and product distribution.
DAVID MANOVICH has served as a director of the Company since December 1997
and as Chairman of the Board since April 1998. Mr. Manovich has over 10 years
experience with Apple Computer, Inc., ("Apple"), where he served in a variety
of management and sales executive positions. From March 1997 until he joined
the Company, Mr. Manovich was executive vice president, worldwide sales and
services for Apple. From January 1992 until January 1996, Mr. Manovich's
positions with Apple included vice president of the consumer sales division,
director of channel sales, director of marketing for the personal computer
business division and country manager for Apple UK. From May 1996 to March
1997, he was vice president of sales for Fujitsu PC Corporation, where he was
responsible for establishing and managing Fujitsu's retail and distribution
channels in the Americas. Mr. Manovich received a Masters of Business
Administration in Finance and a bachelor of science in business administration
from the University of Montana. Mr. Manovich is a certified public accountant.
TIMOTHY MAHONEY has served as a director of the Company since January
1997. Mr. Mahoney has over 15 years of experience with the operations and
management of technology companies. Mr. Mahoney has, since 1994, served as a
managing member of Union Atlantic, a consulting firm specializing in emerging
technology companies and presently serves as Union Atlantic's designee to the
Board of Directors. He founded and served, from 1991 to 1994, as the president
of the consumer products business for SyQuest Technology, a manufacturer of
removable cartridge disk drives. He also founded and served, from 1986 to 1991,
as the president of Rodime Systems, a computer disk-drive sub-system
manufacturer. Mr. Mahoney received a Masters of Business Administration degree
from George Washington University.
T. MICHAEL LOVE has served as the Company's Chief Financial Officer since
August 1997. From 1995 to 1997, Mr. Love was Director of Mergers and
Acquisitions at Blockbuster Entertainment Group, a division of Viacom, Inc.,
where he was responsible for its global acquisition efforts in the
consolidating video industry as well as other acquisition, sale and joint
venture transactions. From January 1988 through January 1995, Mr. Love was a
member of KPMG Peat Marwick's financial services audit practice, where, since
1992, he served as Manager and then Senior Manager. Mr. Love received his
bachelor of science degree in accounting and finance from Florida State
University.
38
<PAGE>
OTHER KEY EMPLOYEES
RICHARD SKURNICK, age 33, has been the Director of Engineering since
January 1998. Since 1989, Mr. Skurnick has been employed by the Company in
various capacities, including Management Information Systems manager. Mr.
Skurnick, who has significant programming experience, served as the Project
Manager for Worldgroup v3.1 and developed the Company's customer database
program.
BILL POSNER, age 49, has served the Company as its Director of Product
Marketing since April 1998. From November 1995 until April 1998, he was
Director of Customer Operations and was responsible for the Technical Support
and Customer Service departments. From May 1993 until he joined the Company,
Mr. Posner served as Director of Operations for Knowledge Based Technologies,
Inc., an Internet consulting company.
COMPENSATION OF DIRECTORS
The Company does not presently pay any cash compensation to the directors
of the Company for serving on the board. On January 14, 1997, the Company
granted Claus Stenbaek, then a director, an immediately exercisable three year
option to purchase 3,714 shares of Common Stock at an exercise price of $4.24
per share as consideration for serving on the Board of Directors. On December
15, 1997, the Company granted Mr. Manovich a three year option to purchase
18,104 shares of Common Stock at an exercise price of $6.21 per share as
consideration for serving on the Board of Directors.
COMMITTEES OF THE BOARD AND INDEPENDENT DIRECTORS
The Company has established a compensation committee and intends to
establish an audit committee of the Board of Directors. The compensation
committee, which is comprised of Messrs. Mahoney and Manovich, is responsible
for the review and approval of the compensation of the Company's employees, the
administration of the 1997 Plan and related compensation matters. The Company
intends to add at least two additional independent directors to its Board of
Directors.
RIGHTS TO DESIGNATE DIRECTORS
Messrs. Berg and Tessier have, for so long as the Wallenberg Trust
beneficially owns more than 20 percent of the outstanding Common Stock, agreed
to vote their shares in favor of three persons nominated by the Wallenberg
Trust to the Board of Directors of the Company. The persons who acquired shares
of Common Stock from Messrs. Berg and Tessier in June 1998 have the right to
nominate and have elected one person to the Board of Directors of the Company
for a period of two years from the closing of this offering. See "Certain
Transactions--Berg and Tessier Transaction." Union Atlantic has the right to
designate and have elected one person to the Board of Directors of the Company
under the terms of its consulting agreement with the Company. In addition, the
Representatives have the right, for a period of three years from the closing of
this offering to nominate a designee of the Representatives for election to the
Board of Directors of the Company. Other than Union Atlantic, none of the
foregoing persons has exercised his or its right to nominate a person for
election to the Board of Directors.
39
<PAGE>
SUMMARY COMPENSATION TABLE
The following table provides the cash and other compensation paid (or
accrued) by Galacticomm Technologies, Inc. to its Chief Executive Officer and
President.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ --------------
SECURITIES
NAME AND FISCAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS COMPENSATION
- ------------------------- ------- ---------------- ------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Peter Berg, 1997 $ 170,961 -- 106,973 --
Chief Executive Officer 1996 $ 73,461 -- -- --
1995 $ 0 -- -- --
Yannick Tessier, 1997 $ 170,961 -- 106,973 --
President 1996 $ 21,538(1)
</TABLE>
- ----------------
(1) Represents salary to Mr. Tessier subsequent to his joining the Company in
November 1996.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the stock option grants to the Company's
Chief Executive Officer and President made during the fiscal year ended
December 31, 1997. No stock appreciation rights have been granted to date.
<TABLE>
<CAPTION>
% OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME OPTIONS GRANTED FISCAL YEAR PRICE PER SHARE DATE
- ----------------- ----------------- ----------------- ------------------ -----------
<S> <C> <C> <C> <C>
Peter Berg 106,973 34% $ 6.20 (1)
Yannick Tessier 106,973 34% $ 6.20 (1)
</TABLE>
- ----------------
(1) Such options expire in one-third increments on November 20, 2002, November
20, 2003 and November 20, 2004. See "--
Employment Agreements."
FISCAL YEAR-END OPTION VALUES
The following table provides information about the number and value of
options held by the Company's Chief Executive Officer and President at December
31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Peter Berg 35,658 71,315 $ 0 $ 0
Yannick Tessier 35,658 71,315 $ 0 $ 0
</TABLE>
- ----------------
(1) There was no public trading market for the Common Stock as of December 31,
1997. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $6.00 per share of Common Stock,
less the exercise price of $6.20 per share.
EMPLOYMENT AGREEMENTS
In June 1998, the Company entered into an amended employment agreement
with each of Peter Berg, the Chief Executive Officer of the Company, and
Yannick Tessier, the President of the Company. Each employment agreement
provides for an annual salary of $138,000 for each officer, which salary will
increase each contract year by 10 percent of the prior year's salary. Messrs.
Berg and Tessier are also eligible to receive an annual cash bonus at the
discretion of the Compensation Committee of the Board of Directors. Pursuant to
their respective employment agreements, Messrs. Berg and Tessier have each been
granted options to purchase 106,973 shares of Common Stock at an exercise price
of $6.20 per share. One-third of such options vested on November 21, 1997,
one-third vest on
40
<PAGE>
November 21, 1998 and the final one-third vest on November 21, 1999. Such
options expire five years after the respective dates of vesting. Pursuant to
the terms of their respective employment agreements, the Company provides
Messrs. Berg and Tessier with a term life insurance policy in the amount of
$1,000,000.
The employment agreements provide for a three-year term that expires
November 20, 1999, which term may be terminated earlier by the Company with or
without cause (as defined in the employment agreements). Such employment
agreements may be terminated earlier by the employee, upon 45 days' prior
written notice, with or without cause.
Pursuant to the employment agreements, the Company has agreed to indemnify
each of Messrs. Berg and Tessier to the fullest extent permitted by law for any
action related to his employment with the Company or for serving as a director
of the Company.
The Company has also entered into a two-year employment agreement, dated
August 25, 1997, with T. Michael Love, the Company's Chief Financial Officer,
pursuant to which Mr. Love receives an annual salary of $120,000 and has been
granted options under the 1997 Plan to purchase 20,800 shares of Common Stock
at an exercise price of $6.00 per share. See "--Stock Option Plan." The Company
may terminate Mr. Love's employment with the Company with cause, as such term
is defined in his employment agreement. If the Company terminates such
employment without cause, Mr. Love will receive his salary for a six month
period following the date of termination and stock options which would have
vested at the end of the vesting period then in effect shall automatically
vest.
Each of the Company's employment agreements with Messrs. Berg, Tessier and
Love imposes prohibitions against the disclosure of confidential information
and contains non-compete provisions. There can be no assurance that these
provisions will protect the Company from unauthorized disclosure or use of its
proprietary information, nor can there be any assurance that these provisions
will be held enforceable in whole or in part by a court if they are contested
by an employee.
COMPENSATION ARRANGEMENTS WITH CHAIRMAN
The Company has entered into an agreement, dated as of June 23, 1998, with
David Manovich, pursuant to which he is responsible for managing the business,
affairs, property and personnel of the Company, subject only to the supervision
of the Board of Directors. Mr. Manovich is required to devote such time to the
Company's affairs as is required to fulfill his duties under the agreement. The
agreement provides for monthly payments to Mr. Manovich of $10,000 and
reimbursement of all business expenses.
Mr. Manovich's agreement with the Company expires 12 months from the
closing of this offering, unless extended for successive one-year periods upon
the mutual consent of both parties. However, the agreement can be terminated by
the Company for any reason after the six month anniversary date of the
completion of this offering on 90 days' prior written notice. In such event,
the Company is required to pay Mr. Manovich $60,000 in a lump sum.
If there is a change in control of the Company, all amounts owed to Mr.
Manovich under the agreement are required to be paid to him on the date of such
event, and the agreement automatically will be extended for one year from the
expiration date of the then-current term of the agreement. A change in control
is defined in the agreement to occur when: (i) any person (other than Messrs.
Berg or Tessier) becomes the beneficial owner of or acquires voting control
with respect to 50 percent of the Company's voting securities, or (ii) the
shareholders of the Company approve the sale of all or substantially all of the
assets of the Company.
41
<PAGE>
Pursuant to the terms of the agreement with Mr. Manovich, the Company
granted him options to purchase up to 120,694 shares of Common Stock. The
exercise price of all vested options is $5.22 per share. All options that vest
after this offering will have an exercise price of $5.40 per share. Pursuant to
the terms of the options, 12,069 shares vested on June 5, 1998 and 9,052 shares
each will vest on June 5, 1999 and 2000. An additional 15,087 shares will vest
upon the closing of this offering and an additional 15,087 shares each will
vest on the first and second anniversary of the closing of this offering.
Another 15,087 shares will vest when the Company attains positive net income
after taxes in any fiscal quarter up through the quarter ended December 31,
1999. Thereafter, an additional 15,087 shares each will vest on the first and
second anniversary of the Company attaining such positive net income after
taxes. In the event of a change in control of the Company (as defined in the
preceding paragraph), all of the options granted to Mr. Manovich will vest on
the date of such event. All of the options expire three years from their
respective vesting dates.
STOCK OPTION PLAN
The Company has adopted the 1997 Stock Option Plan (the "1997 Plan").
Pursuant to the 1997 Plan, options to acquire a maximum of 223,284 shares of
Common Stock may be granted to directors, executive officers, employees
(including employees who are directors), independent contractors and
consultants of the Company. Options to purchase 66,486 shares at an exercise
price of $6.00 per share are presently outstanding under the 1997 Plan, none of
which are currently exercisable.
The 1997 Plan is administered by the Compensation Committee of the Board
of Directors. The Compensation Committee determines which persons will receive
options and the number of options to be granted to such persons. The
Compensation Committee also interprets the provisions of the 1997 Plan and
makes all other determinations that it may deem necessary or advisable for the
administration of the 1997 Plan. No more than 22,328 options may be granted to
a single person in any fiscal year.
Pursuant to the 1997 Plan, the Company may grant ISOs (Incentive Stock
Options) and NQSOs (Non-Qualified Stock Options). The price at which the Common
Stock may be purchased upon the exercise of ISOs granted under the 1997 Plan is
required to be at least equal to the per share fair market value of the Common
Stock on the date particular options are granted. Options granted under the
1997 Plan may have maximum terms of not more than 10 years and are not
transferable, except by will or the laws of descent and distribution. None of
the ISOs under the 1997 Plan may be granted to an individual owning more than
10 percent of the total combined voting power of all classes of stock issued by
the Company unless the purchase price of the Common Stock under such option is
at least 110 percent of the fair market value of the shares issuable on
exercise of the option determined as of the date the option is granted, and
such option is not exercisable more than five years after the grant date. ISOs
granted under the 1997 Plan are subject to the restriction that the aggregate
fair market value (determined as of the date of grant) of options which first
become exercisable in any calendar year cannot exceed $100,000. Generally,
options granted under the 1997 Plan may remain outstanding and may be exercised
at any time up to six months after the person to whom such options were granted
is no longer employed or retained by the Company or serving on the Company's
Board of Directors.
Pursuant to the 1997 Plan, unless otherwise determined by the Compensation
Committee, one-fourth of the options granted to an individual are exercisable
180 days after grant, one-fourth are exercisable on the first anniversary of
such grant, one-fourth are exercisable on the second anniversary and the final
one-fourth are exercisable on the third anniversary of such grant. However,
one-half of all outstanding options under the 1997 Plan shall become
immediately exercisable upon a "change in control" of the Company. The
remaining one-half of the outstanding options shall become exercisable upon the
first anniversary of a "change in control" of the Company. A "change in
control" is generally deemed to occur when: (i) any person (other than Messrs.
Berg or Tessier) becomes the beneficial owner of or acquires voting control
with respect to more than 50 percent of the Common Stock, (ii) a change occurs
in the composition of a majority of the Company's Board of Directors during a
two-year period, provided that a change with respect to a member of the
Company's Board of Directors shall be deemed not to have occurred if the
appointment of a member of the Company's Board of Directors is
42
<PAGE>
approved by a vote of at least 75 percent of the individuals who constitute the
then existing Board of Directors, or (iii) the shareholders of the Company
approve the sale of all or substantially all of the assets of the Company.
The 1997 Plan provides for appropriate adjustments in the number and type
of shares covered by the 1997 Plan and options granted thereunder in the event
of any reorganization, merger, recapitalization or certain other transactions
involving the Company.
INDEMNIFICATION PROVISIONS
Pursuant to the Company's Articles of Incorporation and Bylaws, officers
and directors of the Company are entitled to be indemnified by the Company to
the fullest extent allowed under Florida law for claims brought against them in
their capacities as officers and directors. Indemnification is allowed if the
officer or director acts in good faith and, in the case of conduct in his
official capacity, in a manner reasonably believed to be in the best interests
of the Company, or in all other cases, with a reasonable belief that his
conduct was at least not opposed to the Company's best interests. In the case
of criminal proceedings, it is necessary that an officer or director have no
reasonable cause to believe his conduct was unlawful. In addition, the Company
has agreed to indemnify Messrs. Berg and Tessier pursuant to their employment
agreements with the Company. See "--Employment Agreements." Accordingly, it is
possible that indemnification may occur for liabilities arising under the
Securities Act. The Underwriting Agreement also contains provisions under which
the Company and the Underwriters have agreed to indemnify each other (including
officers and directors) against certain liabilities under the Securities Act.
See "Underwriting." Insofar as indemnification for liabilities arising under
the Securities Act may be permitted for directors, officers and controlling
persons of the Company pursuant to the foregoing provisions or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
43
<PAGE>
CERTAIN TRANSACTIONS
TESSIER TRANSACTION
Pursuant to a Stock Issuance Agreement, dated August 26, 1996, among the
Company, Peter Berg and Yannick Tessier, the Company agreed to issue to Mr.
Tessier shares of Common Stock equal to the number of shares of Common Stock
held by Peter Berg. The Company committed to issue these shares to Mr. Tessier
in consideration for his efforts in founding and organizing the Company's
software platform and computer infra-structure. When the Company completed its
merger with TTI, the Company issued Mr. Tessier 733,669 shares of Common Stock
pursuant to its obligations under the Stock Issuance Agreement. In connection
with the merger, two former shareholders of TTI received an aggregate of 40,091
shares of Common Stock in exchange for their shares of TTI common stock. Mr.
Tessier was elected to the Board of Directors of the Company and was appointed
the President of the Company upon completion of such transaction. A Worldgroup
online community operated by Mr. Tessier that was initially excluded from the
assets acquired by the Company in the merger with TTI was subsequently acquired
by the Company in June 1997 for $30,000, payable in 12 equal monthly
installments. Mr. Tessier advanced $50,000 to TTI in 1996 to fund operations
and was issued a 10% note in the amount of $50,000, which becomes payable by
the Company on the date of this Prospectus. See "Use of Proceeds."
WALLENBERG TRUST AND UA PARTNERS INVESTMENTS
Effective November 21, 1996, the Company raised a total of $2,750,000 from
the sale of shares of Common Stock and convertible notes to Hemingfold
Investments, Ltd. ("Hemingfold") and Union Atlantic Partners I Limited ("UA
Partners"). On November 21, 1996, the Company used approximately $611,476 of
such proceeds to acquire substantially all of its interests in the shares of
Galacticomm, Inc. See "--Acquisition of Galacticomm, Inc." The remaining
proceeds of this funding were allocated to working capital. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
In September 1997, Hemingfold transferred all of its rights and interests
in the agreements described below to Kenworthy, a wholly-owned subsidiary of
the Wallenberg Trust, an affiliate of Hemingfold. Accordingly, references to
the Wallenberg Trust below and elsewhere in this Prospectus refer to Hemingfold
for all periods prior to such transfer.
In connection with the transaction with the Wallenberg Trust, the Company
entered into a Stock Purchase Agreement (the "Wallenberg Trust Stock Purchase
Agreement"), whereby the Wallenberg Trust received 294,788 shares of Common
Stock in exchange for $1,250,000 in cash or $4.24 per share. Pursuant to the
Wallenberg Trust Stock Purchase Agreement, the Wallenberg Trust was originally
granted the following rights with respect to such shares of Common Stock: (i)
piggyback registration rights ("Piggyback Registration Rights") for up to four
registrations; (ii) demand registration rights ("Demand Registration Rights")
for one registration; (iii) tag-along rights ("Tag Along Rights") that require
that such shares be included on a pro rata basis in certain sales of Common
Stock by either Peter Berg or Yannick Tessier; and (iv) bring along rights
("Bring Along Rights") that require that such shares be included on a pro rata
basis in certain offers for the purchase of the Common Stock of either Peter
Berg or Yannick Tessier for a three year period ending November 20, 1999. The
Wallenberg Trust Stock Purchase Agreement originally provided that the shares
acquired by the Wallenberg Trust would additionally be granted: (x) certain
anti-dilution rights if the Company issues securities below $4.24 per share;
(y) preemptive rights for any issuance of the Company's securities; and (z)
certain rachet rights which would have entitled the Wallenberg Trust to receive
approximately 149,104 shares of Common Stock if the Company's after tax
earnings for the year ended December 31, 1997 were less than $1,000,000 and
approximately 74,552 shares of Common Stock if the Company's after tax earnings
for such period were between $1,000,000 and $1,500,000.
By letter agreement, dated September 8, 1997, the ratchet rights were
waived in exchange for the Company's September 1997 issuance of 49,029 shares
of Common Stock to the Wallenberg Trust. As
44
<PAGE>
part of that letter agreement, the Wallenberg Trust agreed to automatically
waive its anti-dilution and preemptive rights from and after the date of this
Prospectus. Messrs. Berg and Tessier have, for so long as the Wallenberg Trust
beneficially owns more than 20 percent of the outstanding Common Stock, agreed
to vote their shares in favor of three persons nominated by the Wallenberg
Trust to the Board of Directors of the Company. See "Management--Rights to
Designate Directors" and "Principal Shareholders." To date, the Wallenberg
Trust has not exercised its right to add additional directors.
Simultaneous with the Wallenberg Trust Stock Purchase Agreement, the
Wallenberg Trust loaned the Company $1,250,000 and received a Convertible
Promissory Note (the "Wallenberg Trust Note"), dated November 21, 1996. On
December 31, 1997, the Wallenberg Trust converted all principal and interest
($1,391,781) outstanding under such note into 328,224 shares of Common Stock
based upon the conversion rate of $4.24 per share set forth in the Wallenberg
Trust Note. The shares of Common Stock issued upon conversion of the Wallenberg
Trust Note have been granted the same Piggyback Registration, Demand
Registration, Tag Along and Bring Along Rights as those granted in connection
with the Wallenberg Trust Stock Purchase Agreement.
On November 21, 1996, the Company entered into a Stock Purchase Agreement
(the "UA Partners Stock Purchase Agreement") with UA Partners, pursuant to
which UA Partners acquired 29,479 shares of Common Stock for cash consideration
of $125,000 or $4.24 per share and loaned the Company $125,000. In exchange for
the loan, the Company issued a Convertible Promissory Note ("UA Partners Note")
to UA Partners. Other than the number of shares purchased and amount loaned,
the terms of the UA Partners Stock Purchase Agreement and the UA Partners Note
are identical in all material respects to the Wallenberg Trust Stock Purchase
Agreement and the Wallenberg Trust Note (since converted). By letter agreement,
dated September 8, 1997, UA Partners waived the ratchet rights originally set
forth in the UA Partners Stock Purchase Agreement in exchange for the Company's
September 1997 issuance of 4,457 shares of Common Stock. As part of that letter
agreement, UA Partners agreed to automatically waive its anti-dilution and
preemptive rights effective on the date of this Prospectus. The outstanding
principal of the UA Partners Note will be automatically converted into 29,479
shares of Common Stock (based upon a conversion price of $4.24 per share) as of
the date of this Prospectus. Interest on such note accrues at a rate of 10% per
year and will be paid from the proceeds of this offering. See "Use of
Proceeds." The UA Partners Note is secured by, among other things, the
accounts, inventory, equipment and general intangibles of the Company, which
security interest will terminate upon conversion of such note and the payment
of all accrued interest.
In connection with their loans to the Company, the Wallenberg Trust and UA
Partners entered into an Intercreditor Agreement with the Company and Union
Atlantic. Pursuant to this agreement, the Wallenberg Trust and UA Partners have
appointed Union Atlantic to serve as their collateral agent with respect to the
loans made to the Company under the Wallenberg Trust Note and the UA Partners
Note and have agreed that, in the event of default by the Company under such
notes, the parties will share any payments in proportion to the amount
outstanding under their respective notes from the Company.
The Wallenberg Trust purchased 40,373 shares of Common Stock in the June
1997 Private Placement and 10 Units in the 1997 Financing. UA Partners
purchased two Financing Units in the 1997 Financing. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
In May 1998, Kenworthy loaned the Company $125,000 and received a Secured
Convertible Promissory Note (the "Kenworthy Note"), dated May 7, 1998. The
unpaid principal balance of the Kenworthy Note bears interest at the rate of
10% per annum. All principal and accrued interest under the Kenworthy Note is
required to be paid on January 1, 1999. Subject to certain adjustments, the
aggregate principal and accrued interest under the Kenworthy Note can be
converted into shares of Common Stock at the rate of $1.24 on demand by
Kenworthy. The shares received upon conversion of the Kenworthy Note will have
the same Piggyback Registration, Demand Registration, Tag Along and Bring Along
Rights as those granted in connection with the Wallenberg Trust Stock Purchase
45
<PAGE>
Agreement. In connection with the loan, the Company granted Kenworthy a
security interest in its assets which is subordinate to the security interests
previously granted by the Company to Union Planters Bank (the successor to
Capital Bank) and UA Partners. Until all amounts due under the Kenworthy Note
have been paid, the Company is prohibited from paying any dividends to its
shareholders.
CONSULTING AGREEMENTS WITH UNION ATLANTIC
The Company has engaged the services of Union Atlantic since November
1996. Union Atlantic is a consulting firm specializing in emerging technology
companies. Timothy Mahoney, who is a managing member of Union Atlantic, is also
a director of the Company. See "Management--Directors, Officers and Key
Employees of the Company" for additional information regarding Mr. Mahoney's
experience with respect to the operations and management of technology
companies. Pursuant to one of two consulting agreements that the Company has
entered into with Union Atlantic, Union Atlantic is entitled to receive a
monthly fee of $10,000 until June 30, 2001 for providing consulting services
with respect to the Company's operations, administration, corporate development
and marketing and distribution strategies. Union Atlantic owns all of the
outstanding voting securities of UA Partners, which acquired 29,479 shares of
Common Stock and the UA Partners Note in November 1996. See "--Wallenberg Trust
and UA Partners Investments." In connection with the UA Partners investment,
the Company paid Union Atlantic the following amounts for identifying the
Wallenberg Trust to the Company: (i) cash compensation of $357,500; (ii) a
three-year warrant to purchase 84,310 shares of Common Stock at an exercise
price of $4.24 per share with Demand and Piggyback Registration Rights; and
(iii) 47,152 shares of Common Stock. Similarly, the Company paid Union Atlantic
the following amounts for identifying investors in the June 1997 Private
Placement: (y) cash compensation of $126,209; and (z) a three-year warrant to
purchase 20,382 shares of Common Stock at an exercise price of $6.20 per share
with Demand and Piggyback Registration Rights. Pursuant to the consulting
agreement between Union Atlantic and the Company, Union Atlantic has designated
Mr. Mahoney as its representative to the Company's Board of Directors.
Pursuant to its second consulting agreement with the Company, from January
1997 to December 1997, Union Atlantic provided the Company with the services of
Robert O'Brien. The Company was required to pay Union Atlantic a fee of $7,000
per month for Mr. O'Brien's services and agreed to reimburse Mr. O'Brien for
business expenses approved by the Company. Pursuant to such consulting
agreement, the Company granted Mr. O'Brien an immediately exercisable, three
year option to purchase 1,486 shares of Common Stock at an exercise price of
$4.24 per share. The shares of Common Stock underlying such option have been
granted Demand and Piggyback Registration Rights. Mr. O'Brien has also been
granted an option to purchase 4,457 shares of Common Stock at a per share price
of $6.00 under the 1997 Plan, which option expires on July 31, 1998.
The Company expects Union Atlantic to agree to forebear taking action
against the Company for collection of approximately $125,000 due under its
consulting agreements, in exchange for a commitment from the Company to pay
such amount on the closing date of this offering and for the issuance of an
undetermined number of warrants to purchase shares of Common Stock at a price
of $6.00 per share exercisable until four years from the date of this
Prospectus.
ACQUISITION OF GALACTICOMM, INC.
The Company owns 99.9% of Galacticomm, Inc.'s common stock. In November
1996, the Company acquired 8,037,203 shares of the common stock of Galacticomm,
Inc. (representing approximately 96% of Galacticomm, Inc.'s then issued and
outstanding shares of common stock) in exchange for the issuance of 90,679
shares of Common Stock and cash of $611,476. In February 1997, the Company
acquired an additional 848,404 shares of the common stock of Galacticomm, Inc.
in exchange for the issuance of 25,886 shares of Common Stock and cash
consideration of $56,937. For a discussion of costs related to this
acquisition, see "--Consulting Agreements with Union Atlantic."
46
<PAGE>
BERG AND TESSIER TRANSACTION
In June 1998, Peter Berg, the Chief Executive Officer of the Company, and
Yannick Tessier, the President of the Company, sold 141,129 and 100,806 shares
owned by them, respectively, to 16 private investors for an aggregate purchase
price of $300,000, or $1.24 per share of Common Stock. The proceeds of such sale
were loaned to the Company and the Company used the funds to pay certain accrued
accounting and legal fees associated with this offering. The Company issued
promissory notes to Mr. Berg and Mr. Tessier in the aggregate principal amount
of $175,000 and $125,000, respectively. The aggregate principal amount of the
notes accrues interest at the rate of seven percent per annum. All principal and
accrued interest under the notes is required to be paid upon the earlier to
occur of September 30, 1999 or 12 months from the completion of this offering.
In order to induce the investors to purchase the shares of Common Stock
sold by Messrs. Berg and Tessier, the Company granted the investors the right
to nominate and have elected one person to serve on the Board of Directors of
the Company out of a total of not more than nine directors for a period of two
years from the date hereof. In addition, the Company granted the investors the
following rights: (i) tag-along rights that require that the shares of Common
Stock of the investors be included on a pro rata basis in any sales of Common
Stock by Peter Berg and/or Yannick Tessier; (ii) piggyback registration rights,
commencing 12 months from the closing of this offering; and (iii) certain anti-
dilution rights if the Company issues securities below $1.24 per share.
Although the Company may have lacked sufficient disinterested independent
directors to ratify one or more of the foregoing transactions at the time that
they were initiated, the Company believes that the foregoing transactions
between the Company and its officers, directors and five percent or greater
shareholders were on terms no less favorable to the Company than those which
could have been obtained from unaffiliated parties. Any future material
transactions between the Company and its officers, directors or five percent or
greater shareholders will be on terms no less favorable to the Company than
could be obtained from unaffiliated parties.
47
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth with respect to: (i) each person (or group)
who is known by the Company to own beneficially more than 5% of the Common
Stock, (ii) each of the Company's directors, (iii) each of the named executive
officers, and (iv) all directors and executive officers of the Company as a
group, certain information with respect to the beneficial ownership of the
Company's outstanding Common Stock as of the date of this Prospectus and as
adjusted to reflect the sale by the Company of the Shares offered hereby.
Unless otherwise specified, the address of each shareholder is the address of
the Company set forth herein.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY OWNED(1)
SHARES BENEFICIALLY ---------------------------------
NAME OF BENEFICIAL OWNER OWNED(2) BEFORE OFFERING AFTER OFFERING
- ------------------------ ------------------- --------------- --------------
<S> <C> <C> <C>
Peter Berg ......................................... 568,198(3) 19.2% 12.7%
Yannick Tessier .................................... 608,521(4) 20.6% 13.6%
Peder Sager Wallenberg Charitable Trust ............ 925,712(5) 29.5% 20.0%
Bayard Trust Company, Limited ...................... 925,712(5) 29.5% 20.0%
Mees Pierson Management (Guernsey) Limited ......... 925,712(5) 29.5% 20.0%
Insinger S.A. ...................................... 1,217,893(5)(6) 38.2% 26.0%
DataSafe Publications, Inc. ........................ 253,907(7) 8.7% 5.7%
Timothy Mahoney .................................... 155,106(6) 5.2% 3.5%
David Manovich ..................................... 45,260(8) 1.5% 1.0%
All directors and executive officers
as a group (five persons) ........................ 1,383,285 44.5% 30.0%
</TABLE>
- ----------------
(1) Percentage of ownership is based on 2,922,849 shares of Common Stock
outstanding immediately prior to this offering and 4,422,849 shares of
Common Stock outstanding immediately after this offering. All such amounts
include 29,479 shares of Common Stock underlying the UA Partners Note that
will be automatically converted on the effective date of this Prospectus.
See "Certain Transactions--Wallenberg Trust and UA Partners Investments."
(2) Calculated pursuant to Rule 13d-3(d)1 of the Securities Exchange Act of
1934. Shares not outstanding that are subject to options or other rights
exercisable by the holder thereof within 60 days of the date of this
Prospectus are deemed outstanding for the purposes of calculating the
number and percentage owned by such shareholder and all directors and
officers as a group, but not deemed outstanding for the purpose of
calculating the percentage owned by each other shareholder listed. In
connection with the Underwriting Agreement, Messrs. Berg and Tessier will
on the closing of this offering enter into a Voting Agreement with the
Company, pursuant to which Messrs. Berg and Tessier will agree, for a
period of two years following the closing of this offering, to vote all
voting securities beneficially owned by them in the same proportion as the
votes cast by non-affiliates of the Company in any vote of the
shareholders of the Company on the following two matters: (i) a
liquidation of the Company; or (ii) any business combination in which the
Company is not the surviving corporation or any sale of all or
substantially all of the Company's assets. See "Underwriting."
(3) Includes: (i) 35,658 shares of Common Stock underlying presently
exercisable options having an exercise price of $6.20 per share, and (ii)
22,270 shares of Common Stock over which Mr. Berg has granted options to a
total of nine persons to purchase such shares at a per share exercise
price of $5.05. Does not include options granted to Mr. Berg to purchase
an aggregate of 71,315 shares of Common Stock which are not exercisable
within 60 days of the date hereof. Such options were granted to Mr. Berg
in connection with Mr. Berg's employment agreement with the Company.
(4) Includes: (i) 35,658 shares of Common Stock underlying presently
exercisable options having an exercise price of $6.20 per share, and (ii)
22,303 shares of Common Stock over which Mr. Tessier has granted options
to a total of five persons to purchase such shares at a per share exercise
price of $5.05. Does not include options granted to Mr. Tessier to
purchase an aggregate of 71,315 shares of Common Stock which are not
exercisable within 60 days of the date hereof. Such options were granted
to Mr. Tessier in connection with Mr. Tessier's employment agreement with
the Company.
(5) Includes: (i) 328,224 shares of Common Stock acquired upon the conversion
of Wallenberg Trust Note; (ii) 114,659 shares of Common Stock underlying
Bridge Warrants; and (iii) 100,579 shares of Common Stock which may be
acquired upon the conversion of the Kenworthy Note on the date hereof.
Does not include options and warrants to purchase approximately 180,000
shares at exercise prices ranging from $4.24 to $6.21 per share, which the
Wallenberg Trust has the right to acquire pursuant to its preemptive
rights under the Wallenberg Trust Stock Purchase Agreement. Wallenberg
Trust has waived its preemptive rights regarding the issuance of the
Company's securities from and after the date of this Prospectus. See
"Certain Transactions--Wallenberg Trust and UA Partners Investments." The
trustees of the Wallenberg Trust are Bayard Trust Company Limited
("Bayard") and Mees Pierson Management (Guernsey), Limited ("Mees
Pierson"). Bayard is a wholly-owned subsidiary of Insinger S.A. and has
designated two of its directors--Martyn D. Crespel and John B. Wilson--to
act on behalf of Bayard. Mees Pierson is a subsidiary of Fortis AG and
Fortis AMEV (collectively "Fortis") and has designated two of its
directors--Paul Backhouse and Julie Scott--to act on behalf of Mees Pierson.
Integro Trust (Jersey) Ltd., a subsidiary of Insinger S.A., serves as
trustee for three trusts--the Hive Trust, the Coach Trust and the Cascade
Trust--that beneficially
48
<PAGE>
own an aggregate of 155,220 shares of Common Stock. Insinger S.A., a
publicly-traded Luxembourg bank holding company, disclaims any pecuniary
interest in such shares or in the Wallenberg Trust shares for which Bayard
or Integro Trust (Jersey) Ltd. serves as the trustee. Mr. Crespel, who
serves as a director of Integro Trust (Jersey) Ltd., separately beneficially
owns 16,388 shares of Common Stock. Insinger S.A. also beneficially owns
136,961 shares of Common Stock beneficially owned by Bayard Management
Services (BVI) Limited, a wholly-owned subsidiary of Insinger S.A. and one
of the managing members of Union Atlantic L.C. For a description of such
securities, see footnote 6 immediately below. Peder Sager Wallenberg
disclaims any beneficial ownership of the shares of Common Stock owned
beneficially or of record by the Wallenberg Trust. The address of Bayard and
the Wallenberg Trust is c/o Bayard, 2nd Floor, Queen's House, Don Road,
St.Helier Jersey JEI 4HP, Channel Islands, Great Britain. The address of
Insinger S.A. is Residence Centre du St Esprit, 1A, rue du St Esprit,
L-1475, Luxembourg. The address of Mees Pierson and Fortis, an international
insurance, banking and investment company, is Boulevard Emile Jacqmain 53,
1000 Brussels, Belgium.
(6) Represents: (i) warrants to purchase an aggregate of 34,897 shares of
Common Stock distributed by Union Atlantic, L.C. ("Union Atlantic") to the
managing members of Union Atlantic; (ii) 15,717 shares of Common Stock
distributed by Union Atlantic to the managing members of Union Atlantic;
(iii) 29,479 shares of Common Stock, issuable to Union Atlantic Partners
I, Limited ("UA Partners") upon conversion of the UA Partners Note; (iv)
47,624 shares of Common Stock owned by UA Partners; (v) 4,457 shares
issued to UA Partners to cancel certain ratchet and other rights; and (vi)
22,932 shares of Common Stock underlying the 1997 Financing Warrants. See
"Certain Transactions."
(7) Represents 253,907 shares held in escrow pursuant to the settlement of
certain litigation brought by DataSafe Publications, Inc. against the
Company. See "Business--Legal Proceeding."
(8) Represents: (i) 18,104 shares of Common Stock underlying options having an
exercise price of $6.21 per share; and (ii) 12,069 and 15,087 shares of
Common Stock underlying options having an exercise price of $5.22 and $5.40
per share, respectively, assuming the completion of the offering. Does not
include 93,538 shares of Common Stock underlying options which are not
exercisable within 60 days of the date hereof. See "Management--Compensation
of Directors" and "--Compensation Arrangements with Chairman."
49
<PAGE>
DESCRIPTION OF SECURITIES
The following section does not purport to be complete and is qualified in
its entirety by reference to the detailed provisions of the Company's Articles
of Incorporation and Bylaws, copies of which have been filed with the Company's
Registration Statement on Form SB-2, of which this Prospectus forms a part.
The Company's authorized capital consists of 20,000,000 shares of Common
Stock, par value $.0001 per share, and 1,000,000 shares of preferred stock, par
value $.001 per share (the "Preferred Stock").
COMMON STOCK
On the date of this Prospectus, there are approximately 85 shareholders of
record who own 2,922,849 shares of issued and outstanding Common Stock. Upon
completion of this offering, there will be 4,422,849 shares of Common Stock
issued and outstanding. Each outstanding share of Common Stock is entitled to
one vote, either in person or by proxy, on all matters that may be voted upon
by the owners thereof at meetings of the shareholders. The holders of Common
Stock: (i) have equal ratable rights to dividends from funds legally available
therefor, when, as and if declared by the Board of Directors of the Company,
(ii) are entitled to share ratably in all of the assets of the Company
available for distribution to holders of Common Stock upon liquidation,
dissolution or winding up of the affairs of the Company, (iii) do not have
preemptive, subscription or conversion rights, or redemption or sinking fund
provisions applicable thereto, and (iv) are entitled to one non-cumulative vote
per share on all matters on which shareholders may vote at all meetings of
shareholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any series of
preferred stock that may be issued in the future, including voting, dividend,
and liquidation rights.
The holders of shares of Common Stock of the Company do not have
cumulative voting rights, which means that the holders of more than 50% of such
outstanding shares, voting for the election of directors, can elect all of the
directors of the Company if they so choose and, in such event, the holders of
the remaining shares will not be able to elect any of the Company's directors.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue 1,000,000
shares of Preferred Stock, none of which is issued and outstanding, in one or
more series and to fix, by resolution, conditional, full, limited or no voting
powers, and such designations, preferences and relative, participating,
optional or other special rights, if any, and the qualifications, limitations
or restrictions thereof, if any, including the number of shares in such series
(which the Board of Directors may increase or decrease as permitted by Florida
law), liquidation preferences, dividend rates, conversion or exchange rights,
redemption provisions of the shares constituting any series, and such other
special rights and protective provision with respect to any class or series as
the Board of Directors may deem advisable without any further vote or action by
the shareholders. Any shares of Preferred Stock so issued would have priority
over the Common Stock with respect to dividend or liquidation rights or both
and could have voting and other rights of shareholders. The issuance of
Preferred Stock with voting or conversion rights may adversely affect the
voting rights of the holders of Common Stock. The Company has no present plans
to issue shares of Preferred Stock.
WARRANTS
The Warrants will be issued in registered form pursuant to the terms of a
Warrant Agreement (the "Warrant Agreement") between the Company and Continental
Stock Transfer & Trust Co., New York, New York, as warrant agent (the "Warrant
Agent").
The Company has authorized the issuance of up to 1,725,000 Warrants to
purchase an aggregate of 1,725,000 shares of Common Stock (exclusive of
securities issuable pursuant to the Representatives'
50
<PAGE>
Warrants) and has reserved an equivalent number of shares of Common Stock for
issuance upon exercise of such Warrants. None of the Warrants are currently
issued and outstanding.
For each Warrant, the holder is entitled to purchase one share of Common
Stock upon payment of the exercise price set forth on the cover page of this
Prospectus, subject to adjustment. The Warrants are exercisable at any time
commencing on the first anniversary of the date of this Prospectus (the "First
Exercise Date"), and ending on the fifth anniversary of the date of this
Prospectus, provided that at such time a current prospectus relating to the
Common Stock is in effect and the Common Stock is qualified for sale or exempt
from qualification under applicable state securities laws. The Warrants are
immediately transferrable separately from the Common Stock issued with such
Warrant upon completion of the offering.
The Company may, at its option, redeem all, but not less than all,
outstanding Warrants, commencing 30 days after the First Exercise Date upon not
less than 30 days prior notice to the registered holders of the Warrants for a
redemption price of $.10 for each share of Common Stock to which the Warrant
holder would then be entitled upon exercise of the Warrants being redeemed, in
the event that: (i) there exists a current prospectus relating to the Common
Stock issuable upon exercise of the Warrants under an effective registration
statement filed with the Securities and Exchange Commission and the issuance of
the Common Stock upon exercise of the Warrants has been qualified for sale or
exempt from qualification under applicable state securities laws, and (ii) the
shares of Common Stock of the Company have had an average closing bid and asked
price of not less than 150% of the initial public offering price of the Common
Stock (assuming an initial public offering price of $6.00 per share; $9.00,
subject to adjustment) for a period of 20 consecutive trading days ending three
trading days prior to the date of the redemption notice. Holders of Warrants
will automatically forfeit their rights to purchase the shares of Common Stock
issuable upon exercise of such Warrants unless the Warrants are exercised
before 5:00 p.m. (New York time) on the date set for redemption. All of the
outstanding Warrants may be affected. A notice of any redemption of the
redemption date is required to be mailed to each of the registered holders of
the Warrants by first class mail, postage prepaid, 30 days before the date
fixed for redemption. The notice of redemption is required to specify the date
fixed for redemption, and the right to exercise the Warrants shall terminate at
5:00 p.m. (New York time) on the redemption date.
The Warrants may be exercised upon surrender of the certificates therefor
on or prior to the final exercise date (as explained above) at the offices of
the Warrant Agent with the "Subscription Form" on the reverse side of the
certificate(s) completed and executed as indicated, accompanied by payment (in
the form of certified or cashier's check payable to the order of the Company)
of the full exercise price for the number of Warrants being exercised. The
Company is not required to issue fractional shares of Common Stock, and in lieu
thereof, will make a cash payment based upon the current market value of such
fractional shares.
The holders of the Warrants will not have any of the rights or privileges
of shareholders of the Company (except to the extent they own Common Stock of
the Company) prior to the exercise of the Warrants. The exercise price of the
Warrants and the number of shares of Common Stock issuable upon the exercise
thereof are subject to adjustment upon the occurrence of certain events such as
stock splits, stock dividends or the like, as set forth in the Warrant
Agreement.
In the event of a capital reorganization of the Company, reclassification
of the Common Stock or a consolidation or merger of the Company with or into,
or a disposition of substantially all of the Company's properties and assets
to, any other corporation, the Warrants then outstanding will thereafter be
exercisable into the kind and amount of shares of stock or other securities or
property (including cash) to which the holders thereof would have been entitled
if they had exercised such Warrants and received shares of Common Stock
immediately prior to such reorganization, reclassification, consolidation,
merger or disposition, consistent with the requirements for exercise set forth
in the Warrant Agreement.
For the life of the Warrants, the Warrants holders have the opportunity to
profit from a rise in the market price of the Common Stock without assuming the
risk of ownership of the shares of Common
51
<PAGE>
Stock issuable upon the exercise of the Warrants, with a resulting dilution in
the interest of the Company's shareholders by reason of exercise of Warrants at
a time when the exercise price is less than the market price for the Common
Stock. Further, the terms on which the Company could obtain additional capital
during the life of the Warrants may be adversely affected as a result of the
Warrants being outstanding. The Warrant holders may be expected to exercise
their Warrants at a time when the Company would, in all likelihood, be able to
obtain any needed capital by an offering of Common Stock on terms more
favorable than those provided for by the Warrants.
For a holder to exercise the Warrants there must be a current registration
statement in effect with the Securities and Exchange Commission and
registration or qualification with, or approval from, various state securities
agencies with respect to the shares or other securities underlying the
Warrants. The Company has agreed to use its best efforts to cause a
registration statement with respect to such securities under the Securities Act
to continue to be effective during the term of the Warrants and to take such
other actions under the laws of various states as may be required to cause the
sale of Common Stock upon exercise of Warrants to be lawful, unless such action
would cause the Company to be subject to general service of process or require
it to amend its charter documents or any action taken by the Company's Board of
Directors. However, the Company will not be required to honor the exercise of
Warrants if, in the opinion of the Company's Board of Directors upon advice of
counsel, the sale of securities upon exercise would be unlawful.
The Warrant exercise price was arbitrarily determined by negotiation
between the Company and the Representatives. The Company may reduce the
exercise price of the Warrants or extend the warrant expiration date upon
notice to Warrant holders.
The foregoing is merely a summary of the rights and privileges of the
holders of the Warrants, and is qualified in its entirety by reference to the
Warrant Agreement.
OUTSTANDING OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES
On the date of this Prospectus, the following shares of Common Stock may
be acquired upon the exercise or conversion of outstanding options, warrants
(exclusive of the Warrants, the Representatives Warrants and the Warrants
underlying the Representatives' Warrants) or convertible securities: (i) 66,486
shares of Common Stock upon the exercise of presently issued and outstanding
stock options granted under the 1997 Plan; (ii) 357,946 shares of Common Stock
upon the exercise of outstanding options granted outside of the 1997 Plan;
(iii) 104,692 shares of Common Stock which may be acquired upon the exercise of
two warrants; (iv) 29,479 shares of Common Stock underlying the UA Partners
convertible promissory note which will be automatically converted on the date
of this Prospectus; and (v) 577,886 shares of Common Stock reserved for
issuance upon the exercise of the 1997 Financing Warrants, which amount
includes warrants to purchase 96,314 shares of Common Stock granted to First
Equity Corporation of Florida for serving as the placement agent of the 1997
Financing; and (vi) 100,579 shares of Common Stock underlying a secured
convertible promissory note that may be converted on demand by Kenworthy on or
before January 15, 1999, assuming the conversion of the note on the date
hereof.
REGISTRATION RIGHTS AND SALES BY CERTAIN SHAREHOLDERS
The Company has granted Demand Registration Rights and Piggyback
Registration Rights to the Wallenberg Trust, Kenworthy, UA Partners, Union
Atlantic and Robert O'Brien with respect to an aggregate of 1,139,940 shares of
Common Stock held by them and/or issuable to them upon conversion or exercise
of promissory notes or warrants held by them. See "Certain Transactions." The
Demand Registration Rights are limited to one registration and may not be
exercised until the earlier of November 20, 1999 or the date the Company's
equity securities are publicly traded. The Piggyback Registration Rights
provide that if the Company proposes to register any of its securities under
the Securities Act, the holders of such rights are entitled to include shares
of Common Stock in the
52
<PAGE>
registration (other than this offering). Such registration rights are subject
to certain conditions and limitations, among them the right of the underwriters
of a registered offering to limit the number of shares included in such
registration.
Pursuant to the terms of the Representatives' Warrants to be sold to the
Representatives in connection with this offering, the Company has agreed that,
for a period of five years commencing on the date of this Prospectus, upon
written demand of the holders of a majority of the Representatives' Warrants
and the securities issued pursuant thereto, the Company will, on one occasion,
register for sale in a public offering under the Securities Act all or any
portion of the securities issuable upon exercise of the Representatives'
Warrants (and the Warrants and Shares included therein). See "Underwriting."
Any such registration would be at the Company's expense. The Company has also
agreed to include such underlying securities in any appropriate registration
statement which is filed by the Company during the five years following the
date of this Prospectus.
In connection with the 1997 Financing, the Company agreed to register with
the Securities and Exchange Commission, six months from the date of this
Prospectus, the 481,572 shares of Common Stock underlying the 1997 Financing
Warrants. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." Such registration will
include an additional 96,314 shares of Common Stock underlying 1997 Financing
Warrants granted to First Equity Corporation of Florida for serving as the
placement agent of the 1997 Financing. Subject to modification, the 1997
Financing Warrants are exercisable at a price of $6.21 per share until October
27, 2000. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." Holders of the 1997
Financing Warrants have agreed not to sell or transfer the shares of Common
Stock underlying the 1997 Financing Warrants for a 12 month period following
the date of this Prospectus. Sales of Common Stock after the expiration of the
12 month period by such selling shareholders or even the potential of such
sales will likely have an adverse effect on the market prices of the Common
Stock.
In connection with the settlement of certain litigation brought by
DataSafe against the Company, the Company has granted DataSafe certain demand
registration rights with respect to a maximum of 253,907 shares of Common Stock
currently being held in escrow. DataSafe may exercise such rights commencing 12
months from, and ending 18 months from, the closing of the offering. See
"Business--Legal Proceeding."
The Company granted certain persons who purchased shares of Common Stock
from Messrs. Berg and Tessier piggyback registration rights, commencing 12
months from the closing of the offering. See "Certain Transactions--Berg and
Tessier Transaction."
CERTAIN PROVISIONS OF THE ARTICLES AND BYLAWS
GENERAL. A number of provisions of the Articles of Incorporation
("Articles") and Bylaws ("Bylaws") of the Company concern matters of corporate
governance and the rights of shareholders. Certain of these provisions, as well
as the ability of the Board of Directors to issue shares of Preferred Stock and
to set the voting rights, preferences and other terms thereof, may be deemed to
have an anti-takeover effect and may discourage takeover attempts not first
approved by the Board of Directors (including takeovers which certain
shareholders may deem to be in their best interests). To the extent takeover
attempts are discouraged, temporary fluctuations in the market price of the
Common Stock, which may result from actual or rumored takeover attempts, may be
inhibited. These provisions, together with the ability of the Board of
Directors to issue Preferred Stock without further shareholder action, also
could delay or frustrate the removal of incumbent directors or the assumption
of control by shareholders, even if such removal or assumption would be
beneficial to shareholders of the Company. These provisions also could
discourage or make more difficult a merger, tender offer or proxy contest, even
if they could be favorable to the interests of shareholders, and could
potentially depress the market price of the Common Stock. The Board of
Directors believes that these provisions are appropriate to protect the
interests of the Company and all of its shareholders.
53
<PAGE>
MEETINGS OF SHAREHOLDERS. The Bylaws provide that a special meeting of
shareholders may be called by the Board of Directors or the holders of not less
than 10% of the outstanding Common Stock entitled to vote at such a meeting
unless otherwise required by law. The Bylaws provide that only those matters
set forth in the notice of the special meeting may be considered or acted upon
at that special meeting, unless otherwise provided by law. In addition, the
Bylaws set forth certain advance notice and informational requirements and time
limitations on any director nomination or any new business which a shareholder
wishes to propose for consideration at an annual meeting of shareholders.
INDEMNIFICATION AND LIMITATION OF LIABILITY. The Articles provide that
directors, officers and employees and agents of the Company shall be
indemnified by the Company to the fullest extent authorized by Florida law, as
it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with service for or on behalf of
the Company. The Articles also provide that the right of directors and officers
to indemnification shall not be exclusive of any other right possessed or
hereafter acquired under any bylaw, agreement, vote of shareholders or
otherwise.
AMENDMENT OF BYLAWS. The Articles provide that the Bylaws may be amended
or repealed by the Board of Directors or by the shareholders. Such action by
the Board of Directors requires the affirmative vote of a majority of the
directors then in office. Such action by the shareholders requires the
affirmative vote of the holders of at least two-thirds of the total votes
eligible to be cast by holders of voting stock with respect to such amendment
or repeal at an annual meeting of shareholders or a special meeting called for
such purposes.
SHARES ELIGIBLE FOR FUTURE SALE
After completion of the offering, the Company will have 4,422,849 shares of
Common Stock outstanding assuming no exercise of the 1997 Financing Warrants,
the Over-allotment Option, the Representatives' Warrants (and the Warrants
included therein) or any other outstanding options or warrants. Of these shares,
all of the shares of Common Stock offered hereby will be freely tradeable
without restriction or further registration under the Securities Act, unless
purchased by "affiliates" of the Company, as that term is defined in Rule 144.
The remaining 2,922,849 shares of Common Stock were issued and sold by the
Company in private transactions and are eligible for public sale only if
registered under the Securities Act, sold in accordance with Rule 144 thereunder
or pursuant to an exemption from registration.
In general, under Rule 144 of the Securities Act as currently in effect,
any affiliate of the Company or any person (or persons whose shares are
aggregated in accordance with the Rule) who has beneficially owned restricted
securities for at least one year would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of 1% of the
outstanding shares of Common Stock or the reported average weekly trading
volume in the over-the-counter market for the four weeks preceding the sale.
Sales under Rule 144 are also subject to certain manner of sale restrictions
and notice requirements and to the availability of current public information
concerning the Company. Persons who have not been affiliates of the Company for
at least three months and who have held their shares for more than two years
are entitled to sell restricted securities without regard to the volume, manner
of sale, notice and public information requirements of Rule 144.
The Company, its executive officers, directors and shareholders (other
than those noted below) have agreed that for a period of one year from the date
of this Prospectus, they will not, without the prior written consent of the
Representatives, offer, sell, contract to sell, or otherwise dispose of, any
shares of Common Stock or any securities convertible into, or exercisable or
exchangeable for, shares of Common Stock. See "Underwriting." As of the date of
this Prospectus, 343,246 shares of the Company's outstanding Common Stock are
not subject to any lockup agreement. Subject to any restriction imposed by
Nasdaq, the Representatives, in their sole discretion at any time and without
notice, may release any and all shares from the lock-up agreement and permit
holders of the shares to resell all or any portion of their shares prior to the
expiration of the one-year lock-up period.
Prior to the offering, there has been no market for the Common Stock and no
prediction can be made as to the effect, if any, that market sales of shares of
Common Stock or the availability of such
54
<PAGE>
shares for sale will have on the market prices prevailing from time to time.
The possibility that substantial amounts of shares of Common Stock may be sold
in the public market may adversely affect prevailing market prices for the
shares of Common Stock and/or may impair the Company's ability to raise equity
capital in the future.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Common Stock and the Warrant Agent for the
Warrants is Continental Stock Transfer & Trust Co., New York, New York.
55
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Security Capital Trading, Inc. and
First Equity Corporation of Florida are acting as Representatives, have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement (the form of which is an exhibit to the Registration Statement filed
with the Commission of which this Prospectus is a part) to purchase from the
Company the respective number of shares of Common Stock and the number of
Warrants set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
UNDERWRITERS SHARES WARRANTS
- ------------ ---------- ---------
<S> <C> <C>
Security Capital Trading, Inc. ..............
First Equity Corporation of Florida .........
Total ......................................
</TABLE>
The Securities are being sold on a firm commitment basis. The Underwriting
Agreement provides, however, that the obligations of the several Underwriters
to purchase and pay for the Securities are subject to certain conditions
precedent, including approval of certain legal matters by counsel. The
Underwriters are committed to purchase all of the Securities offered hereby if
any are purchased. The Securities are being offered by the Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters.
The Representatives have advised the Company that the Underwriters propose
initially to offer the Securities to the public at the public offering price
set forth on the cover page of this Prospectus. The Underwriters may allow to
certain dealers who are members of the National Association of Securities
Dealers, Inc. ("NASD") concessions not to exceed $ per Share and $
per Warrant. Such dealers may re-allow a concession not in excess of $
per Share and $ per Warrant to other dealers who are members of the NASD.
Although the Representatives will not change the public offering price until
after the initial public offering has been completed, the concessions and the
reallowances may be changed by the Representatives thereafter.
The Company has granted to the Underwriters an option, exercisable not
later than 45 days after the date of this Prospectus, to purchase from the
Company at the public offering price, less underwriting discounts and the
non-accountable expense allowance, up to 225,000 additional Shares and/or
225,000 additional Warrants. The Underwriters may exercise this option in whole
or, from time to time, in part, for the sole purpose of covering
over-allotments, if any, made in connection with the sale of the Securities
offered hereby. To the extent the Underwriters exercise such option, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase that number of the additional Shares and/or Warrants.
The Company has agreed to pay the Representatives a non-accountable
expense allowance equal to 3% of the gross proceeds of this offering (including
the sale of the Securities subject to the Over-allotment Option), of which
$50,000 has been paid as of the date of this Prospectus. The Company has also
agreed to pay all expenses in connection with qualifying the Securities offered
hereby for sale under the laws of such states as the Representatives may
designate, including fees and expenses of counsel retained for such purposes by
the Representatives and the costs and disbursements in connection with
qualifying the offering with the NASD.
The Company has agreed, upon closing of the offering, to sell to the
Representatives and their designees, for $75.00, the Representatives' Warrants
which entitle the Representatives to purchase 150,000 shares of Common Stock
and/or 150,000 non-redeemable Warrants, exclusive of Securities sold under the
Over-allotment Option. The Representatives' Warrants will be exercisable for a
four-year
56
<PAGE>
term, commencing one year from the closing of the offering, at an initial
exercise price equal to $9.90 per share of Common Stock (165% of the public
offering price of the Shares offered hereby) and $0.165 per Warrant (165% of
the public offering price of the Warrants offered hereby). The Warrants
issuable upon exercise of the Representatives' Warrants are initially
exercisable at a price of $12.375 per Share (165% of the exercise price of a
Warrant). The Representatives' Warrants will be restricted from sale, transfer,
assignment or hypothecation (other than to officers and partners of the
Representatives or to other NASD members participating in the offering or their
officers or partners) for one year following the date of this Prospectus. The
number of Securities issuable pursuant to the Representatives' Warrants and the
exercise price are subject to adjustment upon the subdivision, combination or
reclassification of the Common Stock, or certain mergers and consolidations.
It may be expected that the Representatives' Warrants (and the warrants
issuable upon its exercise) will be exercised only if it is advantageous to the
Representatives. Therefore, during the period in which the Representatives'
Warrants may be exercised, the holders thereof are given, at a nominal cost,
the opportunity to profit from a rise in the market price of the Common Stock.
To the extent that the Representatives' Warrants (and the Warrants included
therein) are exercised, dilution to the interests of the Company's shareholders
will occur. Further, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected since the holders of the
Representatives' Warrants can be expected to exercise at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in the Representatives'
Warrants. Any gain from the sale of the shares issued upon exercise of the
Representatives' Warrants may be deemed additional underwriter compensation to
the Representatives. The Company has granted the Representatives certain
registration rights with respect to the securities underlying the
Representatives' Warrants. See "Description of Securities--Registration Rights
and Sales by Certain Shareholders."
The Company has also granted to the Representatives the right, for a
period of three years from the closing of the offering, to nominate a designee
of the Representatives for election to the Board of Directors of the Company.
The Company's officers, directors and principal shareholders have agreed to
vote their shares in favor of such designee. The Representatives have not yet
exercised their right to designate such a person. If the Representatives elect
not to exercise this right, then the Representatives may designate one person
to attend meetings of the Board of Directors.
The Company has agreed to enter into a consulting agreement with the
Representatives for them to offer financial consulting services to the Company
for a period of two years commencing on the closing date of the offering for a
fee of $5,000 per month, the entire amount of which is to be prepaid in full at
the closing of the offering. Pursuant to the consulting agreement, the
Representatives will provide such financial consulting services and advice
pertaining to the Company's business affairs as the Company may from time to
time reasonably request, including assisting the Company in developing,
studying and evaluating financing, merger and acquisition proposals. The
consulting agreement will not require the Representatives to devote a specific
amount of time to the performance of their duties thereunder.
First Equity Corporation of Florida acted as placement agent for the
Company in connection with the 1997 Financing and was paid a placement fee
equal to: (i) cash compensation equal to 10 percent of the principal amount of
the Financing Notes; (ii) a non-accountable expense allowance equal to three
percent of the principal amount of the Financing Notes and certain accountable
expenses totaling $10,000; and (iii) warrants to purchase 96,314 shares of
Common Stock on substantially the same terms as the 1997 Financing Warrants.
The Company has agreed to register with the Securities and Exchange Commission,
six months from the date of this Prospectus, the shares of Common Stock
underlying such warrants. See "Description of Securities--Registration Rights
and Sales by Certain Shareholders."
The holders of an aggregate of 2,579,603 shares of Common Stock (88.3% of
the outstanding shares of Common Stock after giving effect to this offering,
but without giving effect to the issuance, if any, of shares pursuant to the
Over-allotment Option), consisting of all the officers and directors of the
57
<PAGE>
Company, and all shareholders of the Company (other than holders of 343,246
shares), have agreed not to sell, transfer or otherwise dispose of any
beneficial interest in any Common Stock owned by them, other than gifts to
immediate family (so long as the transferees remain subject to the
restrictions), for a period of 12 months following the date of this Prospectus,
without the consent of the Representatives but subject to any restrictions
imposed by Nasdaq.
Prior to the offering there has been no public trading market for the
Common Stock or the Warrants. Consequently, the initial public offering price
of the Common Stock and the exercise price of the Warrants have been determined
by negotiation between the Company and the Representatives, do not necessarily
bear any relationship to the Company's assets, book value, revenues or other
established criteria of value, and should not be considered indicative of the
actual value of the Company's securities. Factors considered in determining
such public offering price, in addition to prevailing market conditions,
include the history of and prospects for the industry in which the Company
competes, an assessment of the Company's management, its past and present
operations, the prospects of the Company, market prices of similar securities
of comparable publicly-traded companies, the general condition of the
securities market and such other factors as were deemed relevant.
Security Capital Trading, Inc. ("Security Capital"), one of the
Representatives, commenced operations in June 1995. Security Capital has
co-managed and participated as an underwriter in only two previous public
offerings of securities. Accordingly, Security Capital has limited experience
as a co-manager or underwriter of public offerings of securities. In addition,
no assurance can be given that Security Capital will be able to participate as
a market maker of the Securities or that any broker-dealer will become a market
maker for any of the Securities.
In connection with the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the prices of the
Common Stock and the Warrants. Specifically, the Underwriters may overallot the
offering, creating a syndicate short position. The Underwriters may bid for and
purchase the Common Stock and the Warrants in the open market to cover such
syndicate short position or to stabilize the price of the Common Stock and the
Warrants. The Underwriters may also reclaim selling concessions allowed to a
dealer for distributing the Securities in the offering, if the Underwriters
repurchase previously distributed Securities in transactions to cover short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock and the Warrants
above independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make.
The Representatives have informed the Company that they do not expect
sales to discretionary accounts by the Underwriters to exceed 5% of the total
number of Securities offered hereby. See "Principal Shareholders."
In connection with the Underwriting Agreement, Messrs. Berg and Tessier
will on the closing of the offering enter into a Voting Agreement with the
Company, pursuant to which Messrs. Berg and Tessier will agree, for a period of
two years following the closing of the offering, to vote all voting securities
beneficially owned by them in the same proportion as the votes cast by
non-affiliates of the Company in any vote of the shareholders of the Company on
the following two matters: (i) a liquidation of the Company; or (ii) any
business combination in which the Company is not the surviving corporation or
any sale of all or substantially all of the Company's assets.
The foregoing includes a summary of all material terms of the Underwriting
Agreement. Such summary, however, is qualified in its entirety by reference to
the copy of the form of Underwriting Agreement filed as an exhibit to the
Company's Registration Statement of which this Prospectus forms a part.
58
<PAGE>
LEGAL MATTERS
The validity of the issuance of the Shares and Warrants (and the shares of
Common Stock underlying the Warrants) being offered hereby will be passed upon
for the Company by Lucio, Mandler, Croland, Bronstein, Garbett, Stiphany &
Martinez, P.A., Miami, Florida ("Lucio Mandler"). Akerman, Senterfitt & Eidson,
P.A, Miami, Florida and Orrick, Herrington & Sutcliffe, LLP, New York, New York
are acting as counsel for the Underwriters in connection with this offering.
The legal fees of Lucio Mandler relating to the offering which are in
excess of $100,000 are only required to be paid by the Company if this offering
is completed. When this offering is completed, Lucio Mandler will be paid its
legal fees (at its standard hourly rates), plus 120% of the amount of the fees
in excess of $100,000.
EXPERTS
The consolidated financial statements of the Company as of and for the
years ended December 31, 1996 and 1997 and the financial statements of
Galacticomm, Inc. for the year ended December 31, 1995 and the ten months ended
October 31, 1996 have been included herein and in the registration statement in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein and upon the authority of said
firm as experts in auditing and accounting.
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form
SB-2 filed by the Company with the Securities and Exchange Commission under the
Securities Act with respect to the Securities offered hereby. This Prospectus
omits certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement and related exhibits and
schedules for further information with respect to the Company and the
Securities offered hereby. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and in each such
instance reference is made to the copy of such document filed as an exhibit to
the Registration Statement. Each such statement is qualified in its entirety by
such reference. The Registration Statement and the exhibits and schedules
forming a part thereof can be inspected and copied at the public reference
facilities maintained by the Securities and Exchange Commission at Room 124,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should
also be available for inspection and copying at the following regional offices
of the Securities and Exchange Commission: 7 World Trade Center, Suite 1300,
New York, New York 10007; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can
be obtained from the Public Reference Section of the Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Registration Statement may also be obtained from the Securities and
Exchange Commission's website on the Internet, the address of which is
http://www.sec.gov. Consistent with the requirements for continued inclusion on
the Nasdaq Stock Market, the Company intends to furnish its shareholders with
annual reports containing financial statements certified by independent
auditors and quarterly reports for the first three quarters of each year
containing unaudited financial statements.
59
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBERS
-------
<S> <C>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
Independent Auditors' Report ............................................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and (Unaudited)
as of March 31, 1998 .................................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1996 and 1997
and (Unaudited) for the three months ended March 31, 1997 and 1998 ...................... F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended
December 31, 1996 and 1997 and (Unaudited) for the three months ended March 31, 1998 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1997
and (Unaudited) for the three months ended March 31, 1997 and 1998 ...................... F-6
Notes to Consolidated Financial Statements ............................................... F-8
GALACTICOMM, INC.
Independent Auditors' Report ............................................................. F-26
Statements of Operations for the year ended December 31, 1995 and for the ten months
ended October 31, 1996 .................................................................. F-27
Statements of Cash Flows for the year ended December 31, 1995 and for the ten months
ended October 31, 1996 .................................................................. F-28
Notes to Financial Statements ............................................................ F-29
PRO FORMA
Unaudited Pro Forma Consolidated Statement of Operations of Galacticomm Technologies,
Inc. for the year ended December 31, 1996 ............................................... F-35
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Galacticomm Technologies, Inc.
Fort Lauderdale, Florida:
We have audited the accompanying consolidated balance sheets of
Galacticomm Technologies, Inc. and subsidiary for the years ended December 31,
1996 and 1997, and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Galacticomm
Technologies, Inc. and subsidiary as of December 31, 1996 and 1997 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
note 1 to the consolidated financial statements, the Company has suffered
recurring losses from operations and has negative working capital that raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Fort Lauderdale, Florida
January 30, 1998 except as to note 10(b) which
is as of June 26, 1998, the third paragraph of
note 10(e) which is as of June 1, 1998,
note 11(a) which is as of June 23, 1998,
note 11(b), which is as of May 7, 1998,
note 11(c), which is as of May 29, 1998 and
note 11(d), which is as of July 1, 1998
F-2
<PAGE>
GALACTICOMM TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1996 1997 1998
-------------- -------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash ........................................................... $ 1,466,392 226,281 17,900
Accounts receivable, net of allowance of $90,363 in 1996,
$494,436 in 1997 and (unaudited) $227,106 in 1998 ............ 31,762 311,428 282,472
Inventories .................................................... 83,730 78,737 63,443
Prepaid expenses and other current assets ...................... 32,991 31,921 34,057
------------ ------- -------
Total current assets ......................................... 1,614,875 648,367 397,872
Property and equipment, net ..................................... 544,569 770,904 692,074
Goodwill, net ................................................... 2,032,011 1,723,266 1,605,690
Deferred debt issuance costs .................................... 139,359 530,461 393,684
Deferred offering costs ......................................... 10,000 162,298 180,157
Other assets .................................................... 45,883 15,271 15,123
------------ --------- ---------
Total assets ................................................. $ 4,386,697 3,850,567 3,284,600
============ ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............................................... $ 395,994 627,607 906,604
Notes payable and short-term borrowings ........................ 343,575 -- 200,000
Notes payable--shareholder ..................................... 50,000 70,000 50,000
Current installments of promissory notes ....................... -- 125,000 2,087,068
Deferred revenue ............................................... 305,145 209,023 161,696
Accrued expenses ............................................... 921,678 258,998 445,475
Other current liabilities ...................................... 74,063 23,594 17,422
------------ --------- ---------
Total current liabilities .................................... 2,090,455 1,314,222 3,868,265
Promissory notes, excluding current installments ................ 1,375,000 1,916,091 --
Other liabilities ............................................... 18,999 655,671 652,649
------------ --------- ---------
Total liabilities ............................................ 3,484,454 3,885,984 4,520,914
------------ --------- ---------
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock; $.001 par value; 1,000,000 shares
authorized; none issued ...................................... -- -- --
Common stock; $.0001 par value; 20,000,000 shares
authorized; 2,065,747 shares issued and outstanding
December 31, 1996; 2,639,463 shares issued and
outstanding December 31, 1997; 2,639,463 shares
(unaudited) issued and outstanding March 31, 1998 ............ 207 264 264
Additional paid-in capital ..................................... 2,009,728 4,826,046 4,826,046
Accumulated deficit ............................................ (1,107,692) (4,861,727) (6,062,624)
------------ ---------- ----------
Total shareholders' equity (deficit) ......................... 902,243 (35,417) (1,236,314)
------------ ---------- ----------
Total liabilities and shareholders' equity (deficit) ......... $ 4,386,697 3,850,567 3,284,600
============ ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
GALACTICOMM TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------------------- ------------------------------
1996 1997 1997 1998
----------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Revenue:
Product revenue .............................. $ 1,385,233 2,547,731 619,173 222,871
Service, royalty and other revenue ........... 307,510 870,326 350,262 205,172
------------- --------- ------- -------
Total revenue .............................. 1,692,743 3,418,057 969,435 428,043
Operating costs and expenses:
Cost of revenue .............................. 758,050 869,252 271,393 140,027
Selling, general and administrative .......... 1,531,130 4,096,757 635,328 904,326
Depreciation ................................. 47,533 163,221 42,477 56,947
Amortization of intangibles .................. 36,607 505,577 108,860 117,576
Compensation expense on issuance of warrants
and common stock ........................... 49,381 143,760 -- --
Research and development ..................... 225,549 586,071 149,391 117,622
Customer support ............................. 72,772 398,137 114,943 56,305
------------- --------- ------- -------
Total operating costs and expenses ......... 2,721,022 6,762,775 1,322,392 1,392,803
------------- --------- --------- ---------
Loss from operations .......................... (1,028,279) (3,344,718) (352,957) (964,760)
------------- ---------- --------- ---------
Other income (expense):
Interest expense:
Amortization of deferred debt issuance costs
and original issue discount ............... -- (233,799) -- (182,354)
Interest on outstanding debt ................ (91,217) (200,611) (30,165) (57,147)
Other income, net ............................ 30,905 25,093 58,329 3,364
------------- ---------- --------- ---------
(60,312) (409,317) 28,164 (236,137)
------------- ---------- --------- ---------
Net loss ................................... $ (1,088,591) (3,754,035) (324,793) (1,200,897)
============= ========== ========= ==========
Basic and diluted net loss per share .......... $ (1.12) (1.72) (.16) (.45)
============= ========== ========= ==========
Number of shares used in calculating basic and
diluted net loss per share .................. 973,649 2,188,474 2,078,687 2,639,463
============= ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
GALACTICOMM TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL
NUMBER OF PAR PAID-IN ACCUMULATED
SHARES VALUE CAPITAL DEFICIT TOTAL
----------- ------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ..................... 829,888 $ 83 19,917 (19,101) 899
Capital contributions ......................... -- -- 29,684 -- 29,684
Stock issued to acquire Tessier
Technologies, Inc. ............................ 40,091 4 145,710 -- 145,714
Stock issued as compensation expense .......... 733,669 73 49,308 -- 49,381
Stock issued in private placement (net of
$139,359 of issuance costs) ................. 324,268 33 1,235,608 -- 1,235,641
Stock issued to acquire Galacticomm, Inc. ..... 137,831 14 529,501 -- 529,515
Net loss for the year ended
December 31, 1996 ........................... -- -- -- (1,088,591) (1,088,591)
------- ----- --------- ---------- ----------
Balance, December 31, 1996 ..................... 2,065,747 207 2,009,728 (1,107,692) 902,243
Stock issued to acquire Galacticomm, Inc. ..... 25,886 3 139,892 -- 139,895
Warrants issued for compensation .............. -- -- 143,760 -- 143,760
Stock issued in private placement (net of
$126,209 of issuance costs) ................. 156,783 15 844,538 -- 844,553
Stock issued to terminate royalty
agreement ................................... 13,794 1 85,713 -- 85,714
Stock issued for retraction of ratchet rights 49,029 5 (5) -- --
Warrants issued for promissory notes .......... -- -- 210,672 -- 210,672
Stock issued for convertible notes ............ 328,224 33 1,391,748 -- 1,391,781
Net loss for the year ended
December 31, 1997 ............................ -- -- -- (3,754,035) (3,754,035)
--------- ----- --------- ---------- ----------
Balance, December 31, 1997 ..................... 2,639,463 264 4,826,046 (4,861,727) (35,417)
Net loss for the three months ended
March 31, 1998 (unaudited) .................. -- -- -- (1,200,897) (1,200,897)
--------- ----- --------- ---------- ----------
Balance, March 31, 1998 (unaudited) ............ 2,639,463 $ 264 4,826,046 (6,062,624) (1,236,314)
========= ===== ========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
GALACTICOMM TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------------- -----------------------------
1996 1997 1997 1998
----------------- --------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................. $ (1,088,591) (3,754,035) (324,793) (1,200,897)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ........................... 84,140 668,798 151,331 174,523
Amortization of debt issuance costs ..................... -- 207,036 -- 136,777
Amortization of financing loan discount ................. -- 26,763 -- 45,826
Expense on shares issued for royalties .................. -- 85,714 -- --
Loss (gain) on sale of property and equipment ........... 10,373 27,501 48,799 (2,500)
Compensation expense on issuance of warrants and
common stock .......................................... 49,381 143,760 -- --
Note received for assets ................................ -- -- -- (20,000)
Changes in assets and liabilities, net of effects of
purchase business combinations:
Accounts receivable .................................... 65,692 (344,666) (186,747) 28,956
Inventories ............................................ 8,046 4,993 (57,175) 15,294
Prepaid expenses and other current assets .............. 13,372 1,070 (40,617) (2,136)
Other assets ........................................... (33,571) 30,612 30,023 148
Accounts payable and accrued expenses .................. 525,744 (289,286) (277,387) 465,474
Deferred revenue ....................................... (50,383) (96,122) (83,857) (47,327)
Other liabilities ...................................... (37,963) 586,203 (41,507) (9,194)
------------- ---------- -------- ----------
Net cash used in operating activities ................. (453,760) (2,701,659) (781,930) (415,056)
------------- ---------- -------- ----------
Cash flows (used in)provided by investing activities:
Purchases of property and equipment ...................... (150,220) (322,057) (31,637) (466)
Proceeds from the sale of property and equipment ......... 65,000 -- 728 25,000
Acquisitions, net of cash acquired ....................... (548,911) (56,937) (56,937) --
------------- ---------- -------- ----------
Net cash (used in) provided by
investing activities ............................... (634,131) (378,994) (87,846) 24,534
------------- ---------- -------- ----------
Cash flows provided by (used in) financing activities:
Proceeds from notes payable .............................. 80,000 -- -- 200,000
Proceeds from promissory notes ........................... 1,375,000 2,100,000 -- --
Repayments on notes payable and notes payable--
shareholder ............................................ (35,000) (353,575) (45,000) --
Net proceeds from the sale of common stock ............... 1,235,641 844,553 -- --
Debt issuance costs ...................................... (139,359) (598,138) -- --
Offering costs ........................................... (10,000) (152,298) -- (17,859)
Additional capital contributions ......................... 29,684 -- -- --
------------- ---------- -------- ----------
Net cash provided by (used in)
financing activities ............................... 2,535,966 1,840,542 (45,000) 182,141
------------- ---------- -------- ----------
Net increase (decrease) in cash ........................... 1,448,075 (1,240,111) (914,776) (208,381)
Cash, beginning of period ................................. 18,317 1,466,392 1,466,392 226,281
------------- ---------- --------- ----------
Cash, end of period ....................................... $ 1,466,392 226,281 551,616 17,900
============= ========== ========= ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ................. $ 12,016 25,159 8,680 7,702
============= ========== ========= ==========
</TABLE>
F-6
<PAGE>
GALACTICOMM TECHNOLOGIES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In February 1997, the Company acquired the remaining minority interest in
Galacticomm, Inc. for 25,886 shares of the Company's common stock valued at
$139,895 and cash of $56,937.
In June 1997, the Company received equipment of $30,000 from an officer of
the Company in exchange for a note payable of $30,000 [see note 6(c)].
In August 1997, the Company retracted rights to receive royalties from
certain investors for 13,794 shares of the Company's common stock.
In September 1997, the Company retracted ratchet rights held by certain
investors in exchange for 49,029 shares of the Company's common stock [see note
8(a)].
In October 1997, the Company received computer equipment with an estimated
value of $65,000 in full satisfaction of a note receivable of $65,000 due from
a related party.
In October 1997, in connection with certain financing obtained, the
Company issued warrants to purchase 577,884 shares of the Company's common
stock. Such warrants were valued at $210,672 or $0.37 per warrant, and were
reflected as a discount on the financing [see note 8(a)].
In December 1997, the holder of convertible promissory notes of $1,250,000
converted such notes plus accrued interest of $141,781 into 328,224 shares of
the Company's common stock, at the conversion price of $4.24 per share [see
note 6(b)].
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
(1) THE COMPANY AND LIQUIDITY
Galacticomm Technologies, Inc. and subsidiary (the "Company") develop,
market, license, and support software that enables users to communicate and
conduct business over the internet, intranets or other online communication
systems. The Company was incorporated in December 1995 under the name of I-view
Software, Inc. ("Iview"), and changed its name to Galacticomm Technologies,
Inc. after acquiring Galacticomm, Inc. ("Galacticomm") in November 1996 (see
note 2). The Company was originally incorporated with 5,000,000 authorized
shares, par value $.001. At that time, 829,888 shares were issued, of which
733,669 were owned by the Chairman and Chief Executive Officer. The aggregate
consideration paid for these founders shares was $20,000. During 1996 the
founding shareholders contributed an additional $29,684, bringing the per share
price for the founders' shares to $.060 per share.
In August 1996, the Company entered into a Stock Issuance Agreement (SIA)
with the principal shareholder of Tessier Technologies, Inc. (TTI) to issue
this individual a number of shares of the Company's common stock that would
make this individual an equal shareholder to the Company's then principal
shareholder. The Company committed to issue these shares to this individual in
consideration for his efforts in founding and organizing the Company's software
and computer infra-structure. The shares, which were issued in connection with
the Company's acquisition of TTI (see note 2), amounted to 733,669 shares
having a fair value of $49,381. Such value was based on the fair value of the
Company's common stock in August 1996 as determined by an independent valuation
consultant and was charged to operations in 1996.
On November 19, 1996, the Board of Directors of the Company approved the
recapitalization of the Company which increased the authorized shares of common
stock from 5,000,000 shares to 20,000,000, reduced the par value from $.001 per
share to $.0001 per share and effected a 2 for 1 split of the Company's common
stock. In addition, the Company's Board of Directors recommended and the
shareholders approved the authorization of 1,000,000 shares of preferred stock,
par value $.001 per share. Such designation, rights and preferences will be
determined from time to time by the Board of Directors. In September 1997, the
Company effected a 4.061771824 to one reverse split of the Company's common
stock. In June 1998, the Company effected a 1.657080842 to one reverse stock
split of the Company's common stock. The par value of each common share
remained $.0001 for each of these reverse stock splits. All share and per share
amounts have been restated to retroactively reflect these reverse stock splits.
Prior to the acquisition of Galacticomm, Iview developed, marketed and
supported software that enabled individuals to broadcast and receive video and
audio signals over the Internet and on dial-up networks and offered online
subscription services using such software. Galacticomm was incorporated in July
1985 and develops and sells network-centric software applications and tools.
Its primary product, Worldgroup, a client-server software, is a platform that
merges Bulletin Board Systems, E-Mail, and Worldgroup functions that enable
individuals or enterprises to establish an online system, intranet or website
and also enables users to access all applications using only a standard
browser. On November 21, 1996, the Company merged with TTI (see note 2). TTI
specialized in the on-line software industry selling platform software from
Galacticomm. TTI also developed its own line of business and entertainment
software as add-ons to the Worldgroup baseline product.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. Since inception,
the Company has incurred significant losses. At December 31, 1997, the
Company's current liabilities exceeded its current assets by $665,855. In
F-8
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
addition, the Company incurred net losses of $1,088,591 and $3,754,035 for the
years ended December 31, 1996 and 1997, respectively. The accompanying
unaudited March 31, 1998 consolidated financial statements indicate that these
situations are continuing as current liabilities exceeded current assets by
$3,470,393 (unaudited) at March 31, 1998 and a net loss of $1,200,897
(unaudited) was incurred for the three months ended March 31, 1998. The
Company's losses have been funded through the sale of debt and equity
securities. These factors raise substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments that might arise from the outcome of these
uncertainties.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a timely
basis, to obtain additional financing and ultimately attain profitability. The
Company plans to achieve positive cash flow from operations by introducing new
products and product upgrades and by increasing sales of current products
through increased marketing; targeted sales efforts focused on, among others,
value added resellers; and strategic alliances with third party computer
software and hardware companies, including co-branding, licensing, OEM and
bundling agreements. In addition, the Company intends to improve its cash flow
position by raising additional capital through an initial public offering (IPO)
of its securities [see note 11(c)] and obtaining interim debt financing. There
is no assurance that such conditions or events will occur.
(2) ACQUISITIONS
In November 1996, the Company entered into an agreement whereby it
received title to the outstanding common stock of TTI. Such agreement had two
purposes. This agreement was used to effectuate the issuance of shares of the
Company's common stock obligated to be issued by the SIA (see note 1).
Additionally, this agreement was used to acquire the common stock of TTI owned
by TTI's minority shareholders. Given the existence of the SIA, the principal
shareholder of TTI agreed to receive no additional shares and in effect
relinquished his shares for no consideration. In connection with this
transaction, the Company issued 40,091 shares of its common stock to TTI's
minority shareholders valued at $145,714. This amount was used to value the
acquisition of TTI and resulted in recording goodwill of $157,246.
On November 21, 1996, the Company acquired 96 percent of the outstanding
common stock of Galacticomm in exchange for 137,831 shares of the Company's
common stock valued at $529,515 and $698,978 in cash. Such amounts include
consideration of 90,679 shares of common stock valued at $329,495 and $611,476
in cash exchanged for Galacticomm's prior shareholder's interests, and $287,522
of acquisition costs consisting of $87,502 in cash and 47,152 shares of common
stock valued at $4.24 per share [see note 8(a)]. Certain shares of the
Galacticomm common stock acquired by the Company on November 21, 1996 were
subject to a stock purchase warrant (the "Galacticomm Warrant") that had been
granted to certain third parties by the previous owner of such Galacticomm
common stock. In connection with the cancellation of the Galacticomm Warrant,
the two majority shareholders of the Company granted such holders 44,573
warrants (the "New Warrants") to purchase shares of the Company's common stock
from such majority shareholders. The New Warrants bear an exercise price of
$5.05 per warrant and may be exercised at any time through November 21, 1999.
The fair value of the New Warrants was immaterial to the Company's acquisition
of Galacticomm.
In February 1997, the Company acquired an additional 848,404 shares of
common stock of Galacticomm, Inc. in exchange for the issuance of an aggregate
of 25,886 shares of common stock and an aggregate cash payment of $56,937.
F-9
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
The above transactions were recorded under the purchase method of
accounting. Accordingly, the results of operations of TTI and Galacticomm for
the period from October 31, 1996 to December 31, 1996 have been included in the
accompanying consolidated financial statements. The operations from October 31,
1996 to November 20, 1996 for TTI and to November 21, 1996 for Galacticomm are
not material to the consolidated financial statements. The purchase prices have
been allocated to assets acquired and liabilities assumed based on the fair
market values at the dates of acquisition. The fair value of assets acquired
and liabilities assumed is as follows:
<TABLE>
<CAPTION>
GALACTICOMM TESSIER
--------------- ------------
<S> <C> <C>
Current assets .................. $ 347,136 44,360
Property and equipment .......... 451,113 66,141
Goodwill ........................ 1,911,431 157,246
Current liabilities ............. (1,452,338) (38,114)
Long-term liabilities ........... (28,849) (83,919)
------------ -------
$ 1,228,493 145,714
============ =======
</TABLE>
The following unaudited pro forma financial information for the Company
for the year ended December 31, 1996 gives effect to the TTI and Galacticomm
acquisitions as if they had occurred on January 1, 1996, after including the
impact of certain adjustments, such as amortization of goodwill and interest
expense related to financings obtained to fund the acquisitions. In
management's opinion, the unaudited pro forma combined results of operations
are not necessarily indicative of the actual results that would have occurred
had the acquisition been consummated at January 1, 1996, or of future
operations of the acquired companies under the ownership and management of the
Company.
<TABLE>
<S> <C>
Revenue, net ................................. $ 6,189,505
=============
Net loss ..................................... $ (4,255,553)
=============
Basic and diluted net loss per share ......... $ (1.99)
=============
</TABLE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited consolidated balance sheet as of March 31, 1998, the
unaudited consolidated statements of operations and cash flows for the three
months ended March 31, 1997 and 1998 and the unaudited consolidated statement
of shareholders' deficit for the three months ended March 31, 1998 include, in
the opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position, results of operations and cash flows. Operating results for the three
months ended March 31, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998.
(B) BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Galacticomm
Technologies, Inc. and its wholly owned subsidiary, Galacticomm. All
significant intercompany transactions and accounts have been eliminated in
consolidation.
F-10
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
(C) CASH FLOWS
The Company considers investments with maturities of three months or less,
when purchased, to be cash equivalents.
(D) ACCOUNTS RECEIVABLE
Accounts receivable are principally from distributors and end-users of the
Company's products. The Company performs periodic credit evaluations of its
customers and has recorded an allowance for potential credit losses and product
returns of $90,363 and $494,436 at December 31, 1996 and 1997, respectively.
The Company's business is subject to rapid changes in technology and shifts in
consumer demand which could result in credit losses and product returns in
excess of the Company's reserves at December 31, 1997.
(E) INVENTORIES
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out ("FIFO") method.
The Company's inventories consist primarily of software media, manuals and
related packaging materials and hardware and hardware components which are
subject to rapid technological obsolescence or reduction in value as a result
of new products developed by competitors or as a result of normal competitive
pressures. The Company periodically estimates an allowance for obsolete
inventory based on current market conditions.
Changes in the marketplace may significantly affect management's
estimates.
(F) LONG-LIVED ASSETS
Property and equipment are stated at cost less accumulated depreciation.
Property and equipment are depreciated using the straight-line method over the
estimated useful lives of the assets. Maintenance and repairs are charged to
expense as incurred. Improvements are capitalized and amortized over the useful
lives of the improvement. Upon the sale or retirement of assets, the related
cost and accumulated depreciation are removed from the assets and any gain or
loss is recognized.
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally three to five years. During 1996 and 1997,
approximately $38,000 and $504,000, respectively, was recorded as goodwill
amortization expense.
The Company implemented the provisions of Statement of Financial
Accounting Standards No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF," effective January 1, 1996.
The Company reviews its long-lived assets (property, plant and equipment, and
related intangible assets that arise from business combinations accounted for
under the purchase method) for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be recoverable. If the
sum of the expected cash flows, undiscounted and without
F-11
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
interest, is less than the carrying amount of the asset, an impairment loss is
recognized as the amount by which the carrying amount of the assets exceeds its
fair value. The adoption of Statement No. 121 had no impact on the Company's
financial position or results of operations.
(G) REVENUE RECOGNITION
Product Revenue is recognized at the time the software and hardware is
delivered and service revenue is recognized on the straight-line basis over the
service period, in accordance with the provisions of American Institute of
Certified Public Accountants Statement of Position 91-1 ("SOP 91-1"), "SOFTWARE
REVENUE RECOGNITION" through December 31, 1997. While the Company has no
obligations to perform future services subsequent to shipment, the Company
provides telephone customer support as an accommodation to purchasers of its
products. Costs associated with this effort are not significant and are
expensed as incurred. The Company provides reserves for estimated future
returns, exchanges and price protection. The Company offers distributors co-op
funds that are used to promote the Company's products. These funds are
generally paid as a credit against outstanding invoices and are included in
marketing expense during the period in which the revenue is recognized.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, "SOFTWARE REVENUE RECOGNITION" ("SOP 97-2").
SOP 97-2 is effective for transactions entered into in fiscal years beginning
after December 15, 1997, and supersedes SOP 91-1. SOP 97-2 provides guidance on
revenue recognition for licensing, selling, leasing or otherwise marketing
computer software. The Company adopted SOP 97-2 for the three months ended
March 31, 1998 and it did not have a material impact on the Company's
consolidated financial position, results of operations, or liquidity.
At December 31, 1996 and 1997, the Company had deferred revenues recorded
in the accompanying consolidated balance sheets related to customer
upgrades paid in advance.
(H) BUSINESS CONCENTRATION
During February and April 1996, the Company entered into license
agreements with two marketing and sales companies ("Sales Companies"). In
November 1996, the Company terminated these agreements and entered into new
licensing agreements with Sales Companies to use the Company's service mark.
These agreements require royalties of 12 percent of the licensee's gross
revenue and expire in 1999. The royalty revenue is recognized as the gross
revenue is reported by the licensees. During 1996 and 1997, the revenue from
all the above agreements was approximately $1,480,000 and $560,000,
respectively.
(I) SOFTWARE DEVELOPMENT COSTS
The Company accounts for software development costs under Statement of
Financial Accounting Standards No. 86, "Accounting for Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed" ("SFAS 86"). Under SFAS 86,
the costs associated with software development are required to be capitalized
after technological feasibility has been established. Costs incurred by the
Company subsequent to the establishment of technological feasibility have been
insignificant and, as a result, the Company has not capitalized any development
costs. The Company does not incur costs related to the development or purchase
of internal-use software.
F-12
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
(J) INCOME TAXES
The Company elected S corporation status effective upon inception and
maintained that status until October 29, 1996, when it became a taxable
corporation. Under S corporation status, each shareholder was individually
responsible for reporting his or her share of taxable income or loss.
Accordingly, through October 29, 1996, no provision for Federal income taxes
has been reflected in the accompanying consolidated financial statements. A
provision for state income taxes is made where applicable. Given that the
Company has incurred net losses since inception, had the Company been a taxable
corporation prior to October 30, 1996, no material provision for income taxes
would have been recorded.
Beginning October 30, 1996, the Company has followed the asset and
liability method of accounting for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(Statement 109). Under Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(K) STOCK OPTION PLAN
The Company accounts for its stock option plan [see note 8(d)] in
accordance with the provisions of SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which permits entities to recognize as an expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to apply the provisions of
Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants as if the fair-value-based method
defined in SFAS No. 123 had been applied. Under APB Opinion No. 25,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. The Company
has elected to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123.
(L) PER SHARE COMPUTATIONS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), EARNINGS PER
SHARE. SFAS 128 specifies new standards designed to improve the earnings per
share ("EPS") information provided in financial statements by simplifying the
existing computational guidelines, revising the disclosure requirements and
increasing the comparability of EPS data on an international basis. Some of the
changes made to simplify the EPS computations include (i) eliminating the
presentation of primary EPS and replacing it with basic EPS, (ii) eliminating
the modified treasury stock method and the three percent materiality provision
and (iii) revising the contingent share provisions and the supplemental EPS
data requirements. SFAS 128 also makes a number of changes to existing
disclosure requirements. SFAS 128 is effective for financial statements issued
for periods ending after December 15, 1997. The adoption of SFAS 128 in 1997
did not have a significant impact on the Company's reported EPS.
F-13
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
Net loss per share calculations are based on the weighted average number of
shares of common stock outstanding during the period. In accordance with
Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 98,
certain common stock and common stock equivalents issued for nominal
consideration prior to the initial filing of a registration statement relating
to an IPO are treated as outstanding for the entire period. The Company had no
nominal issuances during this period.
(M) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
inventories, prepaid expenses, accounts payable and notes payable approximates
fair value because of the short maturity of these instruments.
The fair value of each of the Company's long-term debt instruments is
based on the amount of future cash flows associated with each instrument
discounted using the Company's current borrowing rate for similar debt
instruments of comparable maturity. The carrying amounts approximate the
estimated fair value at December 31, 1996 and 1997.
(N) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Significant estimates
are primarily related to provisions for sales returns, bad debt and obsolete
inventory. Actual results could materially differ from these estimates.
(O) YEAR 2000
In December 1997, the Company developed a plan to deal with the Year 2000
issue and began converting its computer systems to be Year 2000 compliant. The
plan provides for the conversion efforts to be completed by June 30, 1999. The
Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The total cost of the
project is estimated to be $100,000 (unaudited) and is expected to be funded
through funds received from an IPO and if an IPO is not consummated, it will be
funded through operating cash flows. The Company will expense costs associated
with these systems changes as the costs are incurred. As of December 31, 1997,
none of these costs have been incurred.
F-14
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
(4) PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following at December 31,
1996 and 1997:
<TABLE>
<CAPTION>
ESTIMATED
1996 1997 USEFUL LIFE
----------- ------------- ------------
<S> <C> <C> <C>
Equipment ............................................... $ 464,023 559,174 3-5 years
Furniture and fixtures .................................. 105,875 90,695 7 years
Purchased computer software ............................. 13,464 201,284 3 years
Construction in progress ................................ -- 116,862
--------- -------
583,362 968,015
Less: accumulated depreciation and amortization ......... (38,793) (197,111)
--------- --------
$ 544,569 770,904
========= ========
</TABLE>
(5) INCOME TAXES
Income tax expense for the years ended December 31, 1996 and 1997 was $0,
and differed from the amounts computed by applying the United States federal
income tax rate of 34 percent to pretax losses as a result of the following:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Computed "expected" tax benefit ....................................... $ 370,121 1,276,372
Increase (reduction) in income taxes resulting from:
State income tax benefit, net of federal ............................. 19,349 115,597
Various non-deductible expenses ...................................... (3,928) 296,000
Non-utilization of net operating loss ................................ -- (904,087)
S-corporation earnings from January 1, 1996 to October 29,
1996 not subject to corporate tax .................................. (54,716) --
Increase in the valuation allowance for deferred tax assets .......... (330,826) (783,882)
---------- ---------
$ -- --
========== =========
</TABLE>
F-15
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1997 are presented below:
<TABLE>
<CAPTION>
1996 1997
------------- ---------------
<S> <C> <C>
Deferred tax assets:
Allowances for returns and bad debts ......... $ 9,143 109,042
Net operating loss carryforwards .... ......... 339,730 988,340
Goodwill ............................ ......... 8,852 --
Accrued expenses .............................. 5,303 33,149
---------- -------
Total gross deferred tax assets ............. 363,028 1,130,531
Less valuation allowance ....................... (330,826) (1,130,531)
---------- ----------
Total deferred tax asset .................... 32,202 --
---------- ----------
Deferred tax liabilities:
Property and equipment ........................ 32,202 --
---------- ----------
Total deferred tax liability ................ 32,202 --
---------- ----------
Net deferred tax asset ...................... $ -- --
========== ==========
</TABLE>
Realization of deferred tax assets associated with net operating loss
carryforwards is dependent upon generating sufficient taxable income prior to
their expiration. Management believes that there is a risk that these net
operating loss carryforwards may expire unused and, accordingly has established
a valuation allowance for the deferred tax asset.
The Company's net operating loss carry forward of $2,600,000 expires in
the year 2012. However, the Company's future utilization of net operating loss
carryforwards may be subject to limitations under Section 382 of the Internal
Revenue Code due to a change in ownership for tax purposes.
(6) DEBT
At December 31, 1996 and 1997, debt consisted of the following:
(A) NOTES PAYABLE
Prior to May 1997, the Company's subsidiary had a line of credit with a
bank for $300,000 which bore interest at the bank's prime rate plus 1 percent.
At December 31, 1996, $298,575 was outstanding under the line of credit
agreement. During May 1997, the Company repaid $100,000 of the outstanding
amount on the line of credit and entered into a $200,000 line of credit due on
demand with a final maturity of September 30, 1997. The line was secured by the
Company's accounts receivable, inventory and other assets, and was personally
guaranteed by two officers of the Company. All amounts outstanding under the
line of credit were repaid during October 1997 [see note 8(b)]. In November
1997, the Company was approved for the continuation of its credit line, with
interest payable monthly at prime plus 1.5 percent (10 percent at December 31,
1997). No amounts were outstanding under this line of credit as of December 31,
1997. A total of $200,000 (unaudited) was outstanding under this line of credit
as of March 31, 1998.
F-16
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
The Company issued five notes payable in the original total amount of
$80,000, each due on demand, with interest rates of 12 percent per annum. At
December 31, 1996 the total unpaid principal balance was $45,000. These notes
were repaid during January 1997.
Under the terms of the notes, the Company was obligated to pay a royalty
("Royalty") to the creditors equivalent to a certain percentage (ranging from
1.0 percent to 2.0 percent) of the Company's gross revenues while the notes are
outstanding. Additionally, after the notes are repaid, the Company is obligated
to pay a royalty to the creditors equivalent to a certain percentage (ranging
from 0.5 percent to 1.5 percent) of the Company's net revenue (the "Additional
Royalty").
During August 1997 the Company terminated the Royalty and Additional
Royalty obligation by issuing 13,794 shares of the Company's common stock and
paying $72,500 of accrued royalties to such creditors. In connection with the
issuance of such common stock, the Company recognized related expense of
approximately $86,000, representing the fair value of the common stock.
(B) CONVERTIBLE PROMISSORY NOTES
On November 21, 1996, the Company received proceeds in the amount of
$1,375,000 from the issuance of secured convertible promissory notes payable to
two shareholders of the Company. These notes are secured by all of the
Company's tangible and intangible assets. Each note bears interest at a rate of
10 percent per annum and interest is payable quarterly. The notes each mature
at the earliest to occur of:
(i) November 21, 1998;
(ii) The completion of a private placement offering by the Company
greater than $3,000,000; or
(iii) The completion of an IPO of equity or debt securities by the
Company.
In addition, upon written demand of the creditors all principal and
accrued interest due and payable under these notes will be converted into
shares of the Company's common stock equal to the unpaid outstanding amount of
the notes divided by the conversion price of $4.24 per share, the fair value of
the Company's common stock on the date of the debt issuance. The conversion
will occur automatically at the earliest of the following events:
(i) Upon written demand of the creditors; or
(ii) An IPO of the Company's securities is declared effective by the
SEC.
On December 31, 1997, one of the holders of the convertible promissory
notes converted $1,250,000 of the principal due under such note, plus accrued
interest of $141,781, into 328,224 shares of the Company's common stock, at the
conversion price of $4.24 per share.
The Company did not make the quarterly interest payments due in each
quarter in 1997 and (unaudited) March 31, 1998. The Company has obtained a
waiver from the holder of the remaining promissory notes outstanding at
December 31, 1997, waiving all such principal and interest payments until the
earlier of December 31, 1998 or the completion of an IPO.
F-17
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
(C) NOTES PAYABLE-SHAREHOLDER
At December 31, 1996, notes payable-shareholder includes a non-interest
bearing note payable totaling $50,000. On December 31, 1997, this note payable
was amended to bear interest at 10 percent, with repayment due at the earlier
of the completion of an IPO of equity or debt securities of the Company, or
December 31, 1998.
In 1997, the Company purchased $30,000 of equipment for a note payable to
this shareholder. This note payable, of which $20,000 was outstanding at
December 31, 1997, was non-interest bearing, and was repaid in March 1998
through the assignment of a note receivable of $20,000.
(7) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
----------- ----------
<S> <C> <C>
Salaries, wages and other compensation .......... $307,306 151,719
Professional fees ............................... 115,620 35,000
Rent ............................................ 138,953 --
Interest ........................................ 80,000 54,729
Other ........................................... 279,799 17,550
-------- -------
$921,678 258,998
======== =======
</TABLE>
(8) SHAREHOLDERS' EQUITY
(A) PRIVATE PLACEMENT
On November 21, 1996, the Company completed a private placement for
$1,375,000 in convertible notes payable (see note 6(b)) and 324,267 shares of
its common stock at $4.24 per share. Under the terms of the stock purchase
agreement for the sale of the 324,267 shares, the buyers of such shares were
granted piggy-back, demand registration and antidilution rights and certain
other rights. On September 8, 1997, the Company issued such buyers 49,029
shares of the Company's common stock in exchange for the buyers retraction of
certain rights which were in the original stock purchase agreement.
According to the terms of the stock purchase agreement, the buyers had
preemptive rights to purchase approximately 180,000 shares at exercise prices
ranging from $4.24 to $6.21 per share. The buyers have waived their preemptive
rights regarding the issuance of the Company's securities from and after the
effective date of an initial public offering.
In connection with the private placement and the acquisition of
Galacticomm, the Company issued the following consideration in exchange for
consulting and advisory services with respect to the Company's finances to a
consultant who is a current shareholder of the Company: (i) a three-year
warrant to purchase 84,310 shares of the Company's common stock at an exercise
price of $4.24 per warrant having an approximate fair value of $28,000, (ii)
47,152 shares of the Company's common stock having an approximate fair value of
$200,000, and (iii) cash of $357,500. Accordingly, of the total consideration,
(i) approximately $140,000 was allocated as a direct cost of the common stock
issued in the private placement, (ii) approximately $140,000 was allocated to
the convertible debt issued in the private placement and such amount was
capitalized as a deferred debt issuance cost and
F-18
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
(iii) approximately $300,000 was allocated to the Company's acquisition of
Galacticomm and such amount was included in the Company's purchase price of
Galacticomm.
In October 1997, the Company completed a private financing of 42 units of
its securities, each of which consisted of a $50,000 unsecured promissory note
and a three year warrant to purchase 11,466 shares of the Company's common
stock at an exercise price of $6.21 per share. The total principal amount of
the promissory notes of $2,100,000 bears interest of 10 percent per year.
Accrued interest is due semi-annually beginning June 30, 1998 and the note will
mature upon the earlier of January 4, 1999 or the completion of an IPO. The
Company is in the process of obtaining a waiver for its failure to make the
scheduled interest payment of approximately $140,000 at June 30, 1998. In
exchange for waiving the Company's default, the Company intends to issue to
each of the holders of the financing notes another warrant to purchase 7,534
shares of common stock at an exercise price of $6.00 per share. After deducting
fees and expenses paid to an investment banking firm of $273,000, and $135,000
for other expenses related to the financing, net proceeds of this financing
were approximately $1,682,000. A portion of the proceeds of the financing were
used to repay all amounts then outstanding under the Company's line of credit.
Additionally, in connection with the financing, the Company issued 96,314
warrants at an exercise price of $6.21 per share to an investment banking firm
with terms similar to the aforementioned warrants. The fair value of all
warrants issued to holders of the promissory notes was determined to be
$210,672 using the Black-Sholes pricing model, and is included in additional
paid-in capital in the accompanying consolidated balance sheet, with the
resulting original issue discount (OID) on the loan being amortized using a
method which approximates the interest method over the term of the note.
Interest expense related to the note payable, including amortization of OID,
was $61,763 in 1997. The following is a reconciliation of the aforementioned
components of this loan in the consolidated balance sheet at December 31, 1997:
<TABLE>
<S> <C>
Original loan ............................................... $ 2,100,000
OID ......................................................... (210,672)
Accumulated amortization of OID ............................. 26,763
-----------
1,916,091
Note payable in connection with private placement ........... 125,000
-----------
Total promissory notes .................................... 2,041,091
Less current installments ................................... 125,000
-----------
Promissory notes, excluding current installments ......... $ 1,916,091
===========
</TABLE>
(B) SALE OF COMMON STOCK
In June 1997, the Company sold an aggregate of 156,783 shares of its
common stock at $6.20 per share. Net proceeds to the Company after deducting a
$126,209 fee paid to a shareholder of the Company were $844,553. In connection
with such sale of common stock, the Company issued, to a shareholder of the
Company, a three year warrant to purchase 20,382 shares of the Company's common
stock at an exercise price of $6.20 per share. The fair value of such warrant
was immaterial to such sale of common stock.
F-19
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
(C) WARRANTS
On March 14, 1997, two principal shareholders of the Company issued
warrants for 371,434 shares of the Company's common stock to another
shareholder of the Company at an exercise price of $5.39 per share. These
warrants were automatically exerciseable upon completion of an IPO. The Company
recognized a related expense of $113,760 representing the fair value of the
warrants issued. Additionally, on September 8, 1997, in consideration of the
payment of $50,000, the Company permitted the common stock underlying such
warrants to have certain registration rights. On October 17, 1997, the warrants
were amended to extend the expiration date to March 31, 1998. As a result of
this amendment, related incremental expense of approximately $30,000 was
recognized in October 1997. On March 31, 1998, the warrants expired and were
not renewed.
In January 1997, the Company issued 3,714 warrants at $4.24 per share to a
director of the Company as consideration for serving on the board of directors.
(D) STOCK OPTION PLAN
On September 4, 1997 the Company adopted the 1997 Stock Option Plan (the
"Plan"). Pursuant to the Plan, the Company's board of directors may grant
incentive or non-qualified stock options to employees or service providers.
Under the Plan, 223,284 shares of the Company's common stock are reserved for
issuance and options granted shall vest 25 percent 180 days after issuance and
then 50 percent, 75 percent and 100 percent over the first, second and third
anniversaries of the grant date, respectively. The Plan has a ten year term and
no options granted under the Plan shall have a life greater than ten years.
During September 1997, the Company granted 117,373 options under the Plan to
various employees with an exercise price of $6.00 per option of which 66,486
(unaudited) are still outstanding at March 31, 1998. Of options granted under
the Plan, 50,887 options have been canceled. The fair value of these options is
immaterial to the consolidated financial statements.
(9) 401(K) RETIREMENT PLAN
The Company maintains a 401(k) retirement plan. All of the Company's
employees who have attained the age of 21 and completed one year of service are
eligible. The plan allows vesting at 20 percent per year beginning in the
second year of service. Participants can contribute up to 15 percent of their
annual compensation and the Company may make discretionary contributions. The
Company made contributions of $0 and $28,361 during 1996 and 1997,
respectively.
On April 1, 1997 and effective January 1, 1997, the 401(k) retirement plan
was amended to allow eligibility for employees after having completed 6 months
of service and vesting at 25 percent per year beginning in the first year of
service.
F-20
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
(10) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leased its main administrative office and warehouse premises
under a lease which expired on May 13, 1997. On July 21, 1997, the Company
entered into a new lease agreement for such premises which runs through October
2001. The Company also leases office equipment under various operating leases.
The following summarizes future minimum obligations under non-cancelable
operating leases:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -------------------------
<S> <C>
1998 ................ $327,318
1999 ................ 317,504
2000 ................ 181,658
2001 ................ 96,506
2002 ................ 1,323
--------
$924,309
========
</TABLE>
Total rent expense under operating leases was $249,688 and $31,045,
respectively, for the years ended December 31, 1997 and 1996.
(B) EMPLOYMENT AGREEMENTS
On November 21, 1996, the Company entered into employment contracts
through November 20, 1999 with two of its officers that included commitments
for a base salary plus bonuses (at the discretion of the Compensation Committee
of the Board of Directors) of approximately $175,000. On June 26, 1998, they
amended these employment agreements to modify the base salary commitment for
each officer of approximately $138,000. This salary will increase each contract
year by 10 percent of the prior year's salary. In addition, on June 30, 1997,
each officer was granted stock options for 106,973 shares of common stock with
an exercise price of $6.20 per share. One-third of the options vested on
November 21, 1997 and an additional one-third vests each year thereafter. The
options expire five years from the respective vesting dates and any non-vested
options shall be forfeited upon termination of employment.
On August 25, 1997 the Company entered into an employment contract through
August 24, 1999 with its chief financial officer that includes a commitment for
an annual base salary of $120,000 and the granting of 20,800 stock options with
an exercise price of $6.00 under the Company's 1997 Stock Option Plan [see note
8(d)].
On December 15, 1997, the Company granted 18,104 stock options with an
exercise price of $6.21 to a director of the Company. The fair value of such
options is immaterial to the consolidated financial statements.
(C) CONSULTING AGREEMENT
On November 20, 1996, the Company entered into a consulting agreement with
a shareholder to perform consulting and advisory services with respect to the
operations and finances of the Company.
F-21
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
The consulting fee under this agreement is $10,000 per month until June 30,
2001. Other than the monthly fee, no material commitments exist under the
Company's agreement with such consultant.
On January 15, 1997, the Company entered into a second consulting
agreement with such shareholder pursuant to which the Company has engaged the
services of an employee of such shareholder to develop the Company's sales and
marketing strategies. The fee under this agreement for the services of such
employee is $7,000 per month and the agreement expired December 31, 1997. Under
such consulting agreement, the Company also issued an option to such employee
to acquire 1,486 shares of the Company's common stock at a per share price of
$4.24. Such option was immediately exerciseable and has a three year life. In
addition, such employee has been granted options to purchase 4,457 shares of
common stock under the Company's 1997 Stock Option Plan at an exercise price of
$6.00 per share. The fair value of such options is immaterial to the
consolidated financial statements.
The Company expects this consultant to agree to forbear taking action
against the Company for collection of approximately $125,000 due under these
consulting agreements in exchange for a commitment from the Company to pay such
amount on the completion of an IPO and for the issuance of warrants to purchase
an undetermined number of shares of common stock at an exercise price of $6.00
per share exercisable until four years from the completion of an IPO.
(D) PAYROLL TAXES
During August 1997, the Company reached a settlement with the IRS relating
to payroll taxes due for 1996 employee wages. The amount of such settlement was
$89,000 and is reflected as an accrued expense at December 31, 1996. This
amount was paid in full in October 1997.
(E) LEGAL MATTERS
In July 1997, the Company became aware of the existence of a third party
which may claim a prior right in the trademark "Worldgroup." The Company and
the third party are presently discussing a co-existence arrangement whereby the
Company would have the right, without the payment of a royalty, to continue to
use the trademark "Worldgroup" on its present products and services. The
Company may elect to change the name when it releases its next version of this
product, which is presently anticipated to occur in the first quarter of 1999.
However, there can be no assurances that the version of this product will be
released when anticipated. If the third party has superior rights to this
trademark and such third party decides to enforce its trademark rights through
an infringement action, management believes the Company has valid defenses with
respect to any such action. There can be no assurance, however, that a change
of name will not adversely impact the Company's revenues and thereby the
Company's operating results and financial condition.
In July 1997, the Company became aware that several other third parties
filed applications for trademark registration of "WebCast" (the name of a
product of the Company), before the Company filed its application. If "WebCast"
is not determined to be generic and one of the third party applications matures
into registration, then such third party will have superior rights to the
Company. If a third party has superior rights to this trademark and such third
party decides to enforce its trademark rights through an infringement action,
management believes that the Company has valid defenses with respect to any
such action. There can be no assurance that the Company will be able to
continue to use the name "Webcast" or that it will not have to change the name
of such product.
F-22
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
A suit was filed against the Company on December 16, 1997 by a reseller of
the Company's products alleging price fixing, price discrimination, resale price
maintenance, predatory practices, breach of contract and economic coercion by
the Company. On June 1, 1998, the Company settled with the third party which
will require under the settlement agreement that the Company disburse to the
third party one year from the closing date of the IPO (distribution date) the
lesser of (a) 253,907 shares or (b) the number of shares of common stock
determined by dividing $650,000 by the market price of the common stock at the
distribution date. The expected fair market value of stock on the distribution
date is $6.00. Therefore, management and legal counsel for the Company are of
the opinion that the settlement is probable and estimated at $650,000. The
Company recorded this amount as a charge and included this amount in other
liabilities at December 31, 1997.
The Company is subject to certain other legal matters arising in the
ordinary course of business which, in the opinion of management, will not have
a material effect on the financial position and results of operations of the
Company.
(11) SUBSEQUENT EVENTS
(A) CONSULTING AGREEMENT
On March 3, 1998, the Company entered into a consulting agreement with its
Chairman of the Board of Directors to be responsible for managing the business
of the Company. The consulting fee under this agreement is $10,000 per month
for a 90 day term automatically renewing for successive 30 day terms. On June
23, 1998, this Agreement was amended and now expires 12 months from the closing
of an IPO unless extended for successive one-year periods upon the mutual
consent of both parties. However, the agreement can be terminated by the
Company for any reason six months from the completion of an IPO upon 90 days'
prior written notice. In such event, the Company is required to pay the
Chairman $60,000 in a lump sum payment.
Under such consulting agreement and amendment, the Company also issued
an option to acquire 120,693 shares of common stock. Of such shares, 12,069
shares were vested on June 5, 1998 and 9,052 shares shall vest for two years
thereafter. Additionally, 15,087 of the options shall vest immediately upon the
closing of the IPO and an additional 15,087 will vest for two years thereafter.
Further, 15,087 of the options shall vest immediately upon the Company realizing
positive net income after taxes in any fiscal quarter through the quarter ended
December 31, 1999 and 15,087 of the shares will vest for two years thereafter.
The exercise price of all options granted shall be 90 percent of the per
share price of the common stock in an IPO. Those conditions that are satisfied
before an IPO shall have an exercise price of $5.22. All options expire three
years from the respective vesting dates.
The 12,069 shares that became exerciseable on June 5, 1998, will be
recorded as a charge to the consolidated statement of operations and an
increase in additional paid-in-capital in the amount of approximately $9,500
for the second quarter which represents the difference between the fair market
value ($6.00) and the exercise price ($5.22).
F-23
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
(B) CONVERTIBLE PROMISSORY NOTE
On May 7, 1998, the Company received proceeds in the amount of $125,000
from the issuance of a secured convertible promissory note payable to Kenworthy
Investments, Ltd. ("Kenworthy"). This note is secured by all of the Company's
assets. This note bears interest at a rate of 10 percent per annum. All
principal and interest payments are due on January 1, 1999.
In addition, at the option of Kenworthy, all principal and accrued
interest due and payable under this note may be converted on demand on or
before January 15, 1999 into shares of the Company's stock equal to the unpaid
outstanding amount of the note divided by the conversion price of $1.24 per
share. The difference between the conversion price and the fair value ($6.00)
of the Company's common stock on the date of the debt issuance will be recorded
in the second quarter as a charge to the consolidated statements of operations
and an increase in additional paid-in-capital of approximately $480,000.
(C) PLANNED INITIAL PUBLIC OFFERING
The Company intends to conduct an initial public offering (IPO) with two
investment banking firms (the "Representatives"). The Company has agreed to (a)
pay the Representatives cash compensation equal to 10 percent of the principal
amount of the gross proceeds of the offering; (b) pay the Representatives a
non-accountable expense allowance equal to 3% of the gross proceeds of the sale
of the shares; (c) sell to the Representatives, for nominal consideration, five
year warrants to purchase up to 150,000 shares of Common Stock and/or 150,000
warrants at an exercise price above the IPO price and (d) enter into a two-year
financial consulting agreement with the Representatives, pursuant to which the
Company will pay $120,000 at the closing of the IPO. The costs related to the
financial consulting agreement will be deferred and amortized over the life of
the agreement. Costs related to the IPO incurred through December 31, 1997 are
approximately $160,000. All offering costs incurred through the time of the IPO
are capitalized and will be netted against the proceeds of the IPO.
(D) SUBSEQUENT FINANCING
On July 1, 1998, two shareholders of the Company sold 241,935 shares owned
by them to 16 private investors (the "Private Investors") for an aggregate
purchase price of $300,000 or $1.24 per share of common stock. The proceeds of
such sales were loaned to the Company and the Company used the funds to pay
certain accrued accounting and legal fees associated with the planned public
offering. The aggregate principal amount of the loans accrue interest at the
rate of seven percent per annum. All principal and accrued interest is required
to be paid upon the earlier of September 30, 1999 or twelve months from the
completion of an IPO.
In connection with this financing, the Company granted the Private
Investors certain tag-along, piggyback registration, and certain anti-dilution
rights if the Company issues securities below $4.24 per share.
(12) NEW ACCOUNTING PRONOUNCEMENTS
In June 1997 the FASB issued Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. SFAS No. 130 requires
all items to be
F-24
<PAGE>
GALACTICOMM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1997 AND (UNAUDITED) MARCH 31, 1998
recognized under accounting standards as components of comprehensive income to
be reported in a separate financial statement. The Company does not believe
that the adoption of SFAS No. 130 will have a significant impact on the
Company's financial reporting.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION"
("SFAS No. 131"). SFAS No. 131 is effective for financial statements for
periods beginning after December 15, 1997. SFAS No. 131 establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. The Company does not believe that the adoption
of SFAS No. 131 will have a significant impact on the Company's financial
reporting.
In March 1998, the AICPA issued Statement of Position 98-5 (SOP 98-5)
"REPORTING ON THE COSTS OF START-UP OF ACTIVITIES." Pursuant to the provisions
of SOP 98-5, all costs associated with start-up activities, including
organization costs, should be expensed as incurred. Companies that previously
capitalized such costs are required to write-off the unamortized portion of such
costs as a cumulative effect of a change of accounting principle. The Company
has an immaterial amount of these costs and the adoption of SOP 98-5 will not
have a significant impact on the Company's financial statements.
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Galacticomm, Inc.
Fort Lauderdale, Florida:
We have audited the accompanying statements of operations and cash flows
of Galacticomm, Inc. for the year ended December 31, 1995 and the ten months
ended October 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of Galacticomm, Inc.'s operations and
cash flows for the year ended December 31, 1995 and the ten months ended
October 31, 1996 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Ft. Lauderdale, Florida
August 22, 1997
F-26
<PAGE>
GALACTICOMM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
DECEMBER 31, OCTOBER 31,
1995 1996
-------------- -----------------
<S> <C> <C>
Revenue ................................................ $ 7,487,983 $ 3,293,876
Operating costs and expenses:
Cost of revenue ....................................... 1,737,170 1,005,595
Selling, general and administrative ................... 3,602,809 2,382,613
Depreciation and amortization ......................... 131,713 150,185
Compensation expense related to phantom units ......... -- 529,139
Compensation expense on option exercise ............... 443,242 --
Research and development .............................. 1,034,174 638,200
Customer support ...................................... 425,924 387,797
----------- ------------
Total operating costs and expenses .................. 7,375,032 5,093,529
----------- ------------
Operating profit (loss) ............................. 112,951 (1,799,653)
Other income (expense):
Lease termination ..................................... -- (380,040)
Interest income ....................................... 33,042 10,760
Realized loss on short-term investments ............... (225,818) --
Other expense, net .................................... (5,249) (98,873)
----------- ------------
Total other expense ................................. (198,025) (468,153)
----------- ------------
Net loss ............................................ $ (85,074) $ (2,267,806)
=========== ============
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
GALACTICOMM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
DECEMBER 31, OCTOBER 31,
1995 1996
-------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................................ $ (85,074) $ (2,267,806)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization ................................. 131,713 150,185
Loss on disposal of equipment ................................. 10,000 24,582
Bad debt and product return provisions ........................ 16,786 80,065
Compensation expense related to phantom units ................. -- 529,139
Compensation expense on stock option exercise ................. 443,242 --
Realized loss on short-term investments ....................... 225,818 --
Interest income on subscription notes receivable .............. (1,393) (1,874)
Changes in assets and liabilities:
Accounts receivable .......................................... (51,108) 270,956
Inventories .................................................. (77,593) 195,869
Prepaid expenses and other assets ............................ (171,711) 230,264
Accounts payable ............................................. 111,153 (69,701)
Deferred revenue ............................................. 105,034 150,031
Accrued expenses ............................................. 142,028 227,860
---------- ------------
Net cash provided by (used in) operating activities ......... 798,895 (480,430)
---------- ------------
Cash flows used in investing activities:
Capital expenditures ............................................ (164,129) (19,815)
---------- ------------
Cash flows from financing activities:
Net proceeds from notes payable ................................. -- 298,575
Payments on capital lease obligations ........................... (23,952) (24,515)
Dividends to stockholders ....................................... (775,261) (28,295)
Net proceeds from the exercise of stock options and sale of
common stock .................................................. 23,277 --
---------- ------------
Net cash (used in) provided by financing activities ......... (775,936) 245,765
---------- ------------
Net decrease in cash and cash equivalents ........................ (141,170) (254,480)
Cash and cash equivalents--beginning of period ................... 504,347 363,177
---------- ------------
Cash and cash equivalents--end of period ......................... $ 363,177 $ 108,697
========== ============
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
GALACTICOMM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND OCTOBER 31, 1996
(1) THE COMPANY AND BASIS OF PRESENTATION
Galacticomm, Inc. (the "Company") develops and sells network-centric
software applications and tools. The Company's primary product, Worldgroup, a
client/server software, is a platform that merges Bulletin Board Systems,
E-mail, and workgroup functions and enables enterprises to provide client/
server applications over the Internet and intranets and secure external data
exchanges with customers, field agents, suppliers, and others.
Substantially all of the Company's revenue is derived from sales of the
Worldgroup software product and related hardware, documentation and training
manuals, and royalties. The Company operates in a highly competitive industry
characterized by rapidly changing technology which could adversely affect the
Company's revenues and the related results of operations.
On November 21, 1996, 8,037,203 of the issued and outstanding common
shares of the Company, representing a 96 percent ownership of the Company, were
purchased by Galacticomm Technologies, Inc., (formerly Iview Software, Inc.) in
exchange for $.094 in cash and .0644 shares of Galacticomm Technologies, Inc.
for each share of the Company's common stock.
The accompanying financial statements were prepared for inclusion in a
registration statement of Galacticomm Technologies, Inc. The separate audited
balance sheets of the Company are not presented at December 31, 1995 and
October 31, 1996 as the fair value of the acquired assets and assumed
liabilities has been included in the December 31, 1996 consolidated balance
sheet of Galacticomm Technologies, Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ACCOUNTS RECEIVABLE
Accounts receivable are principally from distributors and end-users of the
Company's products. The Company performs periodic credit evaluations of its
customers and has recorded an allowance for potential credit losses and product
returns of $85,680 and $110,428 at December 31, 1995 and October 31, 1996,
respectively. The Company is subject to rapid changes in technology and shifts
in consumer demand which could result in credit losses and product returns in
excess of the Company's reserves.
(B) INVENTORIES
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out ("FIFO") method.
The Company's inventories consist primarily of software media, manuals and
related packaging materials and hardware and hardware components which are
subject to rapid technological obsolescence or reduction in value as a result
of new products developed by competitors or as a result of normal competitive
pressures. The Company periodically estimates an allowance for obsolete
inventory based on current market conditions. Changes in the marketplace may
significantly affect management's estimates.
(C) LONG-LIVED ASSETS
The Company presents its property and equipment at cost less accumulated
depreciation. Property and equipment are depreciated using the straight-line
method over the estimated useful lives of the
F-29
<PAGE>
GALACTICOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND OCTOBER 31, 1996
assets. Maintenance and repairs are charged to expense when incurred;
betterments are capitalized. Upon the sale or retirement of assets, the cost
and accumulated depreciation are removed from the account and any gain or loss
is recognized.
The Company implemented the provisions of Statement of Financial
Accounting Standards No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF," effective January 1, 1996.
The Company reviews its long-lived assets for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected cash flows, undiscounted and without
interest, is less than the carrying amount of the asset, an impairment loss is
recognized as the amount by which the carrying amount of the asset exceeds its
fair value. The adoption of Statement No. 121 had no impact on the Company's
results of operations.
(D) REVENUE RECOGNITION
Product revenue is recognized at the time software and hardware is
delivered, in accordance with the provisions of American Institute of Certified
Public Accountants Statement of Position 91-1, "Software Revenue Recognition".
While the Company has no obligations to perform future services subsequent to
shipment, the Company provides telephone customer support as an accommodation
to purchasers of its products. Costs associated with this effort are not
significant and are expensed as incurred. Sales to distributors are subject to
agreements allowing limited rights of return and price protection. The Company
provides reserves for estimated future returns, exchanges and price protection.
The Company offers distributors co-op funds that are used to promote the
Company's products. These funds are generally paid as a credit against
outstanding invoices and are included in marketing expense during the period in
which the revenue is recognized.
The Company has various contracts which require the Company to provide
consulting services, custom systems integration and training at specified
contractual rates. Such contracts are short-term in nature. The Company records
as deferred revenue, all payments received on each contract until the contract
is completed.
Deferred revenues are recorded for short-term contracts and customer
subscriptions paid in advance.
(E) ROYALTIES
The Company licenses software used to develop components of Worldgroup.
Royalties are payable to developers of the software at various rates and
amounts, generally based on unit sales. Royalty expense was approximately
$7,000 and $46,000 for the year ended December 31, 1995 and the ten months
ended October 31, 1996, respectively. Such costs are included as a component of
cost of revenues in the accompanying statements of operations.
(F) SOFTWARE DEVELOPMENT COSTS
The Company accounts for software development costs under Statement of
Financial Accounting Standards No. 86, "Accounting for Costs of Computer
Software to Be Sold, Leased or Otherwise
F-30
<PAGE>
GALACTICOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND OCTOBER 31, 1996
Marketed" ("FAS 86"). Under FAS 86, the costs associated with software
development are required to be capitalized after technological feasibility has
been established. Costs incurred by the Company subsequent to the establishment
of technological feasibility have been insignificant and, as a result, the
Company has not capitalized any research and development expenses.
(G) INCOME TAXES
Prior to the sale to Galacticomm Technologies, Inc. (see note 1), the
Company was an S corporation for federal income tax purposes. As such, the
income tax effects of the results of operations of the Company accrued directly
to its stockholders. Accordingly, the accompanying financial statements do not
include a provision for income taxes.
(H) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period to
prepare these financial statements in conformity with generally accepted
accounting principles. Significant estimates are primarily related to
provisions for sales returns, bad debt and obsolete inventory. Actual results
could materially differ from these estimates.
(3) INVESTMENT ACTIVITY
The Company's short-term investments consisted of various call options
which were indexed to interest rates on thirty-year U.S. treasury instruments
and expired between January and December 1995. In December 1995, the final call
option expired and had a zero fair value, resulting in the Company realizing an
investment loss of $225,818 for the year ended December 31, 1995. The Company
has no other short-term investments at December 31, 1995 or October 31, 1996.
(4) LINE OF CREDIT
The Company had a line of credit with a bank for $300,000 which bears
interest at prime plus 1 percent and is collateralized by the Company's
accounts receivable, inventory and property and equipment. This line of credit
expired January 9, 1997. As of October 31, 1996, the Company had borrowed
$298,575 under the line of credit agreement.
F-31
<PAGE>
GALACTICOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND OCTOBER 31, 1996
(5) INCENTIVE STOCK OPTION PLAN
The Company has reserved 3,000,000 shares of its common stock for issuance
under its 1987 Incentive Stock Option Plan (the "Plan"). Under the Plan,
options may be granted to purchase common stock at exercise prices not less
than fair market value at the date of grant, as determined by the Board of
Directors. During August 1996, the Board of Directors approved the conversion
of all stock options outstanding, on a one-for-one basis, into phantom units
under the Company's phantom stock plan, and changed the number of shares of
common stock reserved for issuance under the Plan to 500,000. All options
expire on the date specified in the option agreement and in no event later than
the tenth anniversary of the date on which the option was granted. A summary of
incentive stock option activity is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE
------------- -----------------
<S> <C> <C>
Options outstanding, December 31, 1994 ......... 1,220,050 $ .30 - 2.85
Options granted ................................ 50,000 3.18
Options canceled ............................... (65,000) 1.46 - 3.18
Options exercised .............................. (283,765) 1.23 - 1.85
---------
Options outstanding, December 31, 1995 ......... 921,285 .30 - 3.18
Converted to phantom units ..................... (921,285) .30 - 3.18
--------- ---------------
Options outstanding, October 31, 1996 .......... -- $ --
========= ========
</TABLE>
On November 21, 1996 the Plan was canceled.
In 1994, the Company exchanged 83,620 shares of common stock for $122,492
in promissory notes issued by two directors. Also in 1994, a director of the
Company exercised 187,760 options and issued a promissory note of $56,328 as
consideration thereof.
The promissory notes referred to above bear interest at rates ranging from
4.00 -5.86 percent and mature in September 1996 through January 1997 and are
collateralized by common stock of the Company held by the two directors. During
1996, such notes were repaid with 563,536 shares of the Company's common stock.
The non-cash option transactions described above have been excluded from
the accompanying statements of cash flows.
During 1995, a former employee of the Company exercised 279,000 options to
acquire shares of common stock. The exercise price for the first 1,864 options
exercised was funded by an exchange of 1,000 shares of common stock held by the
former employee. Such common shares exchanged had been held by the former
employee greater than six months. Subsequent to the initial exercise, the
former employee immediately used the shares of common stock acquired under
option to satisfy the exercise price for additional shares under the same
option (the "Pyramiding Exercise"), until the former employee's remaining
277,136 options were exercised.
The shares of common stock used in the Pyramiding Exercise were considered
"immature" as they were held less than six months by the former employee.
Accordingly, the Company recognized $443,242 in compensation expense in 1995.
F-32
<PAGE>
GALACTICOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND OCTOBER 31, 1996
(6) PHANTOM STOCK PLAN
In July 1994, the Company's Board of Directors authorized the Galacticomm,
Inc. Phantom Stock Plan. The purpose of the plan is to provide equity-based
compensation to certain employees and directors through the awarding of rights
or "units" associated with the common stock of the Company. These units entitle
the holder to receive bonus compensation and an election may be made by the
holder to receive the common stock of the Company based on the occurrence of
certain events.
A summary of the Phantom Stock Plan's activity is as follows:
<TABLE>
<S> <C>
Units outstanding, December 31, 1994 ......... 98,296
Units granted ............................... 89,675
Units canceled .............................. (15,361)
-------
Units outstanding, December 31, 1995 ......... 172,590
Units granted ............................... 4,009,947
Units canceled .............................. (64,729)
Units converted to common stock ............. (3,625,429)
----------
Units outstanding, October 31, 1996 .......... 492,379
==========
</TABLE>
During August 1996, the Board of Directors approved the increase of
phantom units that may be issued under the Phantom Stock Plan to 4,500,000. As
a result of the purchase by Galacticomm Technologies, Inc. (see note 1) of
8,037,203 of the issued and outstanding common shares of the Company, certain
provisions in the Phantom Stock Plan were met and triggered the conversion into
common stock feature of all currently outstanding phantom units. As such, all
phantom unit holders at October 31, 1996 had the option to convert each phantom
unit held into a common share of the Company. Accordingly, $529,139 of
compensation expense was recorded, representing the fair value of the Company's
common stock underlying all phantom units outstanding on October 31, 1996. On
November 21, 1996 the Phantom Stock Plan was canceled.
(7) LEASE TERMINATION
On June 8, 1996, the Company entered into a third amendment to a certain
10-year office space lease agreement, under which the Company stipulated that
the Company did not desire to take occupancy of the subject property. As of
October 31, 1996 the Company has recorded a lease termination expense of
$380,040 representing lost security deposits and future lease payments.
F-33
<PAGE>
GALACTICOMM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND OCTOBER 31, 1996
(8) COMMITMENTS
The Company leases its main office and warehouse premises under an
operating lease which expires on May 13, 1997. The Company also leases office
equipment under operating leases. The following summarizes future minimum
leases under non-cancelable operating leases as of October 31, 1996:
<TABLE>
<S> <C>
1997 ................ $ 76,192
1998 ................ 4,531
--------
$ 80,723
========
</TABLE>
Rent expense under operating leases for the year ended December 31, 1995
and the ten months ended October 31, 1996 amounted to $78,857 and $96,671,
respectively.
The Company also leases certain computer equipment under capital leases.
The annual maturities of these capital lease obligations are as follows:
<TABLE>
<CAPTION>
OCTOBER 31,
- ------------------------
<S> <C>
1997 ................ $ 33,092
1998 ................ 23,361
1999 ................ 5,488
--------
$ 61,941
========
</TABLE>
F-34
<PAGE>
GALACTICOMM TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The following unaudited pro forma consolidated statement of operations of
Galacticomm Technologies Inc. ("GTI") for the year ended December 31, 1996
gives effect to the following pro forma events, as if such events had occurred
on January 1, 1996: (i) the inclusion of the results of operations of
Galacticomm, Inc. and Tessier Technologies, Inc. for the year ended December
31, 1996 as if such acquisitions were consummated on January 1, 1996; (ii) the
elimination of intercompany transactions between Galacticomm Technologies,
Inc., Galacticomm, Inc. and Tessier Technologies, Inc. for the year ended
December 31, 1996 assuming these entities reported on a consolidated basis;
(iii) an increase of amortization of goodwill as a result of the acquisitions
of Galacticomm, Inc. and Tessier Technologies, Inc. assuming such acquisitions
were consummated on January 1, 1996; and (iv) an increase of interest expense
due to the financings obtained to fund the acquisitions of Galacticomm, Inc.
and Tessier Technologies, Inc. assuming such acquisitions were consummated on
January 1, 1996.
These unaudited pro forma consolidated statements of operations should be
read in conjunction with the audited consolidated financial statements of
Galacticomm Technologies, Inc. The unaudited pro forma data are not necessarily
indicative of the results of operations of Galacticomm Technologies, Inc. that
would have occurred if the pro forma events had been in effect at the beginning
of the periods presented, nor are they necessarily indicative of future results
of operations.
<TABLE>
<CAPTION>
GTI TTI(7) GALACTICOMM(7)
--------------- ------------- ----------------
<S> <C> <C> <C>
Revenues ..................... $ 1,692,743 $1,350,204 $ 3,293,876
Cost of revenues ............. 758,050 865,715 1,005,595
------------ ---------- ------------
Gross profit ................. 934,693 484,489 2,288,281
Selling, general and
administrative .............. 1,531,130 472,729 2,196,421
Depreciation ................. 47,533 31,542 336,377
Amortization
of intangibles .............. 36,607 -- --
Compensation expense
on warrants ................. 49,381 -- 529,139
Customer support ............. 72,772 -- 387,797
Research and
development ................. 225,549 -- 638,200
------------ ---------- ------------
Total operating expenses ..... 1,962,972 504,271 4,087,934
------------ ---------- ------------
Income (loss) from
operations .................. (1,028,279) (19,782) (1,799,653)
Other income (expense) ....... (60,312) -- (468,153)
------------ ---------- ------------
Loss before income taxes ..... (1,088,591) (19,782) (2,267,806)
Income taxes ................. -- -- --
------------ ---------- ------------
Net loss ..................... $ (1,088,591) $ (19,782) $ (2,267,806)
============ ========== ============
Net loss per share ...........
Shares used in computing
net loss per share ..........
<CAPTION>
PRO FORMA
COMBINED ADJUSTMENTS PRO FORMA
--------------- ------------------------ ---------------
<S> <C> <C> <C>
Revenues ..................... $ 6,336,823 $ (147,318)(1,2) $ 6,189,505
Cost of revenues ............. 2,629,360 113,898 (1,2) 2,515,462
------------ ------------ ------------
Gross profit ................. 3,707,463 (33,420) 3,674,043
Selling, general and
administrative .............. 4,200,280 180,972 (3,4) 4,381,252
Depreciation ................. 415,452 -- 415,452
Amortization
of intangibles .............. 36,607 538,126 (5) 574,733
Compensation expense
on warrants ................. 578,520 -- 578,520
Customer support ............. 460,569 -- 460,569
Research and
development ................. 863,749 -- 863,749
------------ ------------
Total operating expenses ..... 6,555,177 719,098 7,274,275
------------ ------------ ------------
Income (loss) from
operations .................. (2,847,714) (752,518) (3,600,232)
Other income (expense) ....... (528,465) (126,856)(6) (655,321)
------------ ------------ ------------
Loss before income taxes ..... (3,376,179) (879,374) (4,255,553)
Income taxes ................. -- -- --
------------ ------------ ------------
Net loss ..................... $ (3,376,179) $ (879,374) $ (4,255,553)
============ ============ ============
Net loss per share ........... $ (1.99)
Shares used in computing
net loss per share .......... 2,139,443
</TABLE>
- ----------------
(1) Adjustment reflects elimination of intercompany sales from Galacticomm,
Inc. to Tessier Technologies, Inc.
(2) Adjustment reflects the remaining portion of the elimination of
intercompany sales.
(3) Adjustment reflects additional officers salaries as if officers employment
agreements were effective January 1, 1996.
(4) Adjustment reflects additional consulting fees to a stockholder of the
company as if the related consulting agreement had been entered into on
January 1, 1996.
(5) Adjustment reflects an additional ten months goodwill amortization related
to the Galacticomm, Inc. and Tessier Technologies, Inc. acquisitions.
(6) Adjustment reflects additional interest expense on debt incurred to finance
the acquisition of Galacticomm and Tessier as if the acquisitions were
consummated on January 1, 1996.
(7) Reflects operations from January 1, 1996 through October 31, 1996.
F-35
<PAGE>
================================================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY AN UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITY OTHER THAN THE SHARES OFFERED BY THIS PROSPECTUS, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO ITS DATE.
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary ................................ 3
Risk Factors ........................... 8
Use of Proceeds ........................ 17
Capitalization ......................... 18
Dividend Policy ........................ 18
Dilution ............................... 19
Selected Historical and Unaudited
Pro Forma Financial Data ............ 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ....................... 21
Business ............................... 27
Management ............................. 38
Certain Transactions ................... 44
Principal Shareholders ................. 48
Description of Securities .............. 50
Underwriting ........................... 56
Legal Matters .......................... 59
Experts ................................ 59
Available Information .................. 59
Index to Financial Statements .......... F-1
</TABLE>
-----------------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A 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.
[LOGO]
GALACTICOMM TECHNOLOGIES, INC.
1,500,000 SHARES
AND
1,500,000 REDEEMABLE COMMON STOCK
PURCHASE WARRANTS
(AS UNITS, EACH CONSISTING OF ONE
SHARE OF COMMON STOCK AND ONE
REDEEMABLE COMMON STOCK PURCHASE
WARRANT)
PROSPECTUS
SECURITY CAPITAL TRADING, INC.
FIRST EQUITY CORPORATION
, 1998
================================================================================
<PAGE>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Pursuant to the provisions of Section 607.0850(1) of the Florida Business
Corporation Act, the Company has the power to indemnify any person who is or
was a party to any proceeding (other than an action by, or in the right of, the
Company), because such person is or was a director, officer, employee, or agent
of the Company (or is or was serving at the request of the Company under
specified capacities) against liability incurred in connection with such
proceeding provided such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interest of the
Company (and with respect to any criminal action or proceeding, such person had
no reasonable cause to believe such person's conduct was unlawful).
With respect to a proceeding by or in the right of the Company to procure
a judgment in its favor, Section 607.085(2) of the Florida Business Corporation
Act provides that the Company shall have the power to indemnify any person who
is or was a director, officer, employee, or agent of the Company (or is or was
serving at the request of the Company under specified capacities) against
expenses and amounts paid in settlement not exceeding, in the judgment of the
Board of Directors, the estimated expense of litigating the proceeding to
conclusion, actually and reasonably incurred in connection with the defense or
settlement of such proceeding provided such person acted in good faith and in a
manner such person reasonably believed to be in, or not opposed to, the best
interest of the Company, except that no indemnification shall be made in a case
in which such person shall have been adjudged to be liable to the Company
unless and only to the extent that the court in which the proceeding was
brought, shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses.
Indemnification as described above shall only be granted in a specific
case upon a determination that indemnification is proper under the
circumstances using the applicable standard of conduct which is made by (a) a
majority of a quorum of directors who were not parties to such proceeding, (b)
if such a quorum is not attainable or by majority vote of a committee
designated by the Board of Directors consisting of two or more directors not
parties to the proceeding, (c) by independent legal counsel selected by the
Board of Directors described in the foregoing parts (a) and (b), or if a quorum
cannot be obtained, then selected by a majority vote of the full Board of
Directors, or (d) by the shareholders by a majority vote of a quorum consisting
of shareholders who are not parties to such proceeding.
Section 607.0850(12) of the Florida Business Corporation Act permits the
Company to purchase and maintain insurance on behalf of any director, officer,
employee or agent of the Company (or is or was serving at the request of the
Company in specified capacities) against any liability asserted against such
person or incurred by such person in any such capacity whether or not the
Company has the power to indemnify such person against such liability.
ARTICLES OF INCORPORATION
The Articles of Incorporation of the Company (the "Articles") provide for
the indemnification of directors and officers of the Company to the fullest
extent permitted by Section 607.0850 of the Florida Business Corporation Act.
The Articles further provide that the indemnification provided for therein
shall not be exclusive of any rights to which those indemnified may be entitled
under any bylaw, agreement, vote of shareholders or disinterested directors, or
otherwise.
The Articles also contain a provision that eliminates the personal
liability of the Company's directors for monetary damages unless the director
has breached his or her fiduciary duty and such breach constitutes or includes
certain violations of criminal law, a transaction from which the director
derived an improper personal benefit, certain unlawful distributions or certain
other reckless, wanton or wilful acts or misconduct. This provision does not
alter a director's liability under the federal securities laws. In addition,
this provisions does not affect the availability of equitable remedies, such as
an injunction or rescission, for breach of fiduciary duty.
II-1
<PAGE>
SECURITIES AND EXCHANGE COMMISSION POLICY
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company,
the Company has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses (other than the underwriting discounts and
commissions) in connection with the issuance and distribution of the securities
registered hereunder are as follows:
<TABLE>
<S> <C>
SEC Registration Fee* .................... $ 7,914
NASD Filing Fee* ......................... $ 3,183
NASDAQ Listing Fee* ...................... $ 10,000
Printing Expenses ........................ $100,000
Accounting Fees and Expenses ............. $225,000
Legal Fees and Expenses .................. $220,000
Blue Sky Fees and Expenses ............... $ 50,000
Transfer Agent Fees and Expenses ......... $ 15,000
Miscellaneous ............................ $ 8,177
--------
Total .................................. $639,274
========
</TABLE>
- ----------------
* Actual amount.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is certain information regarding sales of securities by
the Company without registration under the Securities Act. Such information
gives retroactive effect to the Company's November 1996 1 for 2 forward stock
split of the Common Stock, the Company's September 1997 4.061771824 for 1
reverse stock split of the Common Stock and the Company's June 1998 1.657080842
for 1 reverse stock split of the Common Stock.
On December 4, 1995, the Company issued an aggregate of 829,888 shares of
Common Stock to Peter Berg, Lorraine Gouger and Mitch Segal for an aggregate
consideration of $20,000. The offer and sale of such securities was made in
reliance on Section 4(2) of the Securities Act for transactions not involving a
public offering. In reliance upon such exemption from registration, the Company
determined that each of the foregoing persons had such knowledge and experience
in financial and business matters so as to be able to evaluate the merits and
risks of an investment in the Company and each person had access to the type of
information that would have been included in a registration statement filed
with the Commission.
On November 20, 1996, the Company issued an aggregate of 40,091 shares of
Common Stock to Walter Muharsky and Vincent Toscano in connection with the
merger of TTI with and into the Company. The recorded value of such shares of
Common Stock was $145,714. The Company, on November 20, 1996, also issued
733,669 shares of Common Stock to Yannick Tessier, pursuant to the Stock
Issuance Agreement, dated August 26, 1996. The recorded value of such shares of
Common Stock was $49,381. The offer and sale of such securities was made in
reliance on Section 4(2) of the Securities Act for transactions not involving a
public offering. In reliance upon such exemption from registration, the Company
determined that each of the foregoing persons had such knowledge and experience
in financial and business matters so as to be able to evaluate the merits and
risks of an investment in the Company and each person had access to the type of
information that would have been included in a registration statement filed
with the Commission.
On November 21, 1996, the Company issued to the Wallenberg Trust and UA
Partners: (i) an aggregate of 324,267 shares of Common Stock in exchange for
aggregate consideration of $1,375,000 or $4.24 per share; and (ii) convertible
promissory notes in the principal aggregate amount of $1,375,000,
II-2
<PAGE>
which are convertible into shares of Common Stock at a rate of $4.24 per share.
On December 31, 1997, the Company issued 328,224 shares of Common Stock to the
Wallenberg Trust upon conversion of their convertible note in the aggregate
amount of $1,391,781. As consideration for its services in connection with the
November 1996 transaction, the Company granted Union Atlantic a three-year
warrant to purchase 84,310 shares of common Stock at an exercise price of $4.24
per share and issued 47,152 shares of Common Stock which shares were valued at
$200,020. The offer and sale of such securities to the Wallenberg Trust was
made in an offshore offering in reliance on Regulation S of the Securities Act.
The offer and sale of such securities to Union Atlantic and UA Partners was
made in reliance on Section 4(2) for transactions not involving a public
offering. In reliance upon such exemption from registration, the Company
determined that each of the foregoing persons had such knowledge and experience
in financial and business matters to be able to evaluate the merits and risks
of an investment in the Company and each person had access to the type of
information that would have been included in a registration statement filed
with the Commission.
On November 21, 1996, the Company acquired from eight shareholders of
Galacticomm, Inc. an aggregate of 8,037,203 shares of the common stock of
Galacticomm, Inc. (representing approximately 96 percent of the then issued and
outstanding shares of the common stock of Galacticomm, Inc.) in exchange for
the issuance of an aggregate of 90,679 shares of Common Stock and the aggregate
cash payment of $611,476. The offer and sale of such securities was made in
reliance on Rule 504 of Regulation D promulgated under the Securities Act.
On January 14, 1997, the Company granted Claus Stenbaek a three-year
option to purchase 3,714 shares of Common Stock at an exercise price of $4.24
per share as consideration for serving on the Company's board of directors and
granted Robert O'Brien a three-year option to purchase 1,486 shares of Common
Stock at an exercise price of $4.24 per share in exchange for sales and
marketing consulting services rendered to the Company. The offer and sale of
such securities was made in reliance on Rule 701 of the Securities Act.
In February 1997, the Company acquired from 34 persons an additional
848,404 shares of the common stock of Galacticomm, Inc. in exchange for the
issuance of an aggregate of 25,886 shares of Common Stock and the aggregate
cash payment of $56,937. The recorded value of such shares of Common Stock was
$139,895. The offer and sale of such securities was made in reliance on Rule
504 of Regulation D promulgated under the Securities Act.
In June 1997, the Company issued 156,783 shares of Common Stock to nine
persons (3 accredited and 6 non-accredited) for aggregate consideration of
$970,762. As consideration for its services in connection with such
transaction, the Company granted Union Atlantic three-year warrants to purchase
20,382 shares of Common Stock at an exercise price of $6.20 per share. The
offer and sale of such securities was made in reliance on Rule 506 of
Regulation D promulgated under the Securities Act. Each of the non-accredited
investors represented to the Company, among other things, that such investor
had such experience in financial and business matters so as to be able to
evaluate the merits and risks of the investment.
On June 30, 1997, the Company granted options to purchase an aggregate of
213,946 shares of Common Stock at an exercise price of $6.20 per share to
Messrs. Berg and Tessier pursuant to the terms of their respective employment
agreements with the Company. The offer and sale of such securities was made in
reliance on Section 4(2) of the Securities Act for transactions not involving a
public offering. In reliance upon such exemption from registration, the Company
determined that each of the foregoing persons had such knowledge and experience
in financial and business matters so as to be able to evaluate the merits and
risks of an investment in the Company and each person had access to the type of
information that would have been included in a registration statement filed
with the Commission.
In August 1997, the Company issued an aggregate of 13,794 shares of Common
Stock to five persons, pursuant to the terms of five Agreements to Distribute
Proceeds entered into between December 1995 and February 1997. The offer and
sale of such securities was made in reliance on Section 4(2) of the Securities
Act for transactions not involving a public offering. In reliance upon such
exemption from registration, the Company determined that each of the foregoing
persons had such
II-3
<PAGE>
knowledge and experience in financial and business matters so as to be able to
evaluate the merits and risks of an investment in the Company and each person
had access to the type of information that would have been included in a
registration statement filed with the Commission.
In September 1997, the Company granted options to purchase an aggregate of
117,373 shares of Common Stock (of which 66,486 are outstanding prior to the
offering) at an exercise price of $6.00 per share to 36 employees of the
Company pursuant to the 1997 Plan. The offer and sale of such securities was
made in reliance on Rule 701 of the Securities Act.
On September 8, 1997, the Company issued an aggregate of 49,029 shares of
Common Stock to the Wallenberg Trust and UA Partners as consideration for
relinquishing the following rights that were originally set forth in the Stock
Purchase Agreements, dated November 21, 1997, between the Company and each of
the Wallenberg Trust and UA Partners: (i) ratchet rights that required the
Company to issue additional shares of Common Stock to such persons based on the
Company's 1997 after tax earnings as follows: (x) 0.1581 shares for each share
then owned if after tax earnings were less than $1,000,000; (y) 0.0790 shares
for each share then owned if after tax earnings were between $1,000,000 and
$1,500,000; and (z) no additional shares if after tax earnings exceeded
$1,500,000; (ii) certain preemptive rights; and (iii) certain anti-dilutive
rights. The foregoing transaction was recorded as a reclassification of the par
value of such shares of Common Stock from additional paid in capital to common
stock.
On October 28, 1997, the Company issued to 39 persons (26 accredited
investors and 13 non-accredited investors) 42 units, each unit consisting of a
promissory note in the principal amount of $50,000 and three year warrants to
purchase 11,466 shares of Common Stock at an exercise price of $6.21 per share.
Such offering was made in reliance on Rule 506 of Regulation D promulgated under
the Securities Act. Each of the non-accredited investors represented to the
Company, among other things, that such investors had such experience in
financial and business matters to be able to evaluate the merits and risks of
the investment. As consideration for serving as the placement agent for such
offering, the Company paid First Equity Corporation a placement fee equal to:
(i) cash compensation of $210,000; (ii) a non-accountable expense allowance of
$63,000 and accountable expenses totaling $10,000; and (iii) warrants to
purchase 96,314 shares on terms substantially the same as warrants sold to the
investors.
On December 15, 1997, the Company granted David Manovich a three year
option to purchase 18,104 shares of Common Stock at an exercise price of $6.21
per share as consideration for serving on the Board of Directors of the
Company. The offer and sale of such securities was made in reliance on Rule 701
of the Securities Act.
As of March 3, 1998, the Company granted David Manovich an option to
purchase up to 120,694 shares of Common Stock as consideration for serving as
Chairman of the Board of Directors of the Company. The exercise price of all
vested options is $5.22 per share. After the Company's initial public offering
the exercise price of the options will be $5.40 per share. The offer and sale
of such securities was made in reliance on Section 4(2) of the Securities Act
for transactions not involving a public offering. In reliance upon such
exemption from registration, the Company determined that Mr. Manovich had such
knowledge and experience in financial and business matters so as to be able to
evaluate the merits and risks of an investment in the Company and he had access
to the type of information that would have been included in a registration
statement filed with the Commission.
In May 1998, Kenworthy Investments Limited ("Kenworthy") loaned the
Company $125,000 and received a Secured Convertible Promissory Note (the
"Kenworthy Note"), dated May 7, 1998. All principal and accrued interest (at
the rate of 10% per annum) under the Kenworthy Note is required to be paid on
January 1, 1999. Subject to certain adjustments, the aggregate principal and
accrued interest under the Kenworthy Note can be converted into shares of
Common Stock at the rate of $1.24 on demand by Kenworthy. The offer and sale of
the Kenworthy Note was made in reliance on Section 4(2) of the Securities Act
for transactions not involving a public offering. In reliance upon such
exemption from registration, the Company determined that Kenworthy had such
knowledge and experience in financial and business matters so as to able to
evaluate the merits and risks of an investment in the Company and Kenworthy had
access to the type of information that would have been included in the
registration statement filed with the Commission.
II-4
<PAGE>
As of June 1, 1998, the Company and DataSafe Publications, Inc.
("DataSafe") settled certain litigation brought against the Company by
DataSafe. See "Business--Legal Proceeding." Pursuant to the settlement, the
Company has placed in escrow with a third party escrow agent 253,907 shares of
Common Stock. One year from the closing of an initial public offering of the
Company's securities (the "Distribution Date"), the escrow agent will disburse
to DataSafe the lesser of 253,907 shares or the number of shares of Common
Stock determined by dividing $650,000 by the market price (as defined in the
escrow agreement) on the Distribution Date of a share of Common Stock. In
connection with this transaction, DataSafe represented to the Company, among
other things, that DataSafe has such knowledge and experience in financial and
business matters (as required by Rule 506 of Regulation D of the Securities
Act) and has had such opportunity as it deems necessary or appropriate to ask
questions of and receive from personnel of the Company so as to enable DataSafe
to evaluate the merits and risks associated with the ownership of the Common
Stock and the business, assets, liabilities, financial condition, cash flow and
operations of the Company. Accordingly, the issuance of the shares of Common
Stock was made in reliance on Rule 506 of Regulation D promulgated under the
Securities Act.
In connection with loans made by Messrs. Berg and Tessier to the Company,
the Company issued promissory notes to each of them. All principal and accrued
interest under the notes is required to be paid upon the earlier to occur of
September 30, 1999 or 12 months from the completion of this offering. The
issuance of the notes to Messrs. Berg and Tessier was made in reliance on
Section 4(2) of the Securities Act for transactions not involving a public
offering. In reliance upon such exemption from registration, the Company
determined that Mr. Berg and Mr. Tessier had such knowledge and experience in
financial and business matters so as to be able to evaluate the merits and
risks of an investment in the Company and each persons, as executive officers
of the Company, had access to the type of information that would have been
included in a registration statement filed with the Commission.
ITEM 27. EXHIBITS
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1. Form of Underwriting Agreement between the Company and the Underwriters.
3.1 Articles of Incorporation of the Company as filed with the Secretary of State on
December 4, 1995.*
3.2 Articles of Amendment to Articles of Incorporation of the Company as filed with the
Florida Secretary of State on November 19, 1996.*
3.3 Articles of Amendment to Articles of Incorporation of the Company as filed with the
Florida Secretary of State on May 1, 1997.*
3.4 Articles of Amendment to Articles of Incorporation of the Company as filed with the
Florida Secretary of State on September 9, 1997.*
3.5 Articles of Amendment to Articles of Incorporation of the Company as filed with the
Florida Secretary of State on dated September 30, 1997.*
3.6 Articles of Merger of the Company as filed with the Florida Secretary of State on
November 21, 1996.*
3.7 Bylaws of the Company, as amended on June 20, 1998.
3.8 Articles of Amendment to Articles of Incorporation of the Company as filed with the
Florida Secretary of State on June 23, 1998.
4.1 Form of Common Stock Certificate.
4.2 Form of Warrant Agreement.
4.3 Form of Warrant Certificate.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
4.4 Form of Representatives' Warrant Agreement, including form of Warrant Certificate.
4.5 Omitted.
4.6 Form of Consulting Agreement between the Representatives and the Company.
4.7 Form of Agreement Among Underwriters.
5 Opinion of Lucio, Mandler, Croland, Bronstein, Garbett, Stiphany & Martinez, P.A.**
10.1 Stock Purchase Agreement, dated November 21, 1996, among the Company, Peter Berg
("Berg"), Yannick Tessier ("Tessier") and Hemmingfold Investments Ltd.
("Hemmingfold").*
10.2 Letter Agreement, dated September 8, 1997, by and among the Company, Berg, Tessier
and Hemmingfold amending the Stock Purchase Agreement dated November 21, 1996.*
10.3 Secured Convertible Promissory Note, dated November 21, 1996, from the Company in
favor of Hemmingfold.*
10.4 Letter Agreement, dated September 8, 1997, by and between the Company and
Hemmingfold amending the Secured Convertible Promissory Note, dated November 21,
1996.*
10.5 Stock Purchase Agreement, dated November 21, 1996, among the Company, Berg, Tessier
and Union Atlantic Partners I Limited ("UA Partners").*
10.6 Letter Agreement, dated September 8, 1997, by and among the Company, Berg, Tessier
and UA Partners amending the Stock Purchase Agreement, dated November 21, 1996.*
10.7 Secured Convertible Promissory Note, dated November 21, 1996, from the Company in
favor of UA Partners.*
10.8 Letter Agreement, dated September 8, 1997, by and between the Company and Union
Atlantic Partners amending the Secured Convertible Promissory Note, dated November 21,
1996.*
10.9 Warrant dated November 21, 1996, between Company and Union Atlantic, L.C. ("Union
Atlantic").*
10.10 1997 Stock Option Plan.*
10.11 Form of Bridge Note.*
10.12 Form of Bridge Warrant.*
10.13 Form of Bridge Registration Rights Agreement.*
10.14 Agreement and Plan of Merger between Company and Tessier Technologies, Inc. dated
November 20, 1996.*
10.15 Lease Agreement to lease office space between Galacticomm, Inc. and New Town
Commerce Center, Ltd., dated July 21, 1997.*
10.16 Agreement to lease T-3 Fiber Optic Digital Equipment between AT&T and the Company,
dated December 26, 1996.*
10.17 Letter Agreement to acquire Galacticomm, Inc. between Company and Galacticomm, Inc.
dated October 29, 1996.*
10.18 Amended and Restated Consulting Agreement, dated July 1, 1997, between the Company
and Union Atlantic.*
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------
<S> <C>
10.19 Consulting Agreement, dated January 15, 1997, by and among the Company, Union
Atlantic and Robert J. O'Brien.*
10.20 Amended and Restated Employment Agreement, dated June 30, 1997, between the
Company and Berg.
10.21 Amended and Restated Employment Agreement, dated June 30, 1997, between the
Company and Tessier.
10.22 Employment Agreement, dated August 25, 1997, between the Company and T. Michael
Love.*
10.23 Stock Option and Agreement between the Company and Berg.*
10.24 Stock Option and Agreement between the Company and Tessier.*
10.25 Stock Issuance Agreement among the Company, Berg and Tessier dated August 26, 1996.*
10.26 Promissory Note, dated November 5, 1997, from the Company to Capital Bank.
10.27 Promissory Note, dated April 2, 1996, from the Company in favor of Skyline, Inc.*
10.28 Promissory Note, dated August 3, 1996, from Tessier Technologies, Inc. in favor of Tessier.*
10.29 Promissory Note Extension, dated December 31, 1996 in favor of Tessier by the Company.*
10.30 Bundling Agreement with Authorization to Replicate Products between Eastman Kodak
Company and Galacticomm, Inc. dated May 29, 1997.*
10.31 Agreement between Majorware Inc., and Galacticomm, Inc. dated April 30, 1997.*
10.32 Sale of High Society BBS to Galacticomm, Inc. Agreement dated June 10, 1997.*
10.33 Galacticomm Agreement between the Company and Specom Technologies Corp., dated
May 8, 1997.*
10.34 Letter of Permission to Distribute Software between Galacticomm, Inc. and Aztech New
Media Corp., dated May 21, 1997.*
10.35 Software Distribution License between Galacticomm, Inc. and Digital Vision, Inc. dated
May 30, 1997.*
10.36 Software Distribution License between Best Data Products and Galacticomm, Inc. dated
May 30, 1997.*
10.37 Letter Agreement between Galacticomm, Inc. and DataSafe Publications, Inc. dated
October 28, 1997.*
10.38 Restated Software License Agreement between Galacticomm, Inc. and LEAD
Technologies, Inc. dated September 29, 1995.*
10.39 Annual Source Support and Maintenance Agreement between Galacticomm, Inc. and
Pacific Software, Inc. dated September 14, 1995.*
10.40 Software Source Code and Software Binary Distribution License Agreement between
Galacticomm, Inc. and Pacific Software, Inc. dated April 14, 1995.*
10.41 License Agreement between Crown Communications, Inc. and the Company dated
November 18, 1996.*
10.42 Renewal and Modification Agreement to Distribution Agreement between Tech Data
Corporation and Galacticomm, Inc. dated October 8, 1995.*
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.43 Start-Up Agreement between Galacticomm, Inc. and Ingram Micro, Inc. dated April 9,
1997.*
10.44 Reseller Agreement between Galacticomm, Inc. and World Commerce Online, Inc. dated
March 27, 1997.*
10.45 Distribution Agreement between Galacticomm, Inc. and DistribuPro dated February 10,
1994.*
10.46 Web Hosting Agreement between Galacticomm, Inc. and Horst Entertainment, Inc. dated
September 9, 1997.*
10.47 Software License Agreement, dated August 12, 1997 between the Company and Boca
Research, Inc.***
10.48 Reseller Agreement, dated December 12, 1997, between the Company and Microland
Trading, Inc.***
10.49 Reseller Agreement, dated January 12, 1998, between the Company and Simon & Schuster,
Inc.***
10.50 Joint Venture Agreement, dated January 8, 1998, by and between the Company and
Express Web, Inc.***
10.51 Form of Voting Agreement between the Company and Messrs. Berg and Tessier.
10.52 Form of Lock-Up Agreement.*
10.53 Promissory Note Extension, dated December 31, 1997 in favor of Tessier.*
10.54 First Amendment to Amended and Restated Employment Agreement, dated April 3, 1998,
between the Company and Berg.
10.55 Second Amendment to Amended and Restated Employment Agreement, dated June 26,
1998, between the Company and Berg.
10.56 First Amendment to Amended and Restated Employment Agreement, dated April 3, 1998,
between the Company and Tessier.
10.57 Second Amendment to Amended and Restated Employment Agreement, dated June 26,
1998, between the Company and Tessier.
10.58 Agreement, dated March 5, 1998, between the Company and David Manovich
("Manovich").
10.59 First Amendment to Agreement, dated June 22, 1998, between the Company and
Manovich.
10.60 Second Amendment to Agreement, dated June 23, 1998, between the Company and
Manovich.
10.61 Omitted.
10.62 Amended and Restated Stock Option and Agreement between the Company and
Manovich.
10.63 Promissory Note, dated July 1, 1998, from the Company to Berg.
10.64 Promissory Note, dated July 1, 1998, from the Company to Tessier.
10.65 Form of Stock Subscription Agreement.
10.66 Letter Agreement amending Stock Subscription Agreement.
10.67 Form of Registration Rights Agreement.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.68 Escrow Agreement, dated June 1, 1998, among the Company, DataSafe Publications, Inc.
and the Escrow Agent.
10.69 Registration Rights Agreement, dated June 1, 1998, between the Company and DataSafe
Publications, Inc.
10.70 Letter from Kenworthy Investments, Ltd., dated January 21, 1998, to the Company.
10.71 Secured Convertible Promissory Note, dated May 7, 1998, from the Company to
Kenworthy Investments, Ltd.
10.72 Security Agreement, dated May 7, 1998, between the Company and Kenworthy
Investments, Ltd.
10.73 Security Agreement, dated November 5, 1997, between the Company and Capital Bank.
10.74 Continuing Guaranty of Tessier in favor of Capital Bank.
10.75 Continuing Guaranty of Berg in favor of Capital Bank.
11. Per share computation.
21. Subsidiaries of the Company: Galacticomm, Inc., a corporation organized under the laws of
the State of Florida.
23. Consent of KPMG Peat Marwick LLP.
24. Power of Attorney (included in the Signature Page of initial filing of the Registration
Statement).
27. Financial Data Schedule (for SEC purposes only).
</TABLE>
- ----------------
* Previously filed with this Registration Statement
** To be filed by amendment
*** Portions of such exhibit have been omitted pursuant to a request for
confidential treatment
ITEM 28. UNDERTAKINGS.
(a) The undersigned small business issuer hereby undertakes to provide to
the underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer of controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
II-9
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a(3) of the
Securities Act;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or together, represent a
fundamental change in the information in the registration statement; and
notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of Prospectus
filed with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in the volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 2 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Fort
Lauderdale, State of Florida, on the 2nd day of July 1998.
GALACTICOMM TECHNOLOGIES, INC.
By: /s/ PETER BERG
--------------------------------
Peter Berg, Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, Amendment No.
2 to this Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- ---------------------------------------------- -------------
<S> <C> <C>
/s/ Peter Berg Chief Executive Officer (Principal July 2, 1998
- --------------------------------- Executive Officer)
Peter Berg
/s/ Yannick Tessier President and Director July 2, 1998
- ---------------------------------
Yannick Tessier
Chairman of the Board of Directors July 2, 1998
- ---------------------------------
David Manovich
/s/ T. Michael Love Chief Financial Officer (Principal Financial July 2, 1998
- --------------------------------- and Accounting Officer)
T. Michael Love
* Director July 2, 1998
- ---------------------------------
Timothy Mahoney
* By: /s/ Peter Berg
---------------------------
Peter Berg, Attorney-in-Fact
</TABLE>
II-11
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
1. Form of Underwriting Agreement between the Company and the Underwriters.
3.7 Bylaws of the Company, as amended on June 20, 1998.
3.8 Articles of Amendment to Articles of Incorporation of the Company as filed with
the Florida Secretary of State on June 23, 1998.
4.1 Form of Common Stock Certificate.
4.2 Form of Warrant Agreement.
4.3 Form of Warrant Certificate.
4.4 Form of Representatives' Warrant Agreement.
4.6 Form of Consulting Agreement between the Representatives and the Company.
4.7 Form of Agreement Among Underwriters.
10.20 Amended and Restated Employment Agreement, dated June 30, 1997, between
the Company and Berg.
10.21 Amended and Restated Employment Agreement, dated June 30, 1997, between
the Company and Tessier.
10.26 Promissory Note, dated November 5, 1997, from the Company to Capital Bank.
10.51 Form of Voting Agreement between the Company and Messrs. Berg and Tessier.
10.54 First Amendment to Amended and Restated Employment Agreement, dated
April 3, 1998, between the Company and Berg.
10.55 Second Amendment to Amended and Restated Employment Agreement, dated
June 26, 1998, between the Company and Berg.
10.56 First Amendment to Amended and Restated Employment Agreement, dated
April 3, 1998, between the Company and Tessier.
10.57 Second Amendment to Amended and Restated Employment Agreement, dated
June 26, 1998, between the Company and Tessier.
10.58 Agreement, dated March 5, 1998, between the Company and David Manovich
("Manovich").
10.59 First Amendment to Agreement, dated June 22, 1998, between the Company and
Manovich.
10.60 Second Amendment to Agreement, dated June 23, 1998, between the Company
and Manovich.
10.62 Amended and Restated Stock Option and Agreement between the Company and
Manovich.
10.63 Promissory Note, dated July 1, 1998, from the Company to Berg.
10.64 Promissory Note, dated July 1, 1998, from the Company to Tessier.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
10.65 Form of Stock Subscription Agreement.
10.66 Letter Agreement amending Stock Subscription Agreement.
10.67 Form of Registration Rights Agreement.
10.68 Escrow Agreement, dated June 1, 1998, among the Company, DataSafe
Publications, Inc. and the Escrow Agent.
10.69 Registration Rights Agreement, dated June 1, 1998, between the Company and
DataSafe Publications, Inc.
10.70 Letter from Kenworthy Investments, Ltd., dated January 21, 1998, to the
Company.
10.71 Secured Convertible Promissory Note, dated May 7, 1998, from the Company to
Kenworthy Investments, Ltd.
10.72 Security Agreement, dated May 7, 1998, between the Company and Kenworthy
Investments, Ltd.
10.73 Security Agreement, dated November 5, 1997, between the Company and Capital
Bank.
10.74 Continuing Guaranty of Tessier in favor of Capital Bank.
10.75 Continuing Guaranty of Berg in favor of Capital Bank.
11. Per share computation.
23. Consent of KPMG Peat Marwick LLP.
27. Financial Data Schedule (for SEC purposes only).
</TABLE>
EXHIBIT 1
GALACTICOMM TECHNOLOGIES, INC.
Up to 1,725,000 Shares of Common Stock
and 1,725,000 Redeemabe Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
As of _________, 1998
Security Capital Trading, Inc.
520 Madison Avenue, 10th Floor
New York, New York 10022
First Equity Corporation of Florida
444 Brickell Avenue
Suite P6
Miami, Florida 33131
Gentlemen:
Galacticomm Technologies, Inc., a Florida corporation (the "Company")
confirms its agreement with Security Capital Trading, Inc. ("Security Capital")
and First Equity Corporation of Florida ("First Equity") (collectively, the
"Representatives") as representatives and members of the group of several
underwriters, if any, named in Schedule I attached hereto (the "Underwriters" or
"you", and if there is no Schedule I attached, all references in this Agreement
to the "Underwriters" or "you" shall be deemed to refer only to the
Representatives) as follows:
1. THE SHARES AND THE WARRANTS. Subject to the terms and
conditions set forth herein, the Company proposes to sell to you on a "firm
commitment" basis (i) an aggregate of One Million Five Hundred Thousand
(1,500,000) shares (sometimes collectively referred to herein as the "Firm
Shares"), of the Company's authorized but unissued common stock (each a
"Share"), par value $.0001 per share (the "Common Stock") and (ii) One Million
Five Hundred Thousand (1,500,000) (sometimes collectively referred to herein as
the "Firm Warrants") Redeemable Common Stock Purchase Warrants (the "Warrants"),
each Warrant entitling the holder thereof to purchase one (1) share of Common
Stock on the basis of an exercise price of $7.50 [125% of the offering price of
a Share] per share pursuant to a warrant agreement (the "Warrant Agreement")
between the Company and Continental Stock Transfer & Trust Company ("Warrant
Agent"). The Company also proposes to grant to you an option to purchase up to
an additional Two Hundred Twenty Five Thousand (225,000) Shares (such Shares,
"Option Shares") and/or an additional Two Hundred Twenty Five Thousand (225,000)
Warrants (such Warrants, "Option Warrants") for the sole purpose of covering
over-allotments, if any.
<PAGE>
The shares of Common Stock issuable upon exercise of the Warrants are sometimes
collectively referred to herein as the "Warrant Shares." The Firm Shares and the
Firm Warrants are sometimes collectively referred to herein as the "Firm
Securities"; the Option Shares ad the Option Warrants are sometimes collectively
referred to herein as the "Option Securities." The Firm Securities, the Option
Securities and the Warrant Shares are more fully described in the Registration
Statement and the Prospectus referred to herein and are hereinafter sometimes
collectively referred to as the "Securities."
2. REGISTRATION STATEMENT AND PROSPECTUS. A registration
statement on Form SB- 2 (File No. 333-39805) together with exhibits and
including a preliminary form of prospectus for the registration of the
Securities has been prepared by the Company in conformity with the requirements
of the Securities Act of 1933, as amended, and all applicable instructions,
rules and regulations (collectively, the "Securities Act") of the Securities and
Exchange Commission (the "Commission"), and has been filed with the Commission.
There have been delivered to you copies of each Preliminary Prospectus and the
Final Prospectus. Such registration statement, including the Prospectus, Part
II, any documents incorporated by reference therein and all financial schedules
and exhibits thereto, as amended at the time when it shall become effective, is
herein referred to as the "Registration Statement," and the prospectus included
as part of the Registration Statement on file with the Commission when it shall
become effective or, if the procedure in Rule 430A of the Rules and Regulations
(as defined below) is followed, the prospectus that discloses all the
information that was omitted from the prospectus on the effective date of the
Registration Statement pursuant to such rule, and in either case, together with
any changes contained in any prospectus filed with the Commission by the Company
with your consent after the effective date of the Registration Statement, is
herein referred to as the "Final Prospectus." If the procedure in Rule 430A is
followed, the prospectus included as part of the Registration Statement on the
date when the Registration Statement became effective is referred to herein as
the "Effective Prospectus." Any prospectus included in the Registration
Statement of the Company and in any amendments thereto prior to the effective
date of the Registration Statement is referred to herein as a "Pre-Effective
Prospectus." For purposes of this Agreement, "Rules and Regulations" mean the
rules and regulations adopted by the Commission under either the Securities Act
or the Securities Exchange Act of 1934 (the "Exchange Act"), as applicable.
3. AGREEMENTS TO SELL AND PURCHASE.
a. FIRM SHARES AND FIRM WARRANTS. The Company agrees
to sell to you, and upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to the terms and
conditions hereof, you shall, severally but not jointly, purchase from the
Company, the Firm Shares at a purchase price of $5.40 per Firm Share and the
Firm Warrants at a price of $.09 per Firm Warrant. This purchase price of the
Firm Shares and the Firm Warrants represents the public offering price of such
securities ($6.00 per Firm Share and $.10 per Firm Warrant), less a discount,
equaling ten percent (10%), that the Company has agreed to allow the
Underwriters. All or any portion of such discount may be reallowed by you for
- 2 -
<PAGE>
sales through licensed securities dealers who are members of the National
Association of Securities Dealers, Inc. (the "NASD").
b. OPTION SECURITIES. The Company also grants you an
option to purchase, upon your written notice to the Company, up to an
additional Two Hundred Twenty Five Thousand (225,000) Option Shares and/or an
additional Two Hundred Twenty Five Thousand (225,000) Option Warrants for the
sole purpose of covering over-allotments, if any, at the purchase price and on
the same terms as set forth in the preceding paragraph. The Option Shares and/or
Option Warrants may be purchased, in whole or in part, at any time for a period
of forty-five (45) days following the effective date of the Registration
Statement. The notice from you to the Company shall specify the number of Option
Shares and/or Option Warrants to be purchased and the date and time of payment
and delivery thereof (the "Option Closing Date"). You, as the Underwriters, in
your sole discretion, shall determine the number of Option Shares and/or Option
Warrants, if any, to be purchased as provided herein. Such over-allotment option
shall not be exercised more than on one occasion.
c. REPRESENTATIVES' WARRANTS. On the Closing Date (as
defined herein) for the Firm Securities, the Company shall further issue and
sell to the Representatives warrants (the "Representatives' Warrants") to
purchase One Hundred Fifty Thousand (150,000) Shares and/or One Hundred Fifty
Thousand (150,000) warrants similar, but not identical to, the Warrants (such
Shares and the Shares issuable upon exercise of the Representatives' Underlying
Warrants, the "Representatives' Underlying Shares" and such warrants, the
"Representatives' Underlying Warrants") for an aggregate purchase price of
$75.00 pursuant to a warrant agreement (the "Representatives' Warrant
Agreement") between the Company and the Representatives in form satisfactory to
the Representatives to be entered into on the Closing Date. The Representatives'
Warrants shall be exercisable at any time during the four year period commencing
one-year after the initial Closing Date (the "Term"), at a price per
Representatives' Underlying Share equal to $9.90 (165% of the public offering
price of a Share) and at a price per Representatives' Underlying Warrant equal
to $.165 (165% of the public offering price of a Warrant). The Representatives'
Underlying Warrants shall be exercisable at a price per share equal to $12.375
(165% of the exercise price of a Warrant) and shall not be redeemable. For a
period of one (1) year after the effective date of the Registration Statement,
the Representatives' Warrants (and the Representatives Securities, as
hereinafter defined) may not be sold, assigned, transferred, pledged or
hypothecated except to officers and partners of the Representatives or NASD
members who are part of the selling group (and their officers or partners). Such
transfers will only be made if they do not violate the registration provisions
of the Securities Act. The Representatives' Warrants and the Representatives'
Securities shall be transferable after one year from the effective date of the
Registration Statement pursuant to available exemptions from registration (if
- 3 -
<PAGE>
not otherwise covered by an effective registration statement) under the
Securities Act, provided, however, that the Representatives' Warrants may not be
transferred to a direct competitor of the Company without the Company's prior
written consent. Except as otherwise set forth in the Representatives' Warrant
Agreement, you may designate that the Representatives' Warrants be issued in
varying amounts directly to your officers or partners and not the
Representatives, and to other NASD members who are part of the selling group, if
any, and their officers or partners. Such designation will be made by you only
if you determine that such issuances would not violate the interpretation of the
Board of Governors of the NASD relating to the review of corporate financing
arrangements. The Representatives' Warrants, the Representatives' Underlying
Shares and the Representatives' Underlying Warrants (collectively sometimes
referred to herein as the "Representatives' Securities") shall be entitled to
piggyback and demand registration rights as set forth in the Representatives'
Warrant Agreement.
4. DELIVERY AND PAYMENT. Delivery of and payment for the Firm
Securities shall be made at 10:00 A.M., Miami Time, on , 1998 (such time and
date are referred to herein as the "Closing Date") at the offices of Akerman,
Senterfitt & Eidson, P.A., SunTrust International Center, 28th Floor, One
Southeast 3rd Avenue, Miami, Florida 33131. The Closing Date and the time and
the place of delivery of and payment for the Firm Securities may be varied by
agreement between you and the Company.
If you elect to purchase and take delivery of any Option
Securities, delivery of and payment for such Option Securities shall be made at
said office or at such place as may be agreed upon in writing by you and the
Company, on the Option Closing Date, which may be the same as the Closing Date
but shall in no event be earlier than the Closing Date or earlier than one or
later than ten business days after the giving of the written notice referenced
in Section 3 hereof from you to the Company of the determination to purchase a
number, specified in said notice, of Option Securities. Such notice may be given
by you to the Company at any time within forty-five (45) days after the date of
the Final Prospectus. The Option Closing Date may be varied by agreement between
you and the Company. On the Option Closing Date, if any, there shall be
delivered to you supplemental opinions and certificates, dated such Option
Closing Date, to the same effect as those required to be delivered on the
Closing Date pursuant to Section 9 hereof. The Closing Date and the Option
Closing Date are heretofore and hereinafter collectively referred to as the
"Closing Date."
Delivery of certificates for the shares of Common Stock which
comprise the Shares and the certificates for the Warrants (in definitive form
and registered in such names and in such denominations as you shall request
prior to the Closing Date) shall be made to you against payment of the purchase
price for the Firm Securities and Option Securities, as applicable, by certified
or official bank check or wire transfer of immediately available funds payable
to the order of the Company (less all amounts payable to the Underwriters under
this Agreement and any agreement referred to herein). For the purpose of
expediting the checking and packaging of certificates for the Shares and the
Warrants, the Company agrees to make such certificates available for inspection
at
- 4 -
<PAGE>
least 24 hours prior to the Closing Date. Time shall be of the essence and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriter.
5. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company
further covenants and agrees with you as follows:
a. FILING OF REGISTRATION STATEMENT. The Company
shall use its best efforts to cause the Registration Statement to become
effective or, if the procedure in Rule 430A of the Rules and Regulations is
followed, comply with the provisions of and make all requisite filings with the
Commission pursuant to such Rules and Regulations. The Company will give you
advance notice of its intention to file or make any amendment or post-effective
amendment to the Registration Statement or any amendment or supplement to the
Prospectus and will submit all such amendments or supplements to you and to your
counsel as soon as possible, but not later than five (5) business days before
the Company proposes to file such amendments or supplements with the Commission.
The Company will not file any such amendment or supplement to which you shall
reasonably object in writing within a reasonable time after being furnished
copies thereof. The Company will not allow the Registration Statement to be
declared effective by the Commission without your approval.
b. NOTICE TO UNDERWRITERS. The Company will advise
you promptly and confirm that advice in writing (i) when any post-effective
amendment to the Registration Statement shall have become effective, (ii) of the
mailing or the delivery to the Commission for filing of any amendment or
post-effective amendment to the Registration Statement or any amendment or
supplement to the Prospectus, (iii) of any request by the Commission for
amendment or supplement to the Registration Statement or the Prospectus, or for
additional information, immediately supplying you with copies of all comment
letters and all other correspondence with the Commission, (iv) of the issuance
by the Commission of any stop order suspending effectiveness of the Registration
Statement or of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, or of the initiation or threat of any
proceeding for any such purpose, (v) of the issuance by any state securities
commission or other regulatory authority of any order suspending the quali
fication or the exemption from qualification of the Securities under state
securities or Blue Sky laws or the initiation or threat of any proceedings for
that purpose and (vi) of the happening of any event during the period mentioned
in Section 5.d hereof that makes any statement made in the Registration
Statement or the Prospectus untrue in any material respect or which requires the
making of any changes in the Registration Statement or the Prospectus in order
to make the statements therein not misleading in any material respect. The
Company will use its best efforts to prevent the issuance of any stop order or
suspension order and to obtain the withdrawal of any such stop order or
suspension order at the earliest possible moment.
c. NASDAQ LISTING. On the effective date of the
Registration Statement, the Securities shall be listed for quotation on the
NASDAQ SmallCap Market, and the Company shall use its best efforts to maintain
such listing for not less than five (5) years, provided,
- 5 -
<PAGE>
however, that the Company may withdraw the listing of its securities on the
NASDAQ if the Company lists the Securities on the NASDAQ National Market System
or on the New York or American Stock Exchange. In addition to the foregoing, the
Company shall, pursuant to Schedule D of the NASD By-Laws, prepare and file with
the NASD any required notification along with applicable fees to list the
Securities on the NASDAQ system. The Company shall, as required, prepare and
file as promptly as practicable a Report by Issuer of Securities Quoted on
NASDAQ Interdealer Quotation System on Form 10-C (or any successor form) with
respect to the shares of Common Stock and the Warrants.
d. POST-EFFECTIVE AMENDMENT. Within the time during
which a Final Prospectus relating to the Securities is required to be delivered
under the Securities Act, the Company shall comply with all requirements imposed
upon it by the Securities Act and by the Rules and Regulations, as from time to
time in force, so far as is necessary to permit the continuance of sales of or
dealings in the Securities as contemplated by the provisions hereof and the
Final Prospectus. If at any time when a prospectus relating to the Securities is
required to be delivered under the Securities Act, any event occurs as a result
of which, in the judgment of the Company and its counsel, the Prospectus as then
amended or supplemented would include any untrue statement of a material fact,
or omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which made, not misleading in any material
respect, or if it is necessary at any time to amend or supplement the Prospectus
to comply with the Securities Act or any other applicable law, the Company will
promptly notify you, and the Company shall promptly prepare and file with the
Commission an amendment or supplement to the Registration Statement which will
correct such statement or omission, or an amendment or supplement which will
effect such compliance, and deliver to you in connection therewith such
prospectus or prospectuses in such quantity as may be necessary to permit
compliance with the requirements of the Securities Act.
e. BLUE SKY QUALIFICATION. Prior to any public
offering of the Securities by you, the Company will endeavor in good faith,
using your counsel, and in cooperation with you and your counsel in taking such
action as may be necessary to register or qualify the Securities for offer and
sale under the applicable securities or Blue Sky laws of any states or
jurisdictions of the United States as you may reasonably designate (provided
such states or jurisdictions do not require the Company to qualify as a foreign
corporation or to file a general consent to service of process) and will
maintain such qualifications in effect for so long as may be required for the
distribution of the Securities. The foregoing shall be subject to the reasonable
consent of the Company as to any state or jurisdiction that seeks to impose an
escrow requirement with respect to insiders' shares or some other restrictive
condition upon the Company that exceeds the insiders lock-up provision of
Section 5.k (other than because no escrow is required herein) or a comparable
condition contained herein. Copies of all applications and related documents for
the registration or qualification of securities (except for the Registration
Statement and Prospectus) filed with the various states shall be sent to the
Company's counsel not later than the next business day following their
transmission to the various states, and copies of all comments and orders
received from the various states shall be made available to the Company's
counsel. As information is received from various states and
- 6 -
<PAGE>
immediately prior to the effective date of the Registration Statement, counsel
for the Underwriters shall advise counsel for the Company in writing of all
states where the offering has been registered or qualified for sale or has been
canceled, withdrawn or denied, the date(s) of such event(s), and the number of
Securities (and amount of other securities, if any) registered or qualified for
sale in each state. The Company shall be responsible for the cost of state
registration filing fees and legal fees and expenses of Underwriters' counsel in
connection with such filings, which filing fees shall be paid to Underwriters'
counsel in advance of such filings. The Underwriters' counsel's legal fees with
respect to blue sky filing shall be $2,000 for each state in which application
for registration, qualification or exemption is made. All outstanding fees and
expenses of the Underwriters' counsel solely with respect to Blue Sky matters
shall be paid by the Company on or prior to the Closing Date. Prior to the
effective date of the Registration Statement, Company's counsel shall be
responsible for providing the Underwriters with information pertaining to the
permissibility of sales of the Securities in the secondary market and shall take
such steps as shall be reasonably required to qualify the Securities in those
states or jurisdictions reasonably requested by the Underwriters.
f. STANDARD AND POOR'S. The Company shall, as soon as
practicable after the Closing Date, apply for listing in Standard and Poor's
Stock Guide and use its best efforts to effect and maintain such listing for at
least five (5) years.
g. INVESTOR RELATIONS. The Company further agrees, no
later than the 25 days after the Closing Date, to engage the services of an
investor relations firm (which firm shall also be qualified to act and shall
serve as the financial publicist of the Company) reasonably acceptable to the
Representatives and to maintain such services from the date of engagement for
two (2) years following the Closing Date.
h. ISSUANCES OF ADDITIONAL SECURITIES. Except as
provided in this Agreement and except for options granted pursuant to the
Company's 1997 Stock Option Plan (the "Plan") and other convertible securities
outstanding on the effective date of, and as described in, the Registration
Statement, the Company will not, and will cause any of its subsidiaries not to,
sell, offer to sell, solicit an offer to buy, contract to sell or otherwise
dispose of any of their respective securities or any securities convertible into
or exercisable or exchangeable for any of their respective securities or grant
any options or warrants to purchase any of their respective securities, for a
period of twelve (12) months after the effective date of the Registration
Statement, without the written consent of the Representatives, which consent
shall not be unreasonably withheld or delayed. The Underwriters acknowledge that
the Company intends to file a Form S-8 registration statement with respect to
the granting of the stock options to be issued under the Plan and the sale of
the shares of Common Stock underlying such options.
i. INFORMATION TO THE UNDERWRITERS. The Company will
deliver to you, for a period of at least five (5) years (or such earlier date if
the Representatives' Warrants and the Representatives' Underlying Warrants have
been exercised in full) from the Closing Date: (i) as soon as practicable, but
in any event within ninety-five (95) days after the close
- 7 -
<PAGE>
of each fiscal year of the Company, or as soon thereafter as practicable, a
financial report of the Company and its subsidiaries, if any, on a consolidated
basis, and a similar financial report of all unconsolidated subsidiaries, if
any, all such reports to include a balance sheet as of the end of the preceding
fiscal year, a statement of operations, a statement of changes in financial
condition and a statement of shareholders' equity covering such fiscal year, and
all to be in reasonable detail and certified by independent public accountants
who may, however, be the regularly employed independent public accountants of
the Company; (ii) within one hundred and five (105) days after the end of each
quarterly fiscal period of the Company, other than the last quarterly fiscal
period in any fiscal year, or as soon thereafter as practicable, copies of the
consolidated statement of operations, the statement of shareholders' equity and
statement of changes in financial condition for that period, and the balance
sheet as of the end of that period of the Company and its subsidiaries, if any,
the statement of operations, the statement of shareholders' equity and statement
of changes in financial condition and the balance sheet of each unconsolidated
subsidiary, if any, of the Company for that period, all subject to year-end
adjustment, certified by the principal financial or accounting officer of the
Company; (iii) copies of all other statements, documents, or other information
which the Company shall mail or otherwise make available to any class of its
security holders, to the financial press or to the public, or shall file with
the Commission, including, but not limited to periodic reports required to be
filed under Sections 13 and 15 of the Exchange Act, in particular Forms 10-KSB,
10-QSB and 8-K (which shall be provided within the same period such reports are
required to be filed with the Commission); (iv) a copy of each "weekly position
sheet" generated by the Depository Trust Corporation pursuant to a subscription
for such service that the Company shall maintain at its expense; and (v) upon
request in writing, such other information as may reasonably be requested with
reference to the property, business, shareholders and affairs of the Company and
its subsidiaries, if any.
j. SECTION 11(A) EARNINGS STATEMENT. The Company
will, as promptly as possible after the close of each fiscal year of the
Company, prepare and distribute reports to its shareholders which will include
audited statements of its operations and changes of financial position during
such period and its balance sheet as of the end of such period. The Company will
make generally available to its shareholders and will deliver to you, as soon as
practicable, but in no event later than the first day of the 15th full calendar
month following the effective date of the Registration Statement, an earnings
statement (which need not be audited but which will satisfy the provisions of
Section 11(a) of the Securities Act) covering a period of at least twelve (12)
months beginning after the effective date of the Registration Statement.
k. LOCK-UP AND CERTAIN VOTING AGREEMENTS.
(1) LOCK-UP AGREEMENTS. The Company will
cause each of its officers, directors and holders of the Company's Common Stock,
and any other persons deemed to be "affiliates" as defined in Rule 144 under the
Securities Act immediately prior to the effective date of the Registration
Statement, to agree in writing (the "Lock-Up Agreement") that: (i) such person
shall not, directly or indirectly, offer for sale, sell, including a short sale
or sale against the box, transfer, pledge, assign, hypothecate or otherwise
encumber or dispose of any securities (including
- 8 -
<PAGE>
options, warrants and convertible securities) of the Company owned directly,
indirectly, or beneficially (as defined by the Exchange Act and the Rules and
Regulations) by him, her or it (including shares of Common Stock hereinafter
acquired through the exercise or conversion of derivative securities or
otherwise but excluding securities of the Company acquired in the public
offering for the initial public offering price and securities purchased in the
marketplace after the effective date of the Registration Statement), under Rule
144 or otherwise, for a period of twelve (12) months from the effective date of
the Registration Statement ("Lock-Up Period") without the Representatives' prior
written consent; and (ii) such person will permit all certificates evidencing
his, her or its shares of Common Stock, warrants, options or notes to be affixed
with an appropriate restrictive legend, and will cause the transfer agent for
the Company to note such restrictions on the transfer books and records of the
Company. Notwithstanding the foregoing, (i) such person may sell or otherwise
dispose of such shares in a privately negotiated transaction, provided that: (a)
the purchaser agrees in advance in writing with the Underwriters to the
restrictions on transfer of securities as set forth herein and to vote the
Common Stock as set forth in the Lock-Up Agreements and (b) the disposition is
otherwise in accordance with the federal securities and other laws, and (ii)
such person may make gifts and transfers of Common Stock to the undersigned's
immediate family (as such term is defined in rules promulgated under the
Securities Exchange Act of 1934, as amended). On or before the effective date of
the Registration Statement, the Company shall have furnished to the
Representatives the Lock-Up Agreements, which shall be in a form reasonably
acceptable to the Representatives and which shall be duly executed, and shall be
valid and binding obligations of such persons enforceable against such persons
in accordance with their respective terms.
(2) CERTAIN VOTING AGREEMENT. The Company
shall cause Messrs. Peter Berg and Yannick Tessier to agree in writing (the
"Liquidation Voting Agreement") that, in the event that a vote of shareholders
of the Company shall be taken upon (A) any liquidation of the Company, or (B)
any business combination in which the Company is not the surviving corporation
or any sale of all or substantially all of its assets (which combination or sale
occurs during the two-year period immediately following the Closing Date), such
persons shall, during the two-year period immediately following the Closing
Date, vote all shares of voting capital stock of the Company beneficially owned
by them (or over which they have the power to direct the vote) in the same
proportion as the votes cast by non-affiliates voting shares of the same class
or series, with respect to the above-referenced matters on which a vote of
shareholders is taken. On or before the Closing Date of the offering, the
Company shall have furnished to the Representatives the Liquidation Voting
Agreements, which shall be in a form reasonably acceptable to the
Representatives and which shall be duly executed, and shall be valid and binding
obligations of such persons enforceable against such persons in accordance with
their respective terms.
l. PRESS RELEASES. For a period commencing on the
date hereof and ending two years after the date of the Prospectus, neither the
Company nor any of its officers or directors will issue news releases or permit
other such publicity about the Company regarding the financial condition or any
significant event of the Company without the approval of the Company's legal
counsel named in the Prospectus under the heading "Legal Opinions," or such
other counsel
- 9 -
<PAGE>
as may be approved by you. During such period, the Company will deliver to you
copies of such news releases or other publicity about the Company promptly after
distribution thereof.
m. UNDERWRITERS' COPIES. The Company will promptly
deliver to you, without charge: (i) two complete copies (one of which is
manually signed) of the Registration Statement, as originally filed, and of each
amendment thereto, and of each post-effective amendment thereto filed at any
time when a prospectus relating to the Securities is required to be delivered
under the Securities Act, in each such case manually executed by the proper
officers and a majority of the directors of the Company (or, in case of
amendments, by their duly constituted attorneys-in-fact) and including signed
copies of each consent of experts named in the Registration Statement and all
financial statements, schedules and exhibits filed therewith (including those
incorporated by reference to the extent not previously furnished to you), and
(ii) such number of conformed copies of the Registration Statement, as
originally filed, and of each amendment and post-effective amendment thereto (in
each such case excluding exhibits), as you may reasonably require. The Company
will promptly deliver, without charge, to you or such others whose names and
addresses are designated by you as soon as possible after the effective date of
the Registration Statement, and thereafter from time to time during the period
when delivery of a prospectus relating to the Securities is required by the
Securities Act, as many printed copies as you may reasonably request of the
Final Prospectus and of any amended or supplemented prospectus. The Company will
promptly deliver, without charge, as soon as practicable following the public
offering or sale of the Securities, and thereafter from time to time for such
period as delivery of a prospectus or any amendment or supplement thereto may be
required, to you or any dealers to whom Securities may be issued, as many copies
as you reasonably request of the Prospectus and any amendment or supplement
thereto.
n. NASD MATTERS. The Company shall supply your
counsel with the following as appropriate to satisfy the NASD filing
requirements: (i) such copies of any amendment or supplement to the Registration
Statement and the preliminary prospectus or Final Prospectus; and (ii) the
statutory filing fee in the form of a certified or cashier's check. The Company
shall further supply to your counsel, no later than one (1) week before the
effective date of the Registration Statement, a written representation as to:
(i) the existence or nonexistence of any NASD affiliation or association of any
officer, director, or five percent (5%) or greater shareholder of the Company,
and, if a shareholder of the Company is a corporation, the existence or
nonexistence of any direct or indirect NASD affiliation or association of any
officer, director, or five percent (5%) or greater shareholder of such
corporation, (ii) whether or not any unregistered securities of the Company have
been acquired by any NASD affiliated persons during the twelve (12) month period
prior to filing the Registration Statement, and (iii) whether or not key-man
life insurance has been or will be provided for any officer or director of the
Company by any NASD affiliate.
o. EXPENSES. Whether or not the transactions
contemplated by this Agreement are consummated or this Agreement becomes
effective or is terminated, the Company shall bear all costs and expenses
incident to the issuance, offer, sale, and delivery of the Securities,
including, but not limited to, stock transfer taxes, all expenses and fees
incident to the filing of the Registration Statement and the registration
statements with the Commission pursuant to the
- 10 -
<PAGE>
Securities Act and the Exchange Act, the costs, filing fees and (subject to
Section 1.e. hereof) counsel fees related to qualification under state
securities laws, fees and disbursements of counsel and accountants for the
Company, NASD filing fees, NASDAQ system fees, costs of preparing and printing
the Registration Statement and as many copies of the preliminary prospectus and
Prospectus as you may reasonably deem necessary, including all amendments and
supplements to the Registration Statement, and the printing, delivery, and
shipping of this Agreement and other underwriting documents, including
Underwriters' questionnaires, Underwriters' powers of attorney, Blue Sky
memoranda, and selected dealers' agreements, the cost of printing certificates
representing the Shares and the Warrants, the costs and charges of the Transfer
Agent and Warrant Agent, and all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise provided for in
this Agreement. The Company shall also bear all costs of holding informational
meetings and "road shows" (with the Company's approval) to acquaint securities
dealers with the affairs of the Company, provided that the Company shall not be
responsible for any Representatives' travel, meals and/or lodging expenses in
the continental United States. The Company, at its sole expense, shall make a
representative of its management available at the offices of the Underwriters,
at mutually convenient times, prior to the effective date of the Registration
Statement and shall likewise make representatives available at the Company for
due diligence or other informational meetings. The Company will also pay the
reasonable out-of-pocket travel expenses of the Underwriters and their counsel
or the professionals designated by the Underwriters to visit the Company's
facilities (as well as those of any significant supplier to, or customer of, the
Company) for purposes of discharging their due diligence responsibilities. The
Prospectus (preliminary and definitive) shall be printed by a financial printer
selected by the Company and approved by the Underwriters. The Company agrees to
supply the Underwriters (within ten weeks of the Closing Date) at the Company's
sole cost and expense up to five (5) bound volumes of all the documents, papers
and exhibits, correspondence and records forming the materials included in the
public offering. In addition, the Company agrees to pay for all pre- and
post-closing advertisements relating to the public offering.
In addition to the foregoing, the Company shall reimburse you
for your expenses on the basis of a nonaccountable expense allowance in the
amount of 3% of the gross offering proceeds, including over-allotment proceeds,
less, as to First Equity, the sum of Twenty Five Thousand Dollars ($25,000)
previously paid to it and less, as to Security Capital, the sum of Twenty Five
Thousand Dollars ($25,000) previously paid to it; all of your costs in excess of
the nonaccountable expense allowance shall be paid by you. Expenses to which the
allowance shall be applied include, without limitation, fees of your counsel,
but shall not include the following: fees of the Company's counsel; Commission
or state filing fees; Blue Sky counsel fees (subject to Section 1.e. hereof) and
expenses (as described herein); NASD filing fees; NASDAQ listing fees; printing;
tombstone advertisements; and any and all other expenses customarily paid by the
issuer in a public offering. The Company represents that such payment will be
made in full through a deduction from the payment by the Underwriters for the
Firm Securities or Option Securities, as applicable, on each Closing Date.
Notwithstanding any other provisions of this Agreement, if (i)
(a) there is a material adverse change in the business or financial condition of
the Company, (b) there exists any material
- 11 -
<PAGE>
misrepresentation of the Company contained herein or otherwise, (c) you discover
in the course of your due diligence examination of the Company facts which you
determine, in your sole discretion, could materially adversely affect the sale
of the Securities, or (d) market conditions, in your sole judgment, do not
justify an offering on the terms set forth in the Registration Statement, and in
any such event you elect to terminate the underwriting, (ii) there is any
judicial, administrative or other regulatory or governmental judgment, decree,
order, injunction or similar action or proceeding enjoining, suspending,
prohibiting, limiting or otherwise restricting you from engaging in underwrit
ing activities or sales of securities, and in any such event you elect to
terminate the underwriting, or (iii) if the transactions contemplated by this
Agreement or related thereto are not consummated because the Company decides not
to proceed with the offering, the Company agrees that in addition to paying the
Company's own expense, you will be entitled to be reimbursed by us, on an
accountable basis, for all of its reasonable accountable out-of-pocket costs
incurred in connection with the offering of securities contemplated by the
Registration Statement (including, as to each of the Representatives, the Twenty
Five Thousand Dollars ($25,000) previously paid to each). Furthermore, if the
Company should fail to pay the agreed upon amounts set forth above to you, your
successors or assigns, the Company, shall, furthermore, be liable to you for
reasonable attorney's fees and costs incurred in the collection of said amounts.
p. TRANSFER SHEETS. The Company shall furnish to you
a list of the names and addresses of all shareholders subsequent to the Closing
Date and shall cause the Transfer Agent to furnish to you a copy of all transfer
sheets for a period of three years from the later of the Closing Date or the
Option Closing Date.
q. UNDERTAKINGS AND USE OF PROCEEDS. The Company will
comply with all of the undertakings contained in the Registration Statement and
shall apply the net proceeds of the sale of the Securities substantially in
accordance with the description set forth in the Prospectus.
r. INTENTIONALLY OMITTED.
s. EXCHANGE ACT REGISTRATION. The Company shall
prepare and file a registration statement with the Commission pursuant to
Section 12(g) of the Exchange Act. Such registration statement under the
Exchange Act shall be declared effective contemporaneously with the
effectiveness of the Registration Statement. The Company shall comply with the
Securities Act, the Exchange Act and the Rules and Regulations, the applicable
rules and regulations of the NASD and applicable states securities laws so as to
permit the continuance of sales of and dealings in the Securities in compliance
with applicable provisions of such laws, rules, and regulations, including the
filing with the Commission and the NASD of all reports required to be so filed
by each, and the Company will deliver to the holders of the shares all reports
required to be provided to such holders pursuant to such laws, rules, or
regulations. The Company will use its best efforts to maintain its registration
under the Exchange Act in effect for a period of five (5) years from the Closing
Date.
t. STOCK OPTION PLANS. The Company shall not amend
any of its stock option plans to increase the number of shares of Common Stock
available for grant under any of
- 12 -
<PAGE>
such option plans by more than 20%, in the aggregate, for a period of two years
from the effective date of the Registration Statement without the prior written
consent of the Representatives.
u. REDEMPTION AND DIVIDENDS. For a period of two
years from the Closing Date, the Company shall not, either directly or through a
subsidiary, (i) redeem or purchase any of its securities outstanding as of the
Closing Date, other than redemptions of the Warrants permitted by the Warrant
Agreement, or that may be required in connection with possible termination of
employment with the Company under the terms of employment agreements in effect
on the Closing Date, or redemptions as otherwise provided for herein, or (ii)
pay any dividends, or make any other cash distribution in respect of its
securities, in excess of the amount of the Company's current or retained
earnings derived after the Closing Date, without the prior written consent of
the Representatives, which consent may be withheld for any reason. The
Representatives shall either approve or disapprove, in writing of such
contemplated stock redemption or dividend or distribution within five (5)
business days after the date the Representatives receive written notice of the
proposed action. Failure by the Representatives to provide a response to within
such five (5) day period shall be deemed to be an approval of the redemption or
dividend.
v. DESIGNATION OF DIRECTORS AND ATTENDANCE AT BOARD
MEETINGS. The Representatives together shall have the right, for the three (3)
year period following the effective date of the Registration Statement, to
designate one (1) nominee (the "Nominees") for election to the Company's Board
of Directors. The officers, directors, and principal shareholders of the Company
shall agree in writing at or prior to the Closing Date to vote all shares of
voting capital stock owned by them (or over which they have the power to direct
the vote) during such three-year period in favor of the election of the Nominee
designated by the Representatives and shall solicit proxies in support of such
nomination. If the Representatives shall not have designated a Nominee at the
time of any meeting of the Board or such person shall not have been elected or
shall be unavailable to serve, the Company shall notify the Representatives of
each meeting of the Board. If a Nominee is not serving on the Board, an
individual selected by the Representatives shall be permitted to attend all
meetings of the Board and to receive all notices and other correspondence and
communications sent by the Company to members of the Board. The Nominee (or
attendee) shall receive no more or less compensation than is paid to other
non-officer directors of the Company for attendance at Board Meetings and shall
be entitled to receive reimbursement for all reasonable costs incurred in
connection with attending such meetings including, without limitation, food,
lodging and transportation. The Company agrees to indemnify and hold such
Nominee (or attendee) harmless, to the maximum extent permitted by law, against
any and all claims, actions, awards and judgments arising out of his or her
service as a director or advisor and, in the event that the Company maintains a
liability insurance policy affording coverage for the acts of its officers and
directors, to include such director or attendee as an insured under such policy.
The rights and benefits of such indemnification and the benefits of such
insurance shall, to the extent possible, extend to the Representatives insofar
as it may be or may be alleged to be responsible for such director or attendee.
- 13 -
<PAGE>
w. DIRECTORS' AND OFFICERS' INSURANCE. The Company
has obtained directors' and officers' insurance naming the Representatives as
additional insured parties, in an amount equal to twenty-five percent (25%) of
the gross proceeds of the offering, and will maintain such insurance for a
period of at least five (5) years from the Closing Date.
x. CONSULTING AGREEMENT. The Company agrees to employ
the Representatives as financial consultants on a non-exclusive basis for a
period of two (2) years from the Closing Date, pursuant to a separate written
consulting agreement ("Consulting Agreement") between the Company and the
Representatives, at a monthly rate of Five Thousand Dollars ($5,000) per month
(exclusive of any accountable out-of-pocket expenses), payable in full, in
advance, on the Closing Date. The Company further agrees to deliver a duly and
validly executed copy of said consulting agreement, in form and substance
acceptable to the Representatives, on the Closing Date.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to you that:
a. CONDITIONS FOR USE OF A REGISTRATION STATEMENT ON
FORM SB-2. The conditions for use of a registration statement on Form SB-2 set
forth in the General Instructions to Form SB-2 have been satisfied with respect
to the Company, the transactions contemplated herein and in the Registration
Statement. The Company has prepared in conformity with the requirements of the
Securities Act and the Rules and Regulations and filed with the Commission the
Registration Statement. Each Preliminary Prospectus was endorsed with the legend
required by Item 501(a)(5) of Regulation S-B of the Rules and Regulations,
including, if applicable, Rule 430A thereof.
b. ACCURACY OF REGISTRATION STATEMENT AND PROSPECTUS.
To its knowledge, neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any preliminary prospectus
or Prospectus, no proceedings for that purpose have been threatened or
instituted and each preliminary prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto or filed
pursuant to Rule 424 under the Securities Act in all material respects, at the
time of the filing thereof, complied with the Securities Act and did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; when the Registration Statement becomes effective, and when the
Prospectus is filed with the Commission, and at all times subsequent thereto up
to and including the Closing Date and the Option Closing Date, or for such
longer period as the Prospectus is required under the Securities Act to be
delivered in connection with sales by you or a dealer selected by you, the
Registration Statement and the Prospectus and any amendments or supplements
thereto will comply with the Securities Act; when the Registration Statement
becomes effective, the Registration Statement will contain all statements
required to be stated therein in accordance with the Securities Act and will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and when the Prospectus is filed with the Commission, it will
contain all statements required to be stated therein in accordance with the
Securities Act and will not
- 14 -
<PAGE>
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that the Company makes no representations or warranties as to
information contained in or omitted from any preliminary prospectus or the
Registration Statement or the Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information (or oral information to
the extent such information relates to the private ongoing investigation of you
by the Commission) furnished to the Company with respect to you by or on behalf
of you expressly for use with reference to you (or any person who may be deemed
to be affiliated with you or an associated person of yours) in connection with
the preparation thereof.
c. ORGANIZATION AND GOOD STANDING. The Company and
each of its subsidiaries are Florida corporations duly organized, validly
existing and in good standing under the laws of the State of Florida, with full
power and authority, corporate and other, to own or lease and operate their
respective properties and to conduct their business as described in the
Registration Statement and in the Prospectus. The Company and the Subsidiary
(hereinafter defined) are duly qualified to do business as foreign corporations
and are in good standing in all jurisdictions where such qualification is
necessary and where failure to so qualify could have a material adverse effect
on the financial condition, results of operations, business or properties of the
Company or the Subsidiary. The Company has one subsidiary, Galacticomm, Inc., a
Florida corporation (the "Subsidiary") of which it owns 8,885,607 of the
Subsidiary's 10,000,000 shares of outstanding capital stock. No changes will be
made in the Articles of Incorporation or bylaws of the Company or any subsidiary
subsequent to the date hereof and prior to the Closing Date or the Option
Closing Date without the prior written consent of the Representatives.
d. CORPORATE AUTHORIZATION. The Company has full
power and authority, corporate and other, to execute, deliver and perform this
Agreement, the Representatives' Warrant Agreement and the Representatives'
Warrants and to consummate the transactions contemplated hereby and thereby.
This Agreement has been, and the Warrant Agreement, Representatives' Warrant
Agreement, the Warrants, the Representatives' Warrants and the Consulting
Agreement will be on the Closing Date, duly executed and delivered by the
Company and, as to this Agreement, constitutes, and, as to the Warrant
Agreement, the Representatives' Warrant Agreement, the Representatives' Warrants
(when sold to and paid for by you) and the Consulting Agreement, will
constitute, as applicable, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms except
as such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, or other similar laws or arrangements affecting creditors' rights
generally and the discretion of courts in granting equitable remedies and except
that enforceability of the indemnification provisions and the contribution
provisions set forth herein may be limited by federal or state securities laws
or public policy underlying such laws. The execution, delivery and performance
by the Company of this Agreement, the Warrant Agreement, the Warrants, the
Representatives'
- 15 -
<PAGE>
Warrant Agreement, the Representatives' Warrants and the Consulting Agreement,
the consummation by the Company of the transactions herein and therein
contemplated, the issuance and sale of the Securities and the Representatives'
Securities and the compliance by the Company with the terms of such agreements
have been duly authorized by all necessary corporate action and do not and will
not, with or without the giving of notice or the lapse of time, or both: (i)
result in any violation of the Articles of Incorporation or Bylaws of the
Company; (ii) result in a material breach of or conflict with any of the terms
or provisions of, or constitute a default under, or result in the modification
or termination of, or result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company pursuant to any indenture, mortgage, note, contract, commitment or other
agreement or instrument to which the Company or the Subsidiary is a party or by
which the Company or the Subsidiary or any of their respective properties or
assets are or may be bound or affected; (iii) violate in any material respect
any existing applicable law, rule or regulation, or any judgment, order or
decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or the Subsidiary or any of their respective
properties or business; or (iv) have any material effect on any permit,
certification, registration, approval, consent, license or franchise necessary
for the Company or the Subsidiary to own or lease and operate their prospective
properties and to conduct their business or the ability of the Company or the
Subsidiary to make use thereof.
e. CONSENTS. No authorization, approval, consent,
order, registration, license or permit of any court or governmental agency or
body, is required for the valid authorization, issuance, sale and delivery of
the Securities and the Representatives' Securities or in connection with the
consummation of the other transactions contemplated by this Agreement, the
Consulting Agreement, the Warrant Agreement, the Representatives' Warrant
Agreement and the Representatives' Warrants, other than under the Securities
Act, the Rules and Regulations, and the rules and regulations of the state
securities laws of the states in which offers or sales will be made in
connection with the purchase and distribution of the Securities by you and the
purchase of the Representatives' Securities.
f. CAPITALIZATION - THE COMPANY. The duly authorized,
issued and outstanding capital stock of the Company and the Subsidiary conforms
to the description thereof in the Registration Statement and in the Prospectus.
Except as set forth in the Registration Statement and the Prospectus, there are
no outstanding options to purchase, warrants, or other rights to subscribe for
securities, or any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of the Company's capital stock or any
such warrants, convertible securities or obligations. Except as set forth in the
Registration Statement and the Prospectus, no holder of any of the Company's
securities has any rights, "demand", "piggyback" or otherwise, to have such
securities registered under the Securities Act.
g. CAPITALIZATION - THE SUBSIDIARY. The Subsidiary
has on the date hereof 10,000,000 shares of Common Stock, par value $.01, duly
authorized of which 8,891,207 are issued
- 16 -
<PAGE>
and outstanding. There are no outstanding options to purchase, warrants, or
other rights to subscribe for securities, or any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
the Subsidiary's capital stock (including, without limitation, rights pursuant
to any phantom stock or stock option plan) or any such warrants, convertible
securities or obligations. No holder of any of the Subsidiary's securities has
any rights, "demand", "piggyback" or otherwise, to have such securities
registered under the Securities Act.
h. MATERIAL CONTRACTS. The descriptions in the
Registration Statement and in the Prospectus of contracts and other agreements
of the Company or the Subsidiary are accurate in all material respects and
present fairly the information required to be disclosed, and there are no
material contracts or other agreements which have not been so described.
i. FINANCIAL STATEMENTS. The financial statements and
schedules and the notes thereto included in the Registration Statement and in
the Prospectus comply as to form in all material respects with the requirements
of the Securities Act and fairly present the financial position of the Company
as of the dates thereof, and the results of operations and changes in financial
position and cash flows of the Company and its subsidiaries for the periods
indicated therein, all in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods. The pro forma
financial statements included in the Registration Statement and the Prospectus
and any amendment or supplement thereto, have been prepared on a basis
consistent with such historical financial statements, except for the pro forma
adjustments specified therein, and give effect to assumptions made on a
reasonable basis and present fairly the financial position and results of
operations of the Company at the dates and for the periods specified therein.
The other financial and statistical data included in the Registration Statement
and in the Prospectus, historical and pro forma, are, in all material respects,
fairly presented and prepared on a basis consistent with such financial
statements and the books and records of the entities covered thereby. The
selected financial data set forth in the Registration Statement and in the
Prospectus present fairly the information shown therein and have been compiled
on a basis consistent with that of the audited and unaudited financial
statements included in the Registration Statement and in the Prospectus.
j. ACCOUNTING CONTROLS. The books, records and
accounts of the Company and its subsidiaries, if any, accurately reflect, in
reasonable detail, the transactions and dispositions of the assets of the
Company and its subsidiaries, as the case may be. The Company and its
subsidiaries maintained, and the Company and its subsidiaries maintains, a
system of internal accounting controls sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any difference.
- 17 -
<PAGE>
k. ACCOUNTANTS. The accountants, KPMG Peat Marwick
LLP (the "Accountants"), who have audited the financial statements filed with
the Commission as a part of the Registration Statement and the Prospectus are
independent accountants with respect to the Company as required by the
Securities Act.
l. COMPLIANCE WITH DOCUMENTS AND LAWS. Neither the
Company nor the Subsidiary is in violation of its respective Articles of
Incorporation, Bylaws, or other governing documents, or, except as disclosed in
the Registration Statement and the Prospectus, in material default in the due
performance of any material obligation, lease or other material contract,
indenture, mortgage, deed of trust, note, loan, or other material agreement or
instrument to which the Company or the Subsidiary, as applicable, is a party or
by which it, or any of its properties or businesses is subject or any applicable
material license, franchise, certificate, permit, authorization, statute, rule
or regulation of or from any public, regulatory, or governmental agency or
authority having jurisdiction over the Company or the Subsidiary or any of their
respective properties or assets, or any approval, consent, order, judgment or
decree, except such as could not reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), earnings, business,
assets, results of operations of the Company and, to the knowledge of the
Company after reasonable investigation, there exists, and through the Closing
Date and the Option Closing Date, if any, there shall exist, no condition which,
with the passage of time or otherwise, would constitute a default under any of
the foregoing or result in the imposition of any penalty or acceleration of any
indebtedness.
m. TAXES. The Company and the Subsidiary have filed
with the appropriate federal, state and local governmental agencies, and all
foreign countries and political subdivisions thereof, all tax returns, including
franchise tax returns, which are required to be filed or have duly obtained
extensions of time for the filing thereof and have paid all taxes shown on such
returns and all assessments received by them to the extent that the same have
become due; and the provisions for income taxes payable, if any, shown on the
financial statements included as part of the Registration Statement and in the
Prospectus are sufficient for all accrued and unpaid foreign and domestic taxes,
whether or not disputed, and for all periods to and including the dates of such
financial statements. Except as disclosed in the Registration Statement and in
the Prospectus , (i) neither the Company nor the Subsidiary have executed or
filed with any taxing authority, foreign or domestic, any agreement extending
the period for assessment or collection of any income taxes and neither is a
party to any pending action or proceeding by any foreign or domestic
governmental agency for assessment or collection of taxes; and (ii) no claims
for assessment or collection of taxes have been, or to its knowledge might be,
asserted against the Company or the Subsidiary.
n. AUTHORIZATION OF OUTSTANDING SECURITIES - THE
COMPANY. The outstanding Common Stock and outstanding options and warrants to
purchase Common Stock of the Company have been duly authorized and validly
issued. The outstanding Common Stock is fully paid and non-assessable. The
outstanding options and warrants to purchase Common Stock, all as described in
the Registration Statement and in the Prospectus, constitute the valid and
binding obligations of the Company, enforceable in accordance with their terms.
None of the outstanding
- 18 -
<PAGE>
Common Stock, options or warrants to purchase Common Stock have been issued in
violation of the preemptive rights of any shareholder of the Company. None of
the holders of the outstanding Common Stock are subject to personal liability
solely by reason of being such a holder. The offers and sales of such
outstanding shares of Common Stock, and outstanding options, warrants and other
securities to purchase Common Stock were at all relevant times either registered
under the Securities Act and the applicable state securities or Blue Sky laws,
or exempt from such registration or prospectus filing requirements. The
authorized Common Stock and outstanding options and warrants to purchase Common
Stock and all promissory notes conform to the descriptions thereof contained in
the Registration Statement and in the Prospectus.
o. AUTHORIZATION OF OUTSTANDING SECURITIES - THE
SUBSIDIARY. The outstanding capital stock (and previously issued but no longer
outstanding options and warrants to purchase capital stock) of the Subsidiary
have been duly authorized and validly issued. The outstanding capital stock is
fully paid and non-assessable. None of the outstanding capital stock of the
Subsidiary (and previously issued but no longer outstanding options or warrants
to purchase capital stock) has been issued in violation of the preemptive rights
of any shareholder of the Subsidiary. None of the holders of the outstanding
capital stock of the Subsidiary are subject to personal liability solely by
reason of being such a holder. The offers and sales of such outstanding shares
of capital stock (and previously issued but no longer outstanding options,
warrants and other securities to purchase capital stock of the Subsidiary) were
at all relevant times either registered under the Securities Act and the
applicable state securities or Blue Sky laws, or exempt from such registration
or prospectus filing requirements.
p. AUTHORIZATION OF THE OFFERED SECURITIES. The
Securities and the Representatives' Securities have been duly authorized. The
Securities, when sold and paid for in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable and free of
preemptive and, with the exception of the Warrants, redemption rights, and
holders thereof will not be subject to personal liability solely by reason of
being such holders. The Warrant Shares, when paid for in accordance with the
terms of the Warrants, will be validly issued, fully paid non-assessable and
free of preemptive and redemption rights. The Representatives' Securities, when
sold to and paid for by you, will be validly issued, and the Representatives'
Shares, when issued upon exercise of the Representatives' Warrants in accordance
with the terms and at the price therein provided, will be validly issued, fully
paid and non-assessable and free of preemptive and redemption rights. The
Securities and the Representatives' Securities conform to the descriptions
thereof contained in the Registration Statement and in the Prospectus. The
Company has reserved for issuance the number of shares of Common Stock issuable
upon exercise of the Warrants, the Representatives' Warrants and the
Representatives' Underlying Warrants.
- 19 -
<PAGE>
q. CONSENTS, ETC. Each of the Company and the
Subsidiary owns, possesses or has obtained all material governmental and other
(including those obtainable from third parties) licenses, permits,
certifications, registrations, approvals or consents and other authorizations
necessary to own or lease, as the case may be, and to operate its properties,
whether tangible or intangible, and to conduct any of the business or operations
of the Company or the Subsidiary, as applicable, as presently conducted and all
such licenses, permits, certifications, registrations, approvals, consents and
other authorizations are in full force and effect, the Company and the
Subsidiary are in material compliance therewith and there are no proceedings
pending or, threatened, or any basis therefor, seeking to cancel, terminate or
limit such licenses, permits, certifications, registrations, approvals or
consents or other authorizations.
r. LITIGATION. Except as set forth in the
Registration Statement and in the Prospectus, there are no pending actions,
suits, proceedings, arbitrations, and the Company is not aware of any pending or
threatened claims, investigations or inquiries, before any governmental agency,
court or tribunal, domestic or foreign, or before any private arbitration
tribunal against the Company or the Subsidiary or involving their respective
properties or business that, if determined adversely to the Company or the
Subsidiary, would, individually or in aggregate, result in any materially
adverse change in the financial condition, shareholders' equity, results of
operations, properties, business, management, or affairs of the Company or the
Subsidiary or that relate to environmental matters or discrimination on the
basis of age, sex, religion, race or national origin or that question the
validity of the capital stock of the Company or the Subsidiary or this Agreement
or of any action taken or to be taken by the Company or the Subsidiary pursuant
to, or in connection with, this Agreement; there is no basis for any such
action, suit, proceeding, arbitration, claim, investigation or inquiry. There
are no outstanding orders, judgments or decrees of any court, governmental
agency or other tribunal naming the Company or the Subsidiary and enjoining the
Company or the Subsidiary from taking, or requiring the Company or the
Subsidiary to take, any action, or to which the Company or the Subsidiary, their
respective properties or businesses are bound or subject. Except as set forth in
the Registration Statement and in the Prospectus, there is not now pending or,
to the knowledge of the Company, threatened, any material contingent liability.
s. FOREIGN CORRUPT PRACTICES ACT. Neither the Company
nor the Subsidiary nor any of their respective directors or officers acting in
any capacity on behalf of the Company or the Subsidiary nor any of the Company's
or the Subsidiary's foreign sales agents, directly or indirectly, has used any
corporate funds for unlawful contributions, gifts, entertainment, or other
unlawful expenses relating to political activity; made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended; or made any bribe,
rebate, payoff, influence payment, kickback, or other unlawful payment. The
Company's internal accounting controls and procedures are sufficient to cause
the Company to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
- 20 -
<PAGE>
t. CERTAIN PERSONS. Neither the Company, the
Subsidiary nor any of their respective directors, officers or beneficial owners
of ten percent or more of any class of its equity securities:
(1) Has filed a registration statement which
is the subject of a currently effective order denying, suspending or revoking
effectiveness of the registration statement, which order has been entered
pursuant to any state's law within five years prior to the date of this
Agreement;
(2) Was, or was named as an underwriter of
any securities (A) covered by any registration statement which is the subject of
any pending proceeding or examination under Section 8 of the Securities Act, or
is the subject of any refusal order or stop order entered thereunder within five
years prior to the date of this Agreement, or (B) covered by any filing which is
subject to any pending proceeding under Rule 261 of Regulation A promulgated
under the Securities Act relating to the temporary or permanent suspension of an
exemption from registration or any similar rule adopted under Section 3(b) of
the Securities Act, or an order entered thereunder within five years prior to
the date of this Agreement;
(3) Has been convicted or has pleaded nolo
contendere prior to the date of this Agreement of any felony or misdemeanor in
connection with the offer, purchase or sale of any franchise or commodity or any
felony involving fraud, deceit or intentional wrongdoing, including but not
limited to forgery, embezzlement, obtaining money under false pretenses,
larceny, theft or conspiracy to defraud;
(4) Has been convicted within five years
prior to the date of this Agreement of any felony or misdemeanor of which fraud
is an essential element, or which is a violation of the securities laws or
regulations of any state or of the United States or any foreign jurisdiction, or
which is a crime involving moral turpitude, or which is a criminal violation of
statutes designed to protect investors or consumers against unlawful practices
involving insurance, securities, commodities or commodities futures, real
estate, franchises, business opportunities, consumer goods or other goods and
services;
(5) Has been convicted or pleaded nolo
contendere within ten years prior to the date of this Agreement of any felony or
misdemeanor (A) in connection with the offer, purchase or sale of any security,
(B) involving the making of any false filing with the Commission or any state or
(C) arising out of the conduct of the business of an underwriter, broker,
dealer, municipal securities dealer or investment adviser;
(6) Has been or is currently subject to any
order or judgment (including an injunction) entered or obtained by the
Commission or any state securities commission or administrator within five years
prior to the date of this Agreement; or (B) has been or is currently subject to
any administrative order or judgment (including an injunction) issued by state
or federal authorities within five years prior to the date of this agreement
which order or judgment (1) includes
- 21 -
<PAGE>
or is based upon a finding or stipulation of fraud, fraudulent conduct, deceit
(including the making of any untrue statement of a material fact or omitting to
state a material fact) or intentional wrongdoing, (2) has the effect of
enjoining such person from activities subject to federal or state statutes
designed to protect investors or consumers against unlawful or deceptive
practices involving securities, insurance, commodities or commodities futures,
real estate, franchises, business opportunities, consumer goods or other goods
and services;
(7) Is subject to any judgment, order or
decree of any court entered within five years prior to the date of this
Agreement which (A) temporarily or permanently restrains or enjoins such person
from engaging in or continuing any conduct or practice (1) in connection with
the offer, purchase or sale of any security or commodity, (2) involving the
making of any false filing with the Commission or any state, or (3) arising out
of the conduct of the business of an underwriter, broker, dealer, municipal
securities dealer or investment adviser, or (B) restrains or enjoins such person
from activities subject to federal or state statutes designed to protect
consumers against unlawful or deceptive practices involving insurance,
commodities or commodities futures, real estate, franchises, business
opportunities, consumer goods or other goods and services;
(8) Is currently subject to any order or
judgment entered or obtained by any federal or state authority which prohibits,
denies or revokes the use of any exemption from registration in connection with
the offer, purchase or sale of any security;
(9) Is suspended or expelled from membership
in, or suspended or barred from association with a member of, an exchange
registered as a national securities exchange pursuant to Section 6 of the
Exchange Act, an association registered as a national securities association
under Section 15A of the Exchange Act, or a Canadian securities exchange or
association for any act or omission to act constituting conduct inconsistent
with just and equitable principles of trade;
(10) Is subject to a United States Postal
Service false representation order entered under Section 3005 of title 39,
United States Code, within five years prior to the date of this agreement, or is
subject to a restraining order or preliminary injunction entered under Section
3007 of title 39, United States Code, with respect to conduct alleged to have
violated Section 3005 of title 39, United States Code; or
(11) Has experienced a personal bankruptcy,
or been an officer, director, or key employee of any company that during their
tenure with such company experienced any bankruptcy other than as disclosed in
the Registration Statement and in the Prospectus as required, or had any
trustee, receiver, or conservator appointed with respect to its business or
assets.
u. PRIOR SALES. No securities of the Company have
been sold by the Company or by, or on behalf of, or for the benefit of the
Company within three years prior to the date hereof, except as set forth in the
Registration Statement and in the Prospectus.
- 22 -
<PAGE>
v. EXHIBITS. There are no material contracts,
agreements or other documents required to be described in the Registration
Statement or in the Prospectus or to be filed as exhibits to the Registration
Statement by the Securities Act which have not been described or filed as
required, and neither the Company nor its subsidiaries is in material violation
of, and no material default exists in the performance, observance or fulfillment
of, any material obligation, agreement, covenant or condition contained in any
of such contracts, agreements or documents except as disclosed in the
Registration Statement and the Prospectus.
w. EMPLOYMENT AGREEMENTS. The employment agreements
between the Company and its officers described in the Registration Statement are
valid, binding and enforceable obligations upon the respective parties thereto
in accordance with their respective terms, subject to the effect of bankruptcy
or similar proceedings and the effect and application of general principles of
equity.
x. INTENTIONALLY OMITTED.
y. FINDER OR BROKER. The Company has not retained or
dealt with any broker or finder with respect to the transactions contemplated
hereby, and the Company knows of no outstanding claims for services in the
nature of a finder's fee or origination fee with respect to the sale of the
Securities. The Company will indemnify and hold harmless the Underwriters with
respect to any claim for a finder's fee by any party claiming to be owed such
fee based on contacts, conversations or arrangements with the Company.
Furthermore, except as set forth in the Registration Statement and in the
Prospectus, the Company has no management or financial consulting agreement with
anyone. Except as set forth in the Registration Statement and in the Prospectus
or otherwise disclosed to you in writing prior to the date hereof, no promoter,
officer, director or five percent or greater shareholder of the Company is,
directly or indirectly, associated with an NASD member broker/dealer.
z. STABILIZATION. Neither the Company, its
subsidiaries, nor any of their respective officers, directors or affiliates (as
defined under the Securities Act) has taken, directly or indirectly, any action
to cause or result in, or which has constituted, or might reasonably be expected
to constitute, the stabilization or manipulation of the price of the Common
Stock to facilitate the sale or the resale thereof, within the meaning of the
Securities Act or the Exchange Act.
aa. NASDAQ LISTING. The Securities have been approved
for listing on the NASDAQ SmallCap Market.
bb. NO ADVERSE CHANGE. Except as reflected in the
Registration Statement and in the Prospectus or any amendment or supplement
thereto, since the respective dates as of which information is given in the
Registration Statement and in the Prospectus or any amendment or supplement
thereto and prior to the Closing Date, or Option Closing Date, as the case may
be, the Company and the Subsidiary have each conducted its respective business
in substantially the same
- 23 -
<PAGE>
manner as of November 7, 1997, neither the Company nor the Subsidiary has
incurred, or will have incurred, any material liability or obligation, direct or
contingent, or entered into any material transaction, whether or not in the
ordinary course of business, nor has or will have sustained any material loss or
interference with its business from fire, storm, explosion, flood or other
casualty, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree; and there have not been, and
prior to the Closing Date or Option Closing Date, as the case may be, there will
not be, any changes in the capital stock or any material increases in the
long-term or short-term debt of the Company or the Subsidiary or any materially
adverse change in or affecting the general affairs, management, financial
condition, shareholders' equity, results of operations or prospects of the
Company, and no event has occurred concerning the Company or its subsidiaries
and which might result in a material adverse change or effect in or on the
general affairs, management, financial condition, shareholders' equity, results
of operations or prospects of the Company or the Subsidiary, except as disclosed
in the Registration Statement.
cc. TITLE TO PROPERTIES. Each of the Company and the
Subsidiary has good title to all property (tangible and intangible) and assets
owned by it, free and clear of all security interests, charges, mortgages,
liens, encumbrances and defects, except as are described in the Registration
Statement and in the Prospectus and except those which are not material in
amount and do not adversely affect the use made and proposed to be made of such
property by the Company or the Subsidiary. Each of the Company and the
Subsidiary owns or leases all such properties, real, personal and mixed,
tangible and intangible, as are necessary to carry on its operations as
heretofore conducted and, except as otherwise stated in the Registration
Statement and in the Prospectus, as proposed to be conducted, as set forth in
the Registration Statement and in the Prospectus. The leases, licenses or other
contracts or instruments under which the Company or the Subsidiary leases, holds
or is entitled to use any property, real or personal, are valid, subsisting and
enforceable, except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium or other similar laws or arrangements
affecting creditors' rights generally and subject to principles of equity and
public policy considerations. All rentals, royalties or other payments accruing
thereunder that became due prior to the date of this Agreement have been duly
paid, and neither the Company nor, to the Company's knowledge, any other party
is in default thereunder and, to the Company's knowledge, no event has occurred
that, with the passage of time or the giving of notice, or both, would
constitute a default thereunder. Neither the Company nor the Subsidiary is in
violation of any applicable law, ordinance, regulation, order or requirement
relating to its owned or leased properties material to the conduct of its
business and has not received any notice of an alleged violation. Each of the
Company and the Subsidiary has adequately insured its properties against loss or
damage by fire or other casualty and maintains, in adequate amounts, such other
insurance as is usually maintained by companies engaged in the same or similar
businesses located in its geographical area.
dd. ENFORCEABILITY OF CONTRACTS. Each material
contract or other instrument (however characterized or described) to which the
Company and/or the Subsidiary is a party or by which its property or business is
or may be bound or affected has been duly and validly executed, is in full force
and effect in all material respects and is enforceable against the parties
thereto in accordance with its terms, and none of such contracts or instruments
has been assigned by the
- 24 -
<PAGE>
Company and/or the Subsidiary and, except as disclosed in the Registration
Statement and in the Prospectus, neither the Company, the Subsidiary nor, to the
Company's knowledge, any other party is in default thereunder, and no event has
occurred that, with the lapse of time or the giving of notice, or both, would
constitute a default thereunder. None of the material provisions of such
contracts or instruments violates any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court having
jurisdiction over the Company or the Subsidiary or any of their respective
assets or businesses.
ee. EMPLOYEE BENEFIT PLANS. Except as set forth in
the Registration Statement and in the Prospectus, neither the Company nor the
Subsidiary has any employee benefit plans (including, without limitation, profit
sharing and welfare benefit plans) or deferred compensation arrangements that
are subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
ff. LABOR RELATIONS. No labor problem exists with any
of the Company's or the Subsidiary's employees or is imminent, which labor
problem could materially and adversely affect the Company or the Subsidiary, and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its or its Subsidiary's principal suppliers, contractors or
customers that could be expected to materially adversely affect the condition
(financial or otherwise), earnings, business affairs or business prospects of
the Company or the Subsidiary.
gg. RELATED PARTY TRANSACTIONS. Except as disclosed
in the Registration Statement and in the Prospectus, no present officer or
director of the Company or the Subsidiary or any related party or affiliate of
any such/ person, (i) has any material direct or indirect interest in (A) any
entity which does any material business with the Company or the Subsidiary, or
(B) any material property, asset or right which is used in the conduct of the
Company's or the Subsidiary's business, or (ii) has any material contractual
relationship with the Company or the Subsidiary other than such relationship as
attaches to being an officer or director of the Company or the Subsidiary.
hh. INTELLECTUAL PROPERTY. The Company and the
Subsidiary own or possess all patents, trademarks, trademark registrations,
service marks, service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights described in the Registration Statement and
in the Prospectus as being owned by them or any of them or necessary for the
conduct of their respective businesses and, except as disclosed in the
Registration Statement and in the Prospectus, the Company is not aware of any
claim to the contrary or any challenge by any other person to the rights of the
Company and the Subsidiary with respect to the foregoing.
ii. INVESTMENT COMPANY. Neither the Company nor any
of its subsidiaries is now, or after the sale of the securities hereunder and
application of the net proceeds from such sale as described in the Registration
Statement and in the Prospectus will be, and will not be operated so as to
become, an "investment company" or a person "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
- 25 -
<PAGE>
jj. BUSINESS WITH CUBA. As of the date hereof, the
Company is in compliance with all provisions of Florida Statutes, Section
517.075, relating to issuers doing business with Cuba.
kk. ENVIRONMENTAL LAWS; HEALTH AND SAFETY. The
Company and the Subsidiary are: (i) in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) in
receipt of all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
in compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the Company and
the Subsidiary. Neither the Company nor the Subsidiary has been named as a
"potentially responsible party" under the Comprehensive Environmental
Compensation Liability Act of 1980, as amended.
ll. DUE DILIGENCE MATERIALS. The Company has provided
Akerman, Senterfitt & Eidson, P.A., the Representatives' counsel, all
agreements, certificates, correspondence and other items, documents and
information requested by such counsel's due diligence review memorandum.
Any certificate signed by an officer of the Company and
delivered to you or to your or the Representatives' counsel shall be deemed to
be a representation and warranty by the Company to you as to the matters covered
thereby.
7. REPRESENTATIONS AND WARRANTIES OF THE REPRESENTATIVES. Each
Representative, as to itself and, as to each Underwriter based upon written
representations made by them to the Representatives, severally represents and
warrants to the Company that:
a. REGISTRATION AS BROKER-DEALER AND MEMBER OF NASD.
Each Underwriter is either (i) registered as a broker-dealer with the
Commission, is registered as a broker-dealer in all states in which it shall
offer the Firm Securities and the Option Securities is a member in good standing
of the NASD or (ii) a dealer with its principal place of business located
outside the United States, its territories and its possessions and not eligible
for membership in the NASD nor registered as a broker dealer under the Exchange
Act who has 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 (except sales to Selected Dealers) and to comply with the
NASD's Interpretation with respect to free-riding and withholding and to comply,
as though it were a member of the NASD, with Rules 2730 and 2750 of such Rules,
and to comply with Rule 2420 thereof as that Rule applies to a non-member
foreign dealer.
- 26 -
<PAGE>
b. NO PENDING PROCEEDINGS. There is not now pending
or threatened against any Underwriter any action or proceeding of which it has
been advised, either in any court of competent jurisdiction, before the
Commission or any state securities commission concerning its activities as a
broker or dealer, nor has it been named as a "cause" in any such action or
proceeding, which, if determined adversely to such Underwriter, would have a
material adverse effect on such Underwriter.
c. NO UNTRUE STATEMENTS. With respect to information
about each Underwriter contained in the Registration Statement furnished to the
Company by or on behalf of any Underwriter, the information therein is correct
and is not misleading as it relates to such Underwriter.
8. INDEMNIFICATION.
a. BY COMPANY. The Company agrees to indemnify and
hold harmless you and each person, if any, who controls you within the meaning
of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, from
and against any and all losses, liabilities, claims, damages and expenses
(including but not limited to reasonable attorneys' fees and any and all
reasonable expenses incurred in investigating, preparing or defending against
any claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which you or they or any of them may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, as originally filed
or any amendment thereof, or any related preliminary prospectus or the
Prospectus, or in any supplement thereto or amendment thereof, or in any blue
sky application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company filed in any
state or other jurisdiction in order to qualify any or all of the Securities
under the securities laws thereof (any such application, document or information
being hereinafter called a "Blue Sky Application") or arise out of or are based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in any material respect, or arise out of or are based upon any failure of the
Company to comply with any provision of this Underwriting Agreement resulting in
a claim or loss to the Underwriters. Notwithstanding the preceding sentence, the
Company will not be liable in any such case to the extent, but only to the
extent that, any such loss, liability, claim, damage or expense arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of you expressly for use
therein. This indemnity agreement will be in addition to any liability which the
Company may otherwise have, including under this Agreement. The Company agrees
to pay any reasonable legal or other expenses for which it is liable under this
subsection from time to time (but not more frequently than monthly) within 30
days after its receipt of a bill therefor; and further provided, however, that
the foregoing provisions are subject to the condition that, insofar as they
- 27 -
<PAGE>
relate to any untrue statement, alleged untrue statement, omission or alleged
omission made in any Preliminary Prospectus but eliminated or remedied in the
Prospectus, such indemnity provision shall not inure to you or any person who
controls you within the meaning of Section 15 of the Securities Act or Section
20(a) of the Exchange Act if a copy of the Prospectus was not sent or given to
such person with or prior to the written confirmation of sale of such Securities
to such person. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
b. BY UNDERWRITERS. You agree to indemnify and hold
harmless the Company, each of the officers of the Company who shall have signed
the Registration Statement and each other person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20(a)
of the Exchange Act, from and against any and all losses, liabilities, claims,
damages and reasonable expenses whatsoever (including but not limited to
attorneys' fees and any and all reasonable expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, as
originally filed or any amendment thereof, or any related preliminary prospectus
or the Prospectus, or in any amendment thereof or supplement thereto, or in any
Blue Sky Application, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company by you
expressly for use therein; PROVIDED, HOWEVER, that in no case shall you be
liable or responsible for any amount in excess of the underwriting discounts and
commissions received by you, as set forth on the cover page of the Prospectus.
You agree to pay any legal or other expenses for which you are liable under this
subsection (b) from time to time (but not more frequently than monthly) within
30 days after receipt of a bill therefor. This indemnity agreement will be in
addition to any liability which you may otherwise have.
c. PROCEDURES IN CASE OF INDEMNIFICATION. Promptly
after receipt by an indemnified party under subsection (a) or (b) above of
notice of the commencement of any action or proceeding (including any
governmental investigation), such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under such subsection,
notify each party against whom indemnification is to be sought in writing of the
commencement thereof (but the failure so to notify an indemnifying party shall
not relieve it from any liability which it may have under this Section 8 except
to the extent that it has been prejudiced in any material respect by such
failure or from any liability which it may have otherwise). In case any such
action is brought against any indemnified party, and it notifies an indemnifying
party of the commencement thereof, the indemnifying party shall assume the
defense thereof, including the employment of counsel
- 28 -
<PAGE>
reasonably satisfactory to the indemnified party and the payment of all
expenses. Notwithstanding the foregoing, the indemnified party or parties shall
have the right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
or parties unless (i) the employment of such counsel shall have been authorized
in writing by one of the indemnifying parties in connection with the defense of
such action, (ii) the indemnifying parties shall not have employed counsel
reasonably satisfactory to the indemnified party to have charge of the defense
of such action within a reasonable time after notice of commencement of the
action, or (iii) such indemnified party or parties shall have reasonably
concluded and have been so advised in a written opinion from counsel that there
may be defenses available to it or them which are different from or additional
to those available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses shall be borne by the indemnifying parties. Anything in
this subsection to the contrary notwithstanding, an indemnifying party shall not
be liable for any settlement of any claim or action effected without its written
consent; PROVIDED, HOWEVER, that such consent was not unreasonably withheld.
d. CONTRIBUTION. In order to provide for contribution
in circumstances in which the indemnification provided for in Section 8.a and b
hereof is for any reason held to be unavailable from the Company, or you, or is
insufficient to hold harmless a party indemnified thereunder, in lieu of
indemnifying such indemnified party, the Company, and you shall contribute to
the aggregate losses, claims, damages, liabilities and reasonable expenses of
the nature contemplated by such indemnification provisions (including any
investigation, legal and other reasonable expenses incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claims asserted, but after deducting in the case of losses, claims, damages,
liabilities and reasonable expenses suffered by the Company or you any
contribution received by the Company or you from persons who may also be liable
for contribution, including persons who control the Company or you within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, officers of the Company who signed the Registration Statement and directors
of the Company) to which the Company or you may be subject, in such proportions
as is appropriate to reflect the relative benefits received by the Company and
by you from the offering of the Securities or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 8.d
hereof in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company and you in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and by
you shall be deemed to be in the same proportion as (a) the total proceeds from
the offering (before deducting expenses) received by the Company bear to (b) the
total underwriting discounts and commissions received by you in each case as set
forth in the table on the cover page of the Prospectus. The relative fault of
the Company and of you shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by you or any agent expressly authorized by
- 29 -
<PAGE>
you to supply such information and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and you agree that it would not be just and equitable if
contribution pursuant to this Section 8.d were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 8.d, (i) in no case shall you be liable or responsible for any
amount in excess of the underwriting discount applicable to the Securities
purchased hereunder and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8.d, each person, if any, who
controls an underwriter within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act shall have the same rights to contribution
as you, and each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to clauses (i) and (ii) of this Section 8.d. Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 8.d, notify such party or parties from whom contribution may
be sought, but the omission to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have under Section 8.d or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its consent;
PROVIDED, HOWEVER, that such consent was not unreasonably withheld. The
indemnity and contribution agreements contained in this Agreement shall remain
operative and in full force and effect regardless of (A) any investigation made
by or on behalf of you or any person controlling you or by or on behalf of the
Company, (B) acceptance of any of the Securities and payment therefore or (C)
any termination of this Agreement. A successor to the Company, its directors or
officers or any person controlling the Company or to the Underwriter, shall be
entitled to the benefits of the indemnity, contribution, and reimbursement
agreements contained in this Section 8.
9. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. Your
obligation to purchase and pay for the Firm Securities on the Closing Date shall
be subject to the accuracy of and compliance with the representations and the
warranties of the Company herein contained and in each certificate and document
contemplated to be delivered to you hereunder as of the date hereof and the
Closing Date, to the performance by the Company of its obligations herein
contained and to the following additional terms and conditions:
a. EFFECTIVE REGISTRATION STATEMENT. The Registration
Statement shall have become effective not later than 5:00 P.M., Miami time, on
the date of this Agreement, or at such later time or on such later date as you
may agree to in writing and any and all filings required by Rule 424 and Rule
430A of the Rules and Regulations shall have been made. At or prior to the
Closing, no stop order suspending the effectiveness of the Registration
Statement or the qualification or registration of the Securities under the Blue
Sky laws of any jurisdiction (whether or not a
- 30 -
<PAGE>
jurisdiction which you shall have specified) shall have been issued and no
proceeding for that purpose shall have been initiated or shall be threatened by
the Commission or the authorities of any such jurisdiction. Any request for
additional information on the part of the Commission or any such authorities
shall have been complied with to the satisfaction of the Commission or such
authorities and counsel for you. The NASD, upon review of the terms of the
public offering of the Securities, shall not have objected to such offering,
such terms, or your participation in the same. After the date hereof no
amendment or supplement shall have been filed to the Registration Statement or
the Prospectus without your prior written consent.
b. ACCURACY OF REGISTRATION STATEMENT. No person
shall have discovered and advised the Company prior to the Closing Date that the
Registration Statement or Prospectus or any amendment or supplement thereto
contains an untrue statement of material fact which, in your opinion, is
material, or that the Registration Statement or any amendment or supplement
thereto omits to state a fact which, in your opinion after consultation with
legal counsel, is material and is required to be stated therein or is necessary
to make the statements therein not misleading or that the Prospectus or any
amendment or supplement thereto omits to state a fact which, in the opinion of
such counsel, is material and is required to be stated therein or is necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
c. LITIGATION. Between the time of the execution and
delivery of this Agreement and the Closing, there shall be no material
litigation instituted against the Company, any of its subsidiaries or any of
their respective officers or directors, and between such dates there shall be no
proceeding instituted or threatened against the Company, any of its subsidiaries
or any of their respective officers or directors before or by any Federal,
state, county or local commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling, decision or finding could materially adversely affect the
Company, any of its subsidiaries or their respective businesses, business
prospects, properties, financial conditions or results of operations.
d. REVIEW BY UNDERWRITERS' COUNSEL. The authorization
and issuance of the Securities, the sale and delivery thereof, the Registration
Statement, the Prospectus and all other documents and corporate proceedings
incident thereto shall be satisfactory in all material respects to you and your
counsel, and your counsel shall be furnished on the Closing Date with such
documents and opinions as they may reasonably require for the purpose of
enabling them to pass upon the matters referred to in this Section 9.
e. TENDER. There shall have been tendered to the
Representatives certificates representing the Firm Securities to be sold on the
Closing Date in accordance with the terms and provisions of this Agreement.
f. STANDARD & POOR'S/MOODY'S. The Company shall have
registered with (a) the Corporation Records Service published by Standard &
Poor's Corporation or (b) Moody's Industrial Manual (excluding Moody's OTC
Industrial Manual).
- 31 -
<PAGE>
g. INDEPENDENT DIRECTORS. The Company shall have
serving on its Board of Directors at least two (2) persons who satisfy the
criteria for "independent director" set forth in Rule 4460(c) of the NASD rules.
h. OPINION OF LEGAL COUNSEL. You shall have received
an opinion dated the effective date of the Registration Statement, and an
updated version of such opinion dated the Closing Date, satisfactory in form and
substance to you and your counsel, from Lucio, Mandler, Croland, Bronstein,
Garbett, Stiphany & Martinez, P.A., counsel for the Company, in the form of
Exhibit "A" hereto.
In giving such opinion, such counsel may rely as to
matters of fact upon statements and certifications of officers of the Company or
public officials as to matters of fact of which the maker of such certificate
has knowledge, and as to matters of law of jurisdictions other than Florida,
such counsel may rely on opinions of local counsel acceptable to you, copies of
which opinions shall be attached to the said opinion, provided, however, that
such counsel may not rely on an opinion if he has actual knowledge that such
opinion is not correct or knows that the facts or law on which the opinion of
local counsel is based are not correct.
i. PRESIDENT'S CERTIFICATE. The Company shall have
furnished to you on the Closing Date a certificate of its President, or other
principal executive officer of the Company dated as of the Closing Date, to the
effect that:
(1) No stop order suspending the
effectiveness of the Registration Statement has been issued, and no
proceedings for such purpose have been commenced or are, to the
knowledge of each signer of such certificate, threatened or
contemplated by the Commission; no stop order suspending the
qualification or registration of any of the Securities under the Blue
Sky laws of any jurisdiction (whether or not a jurisdiction you shall
have specified) has been issued, and no material proceedings for such
purpose have been commenced or are, to the knowledge of each signer of
such certificate after reasonable investigation, threatened or
contemplated by any jurisdiction; and the conditions, separately set
forth in such certificate, contained in Section 9 hereof have been
complied with in all material respects.
(2) The respective signers and each other
member of the Company's Board of Directors have each read the
Registration Statement and Prospectus and any amendments and
supplements thereto, and the Registration Statement and the Prospectus
and any amendments and supplements thereto and all statements contained
therein are true and correct in all material respects, and neither the
Registration Statement nor Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to
state any material fact re quired to be stated therein or necessary to
make the statements therein not misleading and, since the effective
date of the Registration Statement, they are not aware of any
- 32 -
<PAGE>
event required to be set forth in an amendment to the Registration
Statement or a supplement to the Prospectus which has not been so set
forth.
(3) Except as reflected in the Registration
Statement and Prospectus or any amendment or supplement thereto, since
the respective dates as of which information is given in the
Registration Statement and Prospectus or any amendment or supplement
thereto and prior to the date of such certificate, (a) there has not
been any material adverse change, financial or otherwise, in the
affairs or condition of the Company and of its subsidiaries taken as a
whole, and (b) the Company has not incurred any material liabilities or
obligations, direct or contingent, or entered into any material
transactions, otherwise than in the ordinary course of business.
(4) There are no legal proceedings pending
or, to the knowledge of the Company after reasonable investigation,
threatened against the Company or any of its subsidiaries, of a
character affecting the validity of this Agreement or required to be
disclosed in the Prospectus which are not disclosed therein; there are
no material transactions or contracts which are required to be sum
marized therein which are not so summarized; and there are no material
contracts or documents required to be filed as exhibits to the
Registration Statement which are not so filed.
(5) Subsequent to the respective dates as of
which information is given in the Registration Statement and the
Prospectus, no dividends or distribution whatever have been declared
and/or paid on or with respect to any securities of the Company.
(6) Subsequent to the respective dates as of
which information is given in the Registration Statement and the
Prospectus, the Company has not sustained any material loss or damage
to its property, whether or not insured.
(7) At and as of the Closing Date, the
representations and warranties contained in Section 6 of this Agreement
are true and correct in all material respects; the Company has complied
with all the agreements and has satisfied all the conditions on its
part to be performed or satisfied at or prior to the Closing Date, and
the matters set forth in Section 9 of this Agreement have been
satisfied and/or complied with, as applicable.
(8) The Company and each of its
subsidiaries has such licenses, registrations, permits, approvals,
qualifications and certificates of authority from the appropriate
regulatory authorities as are necessary to transact its business as
described in the Registration Statement and in the Prospectus in the
jurisdictions
- 33 -
<PAGE>
in which the Company and each of its subsidiaries transacts its
business or owns or leases property, and in which the failure to have
such licenses, registrations, permits, approvals, qualifications and
certificates could have a material adverse effect on the business,
properties or results of operation of the Company and its subsidiaries
taken as a whole.
j. CHIEF FINANCIAL OFFICER'S CERTIFICATE. The Company
shall have furnished to you on the Closing Date a certificate of its
Chief Financial Officer, or other principal executive financial officer
or accounting officer of the Company, dated as of the Closing Date, to
the effect that:
(1) To the knowledge of such officer after
reasonable inquiry no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such
purpose have been commenced or are, to the knowledge of each signer of
such certificate, threatened or contemplated by the Commission; no stop
order suspending the qualification or registration of any of the
Securities under the Blue Sky laws of any jurisdiction (whether or not
a jurisdiction you shall have specified) has been issued, and no
proceedings for such purpose have been commenced or are, to the
knowledge of each signer of such certificate, threatened or
contemplated by any jurisdiction; and the conditions contained in
Section 9 of this Agreement have been satisfied and/or complied with,
as applicable.
(2) The Prospectus and any amendments and
supplements thereto and all statements contained therein are true and
correct, and to his knowledge, after reasonable inquiry, neither the
Registration Statement nor Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading and, since the effective
date of the Registration Statement, he is not aware of any event
required to be set forth in an amendment to the Registration Statement
or a supplement to the Prospectus which has not been so set forth.
(3) Except as reflected in the Registration
Statement and Prospectus or any amendment or supplement thereto, since
the respective dates as of which information is given in the
Registration Statement and Prospectus or any amendment or supplement
thereto and prior to the date of such certificate, (a) there has not
been any material adverse change, financial or otherwise, in the
affairs or condition of the Company or any of its subsidiaries taken as
a whole, and (b) the Company has not incurred any material liabilities
or obligations, direct or contingent, or entered into any material
transactions, otherwise than in the ordinary course of business.
(4) There are no material legal proceedings
pending or to his knowledge after reasonable inquiry, threatened
against the Company or any of its subsidiaries, of a character
affecting the validity of this Agreement or required to be
- 34 -
<PAGE>
disclosed in the Prospectus which are not disclosed therein; there are
no transactions or contracts which are required to be summarized
therein which are not so summarized; and there are no material
contracts or documents required to be filed as exhibits to the
Registration Statement which are not so filed.
(5) Subsequent to the respective dates as
of which information is given in the Registration Statement and the
Prospectus, no dividends or distribution whatever have been declared
and/or paid on or with respect to any securities of the Company.
(6) Subsequent to the respective dates as
of which information is given in the Registration Statement and the
Prospectus, the Company has not sustained any material loss or damage
to its property, whether or not insured.
(7) At and as of the Closing Date, to his
knowledge after reasonable inquiry, the representations and warranties
contained in Section 6 of this Agreement are true and correct; the
Company has complied with all the agreements and has satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date, and the conditions set forth in Section 9 of this
Agreement have been satisfied and/or complied with, as applicable.
k. ACCOUNTANT'S LETTER. You shall have received from
the independent certified public accountants that audited the financial
statements of the Company included in the Registration Statement, at least two
letters each addressed to you, substantially in the form heretofore approved by
you, one dated the effective date of the Registration Statement and the second,
the Closing Date.
l. REPRESENTATIVES' WARRANTS. The Company shall have
executed and delivered to the Representatives the Representatives' Warrant
Agreement and properly executed certificates evidencing the Representatives'
Warrants simultaneously with the closing of the sale of the Firm Securities.
m. LOCK-UP AGREEMENTS. You shall have received the
executed "lock-up" and voting agreements described in Sections 5.k and 5.v of
this Agreement.
n. NASDAQ LISTING. The Common Stock (including the
Warrant Shares) and the Warrants shall have been qualified for listing on the
Nasdaq SmallCap Market on the effective date of the Registration Statement and
continue to be so qualified.
o. BLUE SKY QUALIFICATION. The Securities shall be
qualified in such states as determined under Section 5.e above and each
qualification shall be in effect and not subject to an stop order or other
proceeding on the Closing Date.
- 35 -
<PAGE>
p. WARRANT AGREEMENT. The Company and the Warrant
Agent shall have executed and delivered the Warrant Agreement.
All such opinions, certificates, letters and documents delivered
pursuant to this Agreement will be in compliance with the provisions of this
Section 9 only if they are reasonably satisfactory to you and your counsel. The
Company shall furnish to you such conformed copies of such opinions,
certificates, letters and documents in such quantities as you shall reasonably
request.
If any of the conditions hereunder to be satisfied at or prior to the
Closing Date are not so satisfied, or subsequently waived, you may terminate
this Agreement without liability on your part or on the part of the Company,
except for the expenses to be paid or reimbursed by the Company pursuant to
Section 5.o of this Agreement and except for any liability under Section 8 of
this Agreement.
Your obligation to purchase and pay for all or any portion of the
Option Securities on the Option Closing Date upon the exercise of the option
contained in Section 3 hereof shall be subject to the accuracy of and compliance
with the representations and the warranties of the Company herein contained as
of the date hereof and the Closing Date and Option Closing Date, to the
performance by the Company of its obligations hereunder and to the following
additional conditions:
(A) You shall have purchased the Firm
Securities from the Company (which purchase may occur simultaneously with the
purchase of the Option Securities from the Company).
(B) The conditions set forth in paragraphs
a., b. and c. of this Section 9 shall be satisfied as of the Option Closing
Date.
(C) There shall have been tendered for
delivery in accordance with the terms and provisions of this Agreement the
Option Securities being purchased on the Option Closing Date from the Company.
(D) You shall have received an opinion of
counsel for the Company, dated the Option Closing Date, confirming their opinion
delivered pursuant to Section 9.h hereof as of the Option Closing Date. In each
instance in which the opinion referred to in Section 9.h refers to the Firm
Securities, the opinion delivered pursuant hereto shall also refer to the Option
Securities.
(E) You shall have received from the
independent certified public accountants the audited financial statements of the
Company included in the Registration Statement, a letter addressed to you,
substantially in the form heretofore approved by you, dated the Option Closing
Date.
- 36 -
<PAGE>
(F) You shall have received a certificate,
dated the Option Closing Date, of the Company, confirming the matters stated in
the certificate delivered pursuant to Section 9.i hereof as of the Option
Closing Date and stating further that the Company has performed or a waiver has
been given for all or a part of the agreements herein contained to be performed
on its part at or prior to such Option Closing Date.
(G) You shall have received a certificate,
dated the Option Closing Date, of the Company, confirming the matters stated in
the certificate delivered pursuant to Section 9.j hereof as of the Option
Closing Date and stating further that the Company has performed or a waiver has
been given for all or a part of the agreements herein contained to be performed
on its part at or prior to such option Closing Date.
10. EFFECTIVE DATE OF AGREEMENT; TERMINATION.
a. This Agreement shall become effective when you and
the Company shall have received notification of the effectiveness of the
Registration Statement.
b. This Agreement may be terminated at any time prior
to the Closing Date by you by written notice to the Company if in your judgment
it is impracticable to offer for sale or to enforce contracts made by you for
the resale of the Securities agreed to be purchased hereunder by reason of (i)
the Company or its subsidiaries having sustained a loss by reason of fire,
flood, accident or other calamity, which, in your opinion, substantially affects
the value of the properties of the Company or its subsidiaries or which
materially interferes with the operation of the business of the Company or any
of its subsidiaries regardless of whether such loss shall have been insured,
(ii) the existing financial, political or economic conditions in the United
States or elsewhere having undergone such material change as in your opinion
would make it inadvisable to proceed with the offering, sale and delivery of the
Securities on the terms contemplated by the Prospectus, (iii) a banking
moratorium shall have been declared by either federal or New York authorities,
(iv) a war involving the United States or other national calamity shall have
occurred, (v) any material adverse change in the condition or obligations of the
Company and any of its subsidiaries taken as a whole or in the earnings,
operations, management or business prospects of the Company and any of its
subsidiaries taken as a whole, (vi) any action, suit or proceeding shall be
threatened or pending, at law or in equity, against the Company and any of its
subsidiaries taken as a whole, by any Federal, state or other commission, board
or agency, which is not disclosed in the Prospectus and in which an unfavorable
result or decision could materially adversely affect the business, prospects,
property, financial condition or income or earnings of the Company and any of
its subsidiaries taken as a whole, (vii) an action, suit or proceeding that is
threatened or pending, which has been previously disclosed in the Prospectus,
shall have worsened in any way such that an unfavorable result or decision could
materially adversely affect the business, prospects, property, financial
condition or income or earnings of the Company and/or any of its subsidiaries,
or (viii) during the course of your due diligence investigation of the Company,
facts arise which vary materially in an adverse manner from representations
which have been previously made concerning the Company's business and financial
condition. In addition, this Agreement may be terminated by you by prompt
written notice
- 37 -
<PAGE>
to the Company (i) at any time before it becomes effective or (ii) in the event
that the Company shall have failed to comply with any of the provisions of this
Agreement to be performed by it at or prior to any Closing Date which have not
been waived by you, or if any of the representations, warranties, covenants,
agreements or conditions of, or applicable to, the Company herein contained
shall not have been complied with or satisfied within the time specified unless
waived by you.
c. At any time after the Closing Date, if you should
(i) cease to be a broker-dealer registered with the Commission, (ii) be
suspended from such registration for any period of time in excess of 30 days,
(iii) cease to be a member of the NASD or other self-regulatory organization or
(iv) become subject to a proceeding, action or notification under Section 6 of
the Securities Investor Protection Act of 1970, the obligations of the Company
under this Agreement shall cease without any liability on the part of the
Company.
11. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES AND
COVENANTS. The respective indemnities of the Company and the Underwriters and
the respective representations, warranties and covenants of the Company and the
Underwriters set forth in this Agreement will remain in full force and effect,
regardless of any investigations made by or on behalf of the Company or the
Underwriters or any of their respective officers, directors, partners or any
controlling person, and will survive delivery of and payment for the Securities
or termination of this Agreement pursuant to Section 9 hereof as the case may
be.
12. INFORMATION FURNISHED BY UNDERWRITERS. The Company
acknowledges that the statements set forth in the last paragraph on the cover
page, the stabilization legend on the inside cover page, and the statements in
the first, third, twelfth (except for the first sentence thereof) and thirteenth
paragraphs under the caption "Underwriting" in any Preliminary Prospectus and in
the Prospectus, constitute the only information furnished by or on behalf of any
Underwriter through the Representatives or on its behalf as such information is
referred to in Sections 6.b., 7.c. and 8 hereof.
13. MISCELLANEOUS.
a. This Agreement shall inure to the benefit of the
Company and the Underwriters, the officers and directors of such parties, each
controlling person referred to in Section 8 hereof and their respective
successors. Nothing in this Agreement is intended or shall be construed to give
to any other person, firm or corporation any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision herein contained.
The term "successor" as used in this Agreement shall not include any purchaser
of any Securities from the Underwriter.
b. This Agreement constitutes the entire agreement
among the parties concerning the subject matter hereof and supersedes all prior
agreements and understandings.
c. All notices and other communications hereunder
(unless otherwise expressly provided for herein) shall be in writing and shall
be deemed given when delivered in
- 38 -
<PAGE>
person on the business (before 5:00 P.M.) sent by facsimile transmission, or on
the date indicated on the return receipt if sent registered or certified mail
return receipt requested) to the party to receive the same at the following
addresses (or at such other address for a party as shall be specified by like
notice):
If to the Company: Galacticomm Technologies, Inc.
4101 S.W. 47th Avenue, Suite 101
Ft. Lauderdale, Florida 33314
Attn: Peter Berg, Chief Executive Officer
Facsimile: (954) 587-1417
With a Copy to: Lucio, Mandler, Croland, Bronstein, Garbett,
Stiphany & Martinez, P.A.
Barnett Bank Tower
701 Brickell Avenue, 20th Floor
Miami, Florida 33131
Attn: Leslie J. Croland, Esq.
Facsimile: (305) 375-8075
If to the Underwriters: Security Capital Trading, Inc.
520 Madison Avenue, 10th Floor
New York, New York 10022
Attn: Tim Ryan, Vice President
Facsimile: (212) 339-2020
First Equity Corporation of Florida
444 Brickell Avenue, Suite P6
Miami, Florida 33131
Attn: William R. Fusselmann, Senior Vice
President
Facsimile: (305) 372-0861
With a Copy to: Akerman, Senterfitt & Eidson, P.A.
SunTrust International Center, 28th Floor
One Southeast Third Avenue
Miami, Florida 33131-1704
Attn: Philip Schwartz, Esq.
Facsimile: (305) 374-5095
d. This Agreement was executed and delivered in, and
its validity, interpretation and construction shall be governed by the internal
laws of, the State of Florida appli cable to agreements made and to be performed
wholly within such State. This Agreement may be executed in any number of
counterparts. Each counterpart, when executed and delivered, shall be
- 39 -
<PAGE>
an original contract, but all counterparts, when taken together, shall
constitute one and the same Agreement.
e. The Company hereby acknowledges that the breach of
material terms contained in this Agreement (whether or not specifically
designated as such) would cause irreparable damage and substantial prejudice to
your rights. Accordingly, the Company agrees that in the event of any such
breach or threatened breach, you shall have, in addition to its and your legal
remedies, the right to injunctive or other equitable relief, as permitted by
law, to prevent the Company's violation of their obligations hereunder.
f. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
g. Any consent or approval of the Underwriters
required hereunder to any action of the Company shall not be unreasonably
withheld, and notwithstanding any other provisions hereof, such consent or
approval shall not be required if the Company obtains an opinion from counsel
acceptable to the Underwriters that the requirement of such consent or approval
constitutes an abrogation of the Board of Directors' duties under the corporate
law of such jurisdiction.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
you and us in accordance with its terms.
Very truly yours,
Galacticomm Technologies, Inc.
By:
--------------------------------------
Peter Berg, Chief Executive Officer
Accepted and agreed to as of
the date first above written:
Security Capital Trading, Inc.
By:_________________________________
Name:_______________________________
- 40 -
<PAGE>
Title:_____________________________
First Equity Corporation of Florida
By:
--------------------------------
William R. Fusselmann,
Senior Vice President
- 41 -
<PAGE>
SCHEDULE I
UNDERWRITERS
- 42 -
<PAGE>
EXHIBIT A
OPINION OF
LUCIO, MANDLER, CROLAND, BRONSTEIN,
GARBETT, STIPHANY & MARTINEZ
A-1
EXHIBIT 3.7
AMENDED AND RESTATED BYLAWS OF
GALACTICOMM TECHNOLOGIES, INC.
(Effective June 20, 1998)
ARTICLE I
OFFICES
The principal office of the corporation shall be at 4101 SW 47th
Avenue, Suite 101, Ft. Lauderdale, Florida 33314, or at such other place as the
Board of Directors may from time to time direct.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meetings. The annual meeting of the stockholders of
the corporation for the election of Directors and for the transaction of such
other business as may properly come before such meeting shall be held on a day
and at a time and place designated from time to time by the Board of Directors,
provided, however, that there shall be an annual meeting every calendar year.
Section 2. Special Meetings. A special meeting of the stockholders may
be called at any time by the President or the Board of Directors, and shall be
called by the President upon the written request of stockholders of record
holding in the aggregate ten percent (10%) of the outstanding shares of the
capital stock of the corporation entitled to vote, such written request to state
the purpose or purposes of the meeting and to be delivered to the President.
Section 3. Place of Meetings. The meetings of the stockholders of the
corporation shall be held in the State of Florida, or any place in the world, as
from time to time may be designated by the Board of Directors.
Section 4. Notice of Meetings and Record Date. Except as otherwise
required by statute, notice of each meeting of the stockholders, whether annual
or special, shall be in writing over the name of the President or the Secretary.
Such notice shall state the purpose or purposes for which the meeting is called
and the time and place where it is to be held, and a copy thereof shall be
served, either personally or by mail, upon each stockholder of record entitled
to vote at such meeting not less than ten (10) or more than sixty (60) days
before such meeting. If mailed, it shall be directed to a stockholder at his or
her address as it appears on the stock books of the corporation unless he or she
shall have filed with the Secretary of the corporation a written request that
notices intended for him or her be mailed to some other address, in which case
it shall be mailed to the address designated in such request. If any stockholder
in person or by attorney thereunto authorized shall waive in writing notice of
any meeting, notice thereof need not be given to him or her.
Section 5. Quorum. At all meetings of the stockholders the presence in
person or by proxy of the holders of record of a majority of the shares then
issued and outstanding and
<PAGE>
entitled to vote shall be necessary and sufficient to constitute a quorum for
the transaction of business. In the absence of a quorum, a majority in interest
of the stockholders entitled to vote, present in person or by proxy, or, if no
stockholder entitled to vote is present in person or by proxy, any officer
entitled to preside at or act as secretary of such meeting, may adjourn the
meeting from time to time.
Section 6. Notice of Adjourned Meeting. Notice need not be given of any
adjourned meeting of stockholders if the time and place to which the meeting is
adjourned are announced at the meeting at which the adjournment is taken. Any
business may be transacted at the adjourned meeting that might have been
transacted on the original date of the meeting. If, however, after the
adjournment, the Board of Directors fixes a new record date for the adjourned
meeting, a notice of the adjourned meeting shall be given as provided in Section
4 of this Article II to each stockholder of record on the new record date
entitled to vote at such meeting.
Section 7. Inspectors of Election. The Board of Directors shall appoint
at each annual meeting two persons, who need not be stockholders, to act as
Inspectors of Election at all meetings of the stockholders until the close of
the next annual meeting. No candidate for the office of director shall act as
Inspector of Election. If there be a failure to appoint Inspectors, or if any
inspector appointed be absent or refuse to act, or if his or her office becomes
vacant, the Board of Directors present at the meeting may choose temporary
Inspectors of the number required. The Inspectors appointed to act at any
meeting of the Board, before entering upon the discharge of their duties, shall
be sworn faithfully to execute the duties of Inspectors at such meeting with
strict impartiality, and according to the best of their ability.
Section 8. Voting. Each outstanding share entitled to vote shall be
entitled to one vote on each matter submitted to a vote at a meeting of
stockholders. In case the transfer books have not been closed, and no date has
been fixed as a record date for the determination of the stockholders entitled
to vote, no share of stock shall be voted on at any election of directors which
has been transferred on the books of the corporation within twenty days next
preceding such election of directors. Any stockholder entitled to vote may vote
by proxy, provided that the instrument authorizing such proxy to act shall have
been executed in writing (which shall include telegraphing or cabling) by the
stockholder himself or herself or by his or her duly authorized attorney and
filed with the Secretary of the corporation. The President, a Vice President and
the Secretary of the corporation shall constitute a Credentials committee and
shall pass upon the validity of all proxies submitted for use at any meeting. No
proxy shall be valid after 11 months from the date of the proxy unless otherwise
provided in the proxy. The decision of the Credentials Committee upon the
validity of the proxies shall be conclusive. At all meetings of the
stockholders, except as otherwise required by statute, the Articles of
Incorporation or these Bylaws, all matters shall be decided by the vote of a
majority in interest of the stockholders entitled to vote present in person or
by proxy. Election for directors need not be by ballot.
Section 9. List of Stockholders. The directors shall cause the
Secretary, or other officer designated by them who has charge of the transfer
books and the stock books, to make at least ten days before every election a
full, true and complete list, in alphabetical order, of all the
2
<PAGE>
stockholders entitled to vote at the ensuing election, and the post office
address and the number of shares held by each. The Board of Directors shall
produce such books and list at the time and place of election, to remain there
during the election.
Section 10. Waiver of Irregularities. All informalities and
irregularities in calls, notices of meeting and in the manner of voting, form of
proxy, credentials, and methods of ascertaining those present, shall be deemed
waived if no objection is made thereto at the meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers and Qualifications. The property, affairs and
business of the corporation shall be managed under the direction of the Board of
Directors. The Board of Directors may exercise all of the powers of the
corporation, except such as are by law or by the Articles of Incorporation or by
these Bylaws expressly conferred upon or reserved to the stockholders.
Section 2. Number, Election and Term of Office. The number of directors
shall be at least one, which number may be increased or decreased from time to
time by resolution of the Board of Directors, but shall not be less than one nor
more than ten (10). Subject to the provisions of the Articles of Incorporation
and Section 6 of this Article III, the directors shall be elected annually by
the stockholders entitled to vote at the annual meeting of stockholders, by a
plurality of the votes at such election. Each director (whether elected at an
annual meeting or to fill a vacancy or otherwise) shall continue in office until
the annual meeting of stockholders held next after his or her election and until
his or her successor shall have been elected and qualified or until his or her
death, resignation or removal in the manner hereinafter provided.
Section 3. Meetings. A meeting of the Board of Directors shall be held
for organization, for the election of officers and for the transaction of each
such other business as properly may come before the meeting, within thirty days
after each annual election of directors upon the notice hereinafter provided for
a special meeting. The directors, however, may hold such meeting, without
notice, at the place where the annual meeting of stockholders is held,
immediately following such meeting.
The Board of Directors by resolution may provide for the holding of
regular meetings, with or without notice, and may fix the times and places at
which such meetings shall be held.
Special meetings of the Board of Directors may be called by the
President, any Vice President or by a majority of the members of the Board of
Directors. Notice of each special meeting shall be mailed to each director,
addressed to him or her at his or her address as it appears upon the records of
the corporation, at least one day before the day on which the meeting is to be
held, or shall be sent to him or her at such place by telegraph, radio or cable,
or telephoned or delivered to him or her personally, not later than the day
before the day on which the meeting is to be held. Such notice shall state the
time and place (which may be within
3
<PAGE>
or outside the State of Florida) of such meeting, but unless otherwise required
by statute, the Articles of Incorporation or these Bylaws, need not state the
purposes thereof. Notice of any meeting need not be given to any director,
however, if waived by him or her, before or after such meeting, in writing or by
telegraph, radio or cable. No notice need be given of any meeting at which every
member of the Board of Directors shall be present.
Members of the Board of Directors may participate in a meeting of the
Board by means of a conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation by such means shall constitute presence in person
at a meeting.
Section 4. Quorum. The presence, at any meeting, of a majority of the
total number of directors constituting the entire Board of Directors shall be
necessary and sufficient to constitute a quorum for the transaction of business,
and except as otherwise required by statute, the Articles of Incorporation or
these Bylaws, the act of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors. In the
absence of a quorum, a majority of the directors present at the time and place
of any meeting may adjourn such meeting from time to time until a quorum is
present. Notice of any adjourned meeting need not be given.
Section 5. Resignation and Removal. Any director may resign at any time
by giving written notice of such resignation to either the Board of Directors,
the President, a Vice President, the Secretary or an Assistant Secretary of the
corporation. Unless otherwise specified therein, such resignation shall take
effect upon receipt thereof by the Board of Directors or by any such officer. In
addition, any director may be removed, with or without cause, from his or her
position as a member of the Board of Directors by a vote of the holders of the
majority of the outstanding capital stock of the Corporation entitled to vote on
such matter.
Section 6. Vacancies. If any vacancy shall occur among the directors by
reason of death, resignation, disqualification, removal or otherwise, such
vacancy may be filled by a majority vote of the remaining directors, though less
than a quorum. Any such vacancy may also be filled by a majority of the
stockholders present and entitled to vote at any meeting held during the
existence of such vacancy, provided that the filling of such vacancy is included
in the corporation's proxy material for the meeting. If a vacancy shall occur by
an increase in the number of directors, the additional directors authorized by
such increase shall be elected by the vote of a majority of the directors in
office at the time of such increase.
Section 7. Compensation. Directors may be compensated for services as
directors and as members of Committees of the Board of Directors. Nothing herein
contained shall prevent any director from serving the corporation in any other
capacity and receiving compensation therefor.
4
<PAGE>
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. Powers. Except as otherwise provided by statute or these
Bylaws, all of the powers of the Board of Directors may be vested, to the extent
from time to time determined by the Board of Directors, in an Executive
Committee and any other Committee established for specific purposes, the members
of which shall be appointed in accordance with Section 2 of this Article.
Section 2. Appointment, Qualification and Term of Office. The Board of
Directors, by the affirmative vote of a majority of the whole Board, may appoint
from among its members an Executive Committee consisting of the President and
two or more additional members, and a Budget Committee, consisting of the
President and one or more additional members, and any other Committee with
membership determined by the Board of Directors. The Board of Directors may
designate as Chairman of the Executive Committee, the Budget Committee and other
Committees one of the members so appointed. Each member of each Committee shall
continue in office until the first meeting of the Board of Directors held after
the annual meeting of stockholders next following his or her election and until
his or her successor is appointed and qualifies or until his or her death,
resignation or removal in the manner hereinafter provided, or until he shall
cease to be a director. The Chairman of each Committee shall preside at all
meetings of the Committee at which he or she shall be present.
Section 3. Meetings. Each Committee, by resolution, may provide for the
holding of regular meetings, with or without notice, and may fix the time and
place (within or outside the State of Florida) at which such meetings shall be
held. Special meetings of each Committee may be called from time to time by any
member of the Committee. Notice of each special meeting shall be mailed to each
member of the Committee addressed to him or her at his or her address as it
appears upon the records of the corporation, at least two days before the day on
which the meeting is to be held, or shall be sent to him or her at such place by
telegraph, radio or cable, or telephoned or delivered to him or her personally,
not later than the day before the day on which such meeting is to be held. Such
notice shall state the time and place (which may be within or outside the State
of Florida) but, unless otherwise required by statute, the Articles of
Incorporation or these Bylaws, need not state the purpose of such meeting.
Notice of any meeting need not be given to any member of a Committee, however,
if waived by him or her, before or after such meeting, in writing or by
telegraph, radio or cable. Any meeting of a Committee shall be a legal meeting
without any notice or waiver of notice thereof having been given if all the
members of the Committee shall be present thereat.
Section 4. Resignations and Removal. Any member of a Committee may
resign at any time by giving written notice of such resignation to either the
Board of Directors, the President, a Vice President, the Secretary or an
Assistant Secretary of the corporation. Unless otherwise specified therein, such
resignation shall take effect upon receipt thereof by the Board of Directors or
by any such officer.
Any member of a Committee may be removed either with or without cause
at any time by the affirmative vote of a majority of the directors then in
office, given at a meeting of the Board of Directors called for the purpose.
5
<PAGE>
Section 5. Vacancies. If the office of any member of a Committee
becomes vacant by reason of death, removal or otherwise, the Board of Directors
may appoint one of the directors as a member of the Committee to fill such
vacancy.
Section 6. Quorum. The presence, at any meeting of a Committee, of a
majority of the members then in office shall constitute a quorum for the
transaction of business. A majority of such quorum may decide any questions that
may come before such meeting.
ARTICLE V
OFFICERS
Section 1. Number. The officers of the corporation shall be a Chief
Executive Officer, President, one or more Vice Presidents (one or more of whom
may be designated as an Executive or a Senior Vice President), a Secretary, a
Treasurer, and such other officers as may be appointed in accordance with the
provisions of Section 3 of this Article V.
Section 2. Election, Term of Office and Qualifications. Each officer
specifically designated in Section 1 of this Article V shall be chosen by the
Board of Directors and shall hold his or her office until his or her successor
shall have been duly chosen and qualified or until his or her death or until he
or she shall resign or shall have been removed in the manner provided in Section
4 of this Article V.
Section 3. Subordinate Officers. The Board of Directors from time to
time may appoint other officers or agents, including one or more Assistant
Treasurers and one or more Assistant Secretaries, each of whom shall hold office
for such period, have such authority and perform such duties as are provided in
these Bylaws or as the Board of Directors from time to time may determine. The
Board of Directors may delegate to any officer or committee the power to appoint
any such subordinate officers or agents and to prescribe their respective
authorities and duties.
Section 4. Removal. Any officer may be removed either with or without
cause by a majority of the total number of directors constituting the entire
Board of Directors.
Section 5. Resignations. Any officer may resign at any time by giving
written notice of such resignation to the Board of Directors or to the
President, a Vice President, the Secretary or an Assistant Secretary. Unless
otherwise specified therein, such resignation shall take effect upon receipt
thereof by the Board of Directors or by the President, a Vice President, the
Secretary or an Assistant Secretary.
Section 6. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed by these Bylaws for
the regular election or appointment to such office.
6
<PAGE>
Section 7. The Chairman of the Board of Directors. The Board of
Directors may elect one of the members of the Board of Directors as Chairman of
the Board of Directors. The Chairman of the Board of Directors, if appointed,
shall preside at all meetings of the Board of Directors and shall do and perform
such other duties and may exercise such other powers as from time to time may be
assigned to him or her by the Board of Directors.
Section 8. Vice Chairman of the Board of Directors. The Board of
Directors may elect one of the members of the Board of Directors as Vice
Chairman of the Board of Directors. The Vice Chairman of the Board of Directors.
if appointed, shall, in the absence or disability of the Chairman of the Board
of Directors, do and perform all of the duties of the Chairman of the Board of
Directors, and when so acting, shall have all of the powers of the Chairman of
the Board of Directors, and shall do and perform such other duties and may
exercise such other powers as from time to time may be assigned to him or her by
the Chairman of the Board of Directors.
Section 9. The Chief Executive Officer. The Board of Directors shall
elect a person as the Chief Executive Officer of the corporation. The Chief
Executive Officer of the corporation, subject to the control of the Board of
Directors, shall have general charge of the business, affairs and property of
the corporation as well as control over its several officers.
Section 10. The President. The Board of Directors shall elect a person
as the President of the corporation. The President shall preside at all meetings
of the stockholders if the Chairman of the Board is unable to do so. The
President shall also do and perform such other duties and may exercise such
other powers as from time to time may be assigned to him or her by the Chief
Executive Officer of the corporation.
Section 11. The Vice Presidents. At the request of the President or in
his or her absence or disability, the Vice President, or in the case there shall
be more than one Vice President, the Vice President designated by the President
(or in the absence of such designation, the Vice President designated by the
Board of Directors or by the Executive Committee) shall perform all the duties
of the President, and when so acting, shall have all the powers of, and be
subject to all the restrictions upon, the President. Any Vice President shall
perform such other duties and may exercise such other powers as from time to
time may be assigned to him or her by these Bylaws or by the Board of Directors
or the President.
Section 12. The Secretary. The Secretary shall:
(a) be sworn to the faithful discharge of his or her duty;
(b) keep the minutes of and record all the votes of the meetings of the
stockholders, the Board of Directors and Executive Committee, in books to be
kept for that purpose;
7
<PAGE>
(c) make or cause to be made, at least ten days before each meeting of
the stockholders, a full, true and complete list, in alphabetical order, of all
the stockholders entitled to vote at such meeting, and the post office address
and the number of shares held by each;
(d) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by statute;
(e) be custodian of the records of the corporation, the Board of
Directors and the Executive Committee, and of the seal of the corporation, and
see that the seal is affixed to all documents the execution of which, on behalf
of the corporation under its seal, shall have been duly authorized;
(f) see that all lists, books, reports, statements, certificates and
the other documents and records required by law to be kept or filed are properly
kept or filed; and
(g) in general, perform all duties and have all powers incident to the
office of Secretary and perform such other duties and have such other powers as
from time to time may be assigned to him or her by these Bylaws or by the Board
of Directors.
Section 13. The Treasurer. Subject to the order of the Board of
Directors and to any arrangements which may be made for an outside custodian of
the corporation's portfolio and similar securities, the Treasurer shall:
(a) have supervision over the funds, securities, receipts and
disbursements of the corporation;
(b) cause all monies and other valuable effects to be deposited in the
name and to the credit of the corporation, in such banks or trust companies or
with such bankers or other depositories as shall be selected by the Board of
Directors or pursuant to authority conferred by the Board of Directors;
(c) cause the funds of the corporation to be disbursed by checks or
drafts upon the authorized depositaries of the corporation;
(d) cause to be taken and preserved proper vouchers for all monies
disbursed;
(e) cause to be kept at the principal office of the corporation correct
books of account of all its business and transactions;
(f) render to the President, the Board of Directors or the Executive
Committee, whenever requested, an account of the financial condition of the
corporation and of his or her transactions as Treasurer;
8
<PAGE>
(g) be empowered, from time to time, to require from the officers or
agents of the corporation reports or statements giving such information as he or
she may desire with respect to any and all financial transactions of the
corporation; and
(h) in general, perform all duties and have all powers incident to the
office of Treasurer and perform such other duties and have such other powers as
from time to time may be assigned to him or her by these Bylaws or by the Board
of Directors.
The Treasurer may be required to give the corporation a bond in such
sum, with such surety or sureties, as shall be satisfactory to the Board of
Directors, for the faithful discharge of his or her duty.
Section 14. Assistant Secretaries and Assistant Treasurers. The
Assistant Secretaries and Assistant Treasurers shall have such duties as from
time to time may be assigned to them by the Board of Directors or by the
President.
Section 15. Salaries. The salaries or other compensation of the
officers shall be fixed from time to time by the Board of Directors, and no
officer shall be prevented from receiving such salary or other compensation by
reason of the fact that he or she is also a director of the corporation.
ARTICLE VI
EXECUTION OF INSTRUMENTS
All documents, instruments or writings of any nature shall be signed,
executed, verified, acknowledged and delivered by such officers, agents or
employees of the corporation as may be determined from time to time by the Board
of Directors.
ARTICLE VII
CAPITAL STOCK
Section 1. Certificates of Stock. Every stockholder shall have a
certificate, signed by the President or a Vice President, and either the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary,
certifying the number of shares owned by him or her in the corporation. When the
certificate is signed by a transfer agent or an assistant transfer agent or by a
transfer clerk on behalf of the corporation and a registrar, the signatures of
the President, Vice President, Treasurer, Assistant Treasurer, Secretary or
Assistant Secretary may be facsimiles. Certificates for shares of the stock of
the corporation shall be in such form as shall be approved by the Board of
Directors, and the seal of the corporation shall be affixed thereto. There shall
be entered upon the stock books of the corporation the number of each
certificate issue, the name of the person owning the shares represented hereby,
the number of shares and the date thereof.
9
<PAGE>
Section 2. Lost or Destroyed Certificates. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the corporation, alleged to have been lost or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to have been lost or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate, or his or her legal representatives, to advertise the same in such
manner as it shall require or to give the corporation a bond sufficient to
indemnify the corporation on account of the alleged loss of any such certificate
or the issuance of such new certificate.
Section 3. Rights and Liabilities of Stockholders of Record. The
corporation shall be entitled to treat the holder of record of any share or
shares of stock as the owner thereof and shall not be bound to recognize any
legal, equitable or other claims to or interest in such share or shares on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise expressly provided by the laws of the State of
Florida.
Section 4. Regulations. The Board of Directors may make such rules and
regulations as it may deem expedient concerning the issuance and transfer of
certificates for shares of the stock of the corporation, including the issuance
of new certificates to replace lost or destroyed certificates, and may appoint
transfer agents or registrars or both of any class of stock of the corporation.
Section 5. Closing of Transfer Books and Taking of Record. The Board of
Directors may close the stock transfer books of the corporation for a period not
exceeding 60 days preceding the date of any meeting of stockholders or the date
for payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall into
effect. In lieu of so closing the stock transfer books, the Board of Directors
may fix, in advance, a date, not exceeding 60 days preceding the date of any
meeting of stockholders, or the date for the payment of any dividend, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, as a record date for the
determination of the stockholders entitled to notice of, and to vote at, any
such meeting, or entitled to receive payment of any such dividend, or any such
allotment of rights, or to exercise the rights in respect of any such change,
conversion or exchange of capital stock. In such case only stockholders of
record on the date so fixed shall be entitled to such notice of, and to vote at,
such meeting, or to receive payment of such dividend, or allotment of rights or
exercise of such rights, as the case may be, notwithstanding any transfer of any
stock on the books of the corporation after any such record date fixed as
aforesaid.
ARTICLE VIII
CORPORATE SEAL
The corporate seal shall be in the form of a circle and shall bear the
name of the corporation and year of its incorporation and shall indicate its
formation under the laws of the State of Florida; provided, that the form of
such seal shall be subject to alteration from time to time by the Board of
Directors.
10
<PAGE>
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall end on December 31 in each
year or on such other date as may be determined by the Board of Directors.
ARTICLE X
CONTROL-SHARE ACQUISITIONS
Section 607.0902 of the Florida Business Corporation Act shall not
apply to control-share acquisitions of securities of the corporation.
ARTICLE XI
AMENDMENTS
These Bylaws have been adopted by the Board of Directors and may be
repealed, altered or amended by a majority of the Board of Directors to the full
extent permitted by law and may also be repealed, altered or amended by the
affirmative vote of the holders of more than fifty percent (50%) of the
outstanding voting stock of the corporation present in person or by proxy at any
meeting of the stockholders called for that purpose.
ARTICLE XII
AFFILIATED TRANSACTIONS
Section 607.0901 of the Florida Business Corporation Act shall not
apply to affiliated transactions of the corporation.
11
EXHIBIT 3.8
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
GALACTICOMM TECHNOLOGIES, INC.
Pursuant to Section 607.1006 of the Florida Business Corporation Act,
GALACTICOMM TECHNOLOGIES, INC., a corporation existing under the laws of the
State of Florida (the "Company"), adopts the following articles of amendment to
its Articles of Incorporation:
1. The following article amends the Articles of Incorporation:
Article VIII of the Company's Articles of Incorporation is hereby
deleted in its entirety and replaced by the following:
ARTICLE VIII - REVERSE STOCK SPLITS
SECTION 1 - SEPTEMBER 1997 REVERSE SPLIT. On September 8,
1997, the Common Stock was reverse split on a 4.061771824 for 1 basis, without
any further action on the part of the holders thereof or the Company. No
fractional shares shall be issued. All fractional shares for one-half or more
shall be increased to the next higher whole number of shares and all fractional
shares of less than one-half shares shall be decreased to the next lower number
of shares.
SECTION 2 - JUNE 1998 REVERSE SPLIT. Effective with the filing
of the Articles of Amendment to the Company's Articles of Incorporation, the
Common Stock will be reverse split on a 1.657080842 for 1 basis, without any
further action on the part of the holders thereof or the Company. No fractional
shares shall be issued. All fractional shares for one-half or more shall be
increased to the next higher whole number of shares and all fractional shares
of less than one-half shares shall be decreased to the next lower number of
shares.
2. The Board of Directors recommended the adoption of the amendment to the
shareholders on June 20, 1998.
3. The amendment was approved by the shareholders and adopted by the Company on
June 22, 1998. The number of votes cast for the amendment was sufficient for
approval.
4. The amendment does not adversely affect the rights or preferences of the
holders of the outstanding shares of any class or series.
5. The amendment of Article VIII, Section 2 applies to 4,843,397 shares of
Common Stock issued and outstanding as of the date hereof. Immediately after
giving effect to the amendment
<PAGE>
of Article VIII, Section 2, there will be 2,922,849 shares of Common Stock
issued and outstanding, and 20,000,000 shares of Common Stock of the Company
will remain authorized. Accordingly, the amendment of Article VIII, Section 2
results in the percentage of authorized shares that remain unissued after the
split exceeding the percentage of authorized shares that were unissued before
the split.
Signed this 22nd day of June, 1998.
/s/ PETER BERG
--------------------------------------------
By: Peter Berg, Chief Executive Officer
EXHIBIT 4.1
NUMBER GALACTICOMM TECHNOLOGIES, INC. SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
COMMON STOCK
THIS CERTIFIES THAT CUSIP 362917 10 6
is the registered holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.0001 PER SHARE, OF
GALACTICOMM TECHNOLOGIES, INC.
(the "Corporation") transferable only on the books of the Corporation by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and
subject to all of the provisions of the Articles of Incorporation and the Bylaws
of the Corporation, and all amendments thereto, to all of which the holder, by
the acceptance hereof, assents.
This Certificate is not valid until countersigned by the Transfer Agent
and Registrar.
Witness the facsimile Seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated: GALACTICOMM TECHNOLOGIES, INC.
CORPORATE SEAL
FLORIDA
Secretary President
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NEW YORK)
TRANSFER AGENT AND REGISTRAR
BY __________________________________________________
AUTHORIZED SIGNATURE
<PAGE>
GALACTICOMM TECHNOLOGIES, INC.
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
according to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT ____ Custodian ____
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right Act _____________________________
of survivorship and not as (State)
tenants in common
</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
[ ]
-----------------------------------------------------------------------
Please print or typewrite name and address of assignee
_________________________________________________________________SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT ___________________________________
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN-NAMED
CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED: ____________________________________
SIGNATURE GUARANTEED
-------------------------------------
-----------------------------------------------------------------------
NOTICE: The signature to this assignment must correspond with the name
as written upon the face of the certificate in every particular without
alteration or enlargement or any change whatever.
IMPORTANT: SIGNATURE(S) MUST 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. RULE 17 AD-15.
EXHIBIT 4.2
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of ___________, 1998 between Galacticomm
Technologies, Inc., a Florida corporation, having its principal place of
business at 4101 S.W. 47th Ave., Suite 101, Ft. Lauderdale, FL 33314, (the
"Company") and Continental Stock Transfer & Trust Company, a New York
corporation, having its principal place of business at 2 Broadway, New York, New
York 10004 (the "Warrant Agent").
W I T N E S S E T H :
WHEREAS, the Company proposes to issue and sell to the public in an
initial public offering (the "IPO") 1,500,000 shares of the Company's Common
Stock, par value $.0001 per share ("Shares") and 1,500,000 Redeemable Common
Stock Purchase Warrants (the "Public Warrants") (plus an additional 225,000
Shares and/or an additional 225,000 Public Warrants to cover overallotments);
WHEREAS, the Company also proposes to issue and sell to Security
Capital Trading, Inc. and First Equity Corporation of Florida, the
representatives of the several underwriters (the "Representatives") in the IPO
warrants (the "Representatives' Warrants") to purchase 150,000 Shares and/or
150,000 Warrants similar but not identical to the Warrants (the Warrants
underlying such Representatives' Warrants, the "Representatives' Underlying
Warrants" and together with the Public Warrants sometimes hereinafter referred
to as the "Warrants") pursuant to a Representatives' Warrant Agreement of even
date herewith (the "Representatives' Warrant Agreement"), a true and correct
copy of which has been provided to the Warrant Agent;
WHEREAS, the Warrants (subject to technical modification to conform to
the terms of the Representatives' Underlying Warrants) shall be evidenced by
certificates substantially in the form of Exhibit A annexed hereto (the "Warrant
Certificate"), with one (1) Warrant entitling the holder thereof to purchase one
(1) share of Common Stock;
WHEREAS, the Public Warrants will have an exercise price of $7.50 [125%
of the offering price of the Units] and the Representatives' Underlying Warrants
will have an exercise price of $12.375 [165% of the exercise price of the Public
Warrants], per share of Common Stock, subject to certain adjustments (the
"Warrant Price"), will be exercisable commencing one year from the effective
date of the IPO, or such earlier date as may be determined by the Company and
the Representatives (as such term is defined in the Underwriting Agreement in
connection with the IPO) ("First Exercise Date"), until a date which is the
fifth anniversary of the effective date of the registration statement for the
IPO ("Last Exercise Date"), unless extended by the Company, and, except for the
Representatives' Underlying Warrants, will be exercisable during any period of
time fixed for that Warrant's redemption in a Redemption Notice (hereinafter
defined in Section 2.03),
<PAGE>
which period of time will terminate on a stated Redemption Date (hereinafter
defined in Section 2.03);
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 replacement of the Warrant
Certificates and exercise of the Warrants; and
WHEREAS, the Company and the Warrant Agent desire to set forth in this
Agreement the terms and conditions upon which the Warrant Certificates shall be
issued, transferred, exchanged and placed and the Warrants exercised, and to
provide for the rights of the holders of the Warrants;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and the respective undertakings herein below set forth, the
Company and the Warrant Agent agree as follows:
ARTICLE I
ISSUANCE AND EXECUTION OF WARRANTS
SECTION 1.01 The Company hereby appoints the Warrant Agent to act on
behalf of the Company in accordance with the terms and conditions herein set
forth, and the Warrant Agent hereby accepts such appointment and agrees to
perform the same in accordance with such provisions.
SECTION 1.02 The Warrant Certificates for the Warrants shall be issued
in registered form only. The text of the Warrant Certificate, including the form
of assignment and subscription printed on the reverse side thereof, shall be
substantially in the form of Exhibit A annexed hereto (subject to technical
modification to conform to the terms of the Representatives' Underlying
Warrants), which text is hereby incorporated in this Agreement by reference as
though fully set forth herein and to whose terms and conditions the Company and
the Warrant Agent hereby agree. Each Warrant Certificate shall evidence the
right, subject to the provisions of this Agreement and of such Warrant
Certificate, to purchase the number of validly issued, fully paid and
non-assessable shares of Common Stock, as that term is defined in Section 1.05
of this Agreement, stated therein, free of preemptive rights, subject to
adjustment as provided in Article III of this Agreement.
SECTION 1.03 Upon the written order of the Company, signed by the
President, the Chief Executive Officer or any Vice President, and the Secretary,
Treasurer, Assistant Secretary or Assistant Treasurer of the Company, the
Warrant Agent shall issue and register Warrants in the names and denominations
specified in that order, and will countersign and deliver Warrant Certificates
evidencing the same in accordance with that order. Each Warrant Certificate
shall be dated the date of its countersignature. Each Warrant Certificate shall
be executed on behalf of the Company by the manual or facsimile signature of the
President or any Vice President of the Company, under its corporate seal,
affixed or facsimile, attested by the manual or facsimile signature of the
Secretary of the Company and shall be countersigned manually by the Warrant
Agent. The
-2-
<PAGE>
Warrant Certificates shall not be valid for any purpose unless so countersigned.
In case any officer whose facsimile signature has been placed upon any Warrant
Certificate shall have ceased to be such before such Warrant Certificate is
issued, it may be issued with the same effect as if such officer had not ceased
to be such on the date of issuance.
SECTION 1.04 Except as otherwise expressly stated herein, all terms
used in the Warrant Certificate have the meanings provided in this Agreement.
SECTION 1.05 As used herein, the term "Common Stock" shall mean the
aggregate number of shares of common stock that the Company, by its Articles of
Incorporation, as from time to time amended, is authorized to issue, which are
not limited by its Articles of Incorporation to a fixed sum or percentage of the
book value in respect of the rights of the holders thereof to participate in
dividends or in distribution of assets upon the voluntary or involuntary
liquidation, dissolution, or winding up the Company.
SECTION 1.06 The Warrant Agent understands and agrees that the Shares
and the Public Warrants are being issued in the IPO initially as a unit, each
unit consisting of one Share and one Warrant, and will be detachable and
separately transferable immediately following completion of the IPO.
ARTICLE II
WARRANT PRICE, DURATION AND EXERCISE OF WARRANTS, CALL OF
WARRANTS AND TRADING OF WARRANTS
SECTION 2.01
(a) One (1) Warrant shall entitle the person in whose name at
the time the Warrant shall be registered upon the books to be maintained by the
Warrant Agent for that purpose (the "Warrant Holder"), subject to the provisions
of the Warrant Certificates and of this Agreement, to purchase from the Company
any time on or after the First Exercise Date but at or before the Last Exercise
Date, one (1) share of Common Stock, as adjusted, at the Warrant Price in effect
at such date, payable in full at the time of purchase in the manner provided in
Section 2.02 of this Agreement.
(b) Each Warrant shall be exercisable in accordance with the
terms herein and in the Warrant Certificate which, among other things, contains
certain terms as to the Warrant Price.
SECTION 2.02
(a) The Warrant Holder may exercise a Warrant, in whole or in
part, by surrender of the Warrant Certificate, with the form of subscription
thereon duly executed by the Warrant Agent at its corporate office, together
with the Warrant Price for each share of Common Stock to be
-3-
<PAGE>
purchased in lawful money of the United States, or by certified check, bank
draft, or postal or express money order payable in United States Dollars to the
order of the Company.
(b) Upon receipt of a Warrant Certificate with the form of
election to purchase thereon duly executed and accompanied by payment of the
aggregate Warrant Price for the shares of Common Stock for which the Warrant is
then being exercised, the Warrant Agent shall requisition from the transfer
agent certificates for the total number of the shares of Common Stock for which
the Warrant is being exercised in such names and denominations as are required
for delivery to the Warrant Holder, and the Warrant Agent shall thereupon
deliver such certificates to or in accordance with the instructions of the
Warrant Holder. The Company covenants and agrees that it has duly authorized and
directed its transfer agent (and will authorize and direct all its future
transfer agents) to comply with all such requests of the Warrant Agent.
(c) In case any Warrant Holder shall exercise his Warrant with
respect to less than all of the shares of Common Stock that may be purchased
under the Warrant, a new Warrant Certificate for the balance shall be
countersigned and delivered to or upon the order of the Warrant Holder.
(d) The Company covenants and agrees that it will pay when due
and payable any and all taxes which may be payable in respect to the issuance of
Warrants, or the issuance of any shares of Common Stock upon the exercise of
Warrants. However, neither the Company nor the Warrant Agent shall be required
to issue or deliver any Warrant Certificate or shares of Common Stock in a name
other than that of the Warrant Holder at the time of surrender if any tax is
payable in respect of such transfer until the person requesting the same has
paid to the Company the amount of such tax or has established to the Company's
satisfaction that such tax has been paid or shall not be due and payable. In the
event that any transfer tax is due and payable, the Warrant Agent shall be under
no obligation to issue or deliver any Warrant Certificate or shares of Common
Stock in a name other than that of the Warrant Holder until the Company has
notified the Warrant Agent that the transfer tax, if any, has been paid, or in
the alternative, that no transfer tax is due and payable by reason of an
exemption.
(e) The Warrant Agent shall account promptly to the Company
with respect to Warrants exercised and concurrently account to the Company for
all moneys received by the Warrant Agent for the purchase of shares of Common
Stock upon the exercise of Warrants.
(f) The Warrant Agent covenants and agrees that upon the
exercise of any of the Warrants, the Warrant Agent shall provide written notice
to the Company and to the Representatives at the addresses set forth in Section
6.09 hereof, the expense of which notice shall be borne by the Company. Each
notice shall contain the name of the exercising Warrant Holder, the number of
shares of Common Stock that the Warrant Holder has elected to purchase, the
purchase price paid on a per share basis and the cumulative number of Warrants
exercised by all of the Warrant Holders as of the date of the transaction which
is the subject of the aforesaid notice. Such notice shall be made no later than
two (2) business days following the date of the exercise of the Warrant. Nothing
-4-
<PAGE>
contained herein shall be construed so as to prevent the Warrant Agent from
providing the information required in this Section 2.02 (f) in a consolidated or
tabular form, provided that all other provisions of this Section are complied
with.
(g) The Warrant Agent covenants and agrees that it shall
provide a list of each and every holder of the Warrants to the Company and the
Representatives at such time or from time to time as shall be required by the
Company or the Representatives, but in no event shall such a list be provided
less frequently than once per annum at a date as shall be determined by the
Company.
SECTION 2.03
(a) Commencing thirty (30) days after the First Exercise
Date, the Company may, subject to the conditions set forth herein, redeem all,
but not less than all, the Warrants then outstanding upon not less than thirty
(30) days prior written notice (the "Redemption Notice") to the holders thereof
provided that the average closing price of the Common Stock for the 20
consecutive trading days ending three (3) trading days prior to the date of the
Redemption Notice is at least 150% of the initial public offering price of a
Share, subject to adjustment for stock dividends, stock splits and other
anti-dilution provisions as provided for under Article III herein. For purposes
of this Section 2.03, "closing price" at any date shall be deemed to be: (i) the
last sale price regular way as reported on the principal national securities
exchange on which the Common Stock is listed or admitted to trading, or (ii) if
the Common Stock is not listed or admitted to trading on any national securities
exchange, the average of the closing bid and asked prices regular way for the
Common Stock as reported by the Nasdaq National Market or Nasdaq Small Cap
Market of the Nasdaq Stock Market, Inc. ("NASDAQ") or (iii) if the Common Stock
is not listed or admitted for trading on any national securities exchange, and
is not reported by NASDAQ, the average of the closing bid and asked prices in
the over-the-counter market as furnished by the National Quotation Bureau, Inc.
or if no such quotation is available, the fair market value of the Common Stock
as determined in good faith by the Board of Directors of the Company. The
Redemption Notice shall be deemed effective upon mailing and the time of mailing
is the "Effective Date of the Notice". The Redemption Notice shall state a
redemption date not less than thirty (30) days from the Effective Date of the
Notice (the "Redemption Date") . No Redemption Notice shall be mailed unless all
funds necessary to pay for redemption of all Warrants then outstanding shall
have first been set aside by the Company in trust with the Warrant Agent for the
benefit of all Warrant Holders so as to be and continue to be available
therefor. The redemption price to be paid to the Warrant Holders will be $.10
(or fraction thereof) for each share (or fraction thereof) of the Common Stock
of the Company to which the Warrant Holder would then be entitled upon exercise
of the Warrant(s) being redeemed, as adjusted from time to time as provided
herein (the "Redemption Price"). In the event the number of shares of Common
Stock issuable upon exercise of the Warrant being redeemed are adjusted pursuant
to Article III hereof, then upon each such adjustment the Redemption Price will
be adjusted by multiplying the Redemption Price in effect immediately prior to
such adjustment by a fraction, the numerator of which is the number of shares of
Common Stock issuable upon exercise of the Warrant being redeemed immediately
prior to such adjustment and the denominator of which is the
- 5 -
<PAGE>
number of shares of Common Stock issuable upon exercise of such Warrant being
redeemed immediately after such adjustment. The Warrants may only be redeemed if
the Company has in effect a current Registration Statement or post-effective
amendment covering the shares underlying the Warrants. The Warrant Holders may
exercise their Warrants between the effective date of the Redemption Notice and
the Redemption Date, such exercise being effective if done in accordance with
Section 2.02 (a), and if the Warrant Certificate, with form of election to
purchase duly executed and the Warrant Price, asapplicable for such Warrant
subject to redemption for each share of Common Stock to be purchased is actually
received by the Warrant Agent at its office located at 2 Broadway, New York, New
York 10004, no later than 5:00 P.M. Miami, Florida time on the Redemption Date.
(b) If any Warrant Holder does not wish to exercise any
Warrant being redeemed, the Warrant Holder should mail such Warrant to the
Warrant Agent at its office located at 2 Broadway, 19th Floor, New York, New
York 10004, after receiving the Redemption Notice required by this Section. If
such Redemption Notice shall have been so mailed, and if on or before the
Effective Date of the Notice all funds necessary to pay for redemption of all
Warrants then outstanding shall have been set aside by the Company in trust with
the Warrant Agent for the benefit of all Warrant Holders so as to be and
continue to be available therefor, then, on and after said Redemption Date,
notwithstanding that any Warrant subject to redemption shall not have been
surrendered for redemption, the obligation evidenced by all Warrants not
surrendered for redemption or effectively exercised shall be deemed no longer
outstanding, and all rights with respect thereto shall forthwith cease and
terminate, except only the right of the holder of each Warrant subject to
redemption to receive the Redemption Price (or fraction thereof) for each share
of Common Stock (or fraction thereof) to which he would be entitled if he
exercised the Warrant upon receiving the Redemption Notice of the Warrant
subject to redemption held by the Holder hereof.
(c) Notwithstanding anything contained in this Article II, the
Representatives' Underlying Warrants shall not be eligible for redemption by the
Company.
ARTICLE III
ADJUSTMENT OF SHARES OF COMMON STOCK
PURCHASABLE AND OF WARRANT PRICE
SECTION 3.01 In case the Company shall at any time after the date of
this Agreement (i) declare a dividend on the outstanding Common Stock in shares
of its capital stock, (ii) subdivide the outstanding Common Stock, (iii) combine
the outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock by reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the Warrant
Price, and the number and kind of shares of Common Stock receivable upon
exercise, in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination, or reclassification shall be
proportionately adjusted so that the holder of any Warrant exercised after such
time shall be
- 6 -
<PAGE>
entitled to receive the aggregate number and kind of shares which if such
Warrant had been exercised immediately prior to such time, he would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination, or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur.
SECTION 3.02 In case the Company after the date hereof shall issue
rights,options, or warrants to all holders of Common Stock entitling them to
subscribe for or purchase CommonStock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion
price per share, if a security convertible into or exchangeable for Common
Stock) less than the "current market price" (as defined in Section 3.04 hereof)
per share of Common Stock on the record date established for the issuance of
such rights, options or warrants, then, in such case, the Warrant Price shall be
adjusted by multiplying the Warrant Price in effect on the record date of such
issuance by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding on the record date for such issuance plus the number of
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so to be issued (or the aggregate initial conversion
price of the convertible securities to be issued or sold) would purchase at such
"current market price" and of which the denominator shall be the number of
shares of Common Stock outstanding on the record date for such issuance plus the
number of additional shares of Common Stock to be issued (or into which the
convertible or exchangeable securities to be issued or sold are initially
convertible or exchangeable). Such adjustment shall become effective at the
close of business on such record date; provided, however, that, to the extent
the shares of Common Stock (or securities convertible to or exchangeable for
shares of Common Stock) are not delivered, the Warrant Price shall be readjusted
after the expiration of such rights, options, or warrants (but only with respect
to Warrants exercised after such expiration), to the Warrant Price which would
then be in effect had the adjustments made upon the issuance of such rights or
warrants been made upon the basis of delivery of only the number of shares of
Common Stock or securities convertible into or exchangeable for shares of Common
Stock actually issued. In case any subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the board of
directors of the Company, whose determination shall be conclusive absent
manifest error. Shares of Common Stock owned by or held for the account of the
Company or any majority-owned subsidiary shall not be deemed outstanding for the
purpose of any such computation.
Notwithstanding the foregoing, no adjustment in the Warrant
Price or the number of shares of Common Stock issuable upon exercise of the
Warrants shall be made upon (i) the issuance of options (or upon exercise
thereof) by the Company pursuant to its Stock Option Plans, (ii) the issuance of
the Representatives' Warrants or the Representatives' Underlying Warrants, or
(iii) any other options and warrants outstanding as of the date hereof.
SECTION 3.03 In case the Company shall distribute to all holders of
Common Stock (including any such distribution made to the shareholders of the
Company in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness or assets (other than cash
dividends distributions and dividends payable in shares of
- 7 -
<PAGE>
Common Stock), subscription rights, options, or warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock (excluding those referred to in Section 3.02 hereof), then, in
each case, the Warrant Price shall be adjusted by multiplying the Warrant Price
in effect immediately prior to the record date for the determination of
shareholders entitled to receive such distribution by a fraction of which the
numerator shall be the "current market price" per share of Common Stock on such
record date, less the fair market value (as determined in good faith by the
board of directors of the Company, whose determination shall be conclusive
absentmanifest error) of the portion of the evidences of indebtedness or assets
so to be distributed, or of such subscription rights, options, or warrants,
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock, applicable to the share, and of which the
denominator shall be such "current market price" per share of Common Stock. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of such distribution retroactive to the record date
for the determination of shareholders entitled to receive such distribution.
SECTION 3.04 For the purpose of any computation under sections 3.02 and
3.03 hereof, the "current market price" per share of Common Stock on any date
shall be deemed to be the average of the daily closing prices for the 20
consecutive trading days ending three (3) days prior to such date. The closing
price for each day shall be the last reported sales price regular way or, in
case no such reported sale takes place on such day, the closing bid price
regular way, in either case on the principal national securities exchange on
which the Common Stock is listed or admitted to trading or, if the Common Stock
is not listed or admitted to trading on any national securities exchange, the
highest reported bid price as furnished by NASDAQ. If on any such date the
Common Stock is not quoted on NASDAQ or any such organization, the closing price
shall be deemed to be the average of the closing bid and asked prices in the
over-the-counter market as reported by the National Quotation Bureau or if no
such quotation is available, the fair value of the Common Stock on such date, as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error.
SECTION 3.05 No adjustment in the Warrant Price shall be required if
such adjustment is less than $.05; provided, however, that any adjustments which
by reason of this Section 3.05 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Article III shall be made to the nearest cent or to the nearest
one-thousandth of a share, as the case may be.
SECTION 3.06 In any case in which this Article III shall require that
an adjustment in the Warrant Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the holder of any Warrant exercised after such record date,
the shares, if any, issuable upon such exercise over and above the shares, if
any, issuable upon such exercise on the basis of the Warrant Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
- 8 -
<PAGE>
SECTION 3.07 Upon each adjustment of the Warrant Price as a result of
the calculations made in Section 3.01, 3.02, or 3.03 hereof, each Warrant
outstanding prior to the making of the adjustment in the Warrant Price shall
thereafter evidence the right to purchase, at the adjusted Warrant Price, that
number of shares (calculated to the nearest thousandth) obtained by dividing (A)
the product obtained by multiplying the number of shares purchasable upon
exercise of a Warrantprior to adjustment of the number of shares by the Warrant
Price in effect prior to adjustment of the Warrant Price by (B) the Warrant
Price in effect after such adjustment of the Warrant Price.
SECTION 3.08 In case of any capital reorganization of the Company, or
of any reclassification of the Common Stock (other than a reclassification of
the Common Stock referred to in Section 3.01 hereof), or in the case of the
consolidation of the Company with or the merger of the Company into any other
corporation or of the sale, transfer, or lease of the properties and assets of
the Company as, or substantially as, an entirety to any other corporation or
other entity, each Warrant shall after such capital reorganization,
reclassification of Common Stock, consolidation, merger, sale, transfer, or
lease, be exercisable, on the same terms and conditions specified in this
Agreement, for the number of shares of stock or other securities, assets, or
cash to which a holder of the number of shares purchasable (at the time of such
capital reorganization, reclassification of Common Stock, consolidation, merger,
sale, transfer, or lease) upon exercise of such Warrant would have been entitled
upon such capital reorganization, reclassification of Common Stock,
consolidation, merger, sale, transfer, or lease; and in any such case, if
necessary, the provisions set forth in this Article III with respect to the
rights and interests thereafter of the holders of the Warrants shall be
appropriately adjusted so as to be applicable, as nearly as may reasonably be,
to any shares of stock, other securities, assets, or cash thereafter deliverable
on the exercise of the Warrants. The subdivision or combination of shares of
Common Stock at any time outstanding into a greater or lesser number of shares
shall not be deemed to be a reclassification of the Common Stock for the
purposes of this subsection. The Company shall not effect any such
consolidation, merger, transfer, or lease, unless prior to or simultaneously
with the consummation thereof, the successor corporation (if other than the
Company) resulting from such consolidation or merger or the Corporation
purchasing, receiving, or leasing such assets or other appropriate corporation
or entity shall expressly assume, by written instrument in form satisfactory to
the Representatives, the obligation to deliver to the holder of each Warrant
such shares of stock, securities, or assets as, in accordance with the foregoing
provisions, such holders may be entitled to purchase and to perform the other
obligations of the Company under this Agreement.
SECTION 3.09 The Company may make such reductions in the Warrant Price,
in addition to those required by this Article III, as it shall, in its sole
discretion, determine to be advisable.
ARTICLE IV
OTHER PROVISIONS RELATING TO RIGHTS OF
WARRANT HOLDERS
- 9 -
<PAGE>
SECTION 4.01 No Warrant Holder, as such, shall be entitled to vote or
receive dividends or be deemed the holder of shares of Common Stock for any
purposes, nor shall anything contained in any Warrant Certificate be construed
to confer upon any Warrant Holder, as such, any of the rights of a shareholder
of the Company or any right to vote, give or withhold consent to any action by
the Company, whether upon any recapitalization, issue of stock, reclassification
of stock,consolidation, merger, conveyance or otherwise, receive dividends or
subscription rights, or otherwise, until in connection with the exercise of any
Warrant, such Warrant shall have been surrendered and the purchase price or the
shares of Common Stock for which such Warrant is being exercised shall have been
received by the Warrant Agent; provided, however, that any such surrender and
payment on any date when the stock transfer books of the Company shall be closed
shall constitute the person or persons in whose name or names the certificate or
certificates for those shares of Common Stock are to be issued as the record
holder or holders thereof for all purposes at the opening of business on the
next succeeding day on which such stock transfer books are open and the Warrant
surrendered shall not be deemed to have been exercised, in whole or in part, as
the case maybe, until such next succeeding day on which stock transfer books are
open.
SECTION 4.02 The Company covenants and agrees that it shall
contemporaneously provide to all Warrant Holders of record any publication,
mailing or notice of an event which it shall provide to all of its shareholders
of record and which event shall result in the adjustment to the Warrant Price as
provided in Article III hereof. For purposes of this Section 4.02, the Warrant
Holders of record shall be those Warrant Holders who are of record on a date
even with the date chosen by the Company for the purpose of determining the
shareholders of record who shall be entitled to receive such publication,
mailing or notice.
SECTION 4.03 If any Warrant Certificate is lost, stolen, mutilated or
destroyed, the Company and the Warrant Agent may, on such terms as to indemnity
or otherwise as they may in their discretion reasonably impose, which shall, in
the case of a mutilated Warrant Certificate, include the surrender thereof,
issue a new Warrant Certificate of like denomination and tenor as, and in
substitution for, the Warrant Certificate so lost, stolen mutilated or
destroyed.
SECTION 4.04
(a) The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise of outstanding Warrants such
number of authorized shares of Common Stock and the aggregate number and kind of
any other securities which the Warrants are exercisable for, pursuant to the
provisions of Article III hereof, as are sufficient to permit the exercise in
full of such Warrants and that it will make available to the Warrant Agent from
time to time a number of duly executed certificates representing shares of
Common Stock and other securities, sufficient therefor.
- 10 -
<PAGE>
(b) The Company shall use its best efforts to secure the
listing, upon official notice of issuance, of the shares of Common Stock
issuable upon exercise of Warrants upon any securities exchange upon which the
Common Stock becomes listed.
(c) The Company covenants that all shares of Common Stock
issued on exercise of Warrants shall be validly issued, fully paid,
non-assessable and free of preemptive rights.
(d) The Company has filed a Registration Statement on Form
SB-2 (Registration No. 333-39805) for the registration of, among other things,
the sale of the Warrants and the shares of Common Stock issuable upon exercise
thereof under the Securities Act of 1933, as amended (the "Act"). The Company
shall use its best efforts to secure the effectiveness of the Registration
Statement under the Act, and to register or qualify such Warrants and shares of
Common Stock under the laws of any states in which the sale of the Warrants and
shares of Common Stock was registered or qualified at the time of the IPO and
shall use its reasonable good faith efforts to register and qualify such
Warrants and shares of Common Stock in such additional states and jurisdictions
as the holders of such Warrants shall reasonably request, provided that no such
qualification will be required in any jurisdiction where, solely as a result
thereof, the Company would be subject to (i) general service of process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction or (ii) qualification requirements which would require the Company
to (A) amend its Articles of Incorporation or Bylaws or (B) rescind, modify or
amend any action taken by the Board of Directors of the Company in accordance
with their fiduciary obligations to the Company and its shareholders; provided,
however, that the Company will make a good faith effort to obtain a waiver of
any such requirement. The Company further agrees to use its best efforts to
maintain the effectiveness of such Registration Statement and such state
qualifications, as aforesaid, by the filing of any and all amendments to the
Registration Statement and such state qualifications as may be required from
time to time under the Act or the laws of the various states until the
expiration or termination of all the Warrants in accordance herewith.
(e) The Company will furnish to the Warrant Agent, upon
request, an opinion of counsel satisfactory to the Warrant Agent to the effect
that (i) a Registration Statement under the Act is then in effect with respect
to the Warrants and shares of Common Stock issuable upon the exercise of the
Warrants and that the prospectus included therein complies as to form in all
material respects, (except as to financial statements, including schedules, and
other accounting and financial data, as to which such counsel need express no
opinion), with the requirements of the Act and the rules and regulations of the
Commission thereunder; or (ii) a Registration Statement under the Act with
respect to said shares of Common Stock is not required. In the event that said
opinion states that such a Registration Statement is in effect, the Company will
from time to time furnish the Warrant Agent with current prospectuses meeting
the requirements of the Act and such rules and regulations in sufficient
quantity to permit the Warrant Agent to deliver a prospectus ("Prospectus") to
each Warrant Holder upon exercise thereof. The Company further agrees to pay all
fees, costs and expenses in connection with the preparation and delivery to the
Warrant Agent of the foregoing opinions and Prospectuses and the above mentioned
registrations and other actions, and to immediately notify the Warrant Agent in
the event that (i) the Commission shall have issued or
- 11 -
<PAGE>
threatened to issue any order preventing or suspending the use of any
Prospectus; (ii) at any time any Prospectus shall contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; or (iii) for
any reason it shall be necessary to amend or supplement any Prospectus in order
to comply with the Act.
SECTION 4.05 If the number of shares purchasable upon the exercise of
each Warrant is adjusted pursuant to Section 3.07 hereof, the Company shall not
be required to issue fractions of shares upon exercise of the Warrants or to
distribute share certificates which evidence fractional shares. In lieu of
fractional shares, the Company, in its sole discretion, may pay to the
registered holders of Warrant Certificates at the time such Warrants are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of a share. For purposes of this Section 4.05, the current
market value of a share issuable upon the exercise of a Warrant shall be the
closing price of a share of Common Stock, as determined pursuant to the second
and third sentences of Section 3.04, for the trading day immediately prior to
the date of such exercise.
SECTION 4.06 The holder of a Warrant by the acceptance thereof
expressly waives his right to receive any fractional warrant or any fractional
Shares upon exercise of a Warrant.
ARTICLE V
TREATMENT OF WARRANT HOLDERS
SECTION 5.01 Prior to due presentment for registration of transfer of
any Warrant, the Company and the Warrant Agent may deem and treat the Warrant
Holder as the absolute owner of such warrant, notwithstanding any notation of
ownership or other writing thereon, for the purpose of any exercise thereof and
for all other purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary.
ARTICLE VI
CONCERNING THE WARRANT AGENT
AND OTHER MATTERS
SECTION 6.01 The Company will from time to time promptly pay, subject
to the provisions of Section 2.02 (d) of this Agreement, all taxes and charges
that may be imposed upon the Company or the Warrant Agent in respect of the
issuance or delivery of shares of Common Stock upon the exercise of Warrants.
SECTION 6.02
(a) The Warrant Agent may resign and be discharged from its
duties under this Agreement upon sixty (60) days notice in writing, mailed to
the Company by registered or certified
- 12 -
<PAGE>
mail, and to each Warrant Holder. The Company may remove the Warrant Agent or
any successor warrant agent upon sixty (60) days notice in writing, mailed to
the Warrant Agent or successor Warrant Agent, as the case may be, by registered
or certified mail, and to each Warrant Holder; provided, however, the Company
shall appoint a new Warrant Agent as hereinafter provided and such removal shall
not become effective until a successor Warrant Agent has been appointed and has
accepted such appointment. If the Warrant Agent shall resign or shall otherwise
become incapableof acting, the Company shall appoint a successor to the Warrant
Agent. If the Company shall fail to make such appointment within a period of
sixty (60) days after it has been notified in writing of such resignation or
incapability by the Warrant Agent by a Warrant Holder, who shall, with such
notice, submit his Warrant Certificate for inspection by the Company, then any
Warrant Holder may apply to any court of competent jurisdiction for the
appointment of a successor to the Warrant Agent. Any successor Warrant Agent,
whether appointed by the Company or by such a court shall be a registered
transfer agent, bank or trust company, subject to the terms and conditions of
this Section 6.02, in good standing and incorporated under the laws of any State
of the United States, having its principal office in the United States of
America. After appointment, the successor Warrant Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Warrant Agent without further act or deed. The former Warrant Agent
shall deliver and transfer to the successor Warrant Agent any property at the
time held by it hereunder and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Failure to give any notice
provided for in this Section, however, or any defect therein, shall not affect
the legality or validity of the resignation or removal of the Warrant Agent or
the appointment of the successor Warrant Agent, as the case may be.
(b) Any corporation into which the Warrant Agent may be merged
or with which it may be consolidated, or any corporation resulting from any
merger or consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent,
shall be the successor to the Warrant Agent hereunder without the execution or
filing of any paper or any further act on the part of any of the parties hereto.
In case at the time such successor to the Warrant Agent shall succeed to the
agency created by this Agreement, any of the Warrant Certificates shall have
been countersigned but not delivered, any such successor to the Warrant Agent
may adopt the countersignature of the original Warrant Agent and deliver such
Warrant Certificates so countersigned, and in case at that time any of the
Warrant Certificates shall not have been countersigned, any successor to the
Warrant Agent may countersign such Warrant Certificate in its own name or in the
name of the successor Warrant Agent; and in all such cases such Warrant
Certificates shall have the full force provided in the Warrant Certificates and
this Agreement.
In case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrant Certificates shall have been
countersigned but not delivered, the Warrant Agent may adopt the
countersignature under this prior name and deliver Warrant Certificates so
countersigned; and in case at that time any of the Warrant Certificates shall
not have been countersigned, the Warrant Agent may countersign such Warrant
Certificates either in its prior name
- 13 -
<PAGE>
or in its changed name; and in all such cases such Warrant Certificates shall
have the full force provided in the Warrant Certificates and in this Agreement.
SECTION 6.03 The Company agrees to pay the Warrant Agent a reasonable
fee for all services rendered by it hereunder. The Company also agrees to
indemnify the Warrant Agent for, and to hold it harmless against, any loss,
liability or expense, incurred without gross negligence, willful misconduct or
bad faith on the part of the Warrant Agent, arising out of or in connection with
the acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the premises.
SECTION 6.04 The Company covenants and agrees that it shall, at the
Company's expense, provide to the Warrant Agent copies of its current
prospectus, if any, in such quantity as to enable the Warrant Agent to deliver
one copy of such current prospectus to such Warrant Holder who shall exercise
his rights under a Warrant. Notwithstanding anything else contained in this
Section 6.04, the Company shall not be obligated to provide copies of its
current prospectus for the purpose of allowing the Warrant Agent to deliver such
copies to any Warrant Holder who delivers all of his redeemable warrants for
redemption pursuant to Section 2.03 or who shall notice the Company of his
intent to permit redemption of all of his Warrants pursuant to Section 2.03
herein or to any person who shall hold any Warrant subject to the terms of this
Agreement after the earlier of the Redemption Date or the Last Exercise Date of
the Warrants.
SECTION 6.05 The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and conditions, by all of
which the Company and the holders of Warrant certificates, by their acceptance
thereof, shall be bound:
(a) Whenever in the performance of its duties under this
Agreement the Warrant Agent shall deem it necessary or desirable that any fact
or matter be proved or established by the Company prior to taking or suffering
any action hereunder, that fact or matter, unless other evidence in respect
thereof be herein specifically prescribed, may be deemed to be conclusively
proved and established by a certificate signed by the President or the Secretary
of the Company and delivered to the Warrant Agent. That certificate shall be
full authorization to the Warrant Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon that
certificate.
(b) The Warrant Agent shall be liable hereunder only for its
own gross negligence, willful misconduct or bad faith.
(c) The Warrant Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Warrant Certificates, except its countersignature thereof, or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
- 14 -
<PAGE>
(d) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof,
except the due execution hereof by the Warrant Agent, or in respect of the
validity or execution of any Warrant Certificate, except its countersignature
thereof; nor shall it be responsible for any Warrant Certificate; nor shall it
be responsible for the adjustment of the Warrant Price or the making of any
change in the number of shares of Common Stock required under the provisions of
Article III of this Agreement or responsible for the manner, method or amount of
any such change or the ascertaining of the existence of facts that would require
any such adjustment or change except with respect to the exercise of Warrant
Certificates after actual notice of any adjustment of the Warrant Price; nor
shall it by any act under this Agreement be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Common Stock to
be issued pursuant to this Agreement or any Warrant Certificate or as to whether
any share of Common Stock will when issued be validly issued, fully paid,
non-assessable and free of preemptive rights.
(e) The Warrant Agent and any shareholder, director, officer
or employee of the Warrant Agent may buy, sell or deal in any of the Warrant
Certificates or other securities of the Company to retain a pecuniary interest
in any transaction in which the Company may be interested or contract with or
lend money to or otherwise act as fully and freely as though it was not the
Warrant Agent or subject to this Agreement. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for any other
legal entity.
(f) The Warrant Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any officer or assistant officer of the Company, and to apply to any such
officer or assistant officer for advice or instructions in connection with its
duties, and shall not be liable for any action taken or suffered to be taken by
it in good faith in accordance with instructions of any such officer or
assistant officer.
(g) The Warrant Agent may consult with its counsel or other
counsel satisfactory to it, including counsel for the Company, and the opinion
of such counsel shall be full and complete authorization and protection in
respect of any action taken, offered, or omitted by it hereunder in good faith
and in accordance with the opinion of such counsel.
(h) The Warrant Agent shall incur no liability to the Company
or to any holder of any Warrant for any action taken by it in reliance upon any
Warrant Certificate or certificate for Common Stock, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement, or other paper or document believed by it to be
genuine and to be signed, executed, and where necessary, certified or
acknowledged, by the proper person or persons.
SECTION 6.06 The Warrant Agent may, without the consent or concurrence
of the Warrant Holders, by supplemental agreement or otherwise, concur with the
Company in making any changes or corrections in this Agreement that (i) it shall
have been advised by counsel, who may be counsel for the Company, are required
to cure any ambiguity or to correct any defective or
- 15 -
<PAGE>
inconsistent provision or clerical omission or mistake or manifest error herein
contained, or (ii) as provided in Section 3.09, the Company deems necessary or
advisable and which shall not be inconsistent with the provisions of the Warrant
Certificates, provided such changes or corrections do not adversely affect the
privileges or immunities of the Warrant Holders. This Agreement may not be
amended or modified except by an instrument in writing executed by the parties
hereto, subject to any applicable consent of the Representatives required by the
Representatives' Warrant Agreement.
SECTION 6.07 All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
SECTION 6.08 Forthwith upon the appointment after the date thereof of
any transfer agent for the Common Stock, or of any subsequent transfer agent for
the Common Stock, the Company will file with the Warrant Agent a statement
setting forth the name and address of such transfer agent.
SECTION 6.09 Notice or demand pursuant to this Agreement to be given or
made by the Warrant Agent or by any Warrant Holder to or on the Company shall be
sufficiently given or made and effective on the third business day after posting
thereof, unless otherwise provided in this Agreement, if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing by
the Company with the Warrant Agent) as follows:
Galacticomm Technologies, Inc.
4101 S.W. 47th Ave.
Suite 101
Ft. Lauderdale, FL 33314
Attn: Mr. Peter Berg
With a copy to:
Lucio, Mandler, Croland, Bronstein,
Garbett, Stephany & Martinez, P.A.
Barnett Bank Tower
701 Brickell Avenue, 20th Floor
Miami, FL 33131
Attn: Leslie J. Croland, Esq.
notice or demand pursuant to this Agreement to be given or made by the Company
or any Warrant Holder to or on the Warrant Agent shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the Warrant
Agent with the Company) as follows:
- 16 -
<PAGE>
Continental Stock Transfer & Trust Company
2 Broadway, 19th Floor
New York, NY 10004
Attn: Compliance Department
notice or demand pursuant to this Agreement to be given or made by the Company
or the Warrant Agent to or on the Representatives shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the Underwriter
with the Company) as follows:
Security Capital Trading, Inc.
520 Madison Avenue, 10th Floor
New York, New York 10022
Attn: Tim Ryan, Vice President
and
First Equity Corporation of Florida
201 South Biscayne Boulevard
1400 Miami Center
Miami, FL 33131
Attn: William R. Fusselmann, Senior Vice President
notice or demand pursuant to this Agreement to be given or made by the Company
or the Warrant Agent to or on any Warrant Holder shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed to such Warrant Holder at his last known address as it shall
appear in the records of the Company, if such notice shall be given by the
Company, or, if such notice shall be given by the Warrant Agent, as it shall
appear on the register maintained by the Warrant Agent.
A copy of any Notice or demand given or made pursuant to this
Agreement on the Warrant Agent, Company or Underwriter shall be promptly
forwarded by the recipient thereof to each of the Company, Warrant Agent or
Underwriter who shall not have received or made such demand or Notice.
SECTION 6.10 The validity, interpretation and performance of this
Agreement and the Warrants shall be governed by the law of the State of Florida.
SECTION 6.11 Nothing in this Agreement shall be construed to give to
any person or corporation other than the parties hereto and the Warrant Holders
any right, remedy or claim under promise or agreement hereof. All covenants,
conditions, stipulations, promises and agreements contained in this Agreement
shall be for the sole and exclusive benefit of the Company and the
- 17 -
<PAGE>
Warrant Agent and their successors and of the Warrant Holders, and their heirs,
representatives, successors, assigns and transferees.
SECTION 6.12 A copy of this Agreement shall be available for inspection
by any Warrant Holder during the regular business hours and at the corporate
office of the Warrant Agent in New York, New York, at which time the Warrant
Agent may require any Warrant Holder to submit his Warrant Certificate for
inspection by it.
SECTION 6.13 This Agreement shall terminate on the Last Exercise Date
(as such term is defined herein and, as to the Underwriter Warrants, in the
Purchase Option Agreement, as applicable), or such earlier date upon which all
Warrants have been exercised or redeemed, except that the Warrant Agent shall
account to the Company pursuant to Section 2.02 (e) of this Agreement for all
cash held by it. The provisions of Section 6.03, 6.04 and 6.05 of this Agreement
shall survive such termination.
SECTION 6.14 The Article headings in this Agreement are for convenience
only and are not part of this Agreement and shall not affect the interpretation
thereof.
SECTION 6.15 This Agreement may be executed in any number counterparts,
each of which is so executed shall be deemed to be an original, and all such
counterparts shall together constitute but one and the same agreement.
ATTEST: GALACTICOMM TECHNOLOGIES, INC.
By:
---------------------------
- ---------------------------- Peter Berg
Chief Executive Officer
ATTEST: CONTINENTAL STOCK TRANSFER &
TRUST COMPANY
- ----------------------------- By:
----------------------------
Name:
--------------------------
Title:
-------------------------
- 18 -
<PAGE>
EXHIBIT A
Form of Warrant Certificate
EXHIBIT 4.3
GALACTICOMM LOGO
REDEEMABLE COMMON STOCK
PURCHASE WARRANT
GALACTICOMM TECHNOLOGIES, INC.
VOID (UNLESS EXTENDED) AFTER 5:00 P.M. SEE REVERSE FOR CERTAIN
NEW YORK CITY TIME, ON __________, 2003 DEFINITIONS
CUSIP [______________]
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Warrant Holder"), is entitled to purchase from
GALACTICOMM TECHNOLOGIES, INC., a Florida corporation (the "Company"), subject
to the terms and conditions hereof and of the Warrant Agreement mentioned below,
at any time from _____________, 1999 until on or before 5:00 p.m. New York City
time, on ___________, 2003 or on such later date as the Company may determine
(the "Expiration Date"), the number of fully paid and nonassessable shares of
the Company's Common Stock, $.0001 par value (the "Shares") stated above by
surrendering this Warrant Certificate with the Subscription Form on the back
thereof duly executed at the office of Continental Stock Transfer & Trust
Company or at such other office or agency as the Company may from time to time
designate (the "Warrant Agent"), and by paying in full, to the Company in lawful
money of the United States, $______ for each Share as to which this Warrant
Certificate is exercisable (the "Warrant Exercise Price").
This Warrant may be redeemed at the option of the Company at any time
after 5:00 p.m. New York City time, on __________, 1999, if the average of the
closing bid and asked prices for the Common Stock equals or exceeds $____ per
share for a period of twenty (20) consecutive trading days ending on the third
trading day prior to the date of the redemption notice at a redemption price of
$.05 per Warrant. The Company shall send to the Warrantholders being redeemed
written notice of redemption by first class mail not less than thirty (30) days
prior to the date fixed for redemption.
In case the Warrant Holders shall exercise this Warrant with respect to
less than all of the Shares that may be purchased hereunder, a new Warrant
Certificate for the balance shall be countersigned and delivered to or upon the
order of the Warrant Holder.
This Warrant Certificate is issued under and in accordance with the
Warrant Agreement dated as of _______________, 1998 between the Company and the
Warrant Agent (the "Warrant Agreement") and is subject to the terms and
provisions contained therein, to all of which terms and provisions the holder of
this Warrant Certificate consents by acceptance hereof. In certain contingencies
provided for in the Warrant Agreement, the number of Shares subject to purchase
hereunder and the purchase price per Share thereof are subject to adjustment.
Copies of the Warrant Agreement are on file at the principal corporate office of
the Warrant Agent.
THIS WARRANT SHALL BE VOID AND OF NO EFFECT (UNLESS EXTENDED)
AFTER 5:00 P.M. NEW YORK CITY TIME, __________________, 2003.
<PAGE>
WITNESS, the facsimile seal of the Company and the facsimile signatures
of its duly authorized officers.
Dated:
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY, as Warrant Agent
By:_________________________________
AUTHORIZED OFFICER
GALACTICOMM TECHNOLOGIES, INC.
CORPORATE SEAL
1995
FLORIDA
/s/ T. MICHAEL LOVE /s/ PETER BERG
- ------------------------------ ----------------------------
CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER
<PAGE>
STATEMENT OF OTHER TERMS OF WARRANT
1. The Warrant represented by this Warrant certificate (the "Warrant")
shall expire at and shall not be exercisable after 5:00 P.M. New York City time,
on _____________, 2003 or on such later date determined by the Company.
2. Notwithstanding that the number of Shares purchasable upon the
exercise of a Warrant may have been adjusted pursuant to the terms of the
Warrant Agreement, the Company shall nonetheless not be required to issue
fractions of Shares upon exercise of a Warrant or to distribute Share
Certificates that evidence fractional shares. In lieu of fractional shares,
there shall be returned to the exercising registered holder of a Warrant upon
such exercise an amount in cash, in United States dollars, equal to the amount
in excess of that required to purchase the largest number of full Shares.
3. If any Shares issuable upon the exercise of this Warrant require
registration or approval of any governmental authority, including, without
limitation, the filing of necessary registration statements or amendments or
supplements thereto under the Securities Act of 1933, as amended, or the taking
of any action under the laws of the United States of America or any political
subdivision thereof before such Shares may be validly issued, then the Company
covenants that it will in good faith and as expeditiously as possible endeavor
to secure such registration or approval or to take such other action, as the
case may be: PROVIDED, HOWEVER, there is no assurance such registration or
approval can be obtained, and in no event shall such Shares be issued and the
Company is hereby authorized to suspend the exercise of all Warrants, for the
period during which it is endeavoring to obtain such registration or approval or
to take such other action.
4. This Warrant Certificate may be exchanged and is transferrable at
the principal office of the warrant Agent by the registered holder hereof or by
his duly authorized representative or attorney, upon surrender of this Warrant
Certificate duly endorsed or accompanied (if so required by the Company or the
Warrant Agent) by a written instrument, or instruments, or transfer satisfactory
to the Company or the Warrant Agent. If the right to purchase less than all of
the Shares covered hereby shall be so transferred, the registered holder hereof
shall be entitled to receive a new Warrant Certificate or Warrant Certificates
covering in the aggregate the remaining whole number of Shares.
5. No Warrant Holder, as such, shall be entitled to vote or receive
dividends or be deemed the holder of Shares for any purpose, nor shall anything
contained in this Warrant Certificate be construed to confer upon any Warrant
Holder, as such, any of the rights of a shareholder of the Company or any right
to vote, give or withhold consent to any action by the Company (whether upon any
recapitalization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings or other action
affecting shareholders (except as provided in the Warrant Agreement), receive
dividends or subscription rights, or otherwise, until this Warrant shall have
been exercised and the Shares purchasable upon the exercise hereof shall have
been delivered as provided in the Warrant Agreement.
6. The Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate (notwithstanding
any notations of ownership or
<PAGE>
writing hereon made by anyone other than the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary.
7. This Warrant shall be binding upon any successors or assigns of the
Company.
SUBSCRIPTION FORM
(To Be Executed By The Warrant Holder If He Desires To
Exercise The Warrant In Whole Or In Part)
To: GALACTICOMM TECHNOLOGIES, INC.
The undersigned_________________________________________________________________
____________________________________ hereby irrevocably elects to exercise the
right to purchase represented by the within Warrant Certificate for, and to
purchase thereunder, _______ Shares provided for therein and tenders payment
herewith to the order of GALACTICOMM TECHNOLOGIES, INC., in the amount of
$_____________________.
The undersigned requests that certificates for such Shares be issued as follows:
Name:___________________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
Soc. Sec. No. or Other I.D. No., if any:________________________________________
________________________________________________________________________________
Deliver:________________________________________________________________________
Address:________________________________________________________________________
and, if said number of Shares shall not be all the Shares purchasable hereunder,
that a new Warrant Certificate for the balance remaining of the Shares
purchasable under the Warrant Certificate be registered in the name of, and
delivered to, the undersigned at the address stated above.
DATE:_______________________ Signature:_________________________________
NOTE: The signature of this Subscription
must correspond with the name as written
upon the face of this Warrant Certificate in
every particular, without alteration or
enlargement or any change whatsoever.
ASSIGNMENT
(To Be Signed Only Upon Assignment)
<PAGE>
For Value Received, the undersigned hereby sells, assigns and transfers
onto ___________________________________________________________________________
________________________________________________________________________________
__________________ Warrants evidenced by the within Warrant Certificate and
Warrants on the books of GALACTICOMM TECHNOLOGIES, INC., INC., with the full
power of substitution in the premises.
DATE:___________________ ___________________________________________
(Signature must conform in all respects to
the name of Warrant Holder specified on the
face of the Warrant Certificate, without
alteration, enlargement or any change
whatsoever, and the signature must be
guaranteed in the usual manner).
In the presence of:
EXHIBIT 4.4
GALACTICOMM TECHNOLOGIES, INC.,
SECURITY CAPITAL TRADING, INC.
AND
FIRST EQUITY CORPORATION OF FLORIDA
----------------
REPRESENTATIVES' WARRANT AGREEMENT
Dated as of ______________, 1998
<PAGE>
REPRESENTATIVES' WARRANT AGREEMENT, dated as of , 1998, between
GALACTICOMM TECHNOLOGIES, INC., a Florida corporation (the "Company"), SECURITY
CAPITAL TRADING, INC. ("Security Capital") and FIRST EQUITY CORPORATION OF
FLORIDA ("First Equity") (hereinafter collectively referred to sometimes as the
"Holders" or the "Representatives").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representatives warrants
("Warrants") to purchase up to an aggregate of 150,000 shares of Common Stock
(as defined in Section 8.3 hereof), as more fully described in the Company's
registration statement on Form SB-2 (the "Registration Statement"), as filed
with the Securities and Exchange Commission (registration no. 333-39805) and/or
up to an aggregate of 150,000 Common Stock Purchase Warrants (the "Underlying
Warrants");
WHEREAS, the Representatives have agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of __________, 1998 among the
Representatives and the Company to act as the co-managing underwriters in
connection with the Company's proposed public offering (the "Public Offering")
of up to 1,725,000 shares ("Public Shares") of Common Stock at an initial public
offering price of $6.00 per share and up to 1,725,000 Redeemable Common Stock
Purchase Warrants ("Public Warrants") at an initial public offering price of
$.10 per Public Warrant;
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the initial Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representatives and/or their respective
designees who are officers or partners of the Holder (or the officers or
partners of any such person) or NASD members participating in the Company's
Public Offering (or the officers or partners of any such person) (collectively,
"Designees") in consideration for, and as part of the Representatives'
compensation in connection with, the Representatives acting as the co-managing
underwriters of the Public Offering pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by the
Representatives to the Company of an aggregate of $75.00, the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
Section 1. GRANT. The Holders (and/or their respective Designee(s)) are
hereby granted the right to purchase, at any time or from time to time after
__________, 1999 [the first anniversary of the closing of the Public Offering]
and before 5:00 p.m., New York time, on ___________________________________ [the
fifth anniversary of the closing of the Public Offering] (the "Exercise
Period"), up to an aggregate of 150,000 shares of Common Stock (the "Shares") at
an initial exercise price (subject to adjustment as provided in Section 8
hereof) of $9.90 [165% of the public offering price] per Share and/or up to an
aggregate of 150,000 Underlying Warrants at an initial exercise price of $.165
per Underlying Warrant [165% of the initial public offering price of a Public
Warrant], subject to the terms and conditions of this Agreement; such right to
be allocated as set forth in the
<PAGE>
last sentence of this Section 1. The Underlying Warrants are each exercisable to
purchase one (1) Share at a price of $12.375 per share (the "Underlying Warrant
Shares"). The Holder may purchase, upon exercise of this Warrant, either the
Shares or the Underlying Warrants or both. The Common Stock issuable upon
exercise of the Warrants (and the Underlying Warrant Shares issuable upon
exercise of the Underlying Warrants is in all respects identical to the Common
Stock being sold to the public pursuant to the terms and provisions of the
Underwriting Agreement. The Underlying Warrants are in all respects identical to
the Public Warrants issued pursuant to the Warrant Agreement dated
______________, 1998 (the "Public Warrant Agreement") between the Company and
Continental Stock Transfer and Trust Co., as Warrant Agent and sold to the
public pursuant to the terms and provisions of the Underwriting Agreement,
except that (i) the Warrant Price (as defined in the Warrant Agreement) shall be
$12.375 [165% of the exercise price of a Public Warrant] per Underlying Warrant
Share and (ii) the Underlying Warrants shall not be subject to redemption by the
Company under any circumstances. Of the Warrants to purchase 150,000 Shares and
150,000 Underlying Warrants, Security Capital shall receive Warrants to purchase
______________ Shares and ___________ Underlying Warrants, and First Equity
shall receive Warrants to purchase _______________ Shares and _________________
Underlying Warrants.
Section 2. WARRANT CERTIFICATES. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreementshall be
in the form set forth as EXHIBIT A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions and other variations as
required or permitted by this Agreement.
Section 3. EXERCISE OF WARRANT.
3.1 The Warrants initially are exercisable at an initial exercise price
(subject to adjustment as provided in Section 8 hereof) of $9.90 per Share and
$.165 per Underlying Warrant purchased payable by certified or official bank
check. Upon surrender of a Warrant Certificate with the annexed Form of Election
to Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the Shares and Underlying Warrants purchased at the
Company's principal offices in Florida (presently located at 4101 S.W. 47th
Avenue Suite 101, Ft. Lauderdale, FL 33314), the registered holder of a Warrant
Certificate ("Holder" or "Holders") shall be entitled to receive a certificate
or certificates for the Shares so purchased and/or a certificate or certificates
for the Underlying Warrants so purchased. The purchase rights represented by
each Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional Shares or fractional Underlying
Warrants). In the case of the purchase of less than all the Shares or Underlying
Warrants purchasable under any Warrant Certificate, the Company shall cancel
said Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the Shares or
Underlying Warrants purchasable thereunder.
3.2 EXERCISE BY SURRENDER OF WARRANTS. In addition to the method of
payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in whole or in part by surrendering
the Warrant Certificates in the manner specified in Section 3.1. The number of
Shares
2
<PAGE>
to be issued pursuant to this Section 3.2 shall be equal to the difference
between (a) the number of Shares in respect of which the Warrants are exercised
and (b) a fraction, the numerator of which shall be the number of Shares in
respect of which the Warrants are exercised multiplied by the Exercise Price and
the denominator of which shall be the Market Price (hereinafter defined) of the
shares of Common Stock. The number of Underlying Warrants to be issued pursuant
to this Section 3.2 shall be equal to the difference between (a) the number of
Underlying Warrants in respect of which the Warrants are exercised and (b) a
fraction, the numerator of which shall be the number of Underlying Warrants in
respect of which the Warrants are exercised multiplied by the Exercise Price and
the denominator of which shall be the Market Price of the Underlying Warrants.
Solely for the purposes of this paragraph, Market Price shall be calculated
either (i) on the date on which the form of election attached hereto is deemed
to have been sent to the Company pursuant to Section 13 hereof ("Notice Date")
or (ii) as the average of the Market Prices for each of the five trading days
preceding the Notice Date whichever of (i) or (ii) is greater.
3.3 MARKET PRICE. As used herein, the phrase "Market Price" at any date
shall be deemed to be (i) when referring to the Common Stock, the last reported
shale price, or, in case no such reported sale takes place on such day, the
average of the last reported sale prices for the last three (3) trading days, in
either case as officially reported by the principal securities exchange on which
the Common Stock is listed or admitted to trading or by the Nasdaq SmallCap
Market ("Nasdaq SmallCap") or by the National Association of Securities Dealers
Automated Quotation System ("Nasdaq"), or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or quoted by Nasdaq, the
average closing bid price as furnished by the National Association of Securities
Dealers, Inc. ("NASD") through Nasdaq or similar organization if Nasdaq is no
longer reporting such information, or if the Common Stock is not quoted on
Nasdaq, as determined in good faith (using customary valuation methods) by
resolution of the members of the Board of Directors of the Company, based on the
best information available to it or (ii) when referring to an Underlying
Warrant, the Market Price shall equal the difference between the Market Price of
the Common Stock and the Exercise Price of the Underlying Warrant.
Section 4. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants
and payment of the full exercise price therefor, the issuance of certificates
for shares of Common Stock and Underlying Warrants and/or other securities,
properties or rights underlying such Warrants and, upon the exercise of the
Underlying Warrants, the issuance of certificates of shares of Common Stock
and/or other securities, properties or rights underlying such Underlying
Warrants shall be made forthwith (and in any event within five (5) business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof and such
certificates shall (subject to the provisions of Sections 5 and 7 thereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the persons or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
3
<PAGE>
The Warrant Certificates and the certificates representing the Shares
and the Underlying Warrants and the shares of Common Stock underlying the
Underlying Warrants (and/or other securities, property or rights issuable upon
the exercise of the Warrants or the Redeemable Warrants) shall be executed on
behalf of the Company by the manual or facsimile signature of the then present
Chairman or Vice Chairman of the Board of Directors or President or Vice
President of the Company under its corporate seal reproduced thereon, attested
to by the manual or facsimile signature of the then present Secretary or
Assistant Secretary of the Company. Warrant Certificates shall be dated the date
of execution by the Company upon initial issuance, division, exchange,
substitution or transfer. Certificates representing Shares and Underlying
Warrants, and the shares of Common Stock underlying each Underlying Warrant
(and/or other securities, property or rights issuable upon exercise of the
Warrants) shall be dated as of the Notice Date (regardless of when executed or
delivered) and dividend bearing securities so issued shall accrue dividends from
the Notice Date.
Section 5. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of , in whole or in part, for a period of one (1) year
from the effective date of the Registration Statement, except to officers and
partners of the Representatives or to other NASD members participating in the
Public Offering (or their officers or partners).
Section 6. EXERCISE PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICE. Except as otherwise provided
in Section 8 hereof, the initial exercise price of each Warrant shall be $9.90
per share of Common Stock and $0.165 per Underlying Warrant. The adjusted
exercise price shall be the price which shall result from time to time from any
and all adjustments of the initial exercise price in accordance with the
provisions of Section 8 hereof. Any transfer of a Warrant shall constitute an
automatic transfer and assignment of the registration rights set forth in
Section 7 hereof with respect to the Securities or other securities properties
or rights underlying the Warrants.
6.2 EXERCISE PRICE. The term "Exercise Price" as used herein shall mean
the initial exercise price or the adjusted exercise price, depending upon the
context or unless otherwise specified.
Section 7. REGISTRATION RIGHTS.
7.1 SECURITIES ACT OF 1933 LEGEND. The Shares, the Underlying Warrants
and any of the other securities issuable upon exercise of the Warrants, and the
shares of Common Stock or other securities issuable upon exercise of the
Underlying Warrants (the "Warrant Securities"; such shares of Common Stock
issuable upon exercise of the Warrants and the shares of Common Stock or other
securities issuable upon exercise of the Underlying Warrants, the "Warrant
Shares") have been registered under the Securities Act of 1933, as amended (the
"Act") pursuant to the Registration
4
<PAGE>
Statement. All of the representations and warranties of the Company contained in
the underwriting Agreement relating to the Registration Statement, the
Preliminary Prospectus and Prospectus (as such terms are defined in the
Underwriting Agreement) and made as of the dates provided therein, are
incorporated herein by reference. The Company agrees and covenants promptly to
file post-effective amendments to such Registration Statement as may be
necessary in order to maintain its effectiveness and otherwise take such action
as may be necessary to maintain the effectiveness of the Registration Statement
as long as any Warrants are outstanding. In the event that, for any reason
whatsoever the Company shall fail to maintain the effectiveness of the
Registration Statement, the certificates representing the Warrant Securities
shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE OR SECURITIES LAWS
AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH LAWS OR AN EXEMPTION
FROM REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION
OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY
TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
7.2 PIGGYBACK REGISTRATION. If, at any time during the period
commencing on the date hereof and ending on ________________________ [the fifth
anniversary of the date hereof], the Company proposes to register any of its
securities under the Act (other than in connection with a merger or pursuant to
Form S-8, Form S-4 or a successor form) it will give written notice by delivery
in person, registered or certified mail (postage prepaid, return receipt
requested), telex, telecopier or overnight air courier guaranteeing next day
delivery, at least thirty (30) days prior to the filing of each such
registration statement, to the Representatives and to all other Holders of the
Warrants and/or Warrant Securities of its intention to do so. Such notice shall
continue to be given by the Company with respect to any future registrations so
long as any Warrant Shares remain unregistered. If any of the Representatives or
other Holders of the Warrants and/or Warrant Securities notify the Company
within twenty (20) days after receipt of any such notice of its or their desire
to include any Warrant Shares in such proposed registration statement, the
Company shall afford each of the Representatives and such Holders of the
Warrants and/or Warrant Securities the opportunity to have any such Warrant
Shares registered under such registration statement; provided however, that the
Company shall not be obligated to comply with the registration request if (a)
such Warrant Shares may be publicly sold by the Holders thereof pursuant to an
effective and current registration statement that permits the method of
distribution desired by the Holders or (b) the Holders receive an opinion of
counsel to the Company that the Warrant Shares may be freely traded without
registration pursuant to Rule 144 of the Act or otherwise.
Notwithstanding the foregoing, if in the case of an underwritten
offering by the Company, the managing underwriter of such offering shall advise
the Company in writing that, in its opinion, the distribution of the Warrant
Shares requested to be included in the registration concurrently with the
5
<PAGE>
other securities being registered, when added to such other securities, would
exceed the maximum amount of the Company's securities which can be marketed
without materially and adversely affecting the entire offering, then the
offering and sale of such Warrant Shares shall be delayed for such period, not
to exceed ninety (90) days, as such managing underwriter shall request. In the
event of a delay as provided in the preceding sentence, the Company shall file
such supplements and post-effective amendments, and take any such other steps as
may be necessary, to permit the proposed offering and sale of such Warrant
Shares for a period of ninety (90) days immediately following the end of such
period of delay. The Company shall bear all fees and expenses incurred by it in
connection with the preparation and filing of such post-effective amendment or
new registration statement (other than the fees of the Holders' counsel and
other than the underwriting discounts, commissions and expenses on the sale of
the Warrant Shares).
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.3 DEMAND REGISTRATION.
(a) At any time during the period commencing on the date
hereof and ending on ____________________________________, 2003 [the fifth
anniversary of the effective date of the Registration Statement], the Holders of
the Warrants and/or Warrant Securities representing a Majority of such
securities (assuming the exercise of all of the Warrants) shall have the right
(which right is in addition to the registration rights under Section 7.2
hereof), exercisable by written notice to the Company, to have the Company
prepare and file with the Securities and Exchange Commission (the "Commission"),
on one occasion, a registration statement and such other documents, including a
prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Representatives and the Holders, in order to comply with the
provisions of the Act, so as to permit a public offering and sale of their
respective Warrant Shares for six (6) consecutive months from the effective date
of such registration statement by such Holders and any other Holders of the
Warrants and/or Warrant Securities who notify the Company within twenty (20)
days after receiving notice from the Company of such request. However, the
Company shall not be obligated to comply with the registration request if (i)
such Warrant Shares may be publicly sold by the Holders thereof pursuant to an
effective and current registration statement that permits the method of
distribution desired by the Holders or (ii) the Holders receive an opinion of
counsel to the Company that the Warrant Shares may be freely traded without
registration pursuant to Rule 144 of the Act or otherwise.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
6
<PAGE>
(c) In addition to the registration rights under Section 7.2
and subsection (a) of this Section 7.3, at any time during the period commencing
on the date hereof and ending on ______________________________ [five years
after the effective date of the Registration Statement], the Holders of a
Majority of the Warrants and/or Warrant Securities shall have the right,
exercisable by written request to the Company, to have the Company prepare and
file with the Commission, on one occasion, a registration statement so as to
permit a public offering and sale for six (6) consecutive months from the
effective date of such registration statement by such Holders of their Warrant
Shares; provided, however, that the provisions of Section 7.4(b) hereof shall
not apply to any such registration request and registration and all costs
incident thereto (including the reasonable costs of the Company's counsel with
respect to such registration) shall be at the expense of the Holder or Holders
making such request. However, the Company shall not be obligated to comply with
the registration request if (a) such Warrant Shares may be publicly sold by the
Holders thereof pursuant to an effective and current registration statement that
permits the method of distribution desired by the Holders or (b) the Holders
receive an opinion of counsel to the Company that the Warrant Shares may be
freely traded without registration pursuant to Rule 144 of the Act or otherwise.
(d) No right of the Holders under this Section 7.3 shall be
deemed to have been exercised if with respect to such right:
(A) the requisite notice given by Holders pursuant to this
Section 7.3 is withdrawn prior to the date of filing of a registration
statement or if a registration statement filed by the Company under the
Securities Act pursuant to this Section 7.3 is withdrawn prior to its
effective date, in either case, by written notice to the Company from
the Holders of fifty percent (50%) or more of the Warrants and/or
Warrant Securities to be included or which are included in such
registration statement stating that such Holders have elected not to
proceed with the offering contemplated by such registration statement
because a registration statement filed by the Company pursuant to this
Section 7.3, in the reasonable opinion of counsel for such Holders or
the managing underwriter of the proposed public offering, contains an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (other than any such statement or omission relating to such
Holders and based on information supplied or failed to be supplied by
such Holders) and the Company has not, promptly after written notice
thereof, corrected such statement or omission in an amendment filed to
such registration statement pursuant to Section 7.4(k); or
(B) a registration statement pursuant to this Section 7.3
shall have become effective under the Securities Act and (i) the
underwriters shall not purchase any Warrant Shares because of a failure
of a condition contained in the underwriting agreement due to an act of
the Company relating to the offering covered by such registration
statement or (ii) less than 85% of the Warrant Shares included therein
7
<PAGE>
shall have been sold as a result of any stop order, injunction or other
order or requirement of the Commission or other governmental agency or
court.
7.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within sixty (60) days of receipt of any demand therefor,
shall use its best efforts to have any registration statements declared
effective at the earliest possible time, and shall furnish each Holder desiring
to sell Warrant Shares such number of prospectuses as shall reasonably be
requested.
Notwithstanding the foregoing, the Company shall be entitled
to postpone, for a period of not more than ninety (90) days after receipt of a
request to effect a registration, the filing of any registration statement
otherwise required to be prepared and filed by it pursuant to Section 7.3 hereof
if, at any time, it receives a request for registration, the Board of Directors
of the Company determines in its reasonable business judgment that such
registration and offering would require the public disclosure of material
non-public information concerning any pending or ongoing material transaction or
negotiation involving the Company which would materially interfere with such
transaction or negotiation or have a materially adverse effect on the Company.
In such event the Company shall promptly give the Holders demanding registration
written notice of such determination; provided that (i) upon such postponement
by the Company, the Company shall be required to file such registration
statement as soon as practicable after the Board of Directors of the Company
shall determine, in its reasonable business judgment, that such registration and
offering will not interfere with such transaction or negotiation, (ii) the
Company may utilize this right once each year; provided, however, that the
Company shall not utilize this right more than one time unless, prior to
utilizing such right more than once each year, the Company delivers to the
Holders an opinion of counsel to the Company, reasonably satisfactory to the
Holders, to the effect that such postponement by the Company is necessary to
avoid the public disclosure of material non-public information concerning a
pending or ongoing material transaction or negotiation involving the Company,
(iii) the Holders who made such written request to effect such registration may,
at any time in writing (until 10 days after they receive written notification
from the Company that the Company intends to proceed with the filing of a
registration statement), withdraw such request for such registration and
therefore preserve the right provided in Section 7.3 hereof for such Holders to
again request such registration, and (iv) the Exercise Period shall
automatically be extended by an additional ninety (90) days.
(b) The Company shall pay all of its costs, fees and expenses
(but not underwriting or selling commissions or expenses of the Holder(s)), in
connection with all registration statements filed pursuant to Sections 7.2 and
7.3(a) hereof including, without limitation, the Company's legal and accounting
fees, printing expenses, blue sky fees and expenses. The Holder(s) will pay all
such costs, fees and expenses in connection with any registration statement
filed pursuant to Section 7.3(c). If the Company shall fail to comply with the
provisions of Section 7.4(a), the Company shall, in addition to any other
equitable or other relief available to the Holder(s), extend the Exercise Period
8
<PAGE>
by such number of days as shall equal the delay caused by the Company's failure,
and be liable for any or all damages as the Holder(s) may be entitled to as a
matter of law.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Shares included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as the Holder(s) shall reasonably designate; provided that
no such qualification will be required in any jurisdiction where, solely as a
result thereof, the Company would be subject to (i) general service of process
or to taxation or qualification as a foreign corporation doing business in such
jurisdiction or (ii) qualification requirements which would require the Company
to (A) amend its Articles of Incorporation or Bylaws or (B) rescind, modify or
amend any action taken by the Board of Directors of the Company in accordance
with their fiduciary obligations to the Company and its shareholders; provided,
however, that the Company will make a good faith effort to obtain a waiver of
any such requirement.
(d) Nothing contained in this Agreement shall be construed as
requiring a Holder to exercise its Warrants prior to the closing of an offering
pursuant to a registration statement referred to in Sections 7.2 or 7.3 hereof.
(e) In connection with any registration statement filed
pursuant to Section 7.2 hereof, the Company shall furnish and address to each
Holder participating in any underwritten offering and to each underwriter (if
different from the Company's underwriter in such offering), (i) the opinion of
counsel to the Company provided to the underwriters of the Company's
underwritten offering, dated the effective date of such registration statement
and the closing under the underwriting agreement with the Company's and/or the
Holders' underwriter, and (ii) the "cold comfort" letter provided to the
underwriters of the Company's underwritten offering, dated the effective date of
such registration statement and the closing under the underwriting agreement
with the Company's and/or the Holders' underwriter, signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(f) In connection with any registration statement filed
pursuant to Section 7.3 hereof, the Company shall furnish and address to each
Holder participating in any underwritten offering and to each underwriter, a
signed counterpart, addressed to such Holder or underwriter, of (i) an opinion
of counsel to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering,
an opinion dated the date of the closing under the underwriting agreement), and
(ii) a "cold comfort" letter, dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering, a
letter dated the date of the closing under the underwriting agreement), signed
by the independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such
9
<PAGE>
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(g) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within fifteen
(15) months thereafter, make "generally available to its security holders"
(within the meaning of Rule 158 under the Act) an earnings statement (which need
not be audited) complying with Section 11(a) of the Act and covering a period of
at least twelve (12) consecutive months beginning after the effective date of
the registration statement.
(h) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence described below, and
to the managing underwriters, copies of all correspondence between the
Commission and the Company, its counsel or auditors with respect to the
registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the NASD. Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
and as often as any such Holder or underwriter shall reasonably request.
(i) The Company will indemnify, and, if such indemnity is
unavailable, will agree to just and equitable contribution to, the Holders of
Warrant Shares which are included in each registration statement referred to in
Sections 7.2 and 7.3 hereof, and the underwriters of such Warrant Shares,
substantially to the same extent as the Company has indemnified, and agreed to
just and equitable contribution to, the Underwriters of its public offering of
Common Stock pursuant to the Underwriting Agreement. Each selling Holder of
Warrant Shares, severally and not jointly, will indemnify and hold harmless the
Company, its directors, its officers who shall have signed any such registration
statement and each person, if any, who controls the Company within the meaning
of Section 15 of the Act to the same extent as the foregoing indemnity from the
Company, but in each case to the extent, and only to the extent, that any
statement in or omission from or alleged omission from such registration
statement, any final prospectus, or any amendment or supplement thereto was made
in reliance upon information furnished in writing to the Company by such selling
Holder specifically for use in connection with the preparation of such
registration statement, any final prospectus or any such amendment or supplement
thereto; PROVIDED, HOWEVER, that the obligation of any Holder of Warrant Shares
to indemnify the Company under the provisions of this paragraph (i) shall be
limited to the product of the number of Warrant Shares being sold by the selling
Holder and the market price of the Common Stock on the date of the sale to the
public of these Warrant Shares.
(j) For purposes of this Agreement, the term "Majority," in
reference to the Holders of Warrants or Warrant Shares, shall mean in excess of
fifty percent (50%) of the then
10
<PAGE>
outstanding Warrants or Warrant Shares that (i) are not held by the Company, an
officer, creditor, employee or agent thereof or any of their respective
affiliates, members of their family, persons acting as nominees or in
conjunction therewith or (ii) have not been resold to the public pursuant to a
registration statement filed with the Commission under the Act.
(k) The Company shall promptly notify each Holder of Warrants
and/or Warrant Shares covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the Act, upon the
Company's discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and at the request of any such Holder promptly prepare and furnish
to such Holder and each underwriter, if any, a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made.
(l) The Company shall enter into an underwriting agreement
with the managing underwriters of an underwritten offering covered by Section
7.2 or 7.3 hereof. Such agreement shall be reasonably satisfactory in form and
substance to the Company, each Holder and such managing underwriters, and shall
contain such representations, warranties and covenants by the Company and such
other terms as are customarily contained in agreements of that type used by the
managing underwriter. The Holders shall be parties to any underwriting agreement
relating to an underwritten sale of their Warrant Shares and may, at their
option, require that any or all the representations, warranties and covenants of
the Company to or for the benefit of such underwriters shall also be made to and
for the benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(m) The Company shall not permit the inclusion of any
securities other than the Registrable Securities to be included in any
registration statement filed pursuant to Section 7.3 hereof, or permit any other
registration statement to be or remain effective during the effectiveness of a
registration statement filed pursuant to Section 7.3 hereof, without the prior
written consent of the holders of the Warrants and Warrant Shares representing a
Majority of such securities.
Section 8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SHARES.
8.1 DIVIDENDS AND DISTRIBUTIONS. In case the Company shall at any time
after the date hereof pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, then upon such dividend or distribution,
the Exercise Price in effect immediately prior to such dividend or distribution
shall be reduced to a price determined by dividing an amount equal to the total
number of shares of Common Stock outstanding immediately prior to such dividend
or
11
<PAGE>
distribution multiplied by the Exercise Price in effect immediately prior to
such dividend or distribution, by the total number of shares of Common Stock
outstanding immediately after such issuance or sale. For purposes of any
computation to be made in accordance with the provisions of this Section 8, the
shares of Common Stock issuable by way of dividend or distribution shall be
deemed to have been issued immediately after the opening of business on the date
following the date fixed for determination of shareholders entitled to receive
such dividend or distribution.
8.2 SUBDIVISION AND COMBINATION. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
8.3 ADJUSTMENT IN NUMBER OF WARRANT SECURITIES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise price of
each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
8.4 RECLASSIFICATION. CONSOLIDATION. MERGER. ETC. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in nominal value to no nominal value, or from no nominal value to
nominal value, or as a result of a subdivision or combination), or in the case
of any consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding Common Stock, except a change as a result of a
subdivision or combination of such shares or a change in nominal value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holders shall thereafter have the
right to receive, upon exercise of such Warrant, the kind and number of shares
of stock and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of securities of the Company for which such Warrant might have
been exercised immediately prior to any such events.
8.5 DETERMINATION OF OUTSTANDING COMMON STOCK. The number of shares of
Common Stock at any one time outstanding shall include the aggregate number of
shares issued or issuable upon the exercise of outstanding options, rights and
warrants and upon the conversion or exchange of outstanding convertible or
exchangeable securities. For the purpose of this Agreement, the term "Common
Stock" shall mean (i) the class of stock designated as Common Stock in the
Articles of Incorporation of the Company as may be amended as of the date
hereof, or (ii) any other class of stock resulting from successive changes or
reclassifications of such Common Stock consisting solely of changes in par
value, or from par vale to no par value, or from no par value to par value.
8.6 NOTICE OF ADJUSTMENT EVENTS. Whenever (a) the Company determines or
(b) it is probable, (whichever of the foregoing shall be the first to occur),
that an event which would give rise
12
<PAGE>
to adjustments under this Section 8 is likely to occur, the Company shall mail
to each Holder, at least twenty (20) days prior to the record date with respect
to such event or, if no record date shall be established, at least twenty (20)
days prior to such event, a notice specifying (i) the nature of the contemplated
event, (ii) the date of which any such record is to be taken for the purpose of
such event, (iii) the date on which such event is expected to become effective
and (iv) the time, if any is to be fixed, when the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable in connection with such event.
8.7 NOTICE OF ADJUSTMENTS. Whenever the Exercise Price or the kind of
securities or property issuable upon exercise of the Warrants, or both, shall be
adjusted pursuant to this Section 8, the Company shall make a certificate signed
by its President or a Vice President and by its Chief Financial Officer,
Secretary or Assistant Secretary, setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method of which such
adjustment was calculated (including a description of the basis on which the
Company made any determination hereunder), and the Exercise Price and the kind
of securities or property issuable upon exercise of the Warrants after giving
effect to such adjustment, and shall cause copies of such certificate to be
mailed (by first class mail postage prepaid) to each Holder promptly after each
adjustment.
8.8 PRESERVATION OF RIGHTS. The Company will not, by amendment of its
Articles of Incorporation or through any consolidation, merger, reorganization,
transfer of assets, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Agreement or the Warrants or the rights represented thereby,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holders of the Warrants against dilution or other
impairment.
8.9 WHEN NO ADJUSTMENT REQUIRED. No adjustment in the Exercise Price
shall be required unless such adjustment would require an increase or decrease
of at least $0.05 per Warrant Security; PROVIDED, HOWEVER, that any adjustments
which by reason of this Section 8.9 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment; PROVIDED FURTHER,
HOWEVER, that adjustments shall be required and made in accordance with the
provisions of this Section 8 (other than this Section 8.9) not later than such
time as may be required in order to preserve the tax-free nature of a
distribution to the Holders of the Warrants. All calculations under this Section
8 shall be made to the nearest cent or to the nearest 1/l00th of a share, as the
case may be. Anything in this Section 8 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Exercise Price, in
addition to those required by this Section 8, as it in its discretion shall deem
to be advisable in order that any stock dividend, subdivision of shares or
distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its shareholders shall
not be taxable.
Section 9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing
13
<PAGE>
in the aggregate the right to purchase the same number of Warrant Securities in
such denominations as shall be designated by the Holder thereof at the time of
such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
Section 10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock or Underlying Warrants upon the exercise of the Warrants, nor shall it be
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of shares of Common Stock
or other securities, properties or rights.
Section 11. RESERVATION AND LISTING OF SECURITIES. The Company shall at
all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants and
the underlying Warrants, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise thereof.
The Company covenants and agrees that, upon exercise of the Warrants and/or the
Underlying Warrants and payment of the Exercise Price therefor, all shares of
Common Stock and other securities issuable upon such exercise shall be duly and
validly issued, fully paid, nonassessable and not subject to the preemptive
rights of any shareholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants and the Underlying Warrants and all Underlying
Warrants to be listed on all securities exchanges and/or included in the
automated quotation system of the Nasdaq Stock Market (subject to official
notice of issuance) with respect to which the Common Stock issued to the public
in connection herewith may then be so listed and/or quoted.
Section 12. NOTICES TO WARRANT HOLDERS. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or, except as otherwise set forth herein, to receive notice as a
shareholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company.
Section 13. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly given or made at the time delivered by hand if personally delivered; five
calendar days after mailing if sent by registered or certified mail; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and the
next business day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery (except that a notice of change of
address shall not be deemed to have been given until actually received by the
addressee):
14
<PAGE>
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice to the
Holders.
Section 14. UNDERLYING WARRANTS. the form of the certificate
representing the Underlying Warrants (and the form of election to purchase
shares of Common Stock upon the exercise of Underlying Warrants and the form of
assignment printed on the reverse thereof) shall be substantially as set forth
in Exhibit "A" to the Public Warrant Agreement. Each Underlying Warrant issuable
upon exercise of the Warrants shall evidence the right to initially purchase a
fully paid and non-assessable share of Common Stock at an initial purchase price
of $12.375 per share from __________________, 1999 until 5:00 p.m. New York time
on ________________________, 2003 at which time the Underlying Warrants, unless
the exercise period has been extended, shall expire. The exercise price of the
Underlying Warrants and the number of shares of Common Stock issuable upon the
exercise of the Underlying Warrants are subject to adjustment, whether or not
the Warrants have been exercised and the Underlying Warrants have been issued,
in the manner and upon the occurrence of the events set forth in Section _____of
the Public Warrant Agreement, which is hereby incorporated by reference and made
a part hereof as if set forth in its entirety herein. Subject to the provisions
of this Agreement and upon issuance of the Underlying Warrants, each registered
holder of such Underlying Warrant shall have the right to purchase from the
Company (and the Company shall issue to such registered holders) up to the
number of fully paid and non-assessable shares of Common Stock (subject to
adjustment as provided herein and in the Public Warrant Agreement), free and
clear of all preemptive rights of stockholders, provided that such registered
holder complies with the terms governing exercise of the Underlying Warrant set
forth in the Public Warrant Agreement, and pays the applicable exercise price,
determined in accordance with the terms of the Public Warrant Agreement. Upon
exercise of the Underlying Warrants, the Company shall forthwith issue to the
registered holder of any such Underlying Warrant in his name or in such name as
may be directed by him, certificates for the number of shares of Common Stock so
purchased. Except as otherwise provided in this Agreement, the Underlying
Warrants shall be governed in all respects by the terms of the Public Warrant
Agreement. The Underlying Warrants shall be transferable in the manner provided
in the Public Warrant Agreement, and upon any such transfer, a new Underlying
Warrant certificate shall be issued promptly to the transferee. the Company
covenants to, and agrees with, the Holder(s) that without the prior written
consent of the Holder(s), which will not be unreasonably withheld, the Pubic
Warrant Agreement will not be modified, amended, canceled, altered or
superseded, and that the Company will send to each Holder, irrespective of
whether or not the Warrants have been exercised, any and all notices required by
the Public Warrant Agreement to be sent to holders of Public Warrants.
Section 15. SUPPLEMENTS AND AMENDMENTS. The Company and the
Representatives may from time to time supplement or amend this Agreement without
the approval of any holders of Warrant Certificates (other than the
Representatives) in order to cure any ambiguity, to correct or
15
<PAGE>
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and the Representatives may
deem necessary or desirable and which the Company and the Representatives deem
shall not adversely affect the interests of the Holders of Warrant Certificates.
Section 16. SUCCESSORS. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
Section 17. GOVERNING LAW: SUBMISSION TO JURISDICTION. This Agreement
shall be deemed to have been made and delivered in the State of Florida and
shall be governed as to validity, interpretation, construction; effect and in
all other respects with the substantive laws of the State of Florida, without
giving effect to the choice of laws rules thereof. The Company and each of the
Holders (a) agrees that any legal suit, action or proceeding arising out of or
relating to this Agreement and the Warrants issued hereunder shall be instituted
exclusively in the state courts of Broward or Dade Counties, Florida ("Florida
Courts") or in the United States District Court for the Southern District of
Florida, (b) waives any objection which the Company or such Holder may have now
or hereafter based upon forum non conveniens or to the venue of any such suit,
action or proceeding, and (c) irrevocably consents to the jurisdiction of the
Florida Courts and-the United States District Court for the Southern District of
Florida in any such suit, action or proceeding. The Company and each of the
Holders each further agrees to accept and acknowledge service of any and all
process which may be served in any such suit, action or proceeding in the
Florida Courts or in the United States District Court for the Southern District
of Florida and agrees that service of process upon the Company or any Holder
mailed by certified mail to their respective addresses shall be deemed in every
respect effective service of process upon the Company or such Holder, as the
case may be, in any suit, action or proceeding. FURTHER, BOTH THE COMPANY AND
EACH OF THE HOLDERS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION TO ENFORCE THE
TERMS OF THIS AGREEMENT AND THE WARRANT CERTIFICATE AND IN CONNECTION WITH ANY
DEFENSE, COUNTERCLAIM OR CROSSCLAIM ASSERTED IN ANY SUCH ACTION.
The Company, the Representatives and the Holders agree that the
prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its/their reasonable legal costs and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
Section 18. ENTIRE AGREEMENT: MODIFICATION. This Agreement contains the
entire understanding between the parties hereto with respect to the subject
matter hereof and may not be modified or amended except by a writing duly signed
by the party against whom enforcement of the modification or amendment is
sought.
16
<PAGE>
Section 19. SEVERABILITY. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
Section 20. CAPTIONS. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended to be, nor
should they be construed as, part of this Agreement and shall be given no
substantive effect.
Section 21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give any person or corporation other than the Company and the
Representatives and any other registered Holder(s) of the Warrant Certificates
or Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company, the Representatives and any other registered Holder(s) of the Warrant
Certificates or Warrant Securities. The Representatives shall have the right to
designate Designees to receive all or any portion of the Warrants.
Section 22. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
GALACTICOMM TECHNOLOGIES, INC.
By:
-----------------------------------------
Peter Berg, Chief Executive Officer
SECURITY CAPITAL TRADING, INC.
By:
-----------------------------------------
Name:
Title:
FIRST EQUITY CORPORATION
OF FLORIDA
By:
-----------------------------------------
William R. Fusselman, Senior Vice President
17
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE SECURITIES REPRESENTED HEREBY AND THE OTHER SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY STATE OR SECURITIES LAWS AND NEITHER THE
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH SECURITIES ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER
SUCH SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE
HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR
THIS CORPORATION, IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR COMMENCING _________________, 1999
UNTIL 5:00 P.M., NEW YORK TIME,_________________, 2003
No. RW- Warrants to Purchase
_______ shares of Common Stock
and/or ______ Common Stock
Purchase Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that ____________, or registered
assigns, is the registered holder of ____________ Warrants to purchase
initially, at any time from , 1999 until 5:00 p.m., New York time, on , 2003
("Expiration Date"), up to _________ fully paid and nonassessable shares of
common stock, $.0001 par value ("Common Stock") of GALACTICOMM TECHNOLOGIES,
INC., a Florida corporation (the "Company"), and Common Stock Purchase Warrants
of the Company (one Common Stock Purchase Warrant entitling the owner to
purchase one fully-paid and non-assessable share of Common Stock) at the initial
exercise price, subject to adjustment in certain events (the "Exercise Price"),
of $9.90 per share of Common Stock and $0.165 per Common Stock Purchase Warrant
upon surrender of this Warrant Certificate and payment of the Exercise Price at
an office or agency of the Company, but subject to the conditions set forth
herein and in the Warrant Agreement, dated as of _______, 1998, among the
Company, Security Capital Trading, Inc. and First Equity Corporation of Florida
(the
18
<PAGE>
"Warrant Agreement"). Payment of the Exercise Price shall be made by certified
or official bank check payable to the order of the Company.
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; PROVIDED,
HOWEVER, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair the rights of the holder
as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
19
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of ________, 1998
GALACTICOMM TECHNOLOGIES, INC.
By:
----------------------------------------
Peter Berg, Chief Executive Officer
20
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
______ shares of Common Stock ;
______ Common Stock Purchase Warrants;
______ shares of Common Stock together with an equal number of Common Stock
Purchase Warrants; or
______ shares of Common Stock together with
______ Common Stock Purchase Warrants.
and herewith tenders in payment for such securities a certified or official bank
check payable to the order of Galacticomm Technologies, Inc. in the amount of
$_________, all in accordance with the terms of the Warrant Agreement dated as
of , 1998, by and between Galacticomm Technologies, Inc. and Security Capital
Trading, Inc., and Firs Equity Corporation of Florida. The undersigned requests
that a certificate for such securities be registered in the name of whose
address is and that such Certificate be delivered to ___________________ whose
address is ____________________________________________.
Dated:_________________, 199__
Signature___________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
____________________________________________
Signature Guarantee
21
<PAGE>
[FORM OF ELECTION TO PURCHASE
PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
______ shares of Common Stock ;
______ Common Stock Purchase Warrants;
______ shares of Common Stock together with an equal number of Common Stock
Purchase Warrants; or
______ shares of Common Stock together with ______ Common Stock Purchase
Warrants.
and herewith tenders in payment for such securities Warrants all in accordance
with the terms of Section 3.2 of the Warrant Agreement dated as of , 1998, by
and between Galacticomm Technologies, Inc. and Security Capital Trading, Inc.,
and Firs Equity Corporation of Florida. The undersigned requests that a
certificate for such securities be registered in the name of whose address is
and that such Certificate be delivered to ___________________ whose address is
____________________________________________.
Dated:___________________, 199__
Signature___________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
____________________________________________
Signature Guarantee
22
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate)
FOR VALUE RECEIVED _______________ hereby sells, assigns and transfers unto
________________________________________________
________________________________________________
________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint Attorney,
to transfer the within Warrant Certificate on the books of the within
named Company, with full power of substitution.
Dated:___________________________, 199__
Signature:__________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Assignee)
____________________________________________
Signature Guarantee
23
EXHIBIT 4.6
CONSULTING AGREEMENT
____________, 1998
Galacticomm Technologies, Inc.
4101 S.W. 47th Avenue, Suite 101
Ft. Lauderdale, Florida 33314
Attention: Mr. Peter Berg
Chief Executive Officer
Dear Mr. Berg:
This will confirm the arrangements, terms and conditions pursuant to
which Security Capital Trading Incorporated and First Equity Corporation of
Florida (the "Consultants") have been retained to serve as financial consultants
and advisors to Galacticomm Technologies, Inc., a Florida corporation (the
"Company"), on a non-exclusive basis for a period of two (2) years commencing on
__________, 1998. The undersigned hereby agrees to the following terms and
conditions:
1. DUTIES OF CONSULTANTS. Consultants shall, at the request of the
Company, upon reasonable notice, render the following services to the Company
from time to time:
a. CONSULTING SERVICES. Consultants will provide such
financial consulting services and advice pertaining to the Company's business
affairs as the Company may from time to time reasonably request. Without
limiting the generality of the foregoing, Consultants will assist the Company in
developing, studying and evaluating financing, merger and acquisition proposals
based upon documentary information provided to the Consultants by the Company.
b. FINANCING. Consultants will assist and represent the
Company in obtaining both short and long-term financing. The Consultants will be
entitled to additional compensation under certain circumstances in accordance
with the terms set forth in Section 3 hereof.
c. WALL STREET LIAISON. Consultants will, when appropriate,
arrange meetings between representatives of the Company and individuals and
financial institutions in the investment community, such as security analysts,
portfolio managers and market makers.
The services described in this Section 1 shall be rendered by
Consultants without any direct supervision by the Company and at such time and
place in such manner (whether by conference, telephone, letter or otherwise) as
Consultants may determine.
2. COMPENSATION. Subject to Section 3 hereof, as compensation for
Consultants' services hereunder, the Company shall pay to Consultants an
aggregate monthly fee of Five
<PAGE>
Thousand Dollars ($5,000), the entire One Hundred Twenty Thousand Dollars
($120,000) payable in full, in advance, on ________________, 1998, to the
undersigned in such proportion as shall be specified to you by the Consultants.
3. ADDITIONAL COMPENSATION IN CERTAIN CIRCUMSTANCES. In addition to the
financial consulting services described in Section 1 above, Consultants may
bring the Company in contact with persons, whether individuals or entities, that
may be suitable candidates for providing the Company with, or may lead the
Company to other individuals or entities that may provide the Company with, debt
or equity financing or that may be suitable candidates, or may lead the Company
to such suitable candidates, to purchase substantially all of the stock or
assets of the Company, to have substantially all of its stock or assets
purchased by the Company, merge with the Company, or enter into a joint venture
or other transaction with the Company. If, at any time up until the second
anniversary of the date hereof, the Company enters into an agreement with any
such persons or their affiliates, or with any persons introduced to the Company
by any such person or their affiliates, pursuant to which the Company obtains
debt or equity financing or pursuant to which substantially all of the Company's
stock or assets is purchased, the Company purchases substantially all of the
stock or assets of another entity or the Company is merged with or into another
entity, or pursuant to which the Company enters into a joint venture or other on
or off balance sheet corporate finance transaction (each, a "Transaction"), the
Consultants will be entitled to such additional compensation as shall be agreed
upon between the Company and the Consultants. For purposes of this Section 3,
the "Company" shall include all subsidiaries and any other entity in which it
owns (directly or indirectly) a majority interest.
4. AVAILABLE TIME. Consultants shall make available such time as they,
in their sole discretion, shall deem appropriate for the performance of their
obligations under this agreement and may in certain circumstances be entitled to
additional compensation in connection therewith.
5. RELATIONSHIP. Nothing herein shall constitute Consultants as
employees or agents of the Company, except to such extent as might hereinafter
be agreed upon for a particular purpose. Except as might hereinafter be
expressly agreed, Consultant shall not have the authority to obligate or commit
the Company in any manner whatsoever.
6. CONFIDENTIALITY. Except in the course of the performance of its
duties hereunder, Consultant agrees that is shall not disclose any trade
secrets, know-how, or other proprietary information not in the public domain
learned as a result of this Agreement unless and until such information becomes
generally known.
7. ASSIGNMENT. This Agreement shall not be assignable by any party
(except to successors to all or substantially all of the business of either
party, who shall expressly assume such party's obligations hereunder) for any
reason whatsoever without the prior written consent of the other party, which
consent may be arbitrarily withheld by the party whose consent is required.
8. GOVERNING LAW. This Agreement shall be deemed to be a contract made
under the
<PAGE>
laws of the State of Florida and for all purposes shall be construed in
accordance with the laws of said State.
Very truly yours,
SECURITY CAPITAL TRADING, INC.
By:
--------------------------------------
Name:
Title:
FIRST EQUITY CORPORATION OF FLORIDA
By:
--------------------------------------
Name:
---------------------------
Title:
--------------------------
AGREED AND ACCEPTED:
GALACTICOMM TECHNOLOGIES, INC.
By:
--------------------------------------
Name: Peter Berg
----------------------------
Title: Chief Executive Officer
---------------------------
EXHIBIT 4.7
================================================================================
1,500,000 SHARES OF COMMON STOCK
AND
1,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS*
(TO BE SOLD INITIALLY AS UNITS, EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT)
GALACTICOMM TECHNOLOGIES, INC.
------------
AGREEMENT AMONG UNDERWRITERS
INCLUDING
UNDERWRITING AGREEMENT
AND
SELECTED DEALERS AGREEMENT
------------
SECURITY CAPITAL TRADING, INC.
FIRST EQUITY CORPORATION OF FLORIDA
_____________, 1998
================================================================================
* Plus options to purchase a maximum of 225,000 additional shares of
Common Stock and/or 225,000 additional Redeemable Common Stock Purchase
Warrants, solely to cover over-allotments.
<PAGE>
1,500,000 SHARES OF COMMON STOCK
AND
1,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS*
(to be sold initially as units, each unit consisting of
one share of Common Stock and
one Redeemable Common Stock Purchase Warrant)
GALACTICOMM TECHNOLOGIES, INC.
AGREEMENT AMONG UNDERWRITERS
[_________], 1998
SECURITY CAPITAL TRADING, INC.
520 Madison Avenue, 10th Floor
New York, New York 10022
FIRST EQUITY CORPORATION OF FLORIDA
444 Brickell Avenue
Suite P6
Miami, Florida 33131
As Representatives of the several
Underwriters named in Schedule 1
to Exhibit A annexed hereto
Dear Sirs:
We understand that Galacticomm Technologies, Inc., a Florida
corporation (the "Company"), desires to enter into an agreement, substantially
in the form of Exhibit A hereto (the "Underwriting Agreement"). The Underwriting
Agreement provides for the sale by the Company to you and the other prospective
Underwriters named in Schedule I to the Underwriting Agreement, severally and
not jointly, of an aggregate of (i) One Million Five Hundred Thousand
(1,500,000) shares (sometimes collectively referred to herein as the "Firm
Shares"), of the Company's authorized but unissued common stock (each a
"Share"), par value $.0001 per share (the "Common Stock") and (ii) One Million
Five Hundred Thousand (1,500,000) (sometimes collectively referred to herein as
the
- --------
* Plus options to purchase a maximum of 225,000 additional shares of
Common Stock and/or 225,000 additional Redeemable Common Stock Purchase
Warrants, solely to cover over-allotments.
-1AAU-
<PAGE>
"Firm Warrants") Redeemable Common Stock Purchase Warrants (the "Warrants"),
each Warrant entitling the holder thereof to purchase one (1) share of Common
Stock. In addition, pursuant to the Underwriting Agreement, the Company will
grant to the Underwriters options to purchase up to an additional Two Hundred
Twenty Five Thousand (225,000) Shares (such Shares, "Option Shares") and/or an
additional Two Hundred Twenty Five Thousand (225,000) Warrants (such Warrants,
"Option Warrants") for the sole purpose of covering over-allotments in
connection with the sale of the Firm Shares and the Firm Warrants. The Firm
Shares and the Firm Warrants are sometimes collectively referred to herein as
the "Firm Securities"; the Option Shares ad the Option Warrants are sometimes
collectively referred to herein as the "Option Securities." The Firm Securities
and the Option Securities are hereinafter sometimes collectively referred to as
the "Securities."
We understand that changes may be made in those who are to be
Underwriters and in the respective number of Securities to be purchased by them,
but that the number of Securities to be purchased by us as set forth in Schedule
I to the Underwriting Agreement will not be changed without our consent except
as provided herein or in the Underwriting Agreement. The parties on whose behalf
you execute the Underwriting Agreement are herein called the "Underwriters."
We desire to confirm the agreement among you, the undersigned and the
other Underwriters with respect to the purchase of the Securities by the
Underwriters, severally and not jointly, from the Company. The aggregate number
of Securities which any Underwriter will be obligated to purchase from the
Company pursuant to the terms of the Underwriting Agreement is herein called the
"Underwriting Obligation" of that Underwriter. The Securities are being sold
initially as a unit, each unit consisting of one Share and one Warrant, and will
be detachable and separately transferable immediately following the completion
of the offering. Accordingly, the Underwriting Obligation of each Underwriter
will be for the purchase of an equal number of Shares and Warrants.
1. AUTHORITY AND COMPENSATION OF REPRESENTATIVES. We hereby authorize
you, as our representatives (the "Representatives") and on our behalf, (a) to
enter into the Underwriting Agreement with the Company, with such changes
therein as in your judgment will not be materially adverse to the Underwriters,
and to determine the initial public offering price per Share and per Warrant and
the Underwriters' gross spread for the Shares and the Warrants, (b) to exercise
all the authority and discretion vested in the Underwriters and in you by the
provisions of the Underwriting Agreement, (c) to take all such action as you in
your discretion may deem necessary or advisable in order to carry out the
provisions of the Underwriting Agreement and of this Agreement, and the sale and
distribution of the Securities, and (d) to determine all matters relating to the
public advertisement of the Securities. We will be bound by all terms of the
Underwriting Agreement as executed. If there are two representatives, your
authority may be exercised jointly or by either of you acting alone.
As our share of the compensation for your services in connection with
managing the offering and sale of the Securities hereunder, we will pay to you,
and we authorize you to charge to our account on the Closing Date and on the
Option Closing Date referred to in the Underwriting Agreement, $[_____] per
Share in respect of the aggregate number of Firm Shares and Option Shares,
respectively, and $[________] per Warrant in respect of the aggregate number of
Firm
-2AAU-
<PAGE>
Warrants and Option Warrants, respectively which we shall agree to purchase
pursuant to the Underwriting Agreement.
2. PUBLIC OFFERING OF SECURITIES. The sale of the Securities to the
public is to be made, as herein provided, as soon after the registration
statement relating to the Securities becomes effective as in your judgment is
advisable. The purchase price to be paid by the Underwriters for the Securities
and the public offering price are to be determined by agreement between you and
the Company. The Securities shall be first offered to the public at the public
offering price as so determined. You will advise us by telegraph or telephone
when the Securities shall be released for offering, when the registration
statement relating to the Securities shall become effective and the price at
which the Securities are to be offered. We agree not to sell any of the
Securities until you have released them for that purpose. We authorize you,
after the initial public offering, to change the public offering price, the
concession and the reallowance if, in your sole discretion, such action becomes
desirable by reason of changes in general market conditions or otherwise. As
used herein, the terms "Registration Statement," "Preliminary Prospectus" and
"Prospectus" shall have the meanings ascribed thereto in the Underwriting
Agreement. The public offering price at the time in effect is herein called the
"Offering Price." After notice from you that the Securities are released for
public sale, we will offer to the public in conformity with the provisions
hereof and with the terms of offering set forth in the Prospectus such of our
Securities as you advise us are not reserved. We agree not to offer or sell any
of the Securities to persons over whose accounts we exercise investment
discretion without their specific advance consent.
3. OFFERING TO DEALERS AND RETAIL SALES. We authorize you to reserve
for offering and sale, and on our behalf to sell, to retail purchasers (such
sales being herein called "Retail Sales") and to dealers selected by you (such
dealers, among whom any Underwriter may be included, being herein called
"Selected Dealers") all or any part of our Securities as you, in your sole
discretion, shall determine. Such sales, if any, shall be made (a) in the case
of Retail Sales, at the Offering Price, and (b) in the case of sales to Selected
Dealers, at the Offering Price less such concession or concessions as you, in
your sole discretion, shall determine. Except for such sales as are designated
by a purchaser to be for the account of a particular Underwriter or Selected
Dealer, any sales to Selected Dealers made for our account shall be as nearly as
practicable in the ratio that the Common Stock reserved for our account for
offering to Selected Dealers bears to the aggregate of all Common Stock of all
Underwriters so reserved.
You agree to notify us promptly on the date of the public offering as
to the number of Securities, if any, which we may retain for direct sale by us.
Prior to the termination of the provisions referred to in Section 13 hereof, you
may reserve for offering and sale as hereinbefore provided any Securities
theretofore retained by us remaining unsold and we may, with your consent,
retain any Securities theretofore reserved by you remaining unsold.
We agree that, from time to time prior to the termination of the
provisions referred to in Section 13 hereof, we shall furnish to you such
information as you request in order to determine the number of Securities
purchased by us under the Underwriting Agreement which then remain unsold,
-3AAU-
<PAGE>
and we shall upon your request sell to you for the account of any Underwriter as
many of such unsold Securities as you may designate at the Offering Price, less
all or any part of the concession to Selected Dealers as you, in your sole
discretion, shall determine. The provisions of Section 4 hereof shall not be
applicable in respect of any such sale.
We authorize you to determine the form and manner of any communications
or agreements with Selected Dealers. In the event that there shall be any
agreements with Selected Dealers, you are authorized to act as manager
thereunder and we agree, in such event, to be governed by the terms and
conditions of such agreements. The form of Selected Dealers Agreement attached
hereto as Exhibit B is satisfactory to us.
It is understood that any Selected Dealer to whom an offer may be made
as hereinbefore provided shall be actually engaged in the investment banking or
securities business and shall be 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 eligible for membership in the NASD nor
registered as a broker or dealer under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), who agrees not to make any sales within the United
States, its territories or its possessions or to persons who are nationals
thereof or residents therein. Each Selected Dealer shall agree to comply with
the provisions of Rule 2740 of the Conduct Rules of the NASD, and each foreign
Selected Dealer who is not a member of the NASD also shall agree 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 provision of Rule 2730
and 2750 of such Rules and to comply with Rule 2420 thereof as that Section
applies to a non-member foreign dealer. The several Underwriters may allow, and
the Selected Dealers, if any, may re-allow, such concession or concessions as
you may determine from time to time on sales of Securities to any qualified
dealer, all subject to the Conduct Rules of the NASD.
You, and any of the several Underwriters with your prior consent, may
make purchases or sales of the Securities from or to any of the other
Underwriters, at the Offering Price less all or any part of the gross spread,
and from or to any of the Selected Dealers at the Offering Price less all or any
part of the concession to Selected Dealers.
Upon your request, we will advise you of the identity of any dealer to
whom we allow such a discount and any Underwriter or Selected Dealer from whom
we receive such a discount.
4. REPURCHASES IN THE OPEN MARKET. Any Securities sold by us (other
than through you) which shall be contracted for or purchased in the open market
by you on behalf of any Underwriter or Underwriters shall be repurchased by us
on demand at a price equal to the cost of such purchase plus commissions and
taxes on redelivery. Any Securities delivered on such repurchase need not be
evidenced by the identical Securities originally sold by us. In lieu of delivery
of such Securities to us, you may sell such Securities in any manner for our
account and charge us with the amount of any loss or expense or credit us with
the amount of any profit, less any expense, resulting from such sale, or charge
our account with an amount not in excess of the concession to Selected Dealers.
-4AAU-
<PAGE>
5. DELIVERY AND PAYMENT. Upon your request, we shall deliver to you
payment for the Securities to be purchased by us under the Underwriting
Agreement in an amount equal to the Offering Price for such Securities less the
concession to Selected Dealers. Such payment shall be made in such form and at
such time and place as may be specified in such request, and we authorize you to
make payment for such Securities against delivery thereof for our account
hereunder. If we are a member of or clear through a member of The Depository
Trust Company ("DTC"), you may, in your discretion, deliver our Securities
through the facilities of DTC.
In the event that the Underwriting Agreement provides for the payment
of a commission or other compensation to the Underwriters, we authorize you to
receive such commission or other compensation for our account. You shall remit
to us, as promptly as practicable, the amounts received by you from Selected
Dealers and retail purchasers as payment in respect of Securities sold by you
for our account pursuant to Section 3 hereof for which payment has been
received. Securities purchased by us under the Underwriting Agreement and not
reserved or sold by you for our account pursuant to Section 3 hereof shall be
delivered to us as promptly as practicable after receipt by you. Any Securities
purchased by us and so reserved which remain unsold at any time prior to the
settlement of accounts hereunder may, in your discretion, and shall, upon your
request, be delivered to us, but, until termination of the Selected Dealer
Agreements and of other selling arrangements, such delivery shall be for
carrying purposes only. In case any Securities reserved for sale in Retail Sales
or to Selected Dealers shall not be purchased and paid for in due course as
contemplated hereby, we agree (a) to accept delivery when tendered by you of any
Securities so reserved for our account and not so purchased and paid for, and
(b) in case we shall have received payment from you in respect of any such
Securities, to reimburse you on demand for the full amount which you shall have
paid us in respect of such Securities.
In the event of our failure to tender payment for Securities as
provided in the Underwriting Agreement, you shall have the right under the
provisions thereof to arrange for other persons, who may include you and any
other Underwriter, to purchase such Securities which we had agreed to purchase,
but without relieving us from liability for our default.
6. AUTHORITY TO BORROW. We authorize you (to the extent permitted by
law) to advance your funds for our account (charging current interest rates) and
as Representatives to arrange loans for our account or the account of the
Underwriters for the purpose of carrying out this Agreement, and in connection
therewith to execute and deliver any notes or other instruments and to hold or
pledge as security therefor all or any part of our Securities or any securities
purchased hereunder for our account. Any lender is hereby authorized to accept
your instructions in all matters relating to such loans. Any part of our
Securities or any securities purchased hereunder for our account, so held by you
may be delivered to us for carrying purposes and, if so delivered, will be
redelivered to you upon demand.
7. ALLOCATION OF EXPENSES AND LIABILITY. We authorize you to charge our
account with and we agree to pay (a) all transfer taxes on sales made by you for
our account, except as herein
-5AAU-
<PAGE>
otherwise provided, and (b) our proportionate share (based on our Underwriting
Obligation) of all expenses incurred by you in connection with the purchase,
carrying, sale and distribution of the Securities and all other expenses arising
under the terms of the Underwriting Agreement or this Agreement. Your
determination of such expenses and your allocation thereof shall be final and
conclusive. You may at any time make partial distributions of credit balances or
call for payment of debit balances. Funds for our account at any time in your
hands may be held in your general funds without accountability for interest. As
soon as practicable after the termination of this Agreement, the net credit or
debit balance in our account, after proper charge and credit for all interim
payment and receipt, shall be paid to or paid by us, provided that you may
establish such reserve as you, in your sole discretion, shall deem advisable to
cover possible additional expenses chargeable to the several Underwriters.
Notwithstanding any settlement, we will remain liable for any taxes on transfers
for our account and for our proportionate share (based on our Underwriting
Obligation) of all expenses and liabilities that may be incurred for the
accounts of the Underwriters.
8. LIABILITY FOR FUTURE CLAIMS. Neither any statement by you of any
credit or debit balance in our account nor any reservation from distribution to
cover possible additional expenses relating to the Securities shall constitute
any representation by you as to the existence or non-existence of possible
unforeseen expenses or liabilities of or charges against the several
Underwriters. Notwithstanding the distribution of any net credit balance to us
or the termination of this Agreement or both, we shall be and remain liable for,
and will pay on demand, (a) our proportionate share (based on our Underwriting
Obligation) of all expenses and liabilities which may be incurred by or for the
accounts of the Underwriters, or any of them, including any liability which may
be incurred by or for the accounts of the Underwriters, or any of them, based on
the claim that the Underwriters constitute an association, unincorporated
business, partnership or any separate entity, and (b) any transfer taxes paid in
settlement on account of any sale or transfer for our account.
9. STABILIZATION AND OVER-ALLOTMENT. We authorize you (a) to make
purchases and sales of Securities, or any securities comprising the Securities,
in the open market or otherwise, for long or short account, and on such terms
and at such prices as you, in your sole discretion, shall deem advisable, (b) in
arranging for sales of the Securities, to over-allot, and (c) either before or
after the termination of this Agreement, to cover any short position or
liquidate any long position incurred pursuant to this Section 9, subject,
however, to the applicable rules and regulations of the Securities and Exchange
Commission (the "Commission") under the 1934 Act. All such purchases and sales
and overallotments shall be made for the account of the several Underwriters as
nearly as practicable in proportion to their respective Underwriting
Obligations; provided, however, that our net position resulting from such
purchases and sales and over-allotments shall not at the time of each such
purchase or sale or over-allotment exceed, for either long or short account, 15%
of the aggregate amount which we shall become obligated to pay in respect of the
total number of Firm Securities and Option Securities purchased for our account.
We agree to take up at cost on demand any Securities purchased for our account
pursuant to this Section 9 and to deliver on demand any of such Securities so
sold or any Securities over-allotted for our account pursuant to this Section 9.
The provisions of this Section 9 do not constitute an assurance that the price
of the Securities will be stabilized or that stabilization, if commenced, may
not be discontinued at any time.
-6AAU-
<PAGE>
If you effect any stabilizing purchase pursuant to this Section 9, you
will promptly notify us of the date and time when the first stabilizing purchase
was effected and the date and time when stabilizing was terminated pursuant to
Rule 17a-2(c)(2) and (3) under the 1934 Act. You will file with the Commission
such reports of and transfers made for the account of the Underwriters pursuant
to this Section 9 as are required to be filed by you under applicable securities
laws and regulations.
We agree that stabilizing by us may be effected only with your consent.
If we effect any stabilizing purchase described in this Section 9, we will,
within three business days following such purchase, notify you of the price,
date and time at which such stabilizing purchase or syndicate covering
transaction was effected, and shall in addition notify you of the date and time
when such stabilizing purchase or syndicate covering transaction was terminated
pursuant to Rule 17a-2(d) under the 1934 Act. You shall maintain such
notifications in a separate file for a period of not less than three years, the
first two years in an easily accessible place.
10. OPEN MARKET TRANSACTIONS. We agree that we will not make bids or
offers, or make or induce purchases or sales for our own account or the accounts
of customers, in the open market or otherwise, either before or after the
purchase of the Securities and for either long or short account, of any
Securities, or any securities comprising the Securities, except (i) as provided
in this Agreement, the Underwriting Agreement and the Selected Dealer Agreement
or otherwise approved by you and (ii) in brokerage transactions not involving
solicitation of the customer's order. We further agree that we will not lend,
either before or after the purchase of the Securities, to any customer,
Underwriter, Selected Dealer or to any other securities broker or dealer any
Securities. We will at all times comply with Regulation M under the 1934 Act and
Rule 139 of the 1933 Act (hereinafter defined), each as interpreted by the
Commission.
11. BLUE SKY. Prior to the initial offering by the Underwriters, you
will inform us as to the states and other jurisdictions under the respective
securities or blue sky laws of which it is believed that the Securities have
been qualified for sale or are exempt from such qualification, but you do not
assume any responsibility or obligation as to the accuracy of such information
or as to the right of any Underwriter or dealer to offer or sell the Securities
in any state or other jurisdiction. You agree to file or cause to be filed, on
behalf of the Underwriters, a Further State Notice in respect of the Securities
under the laws of the State of New York, if necessary.
12. DEFAULT BY UNDERWRITERS. Default by one or more Underwriters in
respect of their obligations under the Underwriting Agreement shall not release
us from any of our obligations or in any way affect the liability of any
defaulting Underwriter to the other Underwriters for damages resulting from such
default. In the event of such default by one or more Underwriters, you are
authorized to increase, pro rata with the other non-defaulting Underwriters, the
amount of Securities which we shall be obligated to purchase from the Company;
provided, however, that the aggregate amount of all such increases for all
non-defaulting Underwriters shall not exceed 10% of the Securities, and, if the
aggregate amount of the Securities not taken up by such defaulting Underwriters
exceeds such 10%, you are further authorized, but shall not be obligated, to
arrange
-7AAU-
<PAGE>
for the purchase by other persons, who may include you and other non-defaulting
Underwriters, of all or a portion of the Securities not taken up by such
Underwriters. In the event any such increases or arrangements are made, the
respective amounts of the Securities to be purchased by the non-defaulting
Underwriters and by any such other person or persons shall be taken as the basis
for the Underwriters' Obligations under this Agreement, but this shall not in
any way affect the liability of any defaulting Underwriter to the other
Underwriters for damages resulting from such default nor shall any such default
relieve any other Underwriter of any of its obligations hereunder or under the
Underwriting Agreement except as herein or therein provided.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any Securities purchased
by you for their respective accounts pursuant to Section 9 hereof, or to deliver
any such Securities sold or over-allotted by you for their respective accounts
pursuant to any provision of this Agreement, and to the extent that arrangements
shall not have been made by you for other persons to assume the obligations of
such defaulting Underwriter or Underwriters, each non-defaulting Underwriter
shall assume its proportionate share of the aforesaid obligations of each such
defaulting Underwriter without relieving any such defaulting Underwriter of its
liability therefor.
13. TERMINATION. Section 2, the second paragraph and the first sentence
of the third paragraph of Section 3, Section 4, the first sentence of Section 9
(other than clause (c) thereof) and Section 10 hereof will terminate at the
close of business on the 30th calendar day after the effective date of the
Registration Statement, unless extended or sooner terminated as hereinafter
provided. You may extend such provisions, or any of them, for a period not to
exceed 30 additional calendar days by notice to us to such effect. You may
terminate any of such provisions at any time by notice to us, and you may
terminate all such provisions at any time by notice to us to the effect that the
offering provisions of this Agreement are terminated. No termination or
suspension pursuant to this Section shall affect your authority under Section 9
to cover any short position under this Agreement. All other provisions of this
Agreement shall survive the termination of such provisions and shall remain
operative and in full force and effect.
14. GENERAL POSITION OF THE REPRESENTATIVES. In taking action under
this Agreement, you shall act only as agent of the several Underwriters. Your
authority shall include the taking of such action as you may deem advisable in
respect of all matters pertaining to any and all offers and sales of the
Securities, including the right to make any modifications which you consider
necessary or desirable in the arrangements with Selected Dealers or others. You
shall be under no liability for or in respect of the value of the Securities or
the validity or the form thereof, the Registration Statement, the Prospectus or
agreements or other instruments executed by the Company or others; or for or in
respect of the delivery of the Securities; or for the performance by the Company
or others of any agreement on its or their part; nor shall you, as
representative or otherwise, be liable under any of the provisions hereof or for
any matters connected herewith, except for want of good faith, and except for
any liability arising under the Securities Act of 1933, as amended (the "1933
Act"); and only obligations expressly assumed by you as Representative herein
shall be implied from this Agreement. In representing the Underwriters
hereunder, you shall act as the Representatives of each
-8AAU-
<PAGE>
of them respectively. Nothing herein contained shall constitute the several
Underwriters partners with you or with each other, or render any Underwriter
liable for the commitments of any other Underwriter, except as otherwise
provided in Section 12 hereof and in Section 8 of the Underwriting Agreement. If
the Underwriters shall be deemed to constitute a partnership for Federal income
tax purposes, it is the intent of each Underwriter to be excluded from the
application of Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code
of 1986, as amended. Each Underwriter elects to be so excluded and agrees not to
take any position inconsistent with such election. Each Underwriter authorizes
you, in your discretion, to execute and file on behalf of the Underwriters such
evidence of election as may be required by the Internal Revenue Service. The
commitments and liabilities of each of the several Underwriters are several in
accordance with their respective Underwriting Obligations and are not joint.
Notwithstanding any settlement of accounts under this Agreement, we agree to pay
our underwriting proportion of the amount of any tax, claim, demand or liability
which may be asserted against and discharged by the Underwriters, or any of
them, based on the claim that the Underwriters, or any of them, constitute a
partnership, association, or separate entity, and also to pay our underwriting
proportion of expenses approved by you incurred by the Underwriters, or any of
them, in contesting any such taxes, claims, demands or liabilities.
15. ACKNOWLEDGMENT OF RECEIPT OF REGISTRATION STATEMENT, ETC. We hereby
confirm that we have examined the Registration Statement relating to the
Securities as heretofore filed by the Company with the Commission and each
amendment thereto, if any, filed through the date hereof, including any
documents filed under the 1934 Act through the date hereof and incorporated by
reference into the Prospectus, that we are willing to be named as an underwriter
therein and to accept the responsibilities of an underwriter thereunder, and
that we are willing to proceed as therein contemplated. We confirm that we have
authorized you to advise the Company on our behalf (a) as to the statements to
be included in any Preliminary Prospectus and in the Prospectus under the
heading "Underwriting" insofar as they relate to us, and (b) that there is no
other information about us required to be stated in the Registration Statement
or Prospectus. We understand that the aforementioned documents are subject to
further change and that we will be supplied with copies of any further
amendments or supplements to the Registration Statement, of any document filed
under the 1934 Act after the effective date of the Registration Statement and
before termination of the offering of the Securities by the Underwriters if such
document is deemed to be incorporated by reference into the Prospectus and of
any amended or supplemented Prospectus promptly, if and when received by you,
but the making of such changes, amendments and supplements shall not release us
or affect our obligations hereunder or under the Underwriting Agreement.
16. (a) INDEMNITY. We agree to indemnify and hold harmless each other
Underwriter (including you) and any person who controls any such Underwriter
within the meaning of Section 15 of the 1933 Act, to the extent that, and upon
the terms on which, we agree to indemnify and hold harmless the Company and
other specified persons as set forth in the Underwriting Agreement. Our
indemnity agreement contained in this Section 16 shall remain in full force and
effect regardless of any investigation made by or on behalf of such other
Underwriter or controlling person and shall survive the delivery of any payment
for the Securities and the termination of this Agreement and the similar
agreements entered into with the other Underwriters.
-9AAU-
<PAGE>
(b) CLAIMS AGAINST UNDERWRITERS. Each Underwriter (including
you) will pay, upon your request, as contribution, its proportionate share,
based upon its Underwriting Obligation, of any loss, claim, damage or liability,
joint or several, paid or incurred by any Underwriter (including you) to any
person other than an Underwriter, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectus, any amendment or supplement thereto or
any Preliminary Prospectus or any other selling or advertising material approved
by you for use by the Underwriters in connection with the sale of the
Securities, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading (other than an untrue statement or alleged untrue statement or
omission or alleged omission made in conformity with written information
furnished to the Company through you by or on behalf of an Underwriter expressly
for use therein) or relating to any transaction contemplated by this Agreement;
and will pay such proportionate share of any legal or other expense reasonably
incurred by you or with your consent in connection with investigating or
defending against any such loss, claim, damage or liability, or any action in
respect thereof. In determining the amount of our obligation under this
paragraph, appropriate adjustment may be made by you to reflect any amounts
received by any one or more Underwriters in respect of such claim from the
Company pursuant to Section 8 of the Underwriting Agreement or otherwise. There
shall be credited against any amount paid or payable by us pursuant to this
paragraph any loss, claim, damage, liability or expense which is incurred by us
as a result of any such claims asserted against us, and if such loss, claim,
damage, liability or expense is incurred by us subsequent to any payment by us
pursuant to this paragraph, appropriate provision shall be made to effect such
credit, by refund or otherwise. If any such claim is asserted, you may take such
action in connection therewith as you deem necessary or desirable, including
retention of counsel for the Underwriters, and in your discretion separate
counsel for any particular Underwriter or group of Underwriters, and the fees
and disbursements of any counsel so retained by you shall be included in the
amounts payable pursuant to this paragraph. In determining amounts payable
pursuant to this paragraph, any loss, claim, damage, liability or expense
incurred by any person who controls any Underwriter within the meaning of
Section 15 of the 1933 Act which has been incurred by reason of such control
relationship shall be deemed to have been incurred by such Underwriter. Any
Underwriter may elect to retain, at its own expense, its own counsel. You may
settle or consent to the settlement of any such claim on advice of counsel
retained by you. Whenever you receive notice of the assertion of any claim to
which the provisions of this paragraph would be applicable, you will give prompt
notice thereof to each Underwriter. If any Underwriter or Underwriters default
in its or their obligation to make any payments under this paragraph, each
non-defaulting Underwriter shall be obligated to pay its proportionate share of
all defaulted payments, based upon the proportion such non-defaulting
Underwriter's Underwriting Obligation bears to the Underwriting Obligations of
all non-defaulting Underwriters. Nothing herein shall relieve a defaulting
Underwriter from liability for its default.
17. CAPITAL REQUIREMENTS. We confirm that the incurrence by us of our
obligations under this Agreement and under the Underwriting Agreement will not
place us in violation of the net capital requirements of Rule 15c3-1 under the
1934 Act or of any applicable rules relating to capital
-10AAU-
<PAGE>
requirements of any securities exchange to which we are subject and agree to
purchase the Securities that we are obligated to purchase hereunder and under
the Underwriting Agreement.
18. UNDERTAKING TO MAIL PROSPECTUSES. We represent to you that we have
taken all action on our part required to have been taken to satisfy the policy
set forth in Release No. 4968 of the Commission under the 1933 Act, including
the distribution in the manner and at or prior to the time set forth in such
Release, of copies of the Preliminary Prospectus relating to the Securities (or,
if you have so requested, copies of any revised Preliminary Prospectus) to all
persons to whom we expect to mail confirmation of sale.
As contemplated by Rule 15c2-8 under the 1934 Act, you agree to mail a
copy of the Prospectus mentioned in the Underwriting Agreement to any person
making a written request therefor during the period referred to in said Rule,
the mailing to be made to the address given in the request. We confirm that we
have delivered all Preliminary Prospectuses and revised Preliminary
Prospectuses, if any, required to be delivered under the provisions of Rule
15c2-8 and agree to deliver all Prospectuses required to be delivered
thereunder. We have kept (and will provide a copy to you upon your request) an
accurate record of the distribution (including dates, number of copies and
persons to whom sent) by us of the Preliminary Prospectus and revised
Preliminary Prospectuses, if any. We acknowledge that the copies of the
Preliminary Prospectus furnished to us have been distributed to dealers who have
been notified of the foregoing requirements pertaining to the delivery of
Preliminary Prospectuses and Prospectuses. You have heretofore delivered to us
such number of copies of Preliminary Prospectuses as have been reasonably
requested by us, receipt of which is hereby acknowledged, and will deliver such
number of copies of Prospectuses as will be reasonably requested by us.
19. MISCELLANEOUS. Any notice hereunder from you to us or from us to
you shall be deemed to have been duly given if sent by registered mail, telegram
or teletype, to us at our address as set forth in our Underwriters'
Questionnaire previously delivered to you (the answers in which you may rely
upon), or to you at the address of Security Capital Trading, Inc., 520 Madison
Avenue, 10th Floor, New York, New York 10022, Attention: Syndicate Department.
We understand that you are a member in good standing of the NASD. We
hereby confirm that we are actually engaged in the investment banking or
securities business and are either (i) a member in good standing of the NASD or
(ii) a dealer with its principal place of business located outside the United
States, its territories and its possessions and not eligible for membership in
the NASD nor registered as a broker or dealer under the 1934 Act who agrees not
to make any sales within the United States, its territories or its possessions
or to persons who are nationals thereof or residents therein (except that we may
participate in sales to Selected Dealers and others under Section 3 of this
Agreement). We understand that any registration statement relating to a public
offering of the securities noted in the "Shares Eligible for Future Sale"
section of the Prospectus where NASD members participate in any underwritten
offering or transaction that takes securities "off the shelf" is responsible for
ensuring that a timely filing is made with the Corporate Financing Department of
the NASD of the documents required to be filed under Rules 2710 and 2720 of the
-11AAU-
<PAGE>
NASD Conduct Rules. We hereby agree to comply with the provisions of Rule 2740
of the Conduct Rules of the NASD, and, if we are a foreign dealer and not a
member of the NASD, we also hereby agree to comply with the NASD's
Interpretation with respect to free-riding and withholding and to comply, as
though we were a member of the NASD, with Rules 2730 and 2750 of such Rules, and
to comply with Rule 2420 thereof as that Rule applies to a non-member foreign
dealer. We authorize you to file on our behalf with the NASD such documents and
information, if any, which are available or have been furnished to you for
filing pursuant to applicable rules, statements and interpretations of the NASD.
In connection with sales and offers to sell Securities made by us outside the
United States, its territories and possessions (i) we will either furnish to
each person to whom any such sale or offer is made a copy of the then current
Preliminary Prospectus or the Prospectus, as the case may be, or inform such
person that such Preliminary Prospectus or Prospectus will be available upon
request, and (ii) we will furnish to each person to whom any such sale or offer
is made such prospectus, advertisement or other offering document containing
information relating to the Securities or the Company as may be required under
the law of the jurisdiction in which such sale or offer is made. Any prospectus,
advertisement or other offering document furnished by us to any person in
accordance with the preceding sentence and any such additional offering material
as we may furnish to any person (x) shall comply in all respects with the law of
the jurisdiction in which it is furnished, (y) shall be prepared and so
furnished at our sole risk and expense, and (z) shall not contain information
relating to the Securities or the Company which is inconsistent in any respect
with the information contained in the then current Preliminary Prospectus or in
the Prospectus, as the case may be.
We understand that it is our responsibility to examine the Registration
Statement, the Prospectus, any amendment or supplement thereto, or any
preliminary prospectus and the material, if any, incorporated by reference
therein, and we will familiarize ourselves with the terms of the Securities and
the other terms of the offering which are to be reflected in the Prospectus. You
are authorized, with the approval of counsel for the Underwriters, to approve on
our behalf any amendments or supplements to the Registration Statement or the
Prospectus.
We confirm that the information that we have given or are deemed to
have given in response to the Underwriters' Questionnaire attached as Exhibit C
hereto (which information has been furnished to the Company for use in the
Registration Statement or the Prospectus) is correct. We will notify you
immediately if any development occurs before the termination of this Agreement
as to the offering which makes untrue or incomplete any information that we have
given or are deemed to have given in response to the Underwriters'
Questionnaire.
Unless we have promptly notified you in writing otherwise, our name as
it should appear in the Prospectus and our address are as set forth on the
signature page hereof.
We agree that if we are advised by you that the Company was not,
immediately prior to the filing of the Registration Statement, subject to the
requirements of Section 13(a) or 15(d) of the 1934 Act, we will not, without
your consent, sell any of the Securities to an account over which we exercise
discretionary authority.
-12AAU-
<PAGE>
We will not advertise over our name until after the first public
advertisement made by you and then only at our own expense and risk. We
authorize you to exercise complete discretion and regard to the first public
advertisement.
In accordance with 1933 Act Release No. 4968, we will deliver copies of
each Preliminary Prospectus to all our salesmen before they offer Securities to
their clients, and we will deliver a Preliminary Prospectus to all persons to
whom we expect to mail confirmations of sales not less than 48 hours prior to
the time we expect to mail such confirmations.
This instrument may be signed by or on behalf of the Underwriters in
various counterparts which together shall constitute one and the same agreement
among all the Underwriters and shall become effective at such time as all the
Underwriters shall have signed or have had signed on their behalf such
counterparts and you shall have confirmed all such counterparts. You may confirm
such counterparts by facsimile signature.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida.
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
_____________________________________________
Name of Firm
By:
------------------------------------------
Name:
Title:
Address:______________________________________
______________________________________
______________________________________
-13AAU-
<PAGE>
Confirmed as of the date first above written:
SECURITY CAPITAL TRADING, INC.
As Representative
By:
-------------------------------------------
Authorized Officer
FIRST EQUITY CORPORATION OF FLORIDA
As Representative
By:
-------------------------------------------
Authorized Officer
-14AAU-
<PAGE>
EXHIBIT B
1,500,000 SHARES OF COMMON STOCK
AND
1,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS**
(to be sold initially as units, each unit consisting of
one share of Common Stock and
one Redeemable Common Stock Purchase Warrant)
GALACTICOMM TECHNOLOGIES, INC.
SELECTED DEALERS AGREEMENT
Miami, Florida
[______________], 1998
Dear Sirs:
We have delivered to you a Prospectus relating to the offering
Galacticomm Technologies, Inc., a Florida corporation (the "Company"), of the
number of shares of the Company's Common Stock, par value $.0001 (the "Shares")
and of the Company's Redeemable Common Stock Purchase Warrants (the "Warrants")
therein stated (the "Securities"). The undersigned and the other underwriters
(the "Underwriters") have severally agreed to purchase the Securities, subject
to the conditions specified in the Underwriting Agreement (the "Underwriting
Agreement") referred to in the Prospectus. The Securities are being sold
initially as a unit, each unit consisting of one Share and one Warrant, and will
be detachable and separately transferable immediately following the completion
of the offering.
Subject to the terms and conditions specified herein and to the
modification, withdrawal or cancellation of the offering without notice, and
subject to the terms and conditions of the Underwriting Agreement, one or more
of the Underwriters, acting through us, as representative, are severally
offering to certain dealers (the "Dealers") (included among whom may be any or
all of the Underwriters, their partners and subsidiaries) who are members of the
National Association of Securities Dealers, Inc. (the "NASD") or foreign dealers
registered under the Securities Exchange
- --------
** Plus options to purchase a maximum of 225,000 additional Shares of
Common Stock and/or 225,000 additional Redeemable Common Stock Purchase
Warrants from the Company, solely to cover over-allotments.
<PAGE>
Act of 1934, as amended (the "Exchange Act"), who shall agree in making sales of
the Securities in the United States to conform to the Conduct Rules of the NASD,
or, if not so registered, shall agree not to reoffer, resell or deliver the
Securities in the United States, its territories or possessions or to persons
who they have reason to believe are citizens thereof or residents therein,
unless they comply with the NASD's Interpretation with Respect to Free-Riding
and Withholding and comply, as though they were a member of the NASD, with the
provisions of Rules 2730, 2740 and 2750 of the NASD and with Rule 2420 thereof
as that section applies to a non-member foreign dealer, the opportunity to
purchase Shares at $[_________] per Share and $[________] per Warrant (the
"public offering price") less a concession to Dealers in the amount set forth in
the Prospectus under "Underwriting." This offer is extended to you only on
behalf of such of the Underwriters as may lawfully sell Securities to Dealers in
your State.
The offering to Dealers may be on the basis of a reservation of
Securities or an allotment against subscriptions. We shall advise you by
telegram or letter of the method and terms of the offering. Acceptance of any
reserved Securities, which must be sent by telegraph or in writing to us,
received by the time specified therefor in the offering telegram or letter, and
any application for additional Securities, will be subject to rejection as a
whole or in part. The subscription books for the offering to Dealers may be
closed by us at any time without notice and we reserve the right to reject any
subscription as a whole or in part. All subscriptions will be received subject
to prior sale.
Immediately upon receipt of the aforementioned telegram or letter, you
may reoffer the Securities purchased by you hereunder, subject to their receipt
and acceptance by the Underwriters, and upon the other terms and conditions set
forth herein and in the Prospectus. Securities purchased hereunder or pursuant
to the following sentence are to be offered to the public at the public offering
price, except that an amount not exceeding the amount set forth in the
Prospectus under "Underwriting" per Share and per Warrant may be allowed to any
member of the NASD (or to foreign dealers who are not eligible for such
membership but who agree to conform to the Conduct Rules of the NASD in making
sales to purchasers in the United States), acting as principal or as buyer's
agent, if such allowance is to be retained and not reallowed in whole or in
part. With our consent or after the books in respect of the offering to Dealers
have been closed, Dealers who are parties to this Agreement and Underwriters may
deal in Securities with each other at the public offering price less an amount
not exceeding the concession to Dealers. After the Securities are released for
sale to the public, we are authorized to vary the public offering price and
other selling terms.
The Securities confirmed to you are to be paid for at the public
offering price less the concession to Dealers at the offices of Security Capital
Trading, Inc. at 520 Madison Avenue, 10th Floor, New York, New York 10022, prior
to 9:00 A.M., Miami, Florida time, on the Closing Date, as defined in the
Underwriting Agreement, by certified or official bank check payable in New York
Clearing House funds to our order against delivery of such Securities. Dealers
not located in Miami should arrange to have a Miami bank or correspondent accept
delivery of, and pay for, the Securities
2SDA
<PAGE>
which they agree to purchase and should advise us immediately of the name of
such bank or correspondent.
In order to facilitate distribution of the Securities, we, for the
accounts of the Underwriters, during the term of the agreement among the
Underwriters, may, within the limits specified in such agreement, make purchases
and sales of Securities or any securities comprising the Securities (but are
without obligation to do so) in the open market or otherwise, for long or short
account, at such prices, in such amounts and in such manner as we may determine,
and, in arranging for the sale of Securities to Dealers, may overallot for the
accounts of the Underwriters, and may make purchases for the purposes of
covering such overallotments. This is not assurance that the price of Securities
will be stabilized or that stabilization, if commenced, will not be discontinued
at any time.
Your acceptance hereof shall constitute an obligation on your part to
purchase, upon the terms and conditions specified herein, the Securities
confirmed to you in respect hereof and to observe all of the terms and
conditions hereof. You agree that in reoffering the Securities you will comply
with all applicable requirements of the Securities Act of 1933, as amended, of
the Exchange Act, and of all applicable rules and regulations under the federal
securities laws and Rules of the NASD. If you fail to pay for the Securities
confirmed to you or fail to perform any of your other obligations hereunder, we
may, in our discretion and without demand, notice or legal proceedings, and in
addition to any and all remedies otherwise available to us and to the other
several Underwriters, (a) terminate any right or interest on your part
hereunder, and (b) at any time and from time to time sell, without notice to
you, any Securities then held for your account at public or private sale at such
price or prices and upon such terms and conditions as we may deem fair, and
apply the net proceeds so realized, as determined by us, toward payment of any
obligations in respect of which you are in default, and, notwithstanding any
action taken under (a) or (b) above, or both, you shall remain liable to the
Underwriters, severally, to the extent of their respective interests, or at our
election, to us for the respective accounts of the several Underwriters to a
like extent, for all loss and expense resulting from your default. At any such
sale or sales, any of the Underwriters may for its or their own account or for
the account of any other person become the purchaser of any Securities so sold,
free from any right or interest on your part in such Securities. A default by
one or more Dealers shall not release you from any obligation hereunder.
You agree that until termination of this Agreement you will advise us,
from time to time upon request, as to the number of Securities confirmed to you
hereunder which then remain unsold; and you further agree that, until
termination of this Agreement, you will upon our request sell to us for the
account of one or more of the Underwriters such number of such unsold Securities
as we may specify (in order to enable us to deliver Securities sold by or for
the account of one or more of the several Underwriters) at the public offering
price or, if agreeable to you, at the public offering price less an amount not
in excess of the concession to Dealers.
As representatives of the Underwriters, we shall have full authority to
take such action as we may deem advisable in respect to all matters pertaining
to the offering or arising hereunder. You are not authorized (a) by the Company
or by any of the Underwriters to give any information or to make
3SDA
<PAGE>
any representations in connection with the offering or sale of the Securities
other than those contained in the Prospectus or (b) to act as agent for the
Company or for any of the Underwriters when offering the Securities to the
public or otherwise. Nothing contained herein shall constitute the Dealers as an
association or partnership with the Underwriters, with us or with each other, or
an unincorporated business or other separate entity.
We will advise you on request of the jurisdictions under the Blue Sky
or securities laws of which counsel for the Underwriters have advised us that
the Securities have been qualified for public offering and sale, or are exempt
from qualification. We shall, however, be under no responsibility whatsoever to
any Dealer with respect to the right of such Dealer to sell the Securities in
any jurisdiction.
We have undertaken and undertake to mail copies of the Prospectus upon
receipt of written request to the addresses stated in such requests. You confirm
that you have undertaken and undertake to do the same with regard to the
delivery of such copies to your associated persons and to other persons.
You agree to distribute, or cause us to distribute, a Preliminary
Prospectus to all persons reasonably expected to be purchasers of Securities
from you at least 48 hours prior to the time you expect to mail confirmation.
Neither we nor any Underwriter shall be under any liability (except for
our own want of good faith) for or in respect of the validity or value of, or
title to, any of the Securities, or any of the securities comprising the
Securities, the form of, or the statements contained in, or the validity of, the
Prospectus or any amendment or supplement thereto, or any other instruments
executed by or on behalf of the Company or others, the form or validity of the
Underwriting Agreement, the agreement among the Underwriters or this Agreement,
the delivery of the Securities, or any of the securities comprising the
Securities, the performance by the Company or others of any agreement on its or
their part or any matter in connection with any of the foregoing; provided,
however, that nothing in this paragraph shall be deemed to relieve us or any
Underwriter from any liability imposed by federal securities laws.
You confirm that you are familiar with the Interpretation of the Board
of Governors of the NASD with respect to Free-Riding and Withholding, and you
agree that you will comply with such Interpretation in offering and selling
Securities to the public.
You further represent that neither you nor any of your directors,
officers, partners or "persons associated with" you (as defined in the By-Laws
of the NASD), nor, to your knowledge any "related person" (as defined by the
NASD in Rule 2710 and the Corporate Financing Rules of the NASD) have
participated or intend to participate in any transaction or dealing as to which
documents or information are required to be filed with the NASD pursuant to such
Rules and as to which such documents or information have not been so filed as
required.
4SDA
<PAGE>
All communications from you should be addressed to Security Capital
Trading, Inc. at 520 Madison Avenue, 10th Floor, New York, New York 10022,
Attention: Syndicate Department. Any notice from us to you shall be deemed to
have been duly authorized by the Underwriters and to have been duly given if
mailed or telegraphed to you at the address to which this letter is addressed.
This Agreement shall terminate simultaneously with termination of the
agreement among the Underwriters, but it may be terminated by us at any time
theretofore without notice. Upon termination of this Agreement, all
authorizations, rights and obligations hereunder shall cease, except rights and
obligations accrued or unsatisfied at the date of termination. Notwithstanding
termination of this Agreement, you shall be liable for your proper proportion of
any transfer tax or other liability which may be asserted against us or any of
the Underwriters or Dealers purchasing Securities hereunder, based upon the
claim that the Dealers, or any of them, constitute a partnership, an
association, an unincorporated business or other separate entity.
If, before the termination of this Agreement, we shall purchase, or
contract to purchase, for the accounts of the Underwriters, in the open market
or otherwise, any Securities delivered to you pursuant hereto, you shall repay
to us, for the accounts of the Underwriters, the concession to Dealers with
respect to such Securities, and all brokerage commissions and transfer taxes
paid in connection with such purchase or contract to purchase.
Please confirm your agreement to abide by and conform to all the terms
and conditions of this Agreement by signing and returning at once the duplicate
copy enclosed herewith.
Yours very truly,
SECURITY CAPITAL TRADING, INC.
Representative of the Underwriters
By:
-------------------------------------------
Name:______________________________________
Title:_____________________________________
FIRST EQUITY CORPORATION OF FLORIDA
Representative of the Underwriters
By:
-------------------------------------------
Name: William R. Fusselmann
Title: Senior Vice President
Please execute Confirmation on next page.
5SDA
<PAGE>
CONFIRMATION
Security Capital Trading, Inc.
520 Madison Avenue, 10th Floor
New York, New York 10022
First Equity Corporation of Florida
444 Brickell Avenue
Suite P6
Miami, Florida 33131
Dear Sirs:
We hereby confirm our agreement to purchase _____________________ of
the Shares and _______________ of the Warrants to which the foregoing Selected
Dealers Agreement relates, subject to your acceptance or rejection as a whole or
in part in case of a subscription or application in excess of any reservation,
and acknowledge that such purchase and the purchase of additional Shares and
Warrants, if any, prior to the termination of the Selected Dealers Agreement,
are subject to all the applicable terms and conditions thereof. We agree to
abide by and conform to the Selected Dealers Agreement and to your offering
telegram or letter referred to therein, and to take up and pay for such
Securities as therein provided. We acknowledge receipt of the Prospectus
relating to the Securities and we hereby confirm that in entering into the
Selected Dealers Agreement and in offering the Securities we have relied and
will rely upon the Prospectus and on no other statements whatsoever, written or
oral. We have made a record of our distribution of Preliminary Prospectuses and,
when furnished with copies of any revised Preliminary Prospectus, we have, upon
your request, promptly forwarded copies thereof to each person to whom we had
theretofore caused to be distributed Preliminary Prospectuses. We confirm that
we have complied and will comply with all of the requirements of Rule 15c2-8 of
the Securities Exchange Act of 1934. We further confirm that we are a member in
good standing of the National Association of Securities Dealers, Inc. and agree
to comply with all applicable rules of the NASD, including, without limitation,
Rules 2730, 2740 and 2750 of the NASD Conduct Rules, or, if we are not such a
member, that (i) we are a foreign dealer registered under the Securities
Exchange Act of 1934, as amended, and hereby agree that in making sales of
Securities in the United States we will conform to the Conduct Rules of said
Association, or (ii) if not so registered, we hereby agree not to reoffer,
resell or deliver Securities in the United States, its territories or
possessions or to any person who we have reason to believe is a citizen thereof
or resident therein, unless we comply with the NASD's Interpretation with
Respect to Free-Riding and Withholding and comply, as though we were a member of
the NASD, with the provisions of Rules 2730, 2740 and 2750 of the NASD Conduct
Rules and with Section 2420 thereof as that section applies to a non-member
foreign dealer. We further confirm our understanding that any registration
statement relating to a public offering of the securities noted in the "Shares
Eligible for Future Sale" section of the Prospectus where NASD members
participate in any underwritten
6SDA
<PAGE>
offering or transaction that takes securities "off the shelf" is responsible for
ensuring that a timely filing is made with the Corporate Financing Department of
the NASD of the documents required to be filed under Rules 2710 and 2720 of the
NASD Conduct Rules.
_________________________________________
(Name of Dealer)
By:
--------------------------------------
Name:
Title:
_________________________________________
(Address)
_________________________________________
(City and State)
Dated:______________________, 1998
7SDA
<PAGE>
EXHIBIT C
UNDERWRITERS' QUESTIONNAIRE
In connection with the Offering to which the foregoing Agreement Among
Underwriters dated ________________, 1998 between Security Capital Trading,
Inc., First Equity Corporation of Florida and the Underwriter executing the same
relates, except as otherwise disclosed to the Representative(s) in writing, such
Underwriter advises the Representative(s) as follows and authorizes the
Representative(s) to use the information furnished in response to this
Underwriters' Questionnaire in the Registration Statement relating to the
Securities:
(a) Neither such Underwriter nor any of its directors,
officers or partners, individually or as a part of a "group" (as that
term is used in Section 13(d)(3) of the 1934 Act), (i) has a "material"
relationship (as defined in Rule 405 under the 1933 Act) with the
Company or any other seller of Securities or securities of the Company
in the Offering or (ii) is a director, officer or holder (of record or
beneficially, determined in accordance with Rule 13d-3 under the 1934
Act) of 5% or more of any class of voting securities of the Company or
any other seller of Securities or Company securities in the Offering,
or (iii) other than as may be stated in the Registration Statement, has
any knowledge that more than 5% of any class of voting securities of
the Company is held or is to be held subject to any voting trust or
similar agreement;
(b) With reference to the Interpretation of the Board of
Governors of the NASD with respect to the Review of Corporate
Financing, neither such Underwriter nor any of its "related persons"
(as defined by the NASD) (i) has purchased or otherwise acquired from
the Company any warrants, options or other securities of the Company
within 18 months prior to the date that the Registration Statement was
initially filed or subsequent to that date, and there are no existing
arrangements for any such purchase or (ii) has had any dealings with
the Company (except those with respect to the Underwriting Agreement)
or any "affiliate" of the Company (as defined in Rule 405 under the
1933 Act) as to which documents or other information are required to be
furnished to the NASD pursuant to such Interpretation;
(c) Neither such Underwriter or any of its "related persons"
(as defined by the NASD) is an "affiliate" of the Company as that term
is defined in Rule 2720(b) of the Conduct Rules of the NASD or has a
"conflict of interest" with the Company under Rule 2720 of such Rules
or under Rule 2710 of the NASD's Conduct Rules;
(d) Other than as may be stated in the Registration Statement,
a copy of which has been examined by us, any Prospectus, the Agreement
Among Underwriters, or the Underwriting Agreement, such Underwriter
does not know of any arrangements made or to be made for limiting or
restricting the sale of the Securities, for withholding commissions or
otherwise to hold each Underwriter or dealer responsible for the
distribution of their participation in the Securities, or for discounts
or commissions, including any cash,
1UQ
<PAGE>
securities, contract or other consideration to be received by any
dealer in connection with the sale of the Securities, or of any
intention to over-allot the Securities or to stabilize the price of any
security to facilitate the offering of the Securities.
(e) [Intentionally omitted].
(f) [Intentionally omitted].
(g) If the Registration Statement is on Form S-1 (or
equivalent Small Business form), such Underwriter has not prepared or
had prepared for it within the past 12 months any engineering,
management or similar report or memorandum relating to the broad
aspects of the business, operations or products of the Company except
for reports solely comprising recommendations to buy, sell or hold the
Company's securities, unless such recommendations have changed within
the past six months;
(h) If the Registration Statement is on either Form S-2 or
Form S-3 (or equivalent Small Business form), such Underwriter has not
prepared any report or memorandum for external use by it or by the
Company in connection with the Offering;
(i) If the Company does not have any securities registered
under Section 12 of the Exchange Act and is not subject to Section
15(d) of the 1934 Act, such Underwriter does not intend to confirm
sales of the Securities to any accounts over which it exercises
discretionary authority;
(j) Such Underwriter's proposed commitment to purchase
Securities will not result in a violation by it of the financial
responsibility requirements of Rule 15c3-1 under the 1934 Act and is
not prohibited or restricted by any action of the Commission, the NASD
or of any national securities exchange applicable to such Underwriter;
(k) Such Underwriter is familiar with the rules, regulations
and releases of the Commission dealing with the dissemination of
information prior to and during registration and has not distributed
nor will it distribute any written information outside of its
organization relating to the Company or its securities other than in
accordance with such rules, regulations and releases;
(l) If the Company is a "public utility" such Underwriter is
not a "holding company" or a "subsidiary company" or an "affiliate" of
a "holding company" or of a "public utility," each as defined in the
Public Utility Holding Company Act of 1935, as amended;
(m) There is not now pending or threatened against any
Underwriter any action or proceeding of which it has been advised,
either in any court of competent jurisdiction, before the Commission or
any state securities commission concerning its activities as a broker
or dealer, nor has it been named as a "cause" in any such action or
proceeding, which,
2UQ
<PAGE>
if determined adversely to such Underwriter, would have a material
adverse effect on such Underwriter; and
(n) With respect to information about each Underwriter
contained in the Registration Statement furnished to the Company by or
on behalf of any Underwriter, the information therein is correct and is
not misleading as it relates to such Underwriter.
All capitalized items in this Questionnaire not otherwise defined
herein are used as defined in the foregoing Agreement Among Underwriters.
___________________, 1998
Very truly yours,
________________________________________
(Name of Firm)
By:
--------------------------------------
Name:_________________________________
Title:________________________________
3UQ
EXHIBIT 10.20
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is
entered into as of June 30, 1997, by and between GALACTICOMM TECHNOLOGIES, INC.
(formerly known as I-View Software, Inc.), a Florida corporation (the
"Company"), and PETER BERG (the "Executive").
RECITALS:
A. The Company entered into an Employment Agreement with the Executive
on November 21, 1996 (the "Original Agreement").
B. The Company and the Executive wish to amend and restate the Original
Agreement as set forth herein.
NOW THEREFORE, in consideration of the premise, and the respective
covenants and agreements of each of the Company and the Executive contained in
this Agreement, each of the Company and the Executive agrees as follows:
ARTICLE I
EMPLOYMENT
The Company employs the Executive and the Executive accepts such
employment in accordance with the terms hereof. Subject to the direction of the
Board of Directors of the Company, the Executive shall serve as Chief Executive
Officer and Chairman of the Board of the Company. The Executive shall have such
responsibilities, perform such duties and exercise such power and authority as
are inherent in, or incident to, the offices of Chief Executive Officer and
Chairman of the Board. The Executive shall devote such reasonable time to the
performance of his duties as an officer and employee of the Company as is
necessary.
ARTICLE II
SALARY
2.1 SALARY. Commencing as of November 21, 1996 and continuing through
November 20, 1999, the Company shall pay to the Executive a salary of One
Hundred Seventy Five Thousand Dollars ($175,000) per annum (the "Salary") which
salary shall be automatically increased 10% per annum on a cumulative basis
during the term of this agreement on each anniversary date.
2.2 PAYMENT OF SALARY. Payments of Salary shall be made to the
Executive, in installments, from time to time on the same dates payments of
salary are generally made to all senior management employees of the Company.
<PAGE>
ARTICLE III
BONUS AND STOCK OPTIONS
3.1 Within 90 days after each fiscal year, the Compensation Committee
(the "Committee") of the Board of Directors shall determine, in its sole and
absolute discretion, the amount of the cash bonus, if any, to be paid to
Executive for his services to the Company for the preceding fiscal year. In
making its determination, the Committee shall consider all factors it deems
relevant, including, but not limited to, the financial condition, results of
operations and business of the Company and the efforts of the Executive in
assisting the Company in achieving its strategic objectives for the preceding
fiscal year.
3.2 The Company shall issue the Executive 720,000 options to purchase
the Company's common stock, par value $0.0001 per share, in accordance with the
terms of the Stock Option and Agreement attached hereto as Exhibit "A".
ARTICLE IV
EMPLOYMENT BENEFITS
4.1 GENERALLY. The Executive shall be entitled to receive all such
benefits and to participate in such benefit and incentive plans, programs and
arrangements as are generally provided from time to time by the Company to its
senior management employees.
4.2 AUTOMOBILE ALLOWANCE. The Company shall pay to the Executive a
monthly allowance of Six Hundred Dollars ($600) which shall be utilized by the
Executive, on a non-accountable basis, to pay for the costs and expenses
incurred by him in connection with the ownership or lease, repair, maintenance
and operation (including insurance expenses) of a late model automobile.
4.3 MEDICAL INSURANCE; TERM LIFE INSURANCE. The Company shall provide
group medical insurance coverage to the Executive or reimburse the Executive for
the cost of such coverage. The Company shall also provide $1,000,000 of term
life insurance naming such beneficiary thereof as the Executive may desire.
4.4 BUSINESS, TRAVEL AND ENTERTAINMENT. Upon submission of appropriate
evidence, the Company shall promptly pay or reimburse the Executive for all
reasonable business, travel and entertainment expenses incurred by the Executive
in connection with the performance of his duties and obligations hereunder.
2
<PAGE>
ARTICLE V
TERM AND TERMINATION OF EMPLOYMENT
5.1 TERM. The term of this Agreement shall be for a period of three
years, commencing as of November 21, 1996 and expiring on November 20, 1999.
5.2 TERMINATION OF EMPLOYMENT.
(a) Notwithstanding the provisions of Section 5.1 above:
(i) the employment of the Executive by the Company
shall automatically terminate upon the death of the Executive;
(ii) if the Executive shall suffer a Disability (as
such term is hereinafter defined), then the employment of the Executive by the
Company may be terminated by the Company;
(iii) the employment of the Executive by the Company
may be terminated at any time by the Company, either with or without Cause (as
such term is hereinafter defined); and
(iv) the employment of the Executive by the Company
may be terminated at any time by the Executive, either with or without Good
Reason (as such term is hereinafter defined).
(b) If the Company shall desire to terminate the Executive's
employment, or if the Executive shall desire to terminate the Executive's
employment by the Company, as contemplated by Section 5.2(a) above, then, in any
such event, the party causing such termination shall provide a Termination
Notice (as such term is hereinafter defined) to the other party.
5.3 PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) If the employment of the Executive by the Company shall be
terminated due to the Executive's death or Disability, then, in any such event,
the Company shall continue to pay to the Executive or his estate, heirs,
personal representatives or legal representatives, as the case may be, his
Salary (subject to applicable payroll and/or other taxes required by law to be
withheld) for a period of six months from and after the date of termination of
the Executive's employment by the Company.
(b) If the employment of the Executive by the Company shall be
terminated for any reason (other than by the Company due to the Executive's
death or Disability or with Cause, or by the Executive without Good Reason)
then, in any such event, the Company shall continue
3
<PAGE>
to pay to the Executive his Salary (subject to applicable payroll and/or other
taxes required by law to be withheld) for the greater of (A) the entire
remaining term of this Agreement or (B) twelve consecutive months from such
termination.
(c) If the employment of the Executive by the Company shall be
terminated by the Company with Cause or by the Executive without Good Reason,
then, in any such event, the Company shall continue to pay to the Executive his
Salary (subject to applicable payroll and/or other taxes required by law to be
withheld) through the Termination Date (as such term is hereinafter defined).
(d) If the employment of the Executive by the Company shall be
terminated for any reason, or if the term of this Agreement shall expire in
accordance with its terms, then, in any such event, the Company shall promptly
pay to the Executive all accrued but unpaid benefits to which he shall be
entitled on the date of termination of the Executive's employment by the
Company.
5.4 CERTAIN DEFINITIONS. The following terms shall have the following
respective meanings when utilized in this Article V:
(a) "Cause" shall mean any action by the Executive or any
inaction by the Executive which constitutes:
(i) fraud, embezzlement, misappropriation,
dishonesty or breach of trust;
(ii) a felony;
(iii) a material breach or violation of any or all of
the covenants, agreements and obligations of the Executive set forth in this
Agreement, other than as the result of the Executive's death or Disability;
(iv) a willful or knowing failure or refusal by the
Executive to perform any or all of his material duties and responsibilities as
an officer of the Company, other than as the result of the Executive's death or
Disability: or
(v) gross negligence by the Executive in the
performance of any or all of his material duties and responsibilities as an
officer of the Company, other than as a result of the Executive's death or
Disability;
provided, however, that if the basis for any termination of the Executive's
employment by the Company as set forth in the Termination Notice delivered by
the Company to the Executive is any or all of the definitions of Cause set forth
in Sections 5.4(a)(iii), 5.4(a)(iv) or 5.4(a)(v) of this Agreement, then, in
such event, the Executive shall have thirty (30) days from and after the date of
his receipt of such Termination Notice to present a reasonable plan to cure such
action or inaction specified in the Termination Notice, which plan may require
more than thirty (30)
4
<PAGE>
days to cure the specified action or inaction, but such plan must be reasonably
satisfactory to the Company and the Executive must proceed diligently to
effectuate such plan.
(b) "Disability" shall mean any mental or physical illness,
condition, disability, or incapacity which prevents the Executive from
reasonably discharging his duties and responsibilities as an officer of the
Company. If any disagreement or dispute shall arise between the Company and the
Executive as to whether the Executive suffers from any Disability, then, in such
event, the Executive shall submit to the physical or mental examination of a
physician licensed under the laws of the State of Florida, who is mutually
agreeable to the Company and the Executive, and such physician shall determine
whether the Executive suffers from any Disability. In the absence of fraud or
bad faith, the determination of such physician shall be final and binding upon
the Company and the Executive. The entire cost of such examination shall be paid
for solely by the Company.
(c) "Good Reason" shall mean:
(i) the assignment by the Board of Directors or the
Executive Committee of the Board of Directors to the Executive, without his
express written consent, of duties and responsibilities which results in the
Executive having significantly less duties and responsibilities or exercising
significantly less power and authority than he had, or duties and
responsibilities or power and authority not materially comparable to that of the
level and nature which he had, immediately prior to such assignment; provided,
however, that neither Executive nor Yannick Tessier shall have, directly or
indirectly, initiated or participated in said action by the Board of Directors
or Executive Committee;
(ii) the removal of the Executive from, or a failure
to reappoint the Executive to, his then current position or positions with the
Company or its subsidiaries or affiliates, except (A) with the Executive's
express written consent (B) in connection with any termination of the
Executive's employment by the Company as the result of the Executive's death or
Disability or with Cause or (C) upon nonrenewal of Executive's employment after
expiration of the initial employment term under this Agreement;
(iii) the reduction of the Executive's Salary or the
reduction of any or all of the Executive's benefits set forth in Article IV
above (unless such reduction shall have been in respect of reductions in group
benefits applicable to substantially all employees of the Company);
(iv) the Company's failure to perform on a timely
basis its obligations under this Agreement upon 30 days' prior notice from
Executive together with an opportunity to cure said nonperformance during such
period;
(v) the Board of Director's requiring the Executive,
without his express written consent, to change his place of permanent residency
to a place outside of Broward, Palm Beach or Dade County, Florida; provided,
however, that neither Executive nor Yannick Tessier
5
<PAGE>
shall have, directly or indirectly, initiated or participated in said action by
the Board of Directors or Executive Committee; or
(vi) the Company's moving its executive offices to a
place outside of Broward, Dade or Palm Beach County, Florida without the
Executive's express written consent; provided, however, that neither Executive
nor Yannick Tessier shall have, directly or indirectly, initiated or
participated in said action by the Board of Directors; or
(d) "Termination Date" shall mean a specific date not less
than forty-five (45) nor more than ninety (90) days from and after the date of
any Termination Notice upon which the Executive's employment by the Company
shall be terminated in accordance with the provisions of this Agreement.
(e) "Termination Notice" shall mean a written notice which
sets forth (i) the specific provision of this Agreement relied upon to terminate
the Executive's employment, (ii) in reasonable detail the facts and
circumstances claimed to provide the basis for the termination of the
Executive's employment, and (iii) a Termination Date.
5.5 SURVIVAL. All of the provisions of this Agreement, other than those
contained in Articles I, III, and IV hereof, shall survive the termination for
any reason of the Executive's employment by the Company or the expiration of the
term of this Agreement. The provisions of Article II of this Agreement shall
survive the termination for any reason of the Executive's employment by the
Company or the expiration of the term of this Agreement only to the extent set
forth in this Article V.
ARTICLE VI
Certain Restrictions on the Executive
6.1 CERTAIN RESTRICTIONS. The Executive covenants and agrees with the
Company as follows:
(a) He shall not at any time, directly or indirectly, for
himself or any other person, firm, corporation, partnership, association or
other entity (collectively, a "Person") which competes in any manner with the
Company or any of its subsidiaries or affiliates in any county or parish of any
state of the United States of America or its territories and possessions in
which the Company as of the date that the Executive's employment by the Company
is terminated for any reason or the term of this Agreement expires in accordance
with its terms, as the case may be, conducts its business directly or indirectly
through any of its subsidiaries or affiliates (collectively, the "Territory"),
employ, attempt to employ or enter into any contractual arrangement for
employment with, any employee or former employee of the Company or any of its
subsidiaries or affiliates, unless such former employee shall not have been
employed by the Company or any of its subsidiaries or affiliates for a period of
at least one year.
6
<PAGE>
(b) He shall not, during the term of his employment by the
Company and for a period of one year and after the date that his employment by
the Company is terminated for any reason or the term of this Agreement expires
in accordance with its terms, as the case may be, directly or indirectly, (i)
acquire or own in any manner any interest in, or loan any amount to, any Person
which competes in any manner with the Company or any of its subsidiaries or
affiliates in the Territory, (ii) be employed by or serve as an employee, agent,
officer, or director of, or as a consultant to, any Person, other than the
Company and its subsidiaries and affiliates, which competes in any manner with
the Company or its subsidiaries or affiliates in the Territory, or (iii) compete
in any manner with the Company or its subsidiaries or affiliates in the
Territory. The foregoing provisions of this Section 6.1 (b) shall not prevent
the Executive from acquiring and owning not more than five percent (5%) of the
equity securities of any Person whose securities are listed for trading on a
national securities exchange or are regularly traded in the over-the-counter
securities market.
(c) In the course of the Executive's employment by the Company, the
Executive will have access to confidential or proprietary information of the
Company and its subsidiaries and affiliates. The Executive shall not at any time
use any such confidential or proprietary information other than for the benefit
of the Company and its subsidiaries and affiliates. The term "confidential or
proprietary information" shall mean information not generally available to the
public, including without limitation personnel information, financial
information, customer lists, supplier lists, ownership information, marketing
plans and analyses, trade secrets, know-how, computer software, management
agreements and procedures and techniques of operating and managing the business
of the Company and its subsidiaries and affiliates. The Executive acknowledges
and agrees that all confidential or proprietary information is and shall remain
the property of the Company and its subsidiaries and affiliates, and agrees to
maintain all such confidential or proprietary information in confidence.
(d) DEVELOPMENTS. All inventions patentable, copyrightable or
otherwise, trade secrets, discoveries, improvements, ideas and writings
(hereinafter collectively termed "developments"), which Executive, alone or
jointly with others, has conceived, made, enhanced, modified, developed, or
acquired, or may conceive, make, enhance, modify, develop, or acquire during the
period of his employment hereunder or during an additional period of one (1)
year after the termination of such employment and which relate to the Company's
business of developing and marketing computer hardware and software, and all
developments which relate to the work upon which Executive shall have been
engaged while in the Company's employment, which Executive has conceived, made,
enhanced, modified, developed, or acquired, or may conceive, make, enhance,
modify, develop, or acquire during the period of his employment or during a
period of one (1) year after the termination of such employment, to the extent
that such developments are possessed by Executive at any time, shall be the sole
property of the Company. The term "development" shall include developments
conceived, devised, made, developed or perfected during off-duty hours and away
from the Company's premises as well as to those conceived, devised, made,
developed, or perfected in the regular course of employment.
7
<PAGE>
(e) DISCLOSURE AND COOPERATION. Executive shall promptly and fully
disclose in writing all such developments described in subparagraph (d) hereof
to the Company's Chief Executive Officer. Executive shall, at any time upon the
Company's request, whether or not then in the Company's employ, execute,
acknowledge and deliver to the Company all instruments which the Company shall
prepare, give evidence, and do all other things which are necessary or
desirable, to enable the Company to file and prosecute applications for, and to
acquire, maintain and enforce all patents, trademarks, copyrights, and any other
intellectual property rights in all countries, covering such developments. The
Company agrees to pay to Executive reasonable expenses incurred by Executive
under this subparagraph (e).
6.2 REMEDIES. It is recognized and acknowledged by each of the Company
and the Executive that a breach or violation by the Executive of any or all of
his covenants and agreements contained in Section 6.1 of this Agreement will
cause irreparable harm and damage to the Company and its subsidiaries and
affiliates in a monetary amount which would be virtually impossible to ascertain
and, therefore, will deprive the Company of an adequate remedy at law.
Accordingly, if the Executive shall breach or violate any or all of his
covenants and agreements set forth in Section 6.1 hereof, then the Company and
its subsidiaries and affiliates shall have resort to all equitable remedies,
including without limitation the remedies of specific performance and
injunction, both permanent and temporary, as well as all other remedies which
may be available at law.
6.3 INTENT. It is the intent of the parties that the restrictions set
forth in Section 6.1 hereof shall be enforced to the fullest extent permissible
under the laws and public policies of each jurisdiction in which enforcement of
such restrictions may be sought. If any provision contained in Section 6.1
hereof shall be adjudicated by a court of competent jurisdiction to be invalid
or unenforceable because of its duration or geographic scope, then such
provision shall be reduced by such court in duration or geographic scope or both
to such extent as to make it valid and enforceable in the jurisdiction where
such court is located, and in ail other respects shall remain in full force and
effect.
ARTICLE VII
INDEMNIFICATION
The Company shall indemnify auld hold harmless the Executive from and
against the full amount of any and all claims, demands, suits, actions,
judgements, losses, liabilities, costs, interest and expenses, including without
limitation fees and disbursements of trial and appellate counsel, asserted or
brought against the Executive by any Person with respect to any action taken or
omitted to be taken by the Executive in the course of his employment by the
Company or otherwise related to or arising out of his employment by the Company
or acting as a director, officer, employee or agent of the Company or any of its
subsidiaries or affiliates. This right to indemnification shall be in effect to
the fullest extent available pursuant to law, and shall be in addition to any
other right to indemnification the Executive may possess pursuant to law and the
Articles of Incorporation and Bylaws of the Company or any of its subsidiaries
or affiliates.
8
<PAGE>
ARTICLE VIII
ATTORNEYS' FEES
In the event that any litigation shall arise between the Company and
the Executive based, in whole or in part, upon this Agreement or any or all of
the provisions contained herein, then, in any such event, the prevailing party
in any such litigation shall be entitled to recover from the non-prevailing
party, and shall be awarded by a court of competent jurisdiction, any and all
reasonable fees and disbursements of trial and appellate counsel paid, incurred
or suffered by such prevailing party as the result of, arising from, or in
connection with, any such litigation.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 GOVERNING LAW. This Agreement shall be governed by, and shall be
construed and interpreted in accordance, with the laws of the State of Florida.
9.2 NOTICES. Any and all notices and other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed to have been duly given when delivered by hand, or when delivered by
United States mail, by registered or certified mail, postage prepaid, return
receipt requested, to the respective parties at the following respective
addresses:
If to the Company: Galacticomm Technologies, Inc.
4101 S.W. 47 Avenue
Suite 101
Ft. Lauderdale, Florida 33314
If to the Executive: Peter Berg
15050 S.W. 10 Street
Sunrise, Florida 33326
or to such other address as either party may from time to time give written
notice of to the other in accordance with the provisions of this Section 9.2.
9.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Company and the Executive with respect to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
arrangements, both oral and written, between the Company and the Executive with
respect to such subject matter.
9.4 AMENDMENTS. This Agreement may not be amended or modified in any
manner, except by a written instrument executed by each of the Company and the
Executive.
9.5 BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of, and shall be binding upon, each of the Company and the Executive and their
respective heirs, personal representatives, executors, legal representatives,
successors and assigns.
9
<PAGE>
9.6 SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part hereof, all of which are inserted conditionally on their being valid in
law. Except as otherwise provided in Section 6.3 above, if any one or more of
the words, phrases, sentences, clauses or sections contained in this Agreement
shall be declared invalid by any court of competent jurisdiction, then, in any
such event, this Agreement shall be construed as if such invalid word or words,
phrase or phrases, sentence or sentences, clause or clauses, or section or
sections had not been inserted.
9.7 NO WAIVERS. The waiver by either party of a breach or violation of
any provision of this Agreement by the other party shall not operate nor be
construed as a waiver of any subsequent breach or violation. The waiver by
either party to exercise any right or remedy it or he may possess shall not
operate nor be construed as a bar to the exercise of such right or remedy by
such party upon the occurrence of any subsequent breach or violation.
9.8 JURISDICTION AND VENUE; SERVICE OF PROCESS. Any claim or dispute
arising out of, connected with, or in any way related to this Agreement which
results in litigation shall be instituted by the complaining party and
adjudicated either in the federal or state courts located in Broward County,
Florida and each of the parties to this Agreement consent to the personal
jurisdiction of and venue in such courts. In no event shall either party to this
Agreement contest the jurisdiction or venue of such courts with respect to any
such litigation. Each of the Company and the Executive agrees that service of
any process, summons, notice or document, by United States registered or
certified mail, to its or his address set forth in or as provided in Section 9.2
above shall be effective service of such process, summons, notice or document
for any action, suit or proceeding brought against it or him by the other party
in the federal or state courts located in Broward County, Florida.
9.9 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of any or all of the provisions hereof.
9.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the separate parties in separate counterparts, each of which
shall be deemed to constitute an original and all of which shall be deemed to
constitute the one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has executed and
delivered this Agreement as of the date first written above.
GALACTICOMM TECHNOLOGIES, INC.
/S/ PETER BERG By: /S/YANNICK TESSIER
- -------------------------------- --------------------------
Peter Berg Name: /S/ YANNICK TESSIER
------------------------
Title: /S/ PRESIDENT
-----------------------
10
<PAGE>
EXHIBIT "A"
THIS STOCK OPTION AND THE COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF CAN BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933 AND APPLICABLE
STATE SECURITIES LAWS. THIS STOCK OPTION AND THE SHARES MAY NOT BE SOLD,
TRANSFERRED, OR ASSIGNED IN 1111; ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNLESS, IN THE OPINION OF COUNSEL TO THE COMPANY, SUCH REGISTRATION IS NOT THEN
REQUIRED.
GALACTICOMM TECHNOLOGIES, INC.
STOCK OPTION AND AGREEMENT
THIS STOCK OPTION ("option[s]") for a total of 720,000 shares of common
stock, par value $.0001 per share (the "Common Stock"), of Galacticomm
Technologies, Inc., a Florida corporation (the "Company"), has been granted to
Peter Berg ("Optionee"), one of the Company's key personnel, at the price
and subject to the terms and conditions contained herein.
1. Exercise Price. The exercise price (the "Exercise Price") of all
options granted hereunder is $0.92 for each share of Common Stock.
2. Term and Vesting. Subject to the terms and conditions contained
herein, this option shall be exercisable in any order for an amount of shares
not to exceed 720,000 shares of Common Stock, provided that the rights of
Optionee hereunder to exercise the options shall vest in accordance with the
following schedule:
(a) At any time on or after November 21, 1997, Optionee may exercise
this option to the extent of one-third of the options granted hereby;
(b) At any time on or after November 21, 1998, Optionee may exercise
this option to the extent of an additional one-third of the options granted
hereby; and
(c) At any time after November 21, 1999, Optionee may exercise this
option to the extent of the balance of the options granted hereby.
3. Exercise of Option. This option shall be exercisable as follows:
(a) Time and Manner of Exercise of Option.
(i) No portion of the option may be exercised more than five years from
the respective vesting dates set forth in Sections 2(a), (b) and (c) hereof.
(ii) If Optionee's employment with the Company is terminated with
"cause" pursuant to the terms of Optionee's Employment Agreement, dated as of
November 21, 1996 (as amended), between Optionee and the Company (the
"Employment Agreement"), the Optionee shall forfeit the right to exercise all
non-vested options granted hereunder and payment
<PAGE>
for the exercise of all options which were vested on the date of such
termination of employment shall be made to the Company in accordance with
Section 3(b) hereof within the earlier of ten (10) days of such termination of
employment or the date by which the vested options expire by the terms hereof.
(iii) If the Optionee dies, the options granted hereunder which have
vested as of the Optionee's death may be exercised within one (1) year after the
date of Optionee's death or prior to the date on which the vested option expires
by its terms, whichever is earlier, by the estate of the Optionee, or by any
person or persons whom Optionee shall have designated in writing in documents
filed with the Company or, if no such designation has been made, by the person
or persons to whom Optionee's rights hereunder shall have passed by will or the
laws of descent and distribution.
(iv) Upon the sale of all or substantially all of the assets of the
Company, the transfer of a controlling equity interest (as hereinafter defined)
in the Company, all outstanding options shall automatically vest and shall be
exercisable on the closing date of such transaction. Written notice of not less
than twenty (20) days shall be given by the Company to the Optionee of the
anticipated closing date of any such transaction. If such closing date changes,
the Company shall provide written notice of the new closing date as soon as
practicable to the Optionee. Any options not so exercised by the Optionee shall
be null and void if not exercised on such closing date. As used herein, the term
"controlling equity interest" shall mean the ability of any person, entity or
group to direct the management and policies of the Company.
(v) Each option granted hereunder shall be deemed exercised when
Optionee shall indicate his decision to do so in writing to the Company in
accordance with Section 3(b) hereof, and shall at the same time tender to the
Company payment in full in cash for the shares as to which the option is
exercised. The options granted hereunder may be exercised as to any lesser
number of shares than the full amount for which the options could be exercised.
Such a partial exercise of an option shall not affect the right to exercise the
option as to the remaining shares subject to the option. The right to exercise
this option shall be cumulative so that when the right to exercise an option has
vested, the shares eligible for purchase hereunder may be purchased at any time
thereafter until the expiration of the option pursuant to this Section 3(a).
(b) Method of Exercise. This option shall be exercisable by a written
notice which shall:
(i) state the election to exercise the option, the number of shares in
respect of which it is being exercised, the person in whose name the stock
certificate(s) for such shares of Common Stock is to be registered, his or her
address and Social Security Number (or if more than one, the names, addresses
and Social Security numbers of such persons);
(ii) be signed by the person or persons entitled to exercise the option
and, if the option is being exercised by any person(s) other than the Optionee,
be accompanied by proof, satisfactory to counsel for the Company, of the right
of such person(s) to exercise the Option; and
2
<PAGE>
(iii) be delivered in person or by certified mail to the Compensation
Committee of the Company's Board of Directors (the "Committee").
(c) Payment. Payment of the purchase price (the "Purchase Price") of
any shares with respect to which the option is being exercised shall be: (i) in
cash; (ii) by certified or bank check payable to the order of the Company; (iii)
by the delivery of unexercised options or shares of Common Stock having a fair
market value equal to the Purchase Price, or (iv) by any combination of the
foregoing having a fair market value equal to the Purchase Price. The Company
shall withhold from the shares of Common Stock to be issued upon the exercise of
this Option that number of shares of Common Stock having a fair market value
equal to the tax withholding amount due.
(d) Restrictions on Exercise. Notwithstanding anything contained herein
to the contrary, this option may not be exercised if the issuance of the shares
of Common Stock upon such exercise would constitute a violation of any
applicable federal or state securities laws or other applicable laws or
regulations. As a condition to the exercise of this option, the Committee may
require the person exercising this option to make such representations and agree
to such covenants as may be required by any applicable law or regulation.
4. Beneficiary Designation. Optionee may designate to the Committee, on
a form provided by the Company for that purpose, a beneficiary or beneficiaries
who shall be entitled to the benefits hereunder. Such designation may be
canceled or changed by Optionee, but no cancellation or change will be
recognized by the Committee unless effected in writing on a form provided by the
Committee for that purpose and filed with the Company.
5. Optionee's or Successor's Rights as Stockholders. Neither the
Optionee nor his successor(s) in interest shall have any rights as a stockholder
of the Company with respect to any shares subject to the options granted to the
Optionee hereunder until the Optionee or his successor in interest becomes a
holder of record of such shares and receives a certificate or certificates
representing such shares from the Company or its duly authorized agent, which
certificate or certificates shall be mailed to the Optionee or his successor in
interest (at the last known address of the Optionee or his successor in
interest) not later than ten (10) business days after the exercise of the Option
in accordance with the terms contained herein.
6. Regulatory Approval and Compliance. The Company shall not be
required to issue any certificate or certificates for shares of its Common Stock
upon the exercise of an option granted hereunder, or record as a holder of
record of such shares the name of the individual exercising any options granted
hereby, without obtaining, to the reasonable satisfaction of the Committee, the
approval of all regulatory bodies deemed necessary by the Committee, and without
complying, to the Committee's complete satisfaction, with all rules and
regulations, under federal, state or local law deemed applicable by the
Committee.
7. Non-transferabilitv of Option. Except as set forth herein, this
option may not be transferred in any manner otherwise than by will or the laws
of descent and distribution and may be exercised during the lifetime of the
Optionee only by him. The terms of this option shall be binding upon the
beneficiaries of Optionee.
3
<PAGE>
8. Adjustment of Exercise Price in the Event of Stock Dividends. Stock
Splits and Reverse Stock Splits. If the Company issues Common Stock or
convertible secunties by way of dividend or other general distribution to all of
the record holders of any stock of the Company or effects a stock split or
reverse stock split of the outstanding shares of Common Stock, the Exercise
Price shall be proportionately adjusted in the case of such issuance (on the day
following the date fixed for-determining stockholders entitled to receive such
dividend or other such reverse stock split (on the date that such stock split or
reverse stock split shall become effective), by mulffplying the Exercise Price
in effect immediately prior to the stock dividend, stock split or reverse stock
split by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately prior to such stock dividend, stock split or
reverse stock split, and the denominator of which is the number of shares of
Common Stock outstanding immediately after such stock dividend, stock split or
reverse stock split.
9. Adjustment of Number of Stock Issuable upon Exercise. Upon each
adjustment of the Exercise Price pursuant to Section 8 hereof, the Optionee
shall thereafter (until another such adjustment) be entitled to purchase, at the
Exercise Price in effect on the date purchase rights under this option are
exercised, the number of shares of Common Stock, calculated to the nearest whole
number of Common Stock, determined by (a) multiplying the number of shares of
Common Stock purchasable hereunder immediately prior to the adjustment of the
Exercise Price by the Exercise Price in effect immediately prior to such
adjustment, and (b) dividing the product so obtained by the Exercise Price in
effect on the date of such exercise.
10. Investment Intent. The options being received will be purchased
solely for Optionee's own account for investment purposes only and not for the
account of any other person and not for distribution, assignment or resale to
others. No other person has a direct or indirect beneficial interest in the
options or the shares of Common Stock underlying the options (the "Underlying
Shares"). Optionee has not subdivided the beneficial ownership of the options or
the Underlying Shares with any other person.
11. Transfer to Complv with the Securities Act of 1933.
(a) The Underlying Shares may not be offered or sold except in
compliance with the Securities Act of 1933 (the "Act"), or any similar federal
or state statute then in effect, and then only if such person to whom such offer
or sale is made agrees with the Company to comply with the provisions of this
Section 10 with respect to the restrictions for the resale or other disposition
of such securities contained herein.
(b) Prior to the disposition of any Underlying Shares under
circumstances that might require registration of the Underlying Shares under the
Act, or any similar federal or state statute then in effect, Optionee shall give
written notice to the Company, expressing his intention as to the disposition to
be made of such Underlying Shares. Promptly upon receiving such notice, the
Company shall present copies thereof to its counsel. If, in the opinion of such
counsel, the proposed disposition does not require registration under the Act,
or any similar federal or. state statute then in effect with respect to the
Underlying Shares, the Company shall, as promptly as practicable, notify
Optionee of such opinion, whereupon Optionee shall be entitled
4
<PAGE>
to dispose of such Underlying Shares, all in accordance with the terms of the
notice delivered by Optionee to the Company.
(c) The Company may cause a legend in substantially the form that
follows to be set forth on the certificate representing the Underlying Shares,
unless counsel for the Company is of the opinion as to any such certificate that
such legend is unnecessary:
The securities represented by this certificate can only be transferred
in compliance with the Securities Act of 1933 and all applicable state
securities laws. This stock option and the shares may not be sold,
transferred, or assigned in the absence of an effective registration
statement unless, in the opinion of counsel to the Company, such
registration is not then required.
12. Governing Law. This Stock Option and Agreement shall be governed by
and construed in accordance with the laws of the State of Florida.
DATE OF GRANT: __________________
GALACTICOMM TECHNOLOGIES, INC.
By: _________________________
Name:________________________
Title:_______________________
ATTEST:
______________________________
5
<PAGE>
_______
Date
Galacticomm Technologies, Inc.
4101 S.W. 47 Avenue
Suite i01
Ft. Lauderdale, Florida 33314
Attention: Compensation Committee
Re: Exercise of Nonqualified Stock Option
Dear Sir:
Please be advised that pursuant to the Stock Option and Agreement
("Agreement"), dated as of ___________ , 19_ between Galacticomm Technologies,
Inc. (the "Company") and the undersigned ("Optionee"), Optionee hereby exercises
the stock option ("Option") in the amount of _________ shares of common stock of
the Company and herewith tenders the following _________________________ ,
having an aggregate value of ________________ ($____), in payment for such
shares of common stock. Capitalized terms not otherwise defined herein are
defined as set forth in the Agreement.
Optionee requests stock certificates for such shares issued in the name
of __________________________ whose address is________________________________
and whose social security number is __________________.
Optionee hereby acknowledges, warrants and represents the following:
(1) Optionee's acknowledgements, representations, warranties and
agreements contained in the Agreement are true, complete and accurate as of the
date of this letter.
(2) The Option is presently exercisable and as such, has vested and has
not expired.
(3) Optionee is presently and has been in full compliance with all the
terms, conditions and provisions of the Agreement.
Sincerely,
_______________________________
Optionee
EXHIBIT 10.21
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is
entered into as of June 30, 1997, by and between GALACTICOMM TECHNOLOGIES, INC.
(formerly known as I-View Software, Inc.), a Florida corporation (the
"Company"), and YANNICK TESSIER (the "Executive").
RECITALS:
A. The Company entered into an Employment Agreement with the Executive
on November 21, 1996 (the "Original Agreement").
B. The Company and the Executive wish to amend and restate the Original
Agreement as set forth herein.
NOW THEREFORE, in consideration of the premise, and the respective
covenants and agreements of each of the Company and the Executive contained in
this Agreement, each of the Company and the Executive agrees as follows:
ARTICLE I
EMPLOYMENT
The Company employs the Executive and the Executive accepts such
employment in accordance with the terms hereof. Subject to the direction of the
Board of Directors of the Company, the Executive shall serve as President of the
Company. The Executive shall have such responsibilities, perform such duties and
exercise such power and authority as are inherent in, or incident to, the office
of President. The Executive shall devote such reasonable time to the performance
of his duties as an officer and employee of the Company as is necessary.
ARTICLE II
SALARY
2.1 SALARY. Commencing as of November 21, 1996 and continuing through
November 20, 1999, the Company shall pay to the Executive a salary of One
Hundred Seventy Five Thousand Dollars ($175,000) per annum (the "Salary") which
salary shall be automatically increased 10% per annum on a cumulative basis
during the term of this agreement on each anniversary date.
2.2 PAYMENT OF SALARY. Payments of Salary shall be made to the
Executive, in installments, from time to time on the same dates payments of
salary are generally made to all senior management employees of the Company.
<PAGE>
ARTICLE III
BONUS AND STOCK OPTIONS
3.1 Within 90 days after each fiscal year, the Compensation Committee
(the "Committee") of the Board of Directors shall determine, in its sole and
absolute discretion, the amount of the cash bonus, if any, to be paid to
Executive for his services to the Company for the preceding fiscal year. In
making its determination, the Committee shall consider all factors it deems
relevant, including, but not limited to, the financial condition, results of
operations and business of the Company and the efforts of the Executive in
assisting the Company in achieving its strategic objectives for the preceding
fiscal year.
3.2 The Company shall issue the Executive 720,000 options to purchase
the Company's common stock, par value $0.0001 per share, in accordance with the
terms of the Stock Option and Agreement attached hereto as Exhibit "A".
ARTICLE IV
EMPLOYMENT BENEFITS
4.1 GENERALLY. The Executive shall be entitled to receive all such
benefits and to participate in such benefit and incentive plans, programs and
arrangements as are generally provided from time to time by the Company to its
senior management employees.
4.2 AUTOMOBILE ALLOWANCE. The Company shall pay to the Executive a
monthly allowance of Six Hundred Dollars ($600) which shall be utilized by the
Executive, on a non-accountable basis, to pay for the costs and expenses
incurred by him in connection with the ownership or lease, repair, maintenance
and operation (including insurance expenses) of a late model automobile.
4.3 MEDICAL INSURANCE; TERM LIFE INSURANCE. The Company shall provide
group medical insurance coverage to the Executive or reimburse the Executive for
the cost of such coverage. The Company shall also provide $1,000,000 of term
life insurance naming such beneficiary thereof as the Executive may desire.
4.4 BUSINESS, TRAVEL AND ENTERTAINMENT. Upon submission of appropriate
evidence, the Company shall promptly pay or reimburse the Executive for all
reasonable business, travel and entertainment expenses incurred by the Executive
in connection with the performance of his duties and obligations hereunder.
2
<PAGE>
ARTICLE V
TERM AND TERMINATION OF EMPLOYMENT
5.1 TERM. The term of this Agreement shall be for a period of three
years, commencing as of November 21, 1996 and expiring on November 20, 1999.
5.2 TERMINATION OF EMPLOYMENT.
(a) Notwithstanding the provisions of Section 5.1 above:
(i) the employment of the Executive by the Company
shall automatically terminate upon the death of the Executive;
(ii) if the Executive shall suffer a Disability (as
such term is hereinafter defined), then the employment of the Executive by the
Company may be terminated by the Company;
(iii) the employment of the Executive by the Company
may be terminated at any time by the Company, either with or without Cause (as
such term is hereinafter defined); and
(iv) the employment of the Executive by the Company
may be terminated at any time by the Executive, either with or without Good
Reason (as such term is hereinafter defined).
(b) If the Company shall desire to terminate the Executive's
employment, or if the Executive shall desire to terminate the Executive's
employment by the Company, as contemplated by Section 5.2(a) above, then, in any
such event, the party causing such termination shall provide a Termination
Notice (as such term is hereinafter defined) to the other party.
5.3 PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) If the employment of the Executive by the Company shall be
terminated due to the Executive's death or Disability, then, in any such event,
the Company shall continue to pay to the Executive or his estate, heirs,
personal representatives or legal representatives, as the case may be, his
Salary (subject to applicable payroll and/or other taxes required by law to be
withheld) for a period of six months from and after the date of termination of
the Executive's employment by the Company.
(b) If the employment of the Executive by the Company shall be
terminated for any reason (other than by the Company due to the Executive's
death or Disability or with Cause, or by the Executive without Good Reason),
then, in any such event, the Company shall continue
3
<PAGE>
to pay to the Executive his Salary (subject to applicable payroll and/or other
taxes required by law to be withheld) for the greater of (A) the entire
remaining term of this Agreement or (B) twelve consecutive months from such
termination.
(c) If the employment of the Executive by the Company shall be
terminated by the Company with Cause or by the Executive without Good Reason,
then, in any such event, the Company shall continue to pay to the Executive his
Salary (subject to applicable payroll and/or other taxes required by law to be
withheld) through the Termination Date (as such term is hereinafter defined).
(d) If the employment of the Executive by the Company shall be
terminated for any reason, or if the term of this Agreement shall expire in
accordance with its terms, then, in any such event, the Company shall promptly
pay to the Executive all accrued but unpaid benefits to which he shall be
entitled on the date of termination of the Executive's employment by the
Company.
5.4 CERTAIN DEFINITIONS. The following terms shall have the following
respective meanings when utilized in this Article V:
(a) "Cause" shall mean any action by the Executive or any
inaction by the Executive which constitutes:
(i) fraud, embezzlement, misappropriation,
dishonesty or breach of trust;
(ii) a felony;
(iii) a material breach or violation of any or all
of the covenants, agreements and obligations of the Executive set forth in this
Agreement, other than as the result of the Executive's death or Disability;
(iv) a willful or knowing failure or refusal by the
Executive to perform any or all of his material duties and responsibilities as
an officer of the Company, other than as the result of the Executive's death or
Disability: or
(v) gross negligence by the Executive in the
performance of any or all of his material duties and responsibilities as an
officer of the Company, other than as a result of the Executive's death or
Disability;
provided, however, that if the basis for any termination of the Executive's
employment by the Company as set forth in the Termination Notice delivered by
the Company to the Executive is any or all of the definitions of Cause set forth
in Sections 5.4(a)(iii), 5.4(a)(iv) or 5.4(a)(v) of this Agreement, then, in
such event, the Executive shall have thirty (30) days from and after the date of
his receipt of such Termination Notice to present a reasonable plan to cure such
action or inaction specified in the Termination Notice, which plan may require
more than thirty (30)
4
<PAGE>
days to cure the specified action or inaction, but such plan must be reasonably
satisfactory to the Company and the Executive must proceed diligently to
effectuate such plan.
(b) "Disability" shall mean any mental or physical illness,
condition, disability, or incapacity which prevents the Executive from
reasonably discharging his duties and responsibilities as an officer of the
Company. If any disagreement or dispute shall arise between the Company and the
Executive as to whether the Executive suffers from any Disability, then, in such
event, the Executive shall submit to the physical or mental examination of a
physician licensed under the laws of the State of Florida, who is mutually
agreeable to the Company and the Executive, and such physician shall determine
whether the Executive suffers from any Disability. In the absence of fraud or
bad faith, the determination of such physician shall be final and binding upon
the Company and the Executive. The entire cost of such examination shall be paid
for solely by the Company.
(c) "Good Reason" shall mean:
(i) the assignment by the Board of Directors or the
Executive Committee of the Board of Directors to the Executive, without his
express written consent, of duties and responsibilities which results in the
Executive having significantly less duties and responsibilities or exercising
significantly less power and authority than he had, or duties and
responsibilities or power and authority not materially comparable to that of the
level and nature which he had, immediately prior to such assignment; provided,
however, that neither Executive nor Peter Berg shall have, directly or
indirectly, initiated or participated in said action by the Board of Directors
or Executive Committee;
(ii) the removal of the Executive from, or a failure
to reappoint the Executive to, his then current position or positions with the
Company or its subsidiaries or affiliates, except (A) with the Executive's
express written consent (B) in connection with any termination of the
Executive's employment by the Company as the result of the Executive's death or
Disability or with Cause or (C) upon nonrenewal of Executive's employment after
expiration of the initial employment term under this Agreement;
(iii) the reduction of the Executive's Salary or the
reduction of any or all of the Executive's benefits set forth in Article IV
above (unless such reduction shall have been in respect of reductions in group
benefits applicable to substantially all employees of the Company);
(iv) the Company's failure to perform on a timely
basis its obligations under this Agreement upon 30 days' prior notice from
Executive together with an opportunity to cure said nonperformance during such
period;
(v) the Board of Director's requiring the Executive,
without his express written consent, to change his place of permanent residency
to a place outside of Broward, Palm
5
<PAGE>
Beach or Dade County, Florida; provided, however, that neither Executive nor
Peter Berg shall have, directly or indirectly, initiated or participated in said
action by the Board of Directors or Executive Committee; or
(vi) the Company's moving its executive offices to a
place outside of Broward, Dade or Palm Beach County, Florida without the
Executive's express written consent; provided, however, that neither Executive
nor Peter Berg shall have, directly or indirectly, initiated or participated in
said action by the Board of Directors; or
(d) "Termination Date" shall mean a specific date not less
than forty-five (45) nor more than ninety (90) days from and after the date of
any Termination Notice upon which the Executive's employment by the Company
shall be terminated in accordance with the provisions of this Agreement.
(e) "Termination Notice" shall mean a written notice which
sets forth (i) the specific provision of this Agreement relied upon to terminate
the Executive's employment, (ii) in reasonable detail the facts and
circumstances claimed to provide the basis for the termination of the
Executive's employment, and (iii) a Termination Date.
5.5 SURVIVAL. All of the provisions of this Agreement, other than those
contained in Articles I, III, and IV hereof, shall survive the termination for
any reason of the Executive's employment by the Company or the expiration of the
term of this Agreement. The provisions of Article II of this Agreement shall
survive the termination for any reason of the Executive's employment by the
Company or the expiration of the term of this Agreement only to the extent set
forth in this Article V.
ARTICLE VI
Certain Restrictions on the Executive
6.1 CERTAIN RESTRICTIONS. The Executive covenants and agrees with the
Company as follows:
(a) He shall not at any time, directly or indirectly, for
himself or any other person, firm, corporation, partnership, association or
other entity (collectively, a "Person") which competes in any manner with the
Company or any of its subsidiaries or affiliates in any county or parish of any
state of the United States of America or its territories and possessions in
which the Company as of the date that the Executive's employment by the Company
is terminated for any reason or the term of this Agreement expires in accordance
with its terms, as the case may be, conducts its business directly or indirectly
through any of its subsidiaries or affiliates (collectively, the "Territory"),
employ, attempt to employ or enter into any contractual arrangement for
employment with, any employee or former employee of the Company or any of its
subsidiaries or affiliates, unless such former employee shall not have been
employed by the Company or any of its subsidiaries or affiliates for a period of
at least one year.
6
<PAGE>
(b) He shall not, during the term of his employment by the
Company and for a period of one year and after the date that his employment by
the Company is terminated for any reason or the term of this Agreement expires
in accordance with its terms, as the case may be, directly or indirectly, (i)
acquire or own in any manner any interest in, or loan any amount to, any Person
which competes in any manner with the Company or any of its subsidiaries or
affiliates in the Territory, (ii) be employed by or serve as an employee, agent,
officer, or director of, or as a consultant to, any Person, other than the
Company and its subsidiaries and affiliates, which competes in any manner with
the Company or its subsidiaries or affiliates in the Territory, or (iii) compete
in any manner with the Company or its subsidiaries or affiliates in the
Territory. The foregoing provisions of this Section 6.1 (b) shall not prevent
the Executive from acquiring and owning not more than five percent (5%) of the
equity securities of any Person whose securities are listed for trading on a
national securities exchange or are regularly traded in the over-the-counter
securities market.
(c) In the course of the Executive's employment by the Company, the
Executive will have access to confidential or proprietary information of the
Company and its subsidiaries and affiliates. The Executive shall not at any time
use any such confidential or proprietary information other than for the benefit
of the Company and its subsidiaries and affiliates. The term "confidential or
proprietary information" shall mean information not generally available to the
public, including without limitation personnel information, financial
information, customer lists, supplier lists, ownership information, marketing
plans and analyses, trade secrets, know-how, computer software, management
agreements and procedures and techniques of operating and managing the business
of the Company and its subsidiaries and affiliates. The Executive acknowledges
and agrees that all confidential or proprietary information is and shall remain
the property of the Company and its subsidiaries and affiliates, and agrees to
maintain all such confidential or proprietary information in confidence.
(d) DEVELOPMENTS. All inventions patentable, copyrightable or
otherwise, trade secrets, discoveries, improvements, ideas and writings
(hereinafter collectively termed "developments"), which Executive, alone or
jointly with others, has conceived, made, enhanced, modified, developed, or
acquired, or may conceive, make, enhance, modify, develop, or acquire during the
period of his employment hereunder or during an additional period of one (1)
year after the termination of such employment and which relate to the Company's
business of developing and marketing computer hardware and software, and all
developments which relate to the work upon which Executive shall have been
engaged while in the Company's employment, which Executive has conceived, made,
enhanced, modified, developed, or acquired, or may conceive, make, enhance,
modify, develop, or acquire during the period of his employment or during a
period of one (1) year after the termination of such employment, to the extent
that such developments are possessed by Executive at any time, shall be the sole
property of the Company. The term "development" shall include developments
conceived, devised, made, developed or perfected during off-duty hours and away
from the Company's premises as well as to those conceived, devised, made,
developed, or perfected in the regular course of employment.
7
<PAGE>
(e) DISCLOSURE AND COOPERATION. Executive shall promptly and fully
disclose in writing all such developments described in subparagraph (d) hereof
to the Company's Chief Executive Officer. Executive shall, at any time upon the
Company's request, whether or not then in the Company's employ, execute,
acknowledge and deliver to the Company all instruments which the Company shall
prepare, give evidence, and do all other things which are necessary or
desirable, to enable the Company to file and prosecute applications for, and to
acquire, maintain and enforce all patents, trademarks, copyrights, and any other
intellectual property rights in all countries, covering such developments. The
Company agrees to pay to Executive reasonable expenses incurred by Executive
under this subparagraph (e).
6.2 REMEDIES. It is recognized and acknowledged by each of the Company
and the Executive that a breach or violation by the Executive of any or all of
his covenants and agreements contained in Section 6.1 of this Agreement will
cause irreparable harm and damage to the Company and its subsidiaries and
affiliates in a monetary amount which would be virtually impossible to ascertain
and, therefore, will deprive the Company of an adequate remedy at law.
Accordingly, if the Executive shall breach or violate any or all of his
covenants and agreements set forth in Section 6.1 hereof, then the Company and
its subsidiaries and affiliates shall have resort to all equitable remedies,
including without limitation the remedies of specific performance and
injunction, both permanent and temporary, as well as all other remedies which
may be available at law.
6.3 INTENT. It is the intent of the parties that the restrictions set
forth in Section 6.1 hereof shall be enforced to the fullest extent permissible
under the laws and public policies of each jurisdiction in which enforcement of
such restrictions may be sought. If any provision contained in Section 6.1
hereof shall be adjudicated by a court of competent jurisdiction to be invalid
or unenforceable because of its duration or geographic scope, then such
provision shall be reduced by such court in duration or geographic scope or both
to such extent as to make it valid and enforceable in the jurisdiction where
such court is located, and in ail other respects shall remain in full force and
effect.
ARTICLE VII
INDEMNIFICATION
The Company shall indemnify auld hold harmless the Executive from and
against the full amount of any and all claims, demands, suits, actions,
judgements, losses, liabilities, costs, interest and expenses, including without
limitation fees and disbursements of trial and appellate counsel, asserted or
brought against the Executive by any Person with respect to any action taken or
omitted to be taken by the Executive in the course of his employment by the
Company or otherwise related to or arising out of his employment by the Company
or acting as a director, officer, employee or agent of the Company or any of its
subsidiaries or affiliates. This right to indemnification shall be in effect to
the fullest extent available pursuant to law, and shall be in addition to any
other right to indemnification the Executive may possess pursuant to law and the
Articles of Incorporation and Bylaws of the Company or any of its subsidiaries
or affiliates.
8
<PAGE>
ARTICLE VIII
ATTORNEYS' FEES
In the event that any litigation shall arise between the Company and
the Executive based, in whole or in part, upon this Agreement or any or all of
the provisions contained herein, then, in any such event, the prevailing party
in any such litigation shall be entitled to recover from the non-prevailing
party, and shall be awarded by a court of competent jurisdiction, any and all
reasonable fees and disbursements of trial and appellate counsel paid, incurred
or suffered by such prevailing party as the result of, arising from, or in
connection with, any such litigation.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 GOVERNING LAW. This Agreement shall be governed by, and shall be
construed and interpreted in accordance, with the laws of the State of Florida.
9.2 NOTICES. Any and all notices and other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed to have been duly given when delivered by hand, or when delivered by
United States mail, by registered or certified mail, postage prepaid, return
receipt requested, to the respective parties at the following respective
addresses:
If to the Company: Galacticomm Technologies, Inc.
4101 S.W. 47 Avenue
Suite 101
Ft. Lauderdale, Florida 33314
If to the Executive: Yannick Tessier
10931 N.W. 3rd Street
Plantation, Florida 33324
or to such other address as either party may from time to time give written
notice of to the other in accordance with the provisions of this Section 9.2.
9.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Company and the Executive with respect to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
arrangements, both oral and written, between the Company and the Executive with
respect to such subject matter.
9.4 AMENDMENTS. This Agreement may not be amended or modified in any
manner, except by a written instrument executed by each of the Company and the
Executive.
9.5 BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of, and shall be binding upon, each of the Company and the Executive and their
respective heirs, personal representatives, executors, legal representatives,
successors and assigns.
9
<PAGE>
9.6 SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part hereof, all of which are inserted conditionally on their being valid in
law. Except as otherwise provided in Section 6.3 above, if any one or more of
the words, phrases, sentences, clauses or sections contained in this Agreement
shall be declared invalid by any court of competent jurisdiction, then, in any
such event, this Agreement shall be construed as if such invalid word or words,
phrase or phrases, sentence or sentences, clause or clauses, or section or
sections had not been inserted.
9.7 NO WAIVERS. The waiver by either party of a breach or violation of
any provision of this Agreement by the other party shall not operate nor be
construed as a waiver of any subsequent breach or violation. The waiver by
either party to exercise any right or remedy it or he may possess shall not
operate nor be construed as a bar to the exercise of such right or remedy by
such party upon the occurrence of any subsequent breach or violation.
9.8 JURISDICTION AND VENUE; SERVICE OF PROCESS. Any claim or dispute
arising out of, connected with, or in any way related to this Agreement which
results in litigation shall be instituted by the complaining party and
adjudicated either in the federal or state courts located in Broward County,
Florida and each of the parties to this Agreement consent to the personal
jurisdiction of and venue in such courts. In no event shall either party to this
Agreement contest the jurisdiction or venue of such courts with respect to any
such litigation. Each of the Company and the Executive agrees that service of
any process, summons, notice or document, by United States registered or
certified mail, to its or his address set forth in or as provided in Section 9.2
above shall be effective service of such process, summons, notice or document
for any action, suit or proceeding brought against it or him by the other party
in the federal or state courts located in Broward County, Florida.
9.9 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of any or all of the provisions hereof.
9.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the separate parties in separate counterparts, each of which
shall be deemed to constitute an original and all of which shall be deemed to
constitute the one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has executed and
delivered this Agreement as of the date first written above.
GALACTICOMM TECHNOLOGIES, INC.
/S/ YANNICK TESSIER By:/S/ PETER BERG
- ------------------------------ ---------------------------
Yannick Tessier Name: /S/ PETER BERG
------------------------
Title: /S/ CHIEF EXECUTIVE OFFICER
---------------------------
10
<PAGE>
EXHIBIT "A"
THIS STOCK OPTION AND THE COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF CAN BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933 AND APPLICABLE
STATE SECURITIES LAWS. THIS STOCK OPTION AND THE SHARES MAY NOT BE SOLD,
TRANSFERRED, OR ASSIGNED IN 1111; ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNLESS, IN THE OPINION OF COUNSEL TO THE COMPANY, SUCH REGISTRATION IS NOT THEN
REQUIRED.
GALACTICOMM TECHNOLOGIES, INC.
STOCK OPTION AND AGREEMENT
THIS STOCK OPTION ("option[s]") for a total of 720,000 shares of common
stock, par value $.0001 per share (the "Common Stock"), of Galacticomm
Technologies, Inc., a Florida corporation (the "Company"), has been granted to
Yannick Tessier ("Optionee"), one of the Company's key personnel, at the price
and subject to the terms and conditions contained herein.
1. Exercise Price. The exercise price (the "Exercise Price") of all
options granted hereunder is $0.92 for each share of Common Stock.
2. Term and Vesting. Subject to the terms and conditions contained
herein, this option shall be exercisable in any order for an amount of shares
not to exceed 720,000 shares of Common Stock, provided that the rights of
Optionee hereunder to exercise the options shall vest in accordance with the
following schedule:
(a) At any time on or after November 21, 1997, Optionee may exercise
this option to the extent of one-third of the options granted hereby;
(b) At any time on or after November 21, 1998, Optionee may exercise
this option to the extent of an additional one-third of the options granted
hereby; and
(c) At any time after November 21, 1999, Optionee may exercise this
option to the extent of the balance of the options granted hereby.
3. Exercise of Option. This option shall be exercisable as follows:
(a) Time and Manner of Exercise of Option.
(i) No portion of the option may be exercised more than five years from
the respective vesting dates set forth in Sections 2(a), (b) and (c) hereof.
(ii) If Optionee's employment with the Company is terminated with
"cause" pursuant to the terms of Optionee's Employment Agreement, dated as of
November 21, 1996 (as amended), between Optionee and the Company (the
"Employment Agreement"), the Optionee shall forfeit the right to exercise all
non-vested options granted hereunder and payment
<PAGE>
for the exercise of all options which were vested on the date of such
termination of employment shall be made to the Company in accordance with
Section 3(b) hereof within the earlier of ten (10) days of such termination of
employment or the date by which the vested options expire by the terms hereof.
(iii) If the Optionee dies, the options granted hereunder which have
vested as of the Optionee's death may be exercised within one (1) year after the
date of Optionee's death or prior to the date on which the vested option expires
by its terms, whichever is earlier, by the estate of the Optionee, or by any
person or persons whom Optionee shall have designated in writing in documents
filed with the Company or, if no such designation has been made, by the person
or persons to whom Optionee's rights hereunder shall have passed by will or the
laws of descent and distribution.
(iv) Upon the sale of all or substantially all of the assets of the
Company, the transfer of a controlling equity interest (as hereinafter defined)
in the Company, all outstanding options shall automatically vest and shall be
exercisable on the closing date of such transaction. Written notice of not less
than twenty (20) days shall be given by the Company to the Optionee of the
anticipated closing date of any such transaction. If such closing date changes,
the Company shall provide written notice of the new closing date as soon as
practicable to the Optionee. Any options not so exercised by the Optionee shall
be null and void if not exercised on such closing date. As used herein, the term
"controlling equity interest" shall mean the ability of any person, entity or
group to direct the management and policies of the Company.
(v) Each option granted hereunder shall be deemed exercised when
Optionee shall indicate his decision to do so in writing to the Company in
accordance with Section 3(b) hereof, and shall at the same time tender to the
Company payment in full in cash for the shares as to which the option is
exercised. The options granted hereunder may be exercised as to any lesser
number of shares than the full amount for which the options could be exercised.
Such a partial exercise of an option shall not affect the right to exercise the
option as to the remaining shares subject to the option. The right to exercise
this option shall be cumulative so that when the right to exercise an option has
vested, the shares eligible for purchase hereunder may be purchased at any time
thereafter until the expiration of the option pursuant to this Section 3(a).
(b) Method of Exercise. This option shall be exercisable by a written
notice which shall:
(i) state the election to exercise the option, the number of shares in
respect of which it is being exercised, the person in whose name the stock
certificate(s) for such shares of Common Stock is to be registered, his or her
address and Social Security Number (or if more than one, the names, addresses
and Social Security numbers of such persons);
(ii) be signed by the person or persons entitled to exercise the option
and, if the option is being exercised by any person(s) other than the Optionee,
be accompanied by proof, satisfactory to counsel for the Company, of the right
of such person(s) to exercise the Option; and
2
<PAGE>
(iii) be delivered in person or by certified mail to the Compensation
Committee of the Company's Board of Directors (the "Committee").
(c) Payment. Payment of the purchase price (the "Purchase Price") of
any shares with respect to which the option is being exercised shall be: (i) in
cash; (ii) by certified or bank check payable to the order of the Company; (iii)
by the delivery of unexercised options or shares of Common Stock having a fair
market value equal to the Purchase Price, or (iv) by any combination of the
foregoing having a fair market value equal to the Purchase Price. The Company
shall withhold from the shares of Common Stock to be issued upon the exercise of
this Option that number of shares of Common Stock having a fair market value
equal to the tax withholding amount due.
(d) Restrictions on Exercise. Notwithstanding anything contained herein
to the contrary, this option may not be exercised if the issuance of the shares
of Common Stock upon such exercise would constitute a violation of any
applicable federal or state securities laws or other applicable laws or
regulations. As a condition to the exercise of this option, the Committee may
require the person exercising this option to make such representations and agree
to such covenants as may be required by any applicable law or regulation.
4. Beneficiary Designation. Optionee may designate to the Committee, on
a form provided by the Company for that purpose, a beneficiary or beneficiaries
who shall be entitled to the benefits hereunder. Such designation may be
canceled or changed by Optionee, but no cancellation or change will be
recognized by the Committee unless effected in writing on a form provided by the
Committee for that purpose and filed with the Company.
5. Optionee's or Successor's Rights as Stockholders. Neither the
Optionee nor his successor(s) in interest shall have any rights as a stockholder
of the Company with respect to any shares subject to the options granted to the
Optionee hereunder until the Optionee or his successor in interest becomes a
holder of record of such shares and receives a certificate or certificates
representing such shares from the Company or its duly authorized agent, which
certificate or certificates shall be mailed to the Optionee or his successor in
interest (at the last known address of the Optionee or his successor in
interest) not later than ten (10) business days after the exercise of the Option
in accordance with the terms contained herein.
6. Regulatory Approval and Compliance. The Company shall not be
required to issue any certificate or certificates for shares of its Common Stock
upon the exercise of an option granted hereunder, or record as a holder of
record of such shares the name of the individual exercising any options granted
hereby, without obtaining, to the reasonable satisfaction of the Committee, the
approval of all regulatory bodies deemed necessary by the Committee, and without
complying, to the Committee's complete satisfaction, with all rules and
regulations, under federal, state or local law deemed applicable by the
Committee.
7. Non-transferabilitv of Option. Except as set forth herein, this
option may not be transferred in any manner otherwise than by will or the laws
of descent and distribution and may be exercised during the lifetime of the
Optionee only by him. The terms of this option shall be binding upon the
beneficiaries of Optionee.
3
<PAGE>
8. Adjustment of Exercise Price in the Event of Stock Dividends. Stock
Splits and Reverse Stock Splits. If the Company issues Common Stock or
convertible secunties by way of dividend or other general distribution to all of
the record holders of any stock of the Company or effects a stock split or
reverse stock split of the outstanding shares of Common Stock, the Exercise
Price shall be proportionately adjusted in the case of such issuance (on the day
following the date fixed for-determining stockholders entitled to receive such
dividend or other such reverse stock split (on the date that such stock split or
reverse stock split shall become effective), by mulffplying the Exercise Price
in effect immediately prior to the stock dividend, stock split or reverse stock
split by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately prior to such stock dividend, stock split or
reverse stock split, and the denominator of which is the number of shares of
Common Stock outstanding immediately after such stock dividend, stock split or
reverse stock split.
9. Adjustment of Number of Stock Issuable upon Exercise. Upon each
adjustment of the Exercise Price pursuant to Section 8 hereof, the Optionee
shall thereafter (until another such adjustment) be entitled to purchase, at the
Exercise Price in effect on the date purchase rights under this option are
exercised, the number of shares of Common Stock, calculated to the nearest whole
number of Common Stock, determined by (a) multiplying the number of shares of
Common Stock purchasable hereunder immediately prior to the adjustment of the
Exercise Price by the Exercise Price in effect immediately prior to such
adjustment, and (b) dividing the product so obtained by the Exercise Price in
effect on the date of such exercise.
10. Investment Intent. The options being received will be purchased
solely for Optionee's own account for investment purposes only and not for the
account of any other person and not for distribution, assignment or resale to
others. No other person has a direct or indirect beneficial interest in the
options or the shares of Common Stock underlying the options (the "Underlying
Shares"). Optionee has not subdivided the beneficial ownership of the options or
the Underlying Shares with any other person.
11. Transfer to Complv with the Securities Act of 1933.
(a) The Underlying Shares may not be offered or sold except in
compliance with the Securities Act of 1933 (the "Act"), or any similar federal
or state statute then in effect, and then only if such person to whom such offer
or sale is made agrees with the Company to comply with the provisions of this
Section 10 with respect to the restrictions for the resale or other disposition
of such securities contained herein.
(b) Prior to the disposition of any Underlying Shares under
circumstances that might require registration of the Underlying Shares under the
Act, or any similar federal or state statute then in effect, Optionee shall give
written notice to the Company, expressing his intention as to the disposition to
be made of such Underlying Shares. Promptly upon receiving such notice, the
Company shall present copies thereof to its counsel. If, in the opinion of such
counsel, the proposed disposition does not require registration under the Act,
or any similar federal or. state statute then in effect with respect to the
Underlying Shares, the Company shall, as promptly as practicable, notify
Optionee of such opinion, whereupon Optionee shall be entitled
4
<PAGE>
to dispose of such Underlying Shares, all in accordance with the terms of the
notice delivered by Optionee to the Company.
(c) The Company may cause a legend in substantially the form that
follows to be set forth on the certificate representing the Underlying Shares,
unless counsel for the Company is of the opinion as to any such certificate that
such legend is unnecessary:
The securities represented by this certificate can only be transferred
in compliance with the Securities Act of 1933 and all applicable state
securities laws. This stock option and the shares may not be sold,
transferred, or assigned in the absence of an effective registration
statement unless, in the opinion of counsel to the Company, such
registration is not then required.
12. Governing Law. This Stock Option and Agreement shall be governed by
and construed in accordance with the laws of the State of Florida.
DATE OF GRANT: __________________
GALACTICOMM TECHNOLOGIES, INC.
By: _________________________
Name:________________________
Title:_______________________
ATTEST:
______________________________
5
<PAGE>
_______
Date
Galacticomm Technologies, Inc.
4101 S.W. 47 Avenue
Suite i01
Ft. Lauderdale, Florida 33314
Attention: Compensation Committee
Re: Exercise of Nonqualified Stock Option
Dear Sir:
Please be advised that pursuant to the Stock Option and Agreement
("Agreement"), dated as of ___________ , 19_ between Galacticomm Technologies,
Inc. (the "Company") and the undersigned ("Optionee"), Optionee hereby exercises
the stock option ("Option") in the amount of _________ shares of common stock of
the Company and herewith tenders the following _________________________ ,
having an aggregate value of ________________ ($____), in payment for such
shares of common stock. Capitalized terms not otherwise defined herein are
defined as set forth in the Agreement.
Optionee requests stock certificates for such shares issued in the name
of __________________________ whose address is________________________________
and whose social security number is __________________.
Optionee hereby acknowledges, warrants and represents the following:
(1) Optionee's acknowledgements, representations, warranties and
agreements contained in the Agreement are true, complete and accurate as of the
date of this letter.
(2) The Option is presently exercisable and as such, has vested and has
not expired.
(3) Optionee is presently and has been in full compliance with all the
terms, conditions and provisions of the Agreement.
Sincerely,
_______________________________
Optionee
EXHIBIT 10.26
CAPITAL BANK
PROMISSORY NOTE
Customer No. 5500003334
$200,000.00
Date: NOVEMBER 5, 1997
Maturity Date: DEMAND
[X] IF CHECKED, THIS NOTE IS A MASTER NOTE (See Section 5)
[ ] IF CHECKED, THIS NOTE IS A RENEWAL
FOR VALUE RECEIVED, the undersigned ("Borrower") promise(s) to pay to the
order of CAPITAL BANK, a Florida banking corporation ("Bank"), at the office of
Bank at 1221 Brickell Avenue, Miami, Florida 33131, or at such other place or
places as the holder of this Note from time to time may designate in writing,
the principal sum OF TWO HUNDRED THOUSAND AND 00/100 DOLLARS ($ 200,000.00 ) in
lawful money of The United States (The "Loan"), together with interest in like
lawful money from the date funds are advanced under this Note at the applicable
annual rate set forth below, to be computed on the basis of the actual number of
days elapsed and a year of 360 days. Borrower and all endorsers, sureties,
guarantors and any other persons liable or to become liable with respect to the
Loan are each included in the term "Obligor" as used in this Note.
I . PAYMENTS. Borrower shall pay the interest and principal of this Note
as follows:
(A) PRINCIPAL: DUE AND PAYABLE ON DEMAND
(B) INTEREST: DUE AND PAYABLE MONTHLY COMMENCING DECEMBER 5,1997
Borrower shall pay all amounts owing under this Note in full when due
without set-off, counterclaim, deduction or withholding for any reason
whatsoever. If any payment falls due on a day other than a day on which Bank is
open for business (a "Business Day"), then such payment shall instead be made on
the next succeeding Business Day, and interest shall accrue accordingly. Any
payment received by Bank after 2:00 P.M. shall not be credited against the
indebtedness under this Note until at least the next succeeding Business Day.
2. INTEREST RATE. The unpaid principal balance of the Loan shall bear
interest at:
[X] A floating rate of interest equal to ONE AND 50/100 percent
(1.50%) over the Wall Street Journal Prime Rate per annum, subject to
provisions of Section 4 of this Note, with the floating interest rate
under this Note to be adjusted on the first day of each month.
Prime Rate shall mean, at any time, the rate of interest quoted in
the Wall Street Journal, Money Rates Section as the "Prime Rate"
(currently defined as the base rate on corporate loans posted by at
least 75% of the nation's thirty (30) largest banks), with the Prime
Rate in effect on the first day of a month being applicable to the
entire month, in the event that the Wall Street Journal quotes more
than one rate, or a range of rates as the Prime Rate, then the Prime
Rate shall mean the average of the quoted rates. In the event that
the Wall Street Journal ceases to publish a prime Rate, then the
Prime Rate shall be the average of the three largest U.S. money
center commercial Banks, as determined by Bank); or
[ ] A fixed interest rate of ______________ percent (________%)
per annum.
3. SECURITY INTEREST. As security for the payment of this Note, and any
renewals, extensions or modifications hereof, and any other liabilities,
indebtedness or obligations of Borrower to Bank, however or whenever created,
Borrower hereby grants to Bank a security interest in any and all collateral
pledged to the Bank as set forth below and any and all other collateral now or
hereafter pledged to the Bank pursuant to a security agreement which provides
for such security interest: ALL INVENTORY, ACCOUNTS, CONTRACT RIGHTS, GENERAL
INTANGIBLES, FURNITURE, MIXTURES, LEASEHOLD IMPROVEMENTS AND EQUIPMENT, WHEREVER
SITUATED, NOW OWNED BY THE BORROWER OR HEREAFTER ACQUIRED, TOGETHER WITH THE
PROCEEDS OF THE ABOVE DESCRIBED COLLATERAL AS SECURITY FOR PRESENT AND FUTURE
ADVANCES.
including all proceeds and products thereof and rights in connection therewith.
Whether or not specific property is described above, as additional security
for the payment of this Note, any renewals, extensions or modifications thereof,
and any other liabilities of Borrower to Bank, however or whenever created,
Borrower hereby pledges, assigns and grants to Bank, a security interest in and
lien on any and all property of Borrower of every kind (whether tangible or
intangible) now or hereafter delivered to or left in or coming into the actual
or constructive possession, control or custody of Bank, whether expressly as
collateral security or for any other purpose (including cash, deposits,
accounts, bills, checks, drafts, collections, balances, notes, stocks, dividends
and all rights to subscribe for securities incident to, declared, or granted in
connection with such property), and property described in collateral receipts or
other documents signed or furnished by Borrower, and any and all replacements of
any of the foregoing, whether or not in the possession of Bank. All such
property and all other property securing Borrower's liabilities to Bank will
hereinafter be referred to as the "Collateral". The Collateral shall also serve
as security for all other liabilities (primary, secondary, direct, contingent,
sole, joint or several), due or to become due or which may be hereafter
connected or acquired, of each Obligor as defined above) to Bank, whether such
liabilities arise in the ordinary course of business or not. It is expressly
agreed that if the Collateral or a portion thereof is real estate, all
covenants, conditions and agreements contained in the mortgage are hereby made a
part of this Note and a default thereunder is a default under this Note. It is
further agreed that if a separate security agreement is executed by any Obligor,
all covenants, conditions and agreements contained in the security agreement are
made a part of this Note to the extent that the terms of the security agreement
are consistent with the terms of this Note and a default thereunder is a default
under this Note. Bank may continue to hold any Collateral after the payment of
this Note, if at the time of the payment and discharge hereof, Borrower or any
other Obligor shall be then directly or contingently liable to Bank, as
borrowers endorser, surety or guarantor of any other note, draft, bill of
exchange, or other instrument, or otherwise, and Bank may thereafter exercise
the rights with respect to the Collateral granted herein even though this Note
shall have been surrendered to Borrower. Any married person who signs this Note
hereby expressly agrees that recourse may be had against his or her separate
property for any obligation secured by the Collateral under this Note.
(a) Additions to, releases, reductions or exchanges of, or
substitutions for the Collateral, payments on account of the Loan or increases
of the same, or other loans made partially or wholly upon the Collateral, may
from time to time be made without affecting the provisions of this Note or
liabilities of any Obligor hereto. Bank shall have no responsibility for
ascertaining any maturities, calls, conversions, exchanges, offers, tenders or
similar matters relating to any of the Collateral, nor for informing thE
undersigned with respect to any thereof. Bank shall not be bound to take any
steps necessary to preserve any rights in the Collateral against prior parties,
and Borrower shall take all necessary steps for such purposes. Bank or its
nominee need not collect dividends or interest on or principal of any Collateral
or give any notice with respect to it.
(b) Bank shall have, without limitations the following rights, each of
which may be exercised at Bank's sole discretion at any time whether or not this
Note is due: (i) to pledge, assign, sell, transfer or otherwise dispose of this
Note and the Collateral, whereupon Bank shall be relieved of all duties and
responsibilities and relieved from any and all liability with respect to any
Collateral so pledged or transferred, and any pledgee or transferee shall for
all purposes stand in the place of Bank hereunder and have all the rights of
Bank hereunder; (ii) to transfer the whole or any part of the Collateral into
the nature of itself or its nominee; (iii) to notify the Obligors on any
Collateral to make payment to Bank of any amounts due or to become due on any
Collateral and hold same as additional Collateral and upon an occurrence of an
Event of Default (as defined in Section 6 of this Note) apply it to the
principal or interest hereon or to any liabilities secured hereby; (iv) to
demand, sue for, collect, or make any compromise or settlement it deems
desirable with respect to the Collateral; and (v) to take possession or control
of any proceeds of the Collateral.
4. MAXIMUM INTEREST RATE. In no event shall any agreed or actual exaction
charged, reserved or taken as an advance or forbearance by Bank as consideration
for, the Loan exceed the limits (if any) imposed or provided by the law
applicable from time to time to the loan for the use of detention of money or
for forbearance in seeking its collection, and bank hereby waives any right to
demand such excess. If the floating rate of
<PAGE>
interest is based on the Prime Rate (as set forth in Section 2 of this Note)
should increase above such maximum interest rate permitted by applicable law (if
any), then notwithstanding any contrary provision in this Note or any other Loan
Document (as defined in Section 6 of this Note) and without necessity of further
agreement or notice by Bank or any Obligor, the unpaid principal balance of the
Loan, shall thereupon bear interest at such maximum lawful rate. If the floating
interest rate should thereafter decrease below such maximum lawful rate, the
Loan shall nevertheless continue to bear interest at such maximum lawful rate
until Bank receives the full amount of interest delayed by application of such
maximum lawful rate under this paragraph, at which time the Loan shall once
again bear interest at the then applicable floating interest rate under Section
2. In the event that the interest provisions of this Note or any exactions
provided for in this Note or any other Loan Document (as defined in Section 6 of
this Note) shall result at any time or for any reason in an effective rate of
interest that transcends the maximum interest rate permitted by applicable law
(if any), then without further agreement or notice the obligation to be
fulfilled shall be automatically reduced to such limit and all sums received by
Bank in excess of those lawfully collectible as interest shall be applied
against the principal of the Loan immediately upon Bank's receipt thereof, with
The same force and effect as though the payor had specifically designated such
extra sums to be so applied to principal and Bank had agreed to accept such
extra payments(s) as a premium-free prepayment or prepayments. During any time
that the Loan bears interest at the maximum lawful rate (whether by application
of this paragraph, the Default Rate provisions of this Note or otherwise),
interest shall be computed on the basis of the actual number of days elapsed and
the actual number of days in the respective calendar year. Pursuant to Florida
Statutes, Section 687.12, the interest rate charged is authorized by Florida
Statutes, Chapter 665.
5. MASTER NOTE. If this Note is a Master Note, Borrower is extended a
non-binding, discretionary line of credit up to but not to exceed The amount
shown herein. Bank, in its sole discretion, may make advances pursuant to this
Note from time to time and it is therefore contemplated that the outstanding
balance may fluctuate accordingly. Nothing herein shall be construed as a
warranty or representation by Bank that it will at any time make advances to
Borrower. Any request for an advance under this Note shall be subject to review
and approval by bank. Borrower hereby agrees to pay any additional fees imposed
by the State of Florida including additional documentary stamp tax or intangible
tax when advances are made under the line of credit or upon any renewals
thereof.
6. EVENTS OF DEFAULT. The entire unpaid principal balance of the Loan,
together with all unpaid interest accrued thereon and all other sums owing under
THIS Note or any other instrument or document executed by any Obligor in
connection with the Loan (this Note and all such instruments and documents,
including, without limitation, any guaranties, agreements, undertakings,
contracts, mortgages, security agreements, assignments and other documents
executed to secure the Loan being referred to in this Note as the "Loan
Documents"), shall at the option of Bank become immediately due and payable
without notice or demand upon the occurrence of any one or more of the following
events ("events of default"), regardless of the cause thereof and whether within
or beyond the control of any Obligor: (a) the failure of any Obligor to pay any
sum when due under this Note, or the failure of any Obligor to pay any other sum
when due under any other Loan Document (and the expiration of any applicable
grace period provided in such Loan Document for that payment); (b) the failure
of any Obligor to observe or perform any covenant or agreement in any Loan
Document, or the occurrence of any other default (whether concerned with the
payment of money or otherwise) under any Loan Document, and the expiration of
any applicable grace period provided in such Loan Document for the cure of that
failure or default; (c) if any representation, warranty, affidavit, certificate
or statement made or delivered to Bank by any Obligor or on any Obligor's
behalf from time to time in connection with the Loan shall be deemed by Bank to
be false, incorrect or misleading; (d) the death or mental or physical
incapacity of any Obligor who is a natural person, or the dissolution or merger
or consolidation or termination of existence of any other Obligor, or the
failure or cessation or liquidation of the business of any Obligor, or a
material change in the business of any Obligor, or if the person(s) controlling
any Obligor which is a business entity shall take any action authorizing or
leading to the same; (e) if any Obligor shall default in the payment of any
indebtedness for borrowed money (whether direct or contingent or whether matured
or accelerated) to Bank or to any person whomsoever, including, without
limitation, any affiliate or subsidiary of Bank, or if any Obligor shall become
insolvent or unable to pay such Obligor's debts as they become due; (f) the
anticipatory repudiation by any Obligor of that Obligor's obligations under the
Loan Documents, or any declaration by any Obligor of intention not to perform
any such obligations as and when the same become due; (g) the disposition, sale,
transfer or exchange of all or a substantial part of any Obligor's assets, or
the entry of any judgment against any Obligor, or the issuance of any levy,
attachment, charging order, garnishment or other process against any property of
any Obligor or The filing of any lien against any such property (and the
expiration of any grace period provided in any Loan Document for the discharge
of such lien); (h) if any Obligor shall make an assignment for the benefit of
creditors, file a petition in bankruptcy, apply to or petition any tribunal for
the appointment of a custodian, receiver, intervenor or trustee for such Obligor
or a substantial part of such Obligor's assets, or if any Obligor shall commence
any proceeding under any bankruptcy, arrangement, readjustment or debt,
dissolution or liquidation under any law or statute of any jurisdiction,
whether now or hereinafter in effect, or if any such petition or application
shall have been filed or proceeding commenced against any obligor, or if any
such custodian, receiver, intervenor or trustee shall have been appointed; (i)
if any obligor shall have concealed, transferred, removed or permitted to be
concealed or transferred or removed, any part of such Obligor's property with
intent to hinder, delay or defraud any such Obligor's creditors, or if any
Obligor shall have made or suffered a transfer of any such Obligor's properties
which may be invalid under any bankruptcy, fraudulent conveyance, preference or
similar law, or if any Obligor shall have made any transfer of such Obligor's
properties to or for the benefit of any creditor at a time when other creditors
similarly situated have not been paid; (j) the failure to obtain any permit,
license, approval or consent from, or to make any filing with, any federal,
state or municipal governmental authority (or the lapse or revocation or
rescission thereof once obtained or made) which is necessary in connection with
the execution or delivery of any Loan Document, the making of the Loan, the
performance of any Obligor's obligations under any Loan Document, or the
enforcement of any Loan Document; (k) if it shall become unlawful for Bank to
extend credit to Borrower, or to maintain any credit so extended, or for any
Obligor the performance of any of such Obligor's obligations under any Loan
Document: (1) if any governmental authority (or any person acting or purporting
to act under government authority) shall take any action to condemn, assume
custody or control of, seize or appropriate all or any part of any Obligor's
property in which the value taken is equal to or greater than ten percent (10%)
of the fair market value of the property, or displace the management of such
Obligor's business; (m) in the case of any Obligor then residing or located in
any jurisdiction outside the United States, if such jurisdiction shall impose
any moratorium or suspension on the repayment of its foreign indebtedness or any
substantial portion thereof, or if such jurisdiction shall declare that it is
not liable or responsible for or will not honor its foreign indebtedness or any
substantial portion thereof; (n) the failure of any Obligor, after request by
Bank, to furnish financial information or additional financial information or to
permit examination and inspection of the Collateral and/or of Obligor's books
and records; (o) in the case of any Obligor that is a corporation, the payment
of any dividends, or the distribution of earnings, by such Obligor to its
stockholders without the prior written consent of Bank; (p) the further granting
by any Obligor of a security interest in any of the collateral without the prior
written consent of bank; (q) the failure to do all things necessary to preserve
and maintain the value and collectibility of the Collateral, including, but not
limited to, the payment of taxes and premiums on policies of insurance on the
due date without benefit of the grace period; or if at any time Bank deems
itself insecure for any reason whatsoever (notwithstanding any grace period IN
any Loan Document), or if any change or event shall occur which in Bank's
exclusive judgment impairs any security for the Loan, increases Bank's risk in
connection with the Loan, or indicates that any Obligor may be unable to perform
such Obligor's obligations under any Loan Document.
7. LATE PENALTY AND DEFAULT RATE OF INTEREST. Borrower shall pay to Bank a
late charge of five percent (5 %) of ANY payment not received by Bank within
fifteen (15) days of its due date; provided, however, if said fifteen (15) day
period ends on a day other than a Business Day, then the aforedescribed late
charge shall be payable if the payment is not received by the last Business Day
within said fifteen (15) day period. At Bank's sole option the entire unpaid
principal balance of the Loan and any other sums owing under any Loan Document
shall bear interest until paid at an augmented annual rate (the "Default Rate")
from and after the occurrence and during the continuation of any Event of
Default, regardless of whether Bank also elects to accelerate the maturity of
the Loan; provided, however, that after judgment all such sums shall bear
interest at the greater of the Default Rate or the rate prescribed by applicable
law for judgments. At Bank's sole option, all interest which accrues at the
Default Rate shall be due and payable on Bank's demand from time to time, but
absent such demand shall be due and payable on the regularly scheduled dates for
interest payments under this Note. The Default Rate shall equal the lesser of
(i) twenty-five percent (25%) per annum or (ii) the maximum interest rate
permitted by applicable law, if any.
8. RIGHTS AND REMEDIES OF BANK. Bank shall be entitled to pursue any and all
rights and remedies provided by applicable law and/or under the terms of this
Note or any other Loan Document, all of which shall be cumulative and may be
exercised successively or concurrently. Upon the occurrence and during the
continuation of any Event of Default, Bank, at its option, may at any time
declare any or a11 other liabilities of any Obligor to Bank immediately due and
payable (notwithstanding any contrary provisions thereof) without demand or
notice of any kind. In addition,
-2-
<PAGE>
Bank shall have the right to set off any and all sums owed to any Obligor by
Bank in any capacity (whether or not then due) against the Loan and/or against
any other liabilities of any Obligor to Bank. Bank's delay in exercising or
failure to exercise any rights or remedies to which Bank may be entitled if any
Event of Default occurs shall not constitute a waiver of any rights or remedies
of Bank with respect to that or any subsequent Event of Default, whether of the
same or a different nature, nor shall any single or partial exercise of any
right or remedy by Bank preclude any other or future exercise of that or any
other right or remedy. No waiver of any right or remedy by Bank shall be
effective unless made in writing and signed by Bank nor shall any waiver on one
occasion apply to any future occasion, but shall be effective only with respect
to the specific occasion addressed in that signed writing.
9. WAIVER AND CONSENT. The Obligors hereby severally: (a) waive demand,
presentment, protest, notice of dishonor, suit against or joinder of any other
person, and all other requirements necessary to charge or hold any Obligor
liable with respect to the Loan; (b) waive any right to immunity from any such
action or proceeding and waive any immunity or exemption of any property,
wherever located, from garnishment, levy, execution, seizure or attachment prior
to or in execution of judgment, or sale under execution or other process for the
collection of debts; (c) waive any right to interpose any set-off or
non-compulsory counterclaim or to plead laches or any statute of limitations as
a defense in any such action or proceeding, and waive (to the extent lawfully
waivable) all provisions and requirements of law for the benefit of any Obligor
now or hereafter in force; (d) submit to the jurisdiction of the state and
federal courts in the State of Florida for purposes of any such action or
proceeding (e) agree that the venue of any such action or proceeding may be laid
in Dade County (in addition to any county in which any collateral for the Loan
is located) and waive any claim that the same is an inconvenient forum; and (f)
stipulate that service of process in any such action or proceeding shall be
properly made if mailed by any form of registered or certified mail (airmail if
international), postage prepaid, to the address then registered in Bank's
records for the Obligor(s) so served and that any process so served shall be
effective ten (10) days after retailing. No provision of this Note shall limit
Bank's right to serve legal process in any other manner permitted by law or to
bring any such action or proceeding in any other competent jurisdiction. The
Obligors hereby severally consent and agree that, at any time and from time to
time without notice, (i) Bank and the owner(s) of any Collateral then securing
the Loan may agree to release, increase, change, substitute or exchange all or
any part of such Collateral, and (ii) Bank and any person(s) then primarily
liable for the Loan may agree to renew, extent or compromise the Loan in whole
or in part or to modify the terms of the Loan in any respect whatsoever, no such
release, increase, change, substitution, exchange, renewal extension, compromise
or modification shall release or affect in any way (lie liability of any
Obligor, and the Obligors hereby severally waive any and all defenses and claims
whatsoever based thereon. Until Bank receives all sums due under this Note and
all other Loan Documents in immediately available funds, no Obligor shall be
released from liability with respect to the Loan unless Bank expressly releases
such Obligor in a writing signed by Bank, and Bank's release of any Obligor(s)
shall not release any other person liable with respect to the Loan.
10. COSTS, INDEMNITIES AND EXPENSES. The Obligors jointly and severally
agree to pay all filing fees and similar charges and all costs incurred by Bank
in collecting or securing or attempting to collect or secure the Loan and such
right shall extend beyond the entry of a Final Judgment including attorneys'
fees, whether or not involving litigation and/or appellate, administrative or
bankruptcy proceedings. Such entitlement or attorneys' fees shall not merge with
the entry of a Final Judgment and shall continue post-judgment unless and/or
until any and all indebtedness due Bank is fully satisfied. The Obligors jointly
and severally agree to pay any documentary stamp taxes, intangible taxes or
other taxes (except for federal or Florida franchise or income taxes based on
Bank's net income) which may now or hereafter apply to this Note or the Loan or
any security therefor, and the Obligors jointly and severally agree to indemnify
and hold Bank harmless from and against any liability, costs, attorneys' fees,
penalties, interest or expenses relating to any such taxes, as and when the same
may be incurred. The Obligors jointly and severally agree to pay on demand, and
to indemnify and hold Bank harmless from and against, any and all present or
future taxes, levies, imposts, deductions, charges and withholdings imposed in
connection with the Loan by the laws or governmental authorities of any
jurisdiction other than the State of Florida or the United States of America,
and all payments to Bank under this Note shall be made free and clear thereof
and without deduction therefor. Notwithstanding the existence of Florida
Statute 57.105(2) or any statute of a like or similar nature, each Borrower
and/or Obligor hereby waives any right to ally attorneys' fees thereunder and
each Borrower and/or Obligor agrees that the Bank exclusively shall be entitled
to indemnification and recovery of any and all attorneys' fees in respect of any
litigation based hereon, or arising out of, or related hereto whether, under or
in connection with this Note and/or any agreement contemplated to be executed in
conjunction herewith, or any course of conduct, course of dealing, statements
(whether verbal or written) or actions of any party.
11. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with The laws of the State of Florida, except that
federal law shall govern to the extent that it may permit Bank to charge, from
time to time, interest on the Loan at a rate higher than may be permissible
under applicable Florida law.
12. INVALIDITY. Any provision of this Note which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction only, be
ineffective only to the extent of such prohibition or unenforceability without
invalidating The remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. To the extent that
the Obligors may lawfully waive any law that would otherwise invalidate any
provision of this Note, each of them hereby waives the same, to the end that
this Note shall be valid and binding and enforceable against each of them in
accordance with all of its terms.
13. INTERPRETATION. If this Note is signed by more than one person, then the
term "Borrower" as used in this Note shall refer to all such persons jointly and
severally, and all promises, agreements, covenants, waivers, consents,
representations, warranties and other provisions in this Note are made by and
shall be binding upon each and every undersigned person, jointly and severally.
The term "Bank" shall be deemed to include any subsequent holder(s) of this
Note. As used in Sections 3 and 8 of this Note, the term "Bank" shall also be
deemed to include each affiliate and subsidiary of Bank. Each affiliate and
subsidiary of Bank shall have the same rights and remedies granted to Bank under
Sections 3 and 8 of this Note. Whenever used in this Note, the term "person"
means any individual, firm, corporation, trust or other organization or
association or other enterprise or any governmental or political subdivision,
agency, department or instrumentality thereof. Whenever used in this Note, words
in the singular include the plural, words in the plural include the singular,
and pronouns of any gender include the other genders, all as may be appropriate.
Captions and paragraph headings in this Note are for convenience only and shall
not affect its interpretation. The "Prime Rate" is a base reference rate of
interest adopted by Bank as a general benchmark from which Bank determines the
floating interest rates chargeable on various loans to borrowers with varying
degrees of creditworthiness, and Borrower acknowledges and agrees that Bank has
made no representations whatsoever that The "Prime Rate" is the interest rate
actually offered by Bank to borrowers of any particular creditworthiness.
14. MISCELLANEOUS. Time shall be of the essence with respect to the terms of
this Note. This Note cannot be changed or modified orally. Bank shall have the
right unilaterally to correct patent errors or emissions in this Note or any
other Loan Document. This Note may be prepaid in whole or in part at any time
without penalty. Except as otherwise required by law or by the provisions of
this Note or any other Loan Document, payments received by Bank hereunder shall
be applied first against expenses and indemnities, next against interest accrued
on The Loan, and next in reduction of the outstanding principal balance of the
Loan, except that during the continuance of any Event of Default. Bank may apply
such payments in any order of priority determined by Bank in its exclusive
judgment. Borrower shall receive immediate credit on payments only if made in
the form of either a federal wire transfer of cleared funds or a check drawn oil
an account maintained with Bank containing sufficient available funds.
Otherwise, Borrower shall receive credit on payments after clearance, which
shall be no sooner than the first Business Day after receipt of payment by Bank.
For purposes of determining interest accruing under this Note, principal shall
be deemed outstanding oil the date payment is credited by Bank. If any payment
required to be made pursuant to the Note is not received oil The due date, Bank
shall have the right, at its election, to charge any of Borrower's accounts at
Bank with the amount of such payment. Except as otherwise required by the
provisions of this Note or any other Loan Document, any notice required to be
given to any Obligor shall be deemed sufficient if made personally or if mailed,
postage prepaid, to such Obligor's address as it appears in this Note (or, if
none appears, to any address for such Obligor then registered in Bank's
records). Bank may grant participations in all or any portion of, and may assign
all or any part of Bank's rights under this Note. Bank may disclose to any such
participant or assignee any and all information held by or known to Bank at any
time with respect to any Obligor. Borrower shall furnish Bank such financial
information of Borrower as Bank may from time to time request and shall permit
Bank to inspect its books and records. All of the terms of this Note shall
inure to the benefit of Bank and its successors and assigns and shall be binding
upon each and every of the Obligors and their respective heirs, executors,
administrators, personal representatives, successors and assigns, jointly and
severally.
-3-
<PAGE>
15. WAIVER OF JURY TRIAL. BANK AND BORROWER HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO TRIAL BY JURY IN RESPECT
TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS NOTE AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH,
OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS, (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF EITHER PARTY. BORROWER ACKNOWLEDGES THAT THIS WAIVER OF
JURY TRIAL IS A MATERIAL INDUCEMENT TO THE BANK IN EXTENDING CREDIT TO THE
BORROWER, THAT THE BANK WOULD NOT HAVE EXTENDED SUCH CREDIT WITHOUT THIS JURY
TRIAL WAIVER, AND THAT BORROWER HAS BEEN REPRESENTED BY AN ATTORNEY OR HAS HAD
AN OPPORTUNITY TO CONSULT WITH AN ATTORNEY IN CONNECTION WITH THIS JURY TRIAL
WAIVER AND UNDERSTANDS THE LEGAL EFFECT OF THIS WAIVER.
The Obligors have subscribed their names to the respective Loan Documents
(as defined in Section 6 of this Note) without condition that anyone else should
sign the same or become bound thereunder, and without any other condition
whatsoever. The failure of any witness to sign as witness or the failure of this
Note to be notarized shall not affect the validity of this Note. This Note is
signed, sealed and delivered as of the date first written above.
WITNESS: BORROWER: GALACTICOMM TECHNOLOGIES, INC.
A FLORIDA CORPORATION
/s/ [illegible]
- --------------- BY: /s/ PETER BERG
------------------------------------------
PETER BERG, CEO/SECRETARY
- --------------- -------------------------------------------
ADDRESS: 4101 SW 47TH AVENUE, SUITE 101
FORT LAUDERDALE, FL 33314
BROWARD COUNTY )
) SS:
FLORIDA )
The foregoing instrument was acknowledged before me this 9th day of January,
1998 by Peter Berg as CEO/Secretary of Galacticomm Tech., a Florida corporation,
on behalf of the corporation. He [x] is personally known to me or [ ] produced
_____________________, as identification.
/s/ MICHAEL JOSEPH HUNT
---------------------------------------------
Notary Public
Print Name: MICHAEL JOSEPH HUNT
Commission Number: cc 55 75 71
My Commission Expires: May 27, 2000 [NOTARIAL SEAL]
-4-
EXHIBIT 10.51
VOTING AGREEMENT
This Voting Agreement is entered into as of ____________________ ___ ,
1998 (the "Agreement"), by and among Galacticomm Technologies, Inc., a Florida
corporation ("Galacticomm"), and the Company Shareholders (as defined below).
RECITALS
Galacticomm, First Equity Corporation of Florida, Inc. and Security
Capital Trading, Inc. (the "Representatives"), are entering into an underwriting
agreement, (the "Underwriting Agreement"), dated _________________ ___, 1998. As
an inducement to the Representatives to enter into the Underwriting Agreement,
the Company Shareholders have agreed to enter into this Agreement.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. CERTAIN DEFINITIONS
(a) Capitalized terms that are used but not otherwise defined
in this Agreement will have the meanings given to them in the Underwriting
Agreement.
(b) For the purposes of this Agreement, the following terms
will have the meanings set forth below:
(i) An "Affiliate" of Galacticomm is a person that
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with Galacticomm.
(ii) A Person will be deemed the "Beneficial Owner," and
to have "Beneficial Ownership" of, and to "Beneficially Own," any securities as
to which such Person is or may be deemed to be the beneficial owner pursuant to
Rule 13d-3 and 13d-5 under the Exchange Act, as such rules are in effect on the
date of this Agreement, as well as any securities as to which such Person has
the right to become a Beneficial Owner (whether such right is exercisable
immediately or only after the passage of time or the occurrence of conditions)
pursuant to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants, options or other acquisition
rights or otherwise.
(iii) "Bankruptcy and Equity Exception" means an
exception to enforceability of an obligation because of the application of (A)
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights; and (B) general equity principles.
(iv) "Company Shareholders" means the Persons named on
SCHEDULE 1 to this Agreement.
(v) "Control" (including the terms "controlling,"
"controlled by" and "under common control with", with respect to the
relationship between or among two or more Persons, means the possession,
directly or indirectly or as trustee or executor, of the power to direct or
cause the direction of the affairs or management of a Person, whether through
the ownership of voting
<PAGE>
securities, as trustee or executor, by contract or otherwise, including, without
limitation, the ownership, directly or indirectly, of securities having the
power to elect a majority of the board of directors or similar body governing
the affairs of such Person.
(vi) "Closing Date" means the Closing Date for the sale
of the Firm Securities pursuant to the Underwriter Agreement.
(vii) "Legal Requirement" means any statute, ordinance,
code, law, rule, regulation, order or other requirement, standard or procedure
enacted, adopted or applied by any governmental entity, including judicial
decisions applying common law or interpreting any other Legal Requirement or any
agreement entered into with a governmental entity in resolution of a dispute or
otherwise.
(viii) "Lien" means any lien, security interest, pledge,
charge, claim, option, right to acquire, restriction on transfer, voting
restriction or encumbrance of any nature.
(ix) "Person" when used with reference to a person for
whose account securities are to be sold in reliance upon this rule includes, in
addition to such persons, all of the following persons:
(A) any relative or spouse of such person, or
any relative of such spouse, any one of whom
has the same home as such person;
(B) any trust or estate in which such person or
any of the persons specified in paragraph
1(b)(ix)(A) of this Section collectively own
ten percent or more of the total beneficial
interest as of which any of such persons
serve as trustee, executor or in any similar
capacity; and
(C) any corporation or other organization (other
than Galacticomm) in which such persons or
any of the persons specified in paragraph
1(b)(ix)(A) of this Section are the
beneficial owners of collectively ten
percent or more of any class of equity
securities or ten percent or more of the
equity interest.
(x) "Shares" means shares of voting capital stock of
Galacticomm.
2. REPRESENTATIONS AND WARRANTIES OF GALACTICOMM. Galacticomm
represents and warrants to each of the Company Shareholders that:
(a) Galacticomm has all requisite corporate power and
authority and has taken all corporate action necessary in order to execute and
deliver, and to perform its obligations under, this Agreement; and
(b) this Agreement has been duly executed and delivered by
Galacticomm and is a valid and binding agreement of Galacticomm enforceable
against Galacticomm in accordance with its terms, subject to the Bankruptcy and
Equity Exception.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY SHAREHOLDERS. Each of
the Company Shareholders severally represents and warrants to Galacticomm that:
2
<PAGE>
(a) such Company Shareholder Beneficially Owns the number of Shares
set forth on SCHEDULE 1;
(b) each record holder of any Shares Beneficially Owned by such
Company Shareholder is identified on SCHEDULE 1;
(c) such Company Shareholder, either alone or with one or more other
Company Shareholders, has (i) the right to vote, or to direct the voting of, the
Shares Beneficially Owned by such Company Shareholder and (ii) the right to
dispose, or to direct the disposition of, the Shares Beneficially Owned by such
Company Shareholder;
(d) such Company Shareholder has all requisite power and authority
(corporate or otherwise) and has taken all action (corporate or otherwise)
necessary in order to execute and deliver, and to perform its obligations under,
this Agreement;
(e) this Agreement has been duly executed and delivered by such
Company Shareholder and is a valid and binding agreement of such Company
Shareholder enforceable against such Company Shareholder in accordance with its
terms, subject to the Bankruptcy and Equity Exception;
(f) no notices, reports or other filings are required to be made by
such Company Shareholder with, and no consents, registrations, approvals,
permits or authorizations are required to be obtained by such Company
Shareholder from, any Governmental Entity or any other Person, in connection
with the execution, delivery and performance of this Agreement by such Company
Shareholder, except those that the failure to make or obtain is not,
individually or in the aggregate, reasonably likely to prevent, delay or impair
the ability of such Company Shareholder to perform such Company Shareholder's
obligations under this Agreement; and
(g) the execution, delivery and performance of this Agreement by such
Company Shareholder do not, and the consummation by such Company Shareholder of
the transactions contemplated hereby will not, constitute or result in (i) a
breach or violation of, or a default under (in the case of any Company
Shareholder that is not a human being), the articles or certificate of
incorporation or the bylaws of such Company Shareholder or any comparable
governing instruments or (ii) a breach or violation of, or a default under, or
the acceleration of any obligations of or the creation of a Lien on the assets
of such Company Shareholder (with or without notice, lapse of time or both)
pursuant to, any instrument or agreement binding on such Company Shareholder or
to which such Company Shareholder is subject or any Legal Requirement to which
such Company Shareholder is subject, except, in the case of clause (ii) above,
for any breach, violation, default, acceleration, creation or change that,
individually or in the aggregate, is not reasonably likely to prevent, delay or
impair the ability of such Company Shareholder to perform such Company
Shareholder's obligations under this Agreement.
4. AGREEMENT TO VOTE SHARES. In the event that a vote of shareholders
of Galacticomm shall be taken upon (a) any liquidation of Galacticomm, or (b)
any business combination in which Galacticomm is not the surviving corporation
or any sale of all or substantially all of its assets (which combination or sale
occurs during the two year period immediately following the Closing Date), the
Company Shareholders shall, during the two year period immediately following the
Closing Date, vote all Shares Beneficially Owned by them in the same proportion
as the votes cast by non-Affiliates voting shares of the same class or series
with respect to the matters indicated in paragraphs 4(a) and 4(b) hereof on
which a vote of the shareholders is taken.
3
<PAGE>
5. NO VOTING TRUSTS OR TRANSFERS. Each Company Shareholder will not,
and will not permit any record holder of Shares to, (a) deposit any shares
Beneficially Owned by such Company Shareholder in a voting trust or subject any
Shares to any arrangement with respect to the voting of such Shares other than
this Agreement or any other agreement entered into in connection with the
Underwriting Agreement; or (b) except with respect to options or other rights to
purchase Shares that have been granted by a Company Shareholder to the third
parties identified in the Principal Shareholders section of the Company's
prospectus dated ____________ ___, 1998, sell, assign, pledge, grant a Lien on
or otherwise transfer any of its interest in any Shares to any Person unless
such transferee agrees in writing to be bound by this Agreement to the same
extent as such Company Shareholder.
6. MISCELLANEOUS.
(a) GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES UNDER THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH AND SUBJECT TO THE LAWS OF THE STATE OF FLORIDA, WITHOUT REFERENCE TO
CONFLICTS OF LAWS PRINCIPLES.
(b) VENUE; WAIVER OF JURY TRIAL. The parties hereby irrevocably submit
to the jurisdiction of the courts of the State of Florida and the federal court
of the United States of America located in the State of Florida solely in
respect of the interpretation and enforcement of the provisions of this
Agreement and of the documents referred to in this Agreement and in respect of
the transactions contemplated hereby, and hereby waive, and agree not to assert,
as a defense in any action, suit or proceeding for the interpretation or
enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable
in such courts or that the venue thereof may not be appropriate or that this
Agreement or any such document may not be enforced in or by such courts, and the
parties irrevocably agree that all claims with respect to such action or
proceeding will be heard and determined in such a Florida state or federal
court. Each party consents to and grants any such court jurisdiction over the
person of such party and over the subject matter of such dispute and agrees that
mailing of process or other papers in connection with any such action or
proceeding in the manner provided in paragraph (c) of this Section or in such
other manner as may be permitted by law will be valid and sufficient service
thereof.
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS PARAGRAPH (b).
(c) NOTICES. All notices, requests, claims, demands and other
communications required or permitted to be given or made pursuant to this
Agreement will be in writing and will be deemed given
4
<PAGE>
(i) on the first business day following the date received, if delivered
personally or by telecopy (with telephonic confirmation of receipt by the
addressee), (ii) on the business day following timely deposit with an overnight
courier service, if sent by overnight courier specifying next day delivery and
(iii) on the first business day that is at least five days following deposit in
the mails, if sent by first class mail, to the parties at the following
addresses (or at such other address for a party as will be specified by like
notice):
<TABLE>
<S> <C>
if to the Company
Shareholders: As set forth on SCHEDULE 1
if to Galacticomm Technologies, Inc.: Galacticomm Technologies, Inc.
4101 S.W. 47 Avenue
Suite 101
Ft. Lauderdale, Florida 33314
Attn: Peter Berg, Chairman
Fax No.: (954) 587-1417
with a copy to: Lucio, Mandler, Croland, Bronstein,
Garbett, Stiphany & Martinez, P.A.
701 Brickell Avenue
Suite 2000
Miami, Florida 33131
Attn: Leslie J. Croland, Esq.
Fax No.: (305) 375-8075
with a further copy
to the Represesntatives
as follows: First Equity Corporation of Florida
201 South Biscayne Boulevard
Suite 1400
Miami, Florida 33131
Attn: William R. Fusselmann
Fax No.: (305) 372-0861
Security Capital Trading, Inc.
520 Madison Avenue, 10th Floor
New York, New Yrk 10022
Attn: Tim Ryan
Fax No.: (212) 339-2020
</TABLE>
or to such other Persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
(d) SEVERABILITY. The provisions of this Agreement will be deemed
severable and the invalidity or unenforceability of any provision will not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or its application to any Person or any
circumstance, is invalid or unenforceable, (i) a suitable and equitable
provision will be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (ii) the remainder of this Agreement and the application of such
provision to other Persons or circumstances will not be affected by such
invalidity or unenforceability, nor will
5
<PAGE>
such invalidity or unenforceability affect the validity or enforceability of
such provision, or the application thereof, in any other jurisdiction.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original and all of which
will together constitute the same agreement.
(f) TERMINATION. This Agreement will terminate (i) upon the mutual
written consent of all parties or (ii) five years after the Closing Date.
(g) CAPTIONS. All captions in this Agreement are for convenience of
reference only and are not part of this Agreement, and no construction or
reference will be derived therefrom.
(h) SPECIFIC PERFORMANCE. Each party acknowledges that it will be
impossible to measure in money the damage to the other party if such party fails
to comply with any of the obligations imposed by this Agreement, that each such
obligation is material and that, in the event of any such failure, the other
party will not have an adequate remedy at law or damages. Accordingly, each
party agrees that injunctive relief or any other equitable remedy, in addition
to remedies at law or damages, is the appropriate remedy for any such failure
and will not oppose the granting of such relief on the basis that the other
party has an adequate remedy at law or in the form of damages. Each party agrees
that it will not seek and agrees to waive any requirement for, the securing or
posting of a bond in connection with any other party's seeking or obtaining such
equitable relief.
(i) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns and will not be assignable without the written consent of all
other parties hereto.
(j) ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement (including
any schedules hereto) supersedes all prior agreements, written or oral, among
the parties with respect to the subject matter hereof and contain the entire
agreement among the parties with respect to the subject matter hereof. This
Agreement may not be amended, supplemented or modified, and no provision hereof
may be modified or waived, except by an instrument in writing signed by all the
parties or, in the case of a waiver, each party granting such waiver. No waiver
of any provision hereof by any party will be deemed a waiver of any other
provision hereof by any such party, nor will any such waiver be deemed a
continuing waiver of any provision hereof by such party.
(k) FURTHER ASSURANCES. The parties will execute and deliver such
additional instruments and other documents and will take such further actions as
may be necessary or appropriate to effectuate, carry out and comply with all of
the terms of this Agreement and the transactions contemplated hereby.
(l) THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express or
implied, is intended to confer upon any third party any rights or remedies of
any nature whatsoever under or by reason of this Agreement, except the
Representatives, including without limitation, as to Section 6(h) hereof.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
GALACTICOMM TECHNOLOGIES, INC.
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
----------------------------------
Peter Berg
----------------------------------
Yannick Tessier
SCHEDULE 1
COMPANY SHAREHOLDERS
SHARES
SHAREHOLDER BENEFICIALLY OWNED
- ----------- ------------------
Peter Berg 532,791
15050 S.W. 10 Street
Sunrise, Florida 33326
Yannick Tessier 572,864
10931 N.W. 3 Street
Plantation, Florida 33324
EXHIBIT 10.54
FIRST AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the
"Agreement") is entered into as of April 3, 1998, by and between GALACTICOMM
TECHNOLOGIES, INC. (formerly known as I-View Software, Inc.), a Florida
corporation (the "Company"), and PETER BERG (the "Executive").
RECITALS:
A. The Company entered into an Amended and Restated Employment
Agreement with the Executive on June 30, 1997 (the "Amended and Restated
Agreement").
B. The Company and the Executive wish to amend the Amended and Restated
Agreement as set forth herein.
C. The parties hereto believe that the amendments made hereby are in
the best interest of the Company and its shareholders, including, among others,
the Executive.
NOW THEREFORE, in consideration of the premise, and the respective
covenants and agreements of each of the Company and the Executive contained in
this Agreement, the payment of $10.00 and other good and valuable consideration,
each of the Company and the Executive agrees as follows:
A. RECITALS. The Recitals set forth above are true and correct and are
incorporated herein by reference.
B. TERMS. Except as set forth herein, all capitalized terms shall have
the meaning ascribed to them in the Amended and Restated Agreement.
C. AMENDMENT TO ARTICLE I. Article I of the Amended and Restated
Employment Agreement is hereby modified in its entirety to read as follows:
The Company employs the Executive and the Executive accepts such
employment in accordance with the terms hereof. Subject to the direction of the
Board of Directors of the Company, the Executive shall serve as Chief Executive
Officer of the Company. The Executive shall have such responsibilities, perform
such duties and exercise such power and authority as are inherent in, or
incident to, the office of Chief Executive Officer. The Executive shall report
to the Company's Chairman of the Board, or in the absence of a Chairman of the
Board, the Board of Directors, and shall devote such reasonable time to the
performance of his duties as an officer and employee of the Company as is
necessary.
<PAGE>
D. AMENDMENT TO SECTION 5.3(b). Section 5.3(b) of the Amended and
Restated Agreement is hereby modified in its entirety to read as follows:
(b) If the employment of the Executive by the Company shall be
terminated for any reason (other than by the Company due to the Executive's
death or Disability or with Cause, or by the Executive without Good Reason)
then, in any such event, the Company shall continue to pay to the Executive his
Salary (subject to applicable payroll and/or other taxes required by law to be
withheld) through the Termination Date (as such term is hereinafter defined).
E. FULL FORCE AND EFFECT. Except as specifically amended by this
Agreement, the provisions of the Amended and Restated Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, each of the parties hereto has executed and
delivered this Agreement as of the date first written above.
GALACTICOMM TECHNOLOGIES, INC.
/S/ PETER BERG By:/S/ YANNICK TESSIER
- ----------------- --------------------------
Peter Berg Name:YANNICK TESSIER
------------------------
Title: PRESIDENT
----------------------
2
EXHIBIT 10.55
SECOND AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the
"Agreement") is entered into as of June 26, 1998, by and between GALACTICOMM
TECHNOLOGIES, INC., a Florida corporation (the "Company"), and PETER BERG (the
"Executive").
RECITALS:
A. The Company entered into an Amended and Restated Employment
Agreement with the Executive on June 30, 1997 (the "Amended and Restated
Agreement").
B. The Company amended the Amended and Restated Agreement on April 3,
1998 through a First Amendment to Amended and Restated Employment Agreement with
the Executive (the "First Amendment").
C. The Company and the Executive wish to further amend the Amended and
Restated Agreement as set forth herein.
C. The parties hereto believe that the amendments made hereby are in
the best interest of the Company and its shareholders, including, among others,
the Executive.
NOW THEREFORE, in consideration of the premise, and the respective
covenants and agreements of each of the Company and the Executive contained in
this Agreement, the payment of $10.00 and other good and valuable consideration,
each of the Company and the Executive agrees as follows:
A. RECITALS. The Recitals set forth above are true and correct and are
incorporated herein by reference.
B. TERMS. Except as set forth herein, all capitalized terms shall have
the meaning ascribed to them in the Amended and Restated Agreement.
C. AMENDMENT TO ARTICLE II SECTION 2.1. Article II Section 2.1 of the
Amended and Restated Agreement is hereby modified in its entirety to read as
follows:
Commencing as of June 26, 1998 and continuing through November 20,
1999, the Company shall pay to the Executive a salary of One Hundred Forty
Thousand Dollars ($138,000) per annum (the "Salary") which Salary shall be
automatically increased 10% per annum on a cumulative basis during the term of
this Agreement on each anniversary date.
D. AMENDMENT TO ARTICLE IV SECTION 4.2. Article IV Section 4.2 of the
Amended and Restated Agreement is hereby deleted in its entirety.
<PAGE>
E. FULL FORCE AND EFFECT. Except as specifically amended by this
Agreement, the provisions of the Amended and Restated Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, each of the parties hereto has executed and
delivered this Agreement as of the date first written above.
GALACTICOMM TECHNOLOGIES, INC.
/s/ PETER BERG By:/s/ YANNICK TESSIER
- ----------------------------- -------------------------------------
Peter Berg Name: Yannick Tessier
Title: President
2
EXHIBIT 10.56
FIRST AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the
"Agreement") is entered into as of April 3, 1998, by and between GALACTICOMM
TECHNOLOGIES, INC. (formerly known as I-View Software, Inc.), a Florida
corporation (the "Company"), and YANNICK TESSIER (the "Executive").
RECITALS:
A. The Company entered into an Amended and Restated Employment
Agreement with the Executive on June 30, 1997 (the "Amended and Restated
Agreement").
B. The Company and the Executive wish to amend the Amended and Restated
Agreement as set forth herein.
C. The parties hereto believe that the amendments made hereby are in
the best interest of the Company and its shareholders, including, among others,
the Executive.
NOW THEREFORE, in consideration of the premise, and the respective
covenants and agreements of each of the Company and the Executive contained in
this Agreement, the payment of $10.00 and other good and valuable consideration,
each of the Company and the Executive agrees as follows:
A. RECITALS. The Recitals set forth above are true and correct and are
incorporated herein by reference.
B. TERMS. Except as set forth herein, all capitalized terms shall have
the meaning ascribed to them in the Amended and Restated Agreement.
C. AMENDMENT TO SECTION 5.3(B). Section 5.3(b) of the Amended and
Restated Agreement is hereby modified in its entirety to read as follows:
(b) If the employment of the Executive by the Company shall be
terminated for any reason (other than by the Company due to the Executive's
death or Disability or with Cause, or by the Executive without Good Reason)
then, in any such event, the Company shall continue to pay to the Executive his
Salary (subject to applicable payroll and/or other taxes required by law to be
withheld) through the Termination Date (as such term is hereinafter defined).
D. FULL FORCE AND EFFECT. Except as specifically amended by this
Agreement, the provisions of the Amended and Restated Agreement shall remain in
full force and effect.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed and
delivered this Agreement as of the date first written above.
GALACTICOMM TECHNOLOGIES, INC.
/S/ YANNICK TESSIER By:/S/ PETER BERG
- ------------------- --------------------------
Yannick Tessier Name:PETER BERG
Title:CHIEF EXECUTIVE OFFICER
EXHIBIT 10.57
SECOND AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the
"Agreement") is entered into as of June 26, 1998, by and between GALACTICOMM
TECHNOLOGIES, INC., a Florida corporation (the "Company"), and YANNICK TESSIER
(the "Executive").
RECITALS:
A. The Company entered into an Amended and Restated Employment
Agreement with the Executive on June 30, 1997 (the "Amended and Restated
Agreement").
B. The Company amended the Amended and Restated Agreement on April 3,
1998 through a First Amendment to Amended and Restated Employment Agreement with
the Executive (the "First Amendment").
C. The Company and the Executive wish to further amend the Amended and
Restated Agreement as set forth herein.
C. The parties hereto believe that the amendments made hereby are in
the best interest of the Company and its shareholders, including, among others,
the Executive.
NOW THEREFORE, in consideration of the premise, and the respective
covenants and agreements of each of the Company and the Executive contained in
this Agreement, the payment of $10.00 and other good and valuable consideration,
each of the Company and the Executive agrees as follows:
A. RECITALS. The Recitals set forth above are true and correct and are
incorporated herein by reference.
B. TERMS. Except as set forth herein, all capitalized terms shall have
the meaning ascribed to them in the Amended and Restated Agreement.
C. AMENDMENT TO ARTICLE II SECTION 2.1. Article II Section 2.1 of the
Amended and Restated Agreement is hereby modified in its entirety to read as
follows:
Commencing as of June 26, 1998 and continuing through November 20,
1999, the Company shall pay to the Executive a salary of One Hundred Forty
Thousand Dollars ($138,000) per annum (the "Salary") which Salary shall be
automatically increased 10% per annum on a cumulative basis during the term of
this Agreement on each anniversary date.
D. AMENDMENT TO ARTICLE IV SECTION 4.2. Article IV Section 4.2 of the
Amended and Restated Agreement is hereby deleted in its entirety.
<PAGE>
E. FULL FORCE AND EFFECT. Except as specifically amended by this
Agreement, the provisions of the Amended and Restated Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, each of the parties hereto has executed and
delivered this Agreement as of the date first written above.
GALACTICOMM TECHNOLOGIES, INC.
/s/ YANNICK TESSIER By:/s/ PETER BERG
- -------------------------- -----------------------------------
Yannick Tessier Name: Peter Berg
Title: Chief Executive Officer
2
EXHIBIT 10.58
AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into as of the 5th day of
March, 1998, between Galacticomm Technologies, Inc. (the "Corporation") and
David Manovich ("Manovich").
RECITALS:
A. The Corporation desires to retain the services of Manovich as its
Chairman of the Board pursuant to the terms and conditions of this Agreement.
B. This Agreement shall govern the relationship between the parties
from the date hereof and supersedes any previous agreement between them, either
written or oral, heretofore made.
NOW THEREFORE, the parties agree as follows:
1. RECITALS. The above recitals are true and correct.
2. CHAIRMAN OF THE BOARD. The Corporation hereby retains Manovich to
serve as its Chairman of the Board, pursuant to which Manovich shall, during the
term of this Agreement and subject to the responsibilities and duties of the
Board of Directors of the Corporation, have general charge of the operations and
management of the business, affairs and property of the Corporation.
3. TERM. The initial term of this Agreement shall be for 90 days
commencing upon the date of this Agreement. Thereafter, this Agreement shall
automatically renew for successive 30 day periods. Notwithstanding the
foregoing, either party may terminate this Agreement at the end of the initial
term and any extension thereof by giving written notice of termination to the
other party at least 30 days prior to the end of the term.
4. COMPENSATION. As full compensation for Manovich's services provided
hereunder, the Corporation shall: (i) pay Manovich a fee of $10,000 per month
during the term of this Agreement; and (ii) issue, on the date of this
Agreement, to Manovich the stock option attached hereto as Exhibit "A".
5. CERTAIN RESTRICTIONS. Manovich covenants and agrees with the
Corporation as follows:
a. During the term of this Agreement, Manovich will have access to
confidential or proprietary information of the Corporation and its subsidiaries
and affiliates. Manovich shall not at any time use any such confidential or
proprietary information other than for the benefit of the Corporation and its
subsidiaries and affiliates. The term "confidential or proprietary information"
shall mean information not generally available to the public, including without
limitation personnel information, financial information, customer lists,
supplier lists, ownership information, marketing plans and analyses, trade
secrets, know-how, computer software, management agreements and procedures and
techniques of operating and managing the
<PAGE>
business of the Corporation and its subsidiaries and affiliates. Manovich
acknowledges and agrees that all confidential or proprietary information is and
shall remain the property of the Corporation and its subsidiaries and
affiliates, and agrees to maintain all such confidential or proprietary
information in confidence.
b. Developments. All inventions patentable, copyrightable or
otherwise, trade secrets, discoveries, improvements, ideas and writings
(hereinafter collectively termed "developments"), which Manovich, alone or
jointly with others, has conceived, made, enhanced, modified, developed, or
acquired, or may conceive, make, enhance, modify, develop, or acquire during the
period of his employment hereunder or during an additional period of one (1)
year after the termination of such employment and which relate to the
Corporation's business of developing and marketing computer hardware and
software, and all developments which relate to the work upon which Manovich
shall have been engaged while in the Corporation's employment, which Manovich
has conceived, made, enhanced, modified, developed, or acquired, or may
conceive, make, enhance, modify, develop, or acquire during the period of his
employment or during a period of one (1) year after the termination of such
employment, to the extent that such developments are possessed by Manovich at
any time, shall be the sole property of the Corporation. The term "development"
shall include developments conceived, devised, made, developed or perfected
during off-duty hours and away from the Corporation's premises as well as to
those conceived, devised, made, developed, or perfected in the regular course of
employment.
c. Disclosure and Cooperation. Manovich shall promptly and fully
disclose in writing all such developments described in subparagraph d. hereof to
the Corporation's Chief Executive Officer. Manovich shall, at any time upon the
Corporation's request, whether or not then in the Corporation's employ, execute,
acknowledge and deliver to the Corporation all instruments which the Corporation
shall prepare, give evidence, and do all other things which are necessary or
desirable, to enable the Corporation to file and prosecute applications for, and
to acquire, maintain and enforce all patents, trademarks, copyrights, and any
other intellectual property rights in all countries, covering such developments.
The Corporation agrees to pay to Manovich reasonable expenses incurred by
Manovich under this subparagraph e.
d. Remedies. It is recognized and acknowledged by each of the
Corporation and Manovich that a breach or violation by Manovich of any or all of
his covenants and agreements contained in Section 5 of this Agreement will cause
irreparable harm and damage to the Corporation and its subsidiaries and
affiliates in a monetary amount which would be virtually impossible to ascertain
and, therefore, will deprive the Corporation of an adequate remedy at law.
Accordingly, if Manovich shall breach or violate any or all of his covenants and
agreements set forth in Section 5 hereof, then the Corporation and its
subsidiaries and affiliates shall have resort to all equitable remedies,
including without limitation the remedies of specific performance and
injunction, both permanent and temporary, as well as all other remedies which
may be available at law.
2
<PAGE>
e. Intent. It is the intent of the parties that the restrictions set
forth in Section 5 hereof shall be enforced to the fullest extent permissible
under the laws and public policies of each jurisdiction in which enforcement of
such restrictions may be sought. If any provision contained in Section 5 hereof
shall be adjudicated by a court of competent jurisdiction to be invalid or
unenforceable because of its duration or geographic scope, then such provision
shall be reduced by such court in duration or geographic scope or both to such
extent as to make it valid and enforceable in the jurisdiction where such court
is located, and in ail other respects shall remain in full force and effect.
6. INDEMNIFICATION
The Corporation shall indemnify auld hold harmless Manovich from and
against the full amount of any and all claims, demands, suits, actions,
judgements, losses, liabilities, costs, interest and expenses, including without
limitation fees and disbursements of trial and appellate counsel, asserted or
brought against Manovich by any Person with respect to any action taken or
omitted to be taken by Manovich in the course of his employment by the
Corporation or otherwise related to or arising out of his employment by the
Corporation or acting as a director, officer, employee or agent of the
Corporation or any of its subsidiaries or affiliates. This right to
indemnification shall be in effect to the fullest extent available pursuant to
law, and shall be in addition to any other right to indemnification Manovich may
possess pursuant to law and the Articles of Incorporation and Bylaws of the
Corporation or any of its subsidiaries or affiliates.
7. NOTICES. If either party desires to give notice to the other in
connection with any of the terms and provisions of this Agreement, said notice
must be in writing and shall be deemed given when hand delivered or deposited in
the United States mail, by certified mail, return receipt requested, and
addressed to the party for whom it is intended as follows:
If to the Corporation: Galacticomm Technologies, Inc.
4101 S.W. 47 Avenue
Suite 101
Ft. Lauderdale, Florida 33314
If to Manovich: David Manovich
1616 Chapin Avenue
Burlingame, CA 94010
or to such other address as the addressee shall have communicated to the other
party in writing.
8. APPLICABLE LAWS. This Agreement shall be governed and construed in
accordance with the laws of the State of Florida.
9. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the respective parties hereto, their legal representatives, heirs,
successors and assigns including any entities controlled by or under common
control with them.
3
<PAGE>
10. ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding and all the representations and warranties of the parties relating
to the subject matter referred to herein. Without limiting the generality of the
foregoing, all employment agreements previously entered into between the parties
hereto are hereby null and void.
11. HEADINGS. The headings of this Agreement are for convenience of
reference only and shall be without substantive meaning.
12. AMENDMENT. Any amendment to this Agreement must be in writing and
signed by duly authorized representatives of the parties hereto.
13. WAIVER. Failure by any party at any time to require performance
under this Agreement by any of the other parties, or to claim a breach of any
provision of this Agreement, shall not be construed as a waiver of any right
accruing under this Agreement, nor will it affect any subsequent breach of this
Agreement or the effectiveness of any provision of this Agreement, or prejudice
any party as regards any subsequent action. A waiver of any right accruing to
any party pursuant to this Agreement shall not be effective unless given in
writing.
14. ENFORCEABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect or limit the validity or enforceability of
any other provision hereof and any such invalid or unenforceable provision shall
be construed or deemed amended by the parties to the extent necessary to make it
valid and enforceable.
15. SINGULAR AND PLURAL USAGE. All reference herein to the singular
number shall include the plural, and vice versa, wherever appropriate.
16. COUNTERPARTS. This Agreement may be exercised in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
Galacticomm Technologies, Inc.
/S/ DAVID MANOVICH By: /S/ YANNICK TESSIER
- ------------------ ------------------------------
David Manovich Authorized Representative
4
EXHIBIT 10.59
FIRST AMENDMENT TO AGREEMENT
THIS FIRST AMENDMENT TO AGREEMENT (the "Amended Agreement") is entered
into as of June 22, 1998 between GALACTICOMM TECHNOLOGIES, INC. (the "Company")
and DAVID MANOVICH ("Manovich").
RECITALS:
A. The Company entered into an agreement with Manovich as of March 5,
1998 (the "Original Agreement").
B. The Company and Manovich wish to amend the Original Agreement as set
forth in this Amended Agreement.
NOW THEREFORE, the parties agree as follows:
A. RECITALS. The Recitals set forth herein are true and correct and
incorporated herein by reference.
B. AMENDMENT TO SECTION 3. Section 3 of the Original Agreement is
hereby modified in its entirety to read as follows:
3. TERM. The initial term of this Amended Agreement shall be
for 90 days commencing upon the date of this Amended Agreement. Thereafter, this
Amended Agreement shall automatically renew for successive 90 day periods.
Notwithstanding the foregoing, either party may terminate this Amended Agreement
upon at least 90 days prior written notice to the other party.
C. AMENDMENT TO SECTION 4(ii). Section 4(ii) of the Original Agreement
is modified in its entirety to read as follows:
(ii) issue, on the date of this Amended Agreement, to Manovich
the Amended and Restated Stock Option and Agreement attached
hereto as Exhibit "A."
D. BINDING EFFECT. Except as specifically amended by this Amended
Agreement, the provisions of the Original Agreement shall remain in full force
and effect.
E. COUNTERPARTS. This Amended Agreement may be signed in one or more
counterparts each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed and
delivered this Agreement as of the date first written above.
GALACTICOMM TECHNOLOGIES, INC.
/s/ DAVID MANOVICH By: /s/ YANNICK TESSIER
- ------------------------------ ---------------------------------
David Manovich Name: Yannick Tessier
Title: President
EXHIBIT 10.60
SECOND AMENDMENT TO AGREEMENT
THIS SECOND AMENDMENT TO AGREEMENT (the "Agreement") is entered into as
of June 23, 1998, between Galacticomm Technologies, Inc. (the "Company") and
David Manovich ("Manovich").
RECITALS:
A. The Company entered into an agreement with Manovich as of March 5,
1998 (the "Original Agreement"), which was amended by the First Amendment to
Agreement ("Amended Agreement") as of June 22, 1998.
B. If the Company completes an initial public offering of its
securities by no later than December 31, 1998 ("Effective Date"), the Company
and Manovich wish to automatically amend and restate the Amended Agreement as
set forth herein.
NOW THEREFORE, the parties agree as follows:
ARTICLE I
RECITALS
The Recitals set forth herein are true and correct and incorporated
herein by reference.
ARTICLE II
POSITION WITH THE COMPANY
2.1 CHAIRMAN OF THE BOARD OF DIRECTORS. The Company hereby retains
Manovich to serve as its Chairman of the Board of Directors ("Chairman"),
pursuant to which Manovich shall, during the term of this Agreement and subject
to the responsibilities and duties of the Board of Directors of the Company (the
"Board"), have general charge of the operations and management of the business,
affairs and property of the Company. In such capacity, Manovich shall have the
authority to hire, dismiss, define, adjust and change the position of any
employee of the Company, excluding any executive management changes which
require the approval of the Company's Board of Directors (the "Board") and any
written employment agreement between the Company and an employee.
2.2 CONSULTANT. The Company hereby retains Manovich to serve as an
independent consultant to the Company. In such capacity, Manovich shall provide
consulting and advisory services with respect to assisting the Company's
management in the operations of the Company.
2.3 TERMS OF POSITION. Manovich's association with the Company under
this Agreement shall be solely as an independent contractor, and he shall not be
considered an
<PAGE>
employee of the Company for any purpose. Manovich shall devote such time to the
Company's affairs as is required to fulfill his duties under this Agreement.
Service time shall include travel time, and Manovich shall provide advance
notice to the Company of any periods in which he will not be available to
provide his services during the term of this Agreement.
ARTICLE III
COMPENSATION & BENEFITS
3.1 COMPENSATION. As full compensation for Manovich's services
hereunder, the Company shall on the Effective Date: (i) pay Manovich a fee of
$10,000 per month during the term of this Agreement; and (ii) issue to Manovich
the Amended and Restated Stock Option attached hereto as Exhibit A.
3.2 PAYMENT TERMS. The monthly fee of $10,000 set forth in Section 3.1
hereof shall be payable on the last day of each month.
3.3 BUSINESS/TRAVEL EXPENSES. Within 30 days of submission of
appropriate documentation, the Company shall reimburse Manovich for all
reasonable business and travel expenses incurred by Manovich in connection with
the performance of his obligations and duties under this Agreement.
3.4 OUTSTANDING EXPENSES. Within two weeks after Manovich submits
appropriate documentation, the Company shall reimburse Manovich for all
outstanding expenses incurred by Manovich on behalf of the Company prior to June
30, 1998.
3.5 OUTSTANDING FEES. All earned and unpaid monthly fees outstanding
and owed to Manovich pursuant to the Amended Agreement shall be paid by the
Company upon the earlier to occur of: (i) the Effective Date; (ii) the Company's
receipt of debt or equity financing in excess of $250,000 (excluding the funds
loaned to the Company by Messrs. Berg and Tessier in June 1998); or (iii)
September 30, 1998.
3.6 STOCK OPTION. The Amended and Restated Stock Option and Agreement
issued to Manovich pursuant to the First Amendment to Agreement, dated as of
June 22, 1998, between the Company and Manovich shall remain in full force and
effect.
2
<PAGE>
ARTICLE IV
TERM AND TERMINATION OF AGREEMENT
4.1 TERM. The term of this Agreement shall be for a period of one year
(the "Initial Term"), commencing upon the Effective Date, with one year renewal
options thereafter upon the agreement of both parties hereto.
4.2 TERMINATION OF AGREEMENT.
(a) Notwithstanding Section 4.1 hereof, the Company, in its sole
and absolute discretion, may terminate this Agreement after six months from the
Effective Date upon 90 days prior written notice. On the effective date of such
termination, the Company shall deliver a lump sum payment to Manovich of all of
his reimbursable expenses and the remainder of the six months of fees to be paid
to Manovich pursuant to Section 3.2 hereof.
(b) This Agreement may also be terminated by either party hereto if
the other party hereto is in breach of any material term of this Agreement and
fails to cure such breach within 30 days after written notice of such breach is
given by the non-breaching party.
4.3 CHANGE IN CONTROL OF THE COMPANY.
(a) Upon a Change in Control (as hereinafter defined), this
Agreement shall automatically extend for a one year period after the expiration
of the then-current term of this Agreement as set forth in Section 4.1 hereof.
On the date of the Change in Control, all monthly fees owed to Manovich under
Sections 3.2 and 3.3 hereof as of such date shall be paid to Manovich in one
lump sum.
(b) For purposes of this Agreement, a "Change in Control" occurs
if:
(i) any "person" (other than Peter Berg or Yannick Tessier)
within the meaning of Section 14(d) of the Securities Exchange
Act of 1934 becomes the "beneficial owner" as defined in Rule
13d-3 thereunder, directly or indirectly, of more than 50% of
the Company's voting securities;
(ii) any "person" (other than Peter Berg or Yannick Tessier)
acquires by proxy or otherwise the right to vote more than 50%
of the Company's voting securities for the election of
directors of the Company; or
(iii) the shareholders of the Company shall approve by proxy
vote or written consent a plan for the sale, lease, exchange or
other disposition of all or substantially all of the property
and assets of the Company.
3
<PAGE>
ARTICLE V
CERTAIN RESTRICTIONS ON MANOVICH
5.1 CERTAIN RESTRICTIONS. Manovich covenants and agrees with the
Company as follows:
(a) During the term of this Agreement, Manovich will have access to
confidential or proprietary information of the Company and its subsidiaries and
affiliates. Manovich shall not at any time use any such confidential or
proprietary information other than for the benefit of the Company and its
subsidiaries and affiliates. The term "confidential or proprietary information"
shall mean information not generally available to the public, including without
limitation personnel information, financial information, customer lists,
supplier lists, ownership information, marketing plans and analyses, trade
secrets, know-how, computer software, management agreements and procedures and
techniques of operating and managing the business of the Company and its
subsidiaries and affiliates. Manovich acknowledges and agrees that all
confidential or proprietary information is and shall remain the property of the
Company and its subsidiaries and affiliates, and agrees to maintain all such
confidential or proprietary information in confidence.
(b) DEVELOPMENTS. All inventions patentable, copyrightable or
otherwise, trade secrets, discoveries, improvements, ideas and writings
(hereinafter collectively termed "developments"), which Manovich, alone or
jointly with others, has conceived, made, enhanced, modified, developed, or
acquired, or may conceive, make, enhance, modify, develop, or acquire during the
period of his employment hereunder or during an additional period of one (1)
year after the termination of such employment and which relate to the Company's
business of developing and marketing computer hardware and software, and all
developments which relate to the work upon which Manovich shall have been
engaged while in the Company's employment, which Manovich has conceived, made,
enhanced, modified, developed, or acquired, or may conceive, make, enhance,
modify, develop, or acquire during the period of his employment or during a
period of one (1) year after the termination of such employment, to the extent
that such developments are possessed by Manovich at any time, shall be the sole
property of the Company. The term "development" shall include developments
conceived, devised, made, developed or perfected during off-duty hours and away
from the Company's premises as well as to those conceived, devised, made,
developed, or perfected in the regular course of employment.
(c) DISCLOSURE AND COOPERATION. Manovich shall promptly and fully
disclose in writing all such developments described in subparagraph (b) hereof
to the Company's Chief Executive Officer. Manovich shall, at any time upon the
Company's request, whether or not then in the Company's employ, execute,
acknowledge and deliver to the Company all instruments which the Company shall
prepare, give evidence, and do all other things which are necessary or
desirable, to enable the Company to file and prosecute applications for, and to
acquire, maintain and enforce all patents, trademarks, copyrights, and any other
intellectual property rights in all countries, covering such developments. The
Company agrees to pay to Manovich reasonable expenses incurred by Manovich under
this subparagraph (c).
4
<PAGE>
5.2 REMEDIES. It is recognized and acknowledged by each of the Company
and Manovich that a breach or violation by Manovich of any or all of his
covenants and agreements contained in Section 5.1 hereof will cause irreparable
harm and damage to the Company and its subsidiaries and affiliates in a monetary
amount which would be virtually impossible to ascertain and, therefore, will
deprive the Company of an adequate remedy at law. Accordingly, if Manovich shall
breach or violate any or all of his covenants and agreements set forth in
Section 5.1 hereof, then the Company and its subsidiaries and affiliates shall
have resort to all equitable remedies, including without limitation the remedies
of specific performance and injunction, both permanent and temporary, as well as
all other remedies which may be available at law.
5.3 INTENT. It is the intent of the parties that the restrictions set
forth in Section 5.1 hereof shall be enforced to the fullest extent permissible
under the laws and public policies of each jurisdiction in which enforcement of
such restrictions may be sought. If any provision contained in Section 5.1
hereof shall be adjudicated by a court of competent jurisdiction to be invalid
or unenforceable because of its duration or geographic scope, then such
provision shall be reduced by such court in duration or geographic scope or both
to such extent as to make it valid and enforceable in the jurisdiction where
such court is located, and in ail other respects shall remain in full force and
effect.
ARTICLE VI
INDEMNIFICATION
The Company shall indemnify and hold harmless Manovich from and against
the full amount of any and all claims, demands, suits, actions, judgements,
losses, liabilities, costs, interest and expenses, including without limitation
fees and disbursements of trial and appellate counsel, asserted or brought
against Manovich by any person with respect to any action taken or omitted to be
taken by Manovich in the course of his position with the Company or otherwise
related to or arising out of services to the Company or acting as a director,
officer or agent of the Company or any of its subsidiaries or affiliates. This
right to indemnification shall be in effect to the fullest extent available
pursuant to law, and shall be in addition to any other right to indemnification
Manovich may possess pursuant to law and the Articles of Incorporation and
Bylaws of the Company or any of its subsidiaries or affiliates.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 NOTICES. If either party desires to give notice to the other in
connection with any of the terms and provisions of this Agreement, said notice
must be in writing and shall be deemed given when hand delivered or deposited in
the United States mail, by certified mail, return receipt requested, and
addressed to the party for whom it is intended as follows:
5
<PAGE>
If to the Company: Galacticomm Technologies, Inc.
4101 S.W. 47 Avenue
Suite 101
Ft. Lauderdale, Florida 33314
Attn: Chief Executive Officer
If to Manovich: David Manovich
1616 Chapin Avenue
Burlingame, CA 94010
or to such other address as the addressee shall have communicated to the other
party in writing.
7.2 APPLICABLE LAWS. This Agreement shall be governed and construed in
accordance with the laws of the State of Florida.
7.3 SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the respective parties hereto, their legal representatives, heirs,
successors and assigns including any entities controlled by or under common
control with them.
7.4 ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding and all the representations and warranties of the parties relating
to the subject matter referred to herein. Without limiting the generality of the
foregoing, all employment agreements previously entered into between the parties
hereto are hereby null and void.
7.5 HEADINGS. The headings of this Agreement are for convenience of
reference only and shall be without substantive meaning.
7.6 AMENDMENT. Any amendment to this Agreement must be in writing and
signed by duly authorized representatives of the parties hereto.
7.7 WAIVER. Failure by any party at any time to require performance
under this Agreement by any of the other parties, or to claim a breach of any
provision of this Agreement, shall not be construed as a waiver of any right
accruing under this Agreement, nor will it affect any subsequent breach of this
Agreement or the effectiveness of any provision of this Agreement, or prejudice
any party as regards any subsequent action. A waiver of any right accruing to
any party pursuant to this Agreement shall not be effective unless given in
writing.
7.8 ENFORCEABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect or limit the validity or enforceability of
any other provision hereof and any such invalid or unenforceable provision shall
be construed or deemed amended by the parties to the extent necessary to make it
valid and enforceable.
7.9 SINGULAR AND PLURAL USAGE. All reference herein to the singular
number shall include the plural, and vice versa, wherever appropriate.
7.10 COUNTERPARTS. This Agreement may be signed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
Galacticomm Technologies, Inc.
/s/ DAVID MANOVICH By: /s/ YANNICK TESSIER
- ---------------------------- -------------------------------
David Manovich Authorized Representative
7
EXHIBIT 10.62
THIS STOCK OPTION AND THE COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF CAN BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933 AND APPLICABLE
STATE SECURITIES LAWS. THIS STOCK OPTION AND THE SHARES MAY NOT BE SOLD,
TRANSFERRED, OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNLESS, IN THE OPINION OF COUNSEL TO THE COMPANY, SUCH REGISTRATION IS NOT THEN
REQUIRED.
GALACTICOMM TECHNOLOGIES, INC.
AMENDED AND RESTATED STOCK OPTION AND AGREEMENT
THIS AMENDED AND RESTATED STOCK OPTION AND AGREEMENT is entered into as
of the 22nd day of June, 1998 between Galacticomm Technologies, Inc. (the
"Company") and David Manovich ("Optionee").
RECITALS:
A. The Company entered into a Stock Option and Agreement with Optionee
on April 2, 1998 (the "Original Stock Option and Agreement").
B. The Company and Optionee wish to amend and restate the Original
Stock Option and Agreement as set forth herein.
NOW THEREFORE, the parties agree as follows:
THIS STOCK OPTION ("option[s]") for up to 200,000 shares of the
Company's common stock, par value $.0001 per share (the "Common Stock"), has
been granted to Optionee at the price and subject to the terms and conditions
contained herein.
A. CONDITIONS PRECEDENT AND VESTING. The exercise of the options by the
Optionee shall be subject to the following conditions precedent and vesting
schedules:
1. Optionee shall have the right to acquire 50,000 shares of Common
Stock on June 5, 1998. Such options shall vest as follows:
a. 20,000 shares of Common Stock shall vest on June 5, 1998;
b. an additional 15,000 shares of Common Stock shall vest on
June 5, 1999; and
c. an additional 15,000 shares of Common Stock shall vest on June
5, 2000.
<PAGE>
2. Optionee shall have the right to acquire 75,000 shares of Common
Stock upon the closing of an initial public offering ("IPO") of the Company's
securities. Such options shall vest as follows:
a. 25,000 shares of Common Stock shall vest immediately upon the
closing of the IPO;
b. an additional 25,000 shares of Common Stock shall vest on the
first anniversary of the closing of the IPO; and
c. an additional 25,000 shares of Common Stock shall vest on the
second anniversary of the closing of the IPO.
3. Optionee shall have the right to acquire 75,000 shares of Common
Stock upon the Company realizing positive net income after taxes in any fiscal
quarter ("Quarterly Net Income"), up through the quarter ended December 31,
1999. Such options shall vest as follows:
a. 25,000 shares of Common Stock shall vest immediately upon the
Company realizing Quarterly Net Income;
b. an additional 25,000 shares of Common Stock shall vest on the
first anniversary of the Company realizing Quarterly Net Income;
and
c. an additional 25,000 shares of Common Stock shall vest on the
second anniversary of the Company realizing Quarterly Net Income.
4. Notwithstanding anything contained herein to the contrary, all
options granted hereunder shall vest and be immediately exercisable upon a
Change in Control (as hereinafter defined). For purposes of this Amended and
Restated Stock Option and Agreement, a "Change in Control" occurs if:
a. any "person" (other than Peter Berg or Yannick Tessier) within
the meaning of Section 14(d) of the Securities Exchange Act of
1934 becomes the "beneficial owner" as defined in Rule 13d-3
thereunder, directly or indirectly, of more than 50% of the
Company's voting securities;
b. any "person" (other than Peter Berg or Yannick Tessier)
acquires by proxy or otherwise the right to vote more than 50% of
the Company's voting securities for the election of directors of
the Company; or
c. the shareholders of the Company shall approve by proxy or
written consent a plan for the sale, lease, exchange or other
disposition of all or substantially all of the property and
assets of the Company.
2
<PAGE>
B. OPTION EXPIRATION. All options granted hereunder shall expire three
years from their respective vesting dates under Section A hereof.
C. EXERCISE PRICE. The exercise price (the "Exercise Price") of the
options granted hereunder shall be ninety percent (90%) of the per share price
of the Common Stock or other securities offered by the Company in an IPO.
Notwithstanding the foregoing, if one or more of the conditions precedent to the
exercise of the three groups of options set forth in paragraphs 1, 2 or 3 of
Section A hereof are satisfied prior to an IPO, then the group of options (both
vested and non-vested) for which such conditions have been satisfied shall have
an Exercise Price of $3.15 per share.
D. EXERCISE OF OPTION.
1. If the Optionee dies, the options granted hereunder which have
vested as of the Optionee's death may be exercised within one (1) year after the
date of Optionee's death or prior to the date on which the vested option expires
by its terms, whichever is earlier, by the estate of the Optionee, or by any
person or persons whom Optionee shall have designated in writing in documents
filed with the Company or, if no such designation has been made, by the person
or persons to whom Optionee's rights hereunder shall have passed by will or the
laws of descent and distribution.
2. Each option granted hereunder shall be deemed exercised when
Optionee shall indicate his decision to do so in writing to the Company in
accordance with Section D.3. hereof, and shall at the same time tender to the
Company payment in full in cash for the shares as to which the option is
exercised. The options granted hereunder may be exercised as to any lesser
number of shares than the full amount for which the options could be exercised.
Such a partial exercise of an option shall not affect the right to exercise the
option as to the remaining shares subject to the option. The right to exercise
this option shall be cumulative so that when the right to exercise an option has
vested, the shares eligible for purchase hereunder may be purchased at any time
thereafter until the expiration of the option pursuant to this Section B.
3. METHOD OF EXERCISE. This option shall be exercisable by a written
notice which shall:
a. state the election to exercise the option, the number of
shares in respect of which it is being exercised, the person in whose name the
stock certificate(s) for such shares of Common Stock is to be registered, his or
her address and Social Security Number (or if more than one, the names,
addresses and Social Security numbers of such persons);
b. be signed by the person or persons entitled to exercise the
option and, if the option is being exercised by any person(s) other than the
Optionee, be accompanied by proof, satisfactory to counsel for the Company, of
the right of such person(s) to exercise the Option; and
3
<PAGE>
c. be delivered in person or by certified mail to the
Compensation Committee of the Company's Board of Directors or, in the absence of
a Compensation Committee, the Board of Directors.
4. PAYMENT. Payment of the purchase price (the "Purchase Price") of
any shares with respect to which the option is being exercised shall be: (a) in
cash; (b) by certified or bank check payable to the order of the Company; (c) by
the delivery of unexercised options or shares of Common Stock having a fair
market value equal to the Purchase Price, or (d) by any combination of the
foregoing having a fair market value equal to the Purchase Price. The Company
shall withhold from the shares of Common Stock to be issued upon the exercise of
this Option that number of shares of Common Stock having a fair market value
equal to the tax withholding amount due.
5. RESTRICTIONS ON EXERCISE. Notwithstanding anything contained
herein to the contrary, this option may not be exercised if the issuance of the
shares of Common Stock upon such exercise would constitute a violation of any
applicable federal or state securities laws or other applicable laws or
regulations. As a condition to the exercise of this option, the Committee may
require the person exercising this option to make such representations and agree
to such covenants as may be required by any applicable law or regulation.
E. BENEFICIARY DESIGNATION. Optionee may designate to the Committee, on
a form provided by the Company for that purpose, a beneficiary or beneficiaries
who shall be entitled to the benefits hereunder. Such designation may be
canceled or changed by Optionee, but no cancellation or change will be
recognized by the Committee unless effected in writing on a form provided by the
Committee for that purpose and filed with the Company.
F. OPTIONEE'S OR SUCCESSOR'S RIGHTS AS STOCKHOLDERS. Neither the
Optionee nor his successor(s) in interest shall have any rights as a stockholder
of the Company with respect to any shares subject to the options granted to the
Optionee hereunder until the Optionee or his successor in interest becomes a
holder of record of such shares and receives a certificate or certificates
representing such shares from the Company or its duly authorized agent, which
certificate or certificates shall be mailed to the Optionee or his successor in
interest (at the last known address of the Optionee or his successor in
interest) not later than ten (10) business days after the exercise of the Option
in accordance with the terms contained herein.
G. REGULATORY APPROVAL AND COMPLIANCE. The Company shall not be
required to issue any certificate or certificates for shares of its Common Stock
upon the exercise of an option granted hereunder, or record as a holder of
record of such shares the name of the individual exercising any options granted
hereby, without obtaining, to the reasonable satisfaction of the Committee, the
approval of all regulatory bodies deemed necessary by the Committee, and without
complying, to the Committee's complete satisfaction, with all rules and
regulations, under federal, state or local law deemed applicable by the
Committee.
H. NON-TRANSFERABILITY OF OPTION. Except as set forth herein, this
option may not be transferred in any manner otherwise than by will or the laws
of descent and distribution and may
4
<PAGE>
be exercised during the lifetime of the Optionee only by him. The terms of this
option shall be binding upon the beneficiaries of Optionee.
I. ADJUSTMENT OF EXERCISE PRICE IN THE EVENT OF STOCK DIVIDENDS, STOCK
SPLITS AND REVERSE STOCK SPLITS. If the Company issues Common Stock or
convertible securities by way of dividend or other general distribution to all
of the record holders of any stock of the Company or effects a stock split or
reverse stock split of the outstanding shares of Common Stock, the Exercise
Price shall be proportionately adjusted in the case of such issuance (on the day
following the date fixed for determining stockholders entitled to receive such
dividend or other such reverse stock split (on the date that such stock split or
reverse stock split shall become effective), by multiplying the Exercise Price
in effect immediately prior to the stock dividend, stock split or reverse stock
split by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately prior to such stock dividend, stock split or
reverse stock split, and the denominator of which is the number of shares of
Common Stock outstanding immediately after such stock dividend, stock split or
reverse stock split.
J. ADJUSTMENT OF NUMBER OF SHARES OF STOCK ISSUABLE UPON EXERCISE. Upon
each adjustment of the Exercise Price pursuant to Section I. hereof, the
Optionee shall thereafter (until another such adjustment) be entitled to
purchase, at the Exercise Price in effect on the date purchase rights under this
option are exercised, the number of shares of Common Stock, calculated to the
nearest whole number of Common Stock, determined by (1) multiplying the number
of shares of Common Stock purchasable hereunder immediately prior to the
adjustment of the Exercise Price by the Exercise Price in effect immediately
prior to such adjustment, and (2) dividing the product so obtained by the
Exercise Price in effect on the date of such exercise.
K. MERGER, CONSOLIDATION OR SALE OF ASSETS. In the event of: (1) a
merger or consolidation of the Company with or into another company or other
business entity, or (2) the transfer of all or substantially all of the
Company's assets to another company or other business entity, the options
granted hereunder which have not expired shall, upon exercise, thereafter
entitle the Optionee to such number of shares of Common Stock or other
securities or property to which the Optionee would have been entitled as if the
Optionee had exercised such options in accordance with the terms contained
herein immediately prior to the consummation of such merger, consolidation or
sale of assets.
L. INVESTMENT INTENT. The options being received will be purchased
solely for Optionee's own account for investment purposes only and not for the
account of any other person and not for distribution, assignment or resale to
others. No other person has a direct or indirect beneficial interest in the
options or the shares of Common Stock underlying the options (the "Underlying
Shares"). Optionee has not subdivided the beneficial ownership of the options or
the Underlying Shares with any other person.
M. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933.
1. The Underlying Shares may not be offered or sold except in
compliance with the Securities Act of 1933 (the "Act"), or any similar federal
or state statute then in effect, and then only if such person to whom such offer
or sale is made agrees with the Company to
5
<PAGE>
comply with the provisions of this Section M with respect to the restrictions
for the resale or other disposition of such securities contained herein.
2. Prior to the disposition of any Underlying Shares under
circumstances that might require registration of the Underlying Shares under the
Act, or any similar federal or state statute then in effect, Optionee shall give
written notice to the Company, expressing his intention as to the disposition to
be made of such Underlying Shares. Promptly upon receiving such notice, the
Company shall present copies thereof to its counsel. If, in the opinion of such
counsel, the proposed disposition does not require registration under the Act,
or any similar federal or state statute then in effect with respect to the
Underlying Shares, the Company shall, as promptly as practicable, notify
Optionee of such opinion, whereupon Optionee shall be entitled to dispose of
such Underlying Shares, all in accordance with the terms of the notice delivered
by Optionee to the Company.
3. The Company may cause a legend in substantially the form that
follows to be set forth on the certificate representing the Underlying Shares,
unless counsel for the Company is of the opinion as to any such certificate that
such legend is unnecessary:
The securities represented by this certificate can only be
transferred in compliance with the Securities Act of 1933 and all
applicable state securities laws. This stock option and the
shares may not be sold, transferred, or assigned in the absence
of an effective registration statement unless, in the opinion of
counsel to the Company, such registration is not then required.
N. GOVERNING LAW. This Amended and Restated Stock Option and Agreement
shall be governed by and construed in accordance with the laws of the State of
Florida.
DATE OF GRANT: ___________________
GALACTICOMM TECHNOLOGIES, INC.
By: /s/ YANNICK TESSIER
--------------------------------
Name: Yannick Tessier
Title: President
6
<PAGE>
______________
Date
Galacticomm Technologies, Inc.
4101 S.W. 47 Avenue
Suite 101
Ft. Lauderdale, Florida 33314
Attention: Compensation Committee
Re: Exercise of Nonqualified Stock Option
Dear Sir:
Please be advised that pursuant to the Amended and Restated Stock
Option and Agreement ("Agreement"), dated as of June 22, 1998 between
Galacticomm Technologies, Inc. (the "Company") and the undersigned ("Optionee"),
Optionee hereby exercises the stock option ("Option") in the amount of
__________ shares of common stock of the Company and herewith tenders the
following _______________________, having an aggregate value of ______________
($_________), in payment for such shares of common stock. Capitalized terms not
otherwise defined herein are defined as set forth in the Agreement.
Optionee requests _____ stock certificates for such shares issued in
the name of __________________ whose address is _____________________________
and whose social security number is _____________________ .
Optionee hereby acknowledges, warrants and represents the following:
(1) Optionee's acknowledgements, representations, warranties and
agreements contained in the Agreement are true, complete and accurate as of the
date of this letter.
(2) The Option is presently exercisable and as such, has vested and has
not expired.
(3) Optionee is presently and has been in full compliance with all the
terms, conditions and provisions of the Agreement.
Sincerely,
----------------------------------
Optionee
7
EXHIBIT 10.63
PROMISSORY NOTE
$175,000 FT. LAUDERDALE, FLORIDA
July 1, 1998
For value received, Galacticomm Technologies, Inc., a corporation
organized under Florida law (the "Payor"), promises to pay to the order of Mr.
Peter Berg at 4101 S.W. 47th Avenue, Suite 101, Ft. Lauderdale, Florida, 33314,
the principal sum of one hundred and seventy-five thousand dollars ($175,000) in
lawful money of the United States of America, and to pay interest on the unpaid
principal balance hereof in like manner at such address from the date hereof
until the principal hereof shall have become due and payable at maturity, at a
rate of seven percent (7%) per annum.
The principal balance of this Note and all accrued but unpaid interest
thereon shall be payable in a single installment upon the earlier to occur of:
(a) September 30, 1999, or (b) twelve (12) months after the closing of Payor's
initial public offering of securities.
This Note shall be governed by and construed in accordance with the
laws of the State of Florida.
GALACTICOMM TECHNOLOGIES, INC.
By:/s/ YANNICK TESSIER
---------------------------------------------
Yannick Tessier, its President
--------------- ---------------------------
EXHIBIT 10.64
PROMISSORY NOTE
$125,000 FT. LAUDERDALE, FLORIDA
July 1, 1998
For value received, Galacticomm Technologies, Inc., a corporation
organized under Florida law (the "Payor"), promises to pay to the order of Mr.
Yannick Tessier at 4101 S.W. 47th Avenue, Suite 101, Ft. Lauderdale, Florida,
33314, the principal sum of one hundred and twenty-five thousand dollars
($125,000) in lawful money of the United States of America, and to pay interest
on the unpaid principal balance hereof in like manner at such address from the
date hereof until the principal hereof shall have become due and payable at
maturity, at a rate of seven percent (7%) per annum.
The principal balance of this Note and all accrued but unpaid interest
thereon shall be payable in a single installment upon the earlier to occur of:
(a) September 30, 1999, or (b) twelve (12) months after the closing of Payor's
initial public offering of securities.
This Note shall be governed by and construed in accordance with the
laws of the State of Florida.
GALACTICOMM TECHNOLOGIES, INC.
By:/S/ PETER BERG
--------------------------------------
Peter Berg, its CEO
EXHIBIT 10.65
STOCK SUBSCRIPTION AGREEMENT
May 29, 1998
Peter Berg
Yannick Tessier
c/o Galacticomm Technologies, Inc.
4101 S.W. 47th Avenue, Suite 101
Ft. Lauderdale, FL 33314
Ladies and Gentlemen:
Mr. Peter Berg, the CEO of Galacticomm Technologies, Inc. (the
"Company"), and Mr. Yannick Tessier, the President of the Company, hereby offer
solely to "accredited investors" (as defined in paragraph 3(k) hereof) up to
400,000 shares of the Company's common stock (the "Common Stock") owned by them
at a purchase price of $0.75 per share (the "Offering"). At the completion of
this Offering, Mr. Berg and Mr. Tessier (the "Offerors") will loan (the "Loan")
the total proceeds of the Offering to the Company. The Company will primarily
use such proceeds to pay accrued accounting, legal and printing fees associated
with its initial public offering and, to a lesser extent, for working capital.
As consideration for the Loan, the Company will issue each of the
Offerors a promissory note accruing interest at the annual interest rate of 7%
(the "Promissory Note"), with principal and interest due and payable upon the
earlier to occur of: (a) September 30, 1999, or (b) twelve (12) months from the
completion of the Company's Initial Public Offering. The form of the Promissory
Note is attached hereto as Exhibit "A."
1. SUBSCRIPTION. The Purchaser ("Purchaser"), intending to be legally
bound, hereby irrevocably agrees to purchase from the Offerors the number of
shares (the "Shares") of Common Stock set forth on the signature page hereof, at
a purchase price of $0.75 per Share, in accordance with and subject to the terms
and conditions described in this Stock Subscription Agreement. The Offering
terminates on May 28, 1998, unless extended for an additional ten (10) days by
the Offerors.
2. PAYMENT. The Purchaser encloses herewith a check payable to or wire
transfer payment to Lucio, Mandler, Croland, Bronstein, Garbett, Stiphany &
Martinez, P.A., as Escrow Agent for the Company ("Escrow Agent"), in the full
amount of the purchase price of the Shares being subscribed for. Wire
instructions for the Escrow Agent are: Victoria Del Rio, NationsBank, 701
Brickell Avenue, Miami, Florida 33131, telephone: (305) 350-7171, facsimile:
(305) 350-7155. Lucio, Mandler, Croland, Bronstein, Garbett, Stiphany &
Martinez, P.A. Trust Account, Trust Account No. 1595295035, ABA No. 063000047.
Such funds will be held for Purchaser's benefit by the Escrow Agent, and will be
returned promptly with no interest thereon if this Stock Subscription Agreement
is not accepted by the Company, or the Offering is terminated.
3. REPRESENTATIONS BY THE PURCHASER. The Purchaser hereby acknowledges,
represents, warrants and agrees as follows:
(a) The Common Stock is not registered under the Securities
Act of 1933 (the "Securities Act") or any state securities laws. The Purchaser
understands that the Offering is intended to be exempt from federal and state
registration by virtue of exemptions from registration available under the
Securities Act, including Section 4(1) thereof, based, in part, upon the
representations, warranties and agreements contained in this Stock Subscription
Agreement;
<PAGE>
(b) Neither the Securities and Exchange Commission (the
"Commission") nor any state securities commission has approved the Shares or
passed upon or endorsed the merits of the Offering;
(c) The Purchaser has had a reasonable opportunity to ask
questions of and receive answers from the Offerors, or persons acting on behalf
of the Company, concerning the Offering and the Company, and all such questions
have been answered to the full satisfaction of the Purchaser;
(d) In evaluating the suitability of an investment in the
Shares, the Purchaser has not relied upon any representation or other
information (oral or written) other than as stated in the Company's prospectus
dated January 22, 1998, the Company's unaudited financial statements for the 12
month period ended December 31, 1997, the Company's unaudited financial
statements for the 3 months period ended March 31, 1998 and the letter of intent
for the Company's initial public offering, all of which are attached hereto as
Exhibit "B," and any other written information authorized by the Offerors to be
disclosed to the Purchaser;
(e) The Purchaser is unaware of, and in no way relying on, any
form of general solicitation or general advertising in connection with the
Offering;
(f) The Purchaser has taken no action which would give rise to
any claim by any person for brokerage commissions, finders' fees or the like
relating to this Stock Subscription Agreement or the transactions contemplated
hereby;
(g) The Purchaser has such knowledge and experience in
financial, tax, and business matters so as to enable him or her to utilize the
information made available to him or her in connection with the Offering to
evaluate the merits and risks of an investment in the Shares and to make an
informed investment decision with respect thereto;
(h) The Purchaser is not relying on the Offerors or the
Company respecting the tax and other economic considerations of an investment in
the Shares and the Purchaser has relied on the advice of, or has consulted with,
only his or her own advisors;
(i) The Purchaser is acquiring the Shares solely for his or
her own account for investment and not with a view to resale, assignment or
distribution to others;
(j) The Purchaser has adequate means of providing for the
Purchaser's current needs and foreseeable personal contingencies and has no need
for the Purchaser's investment in the Shares to be liquid;
(k) The Purchaser is an "accredited investor" as defined in
Rule 501(a) of Regulation D promulgated under the Securities Act by satisfying
any one or more of the following criteria:
(i) The Purchaser is a natural person who had individual
income of more than $200,000 in each of the most recent two years or joint
income with my spouse in excess of $300,000 in each of the most recent two years
and reasonably expect to reach that same income level for the current year
("income," for purposes hereof, should be computed as follows: individual
adjusted gross income, as reported (or to be reported) on a federal income tax
return, increased by (1) any deduction of long-term capital gains under Section
1202 of the Internal Revenue Code of 1986 (the "Code"), (2) any deduction for
depletion under Section 611 et. seq. of the Code, (3) any exclusion for interest
under Section 103 of the Code and (4) any losses of a partnership as reported on
Schedule E of Form 1040);
2
<PAGE>
(ii) The Purchaser is a natural person whose individual
net worth (I.E., total assets in excess of total liabilities), or joint net
worth with my spouse, will at the time of purchase of the Shares be in excess of
$1,000,000;
(iii) The Purchaser is a bank as defined in Section
3(a)(2) of the Act, or any savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Act whether acting in its individual or
fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934; an insurance company as defined in Section
2(13) of the Act; an investment company registered under the Investment
Corporation Act of 1940 or a business development company as defined in Section
2(a)(48) of that Act; a Small Business Investment Corporation licensed by the
U.S. Small Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958; a plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; an employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974, if the
investment decision is made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000 or if a self-directed plan, with investment
decisions made solely by persons that are "accredited investors;"
(iv) The Purchaser is a private business development
company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;
(v) The Purchaser is an organization described in Section
501(c)(3) of the Internal Revenue Code of 1986, as amended, corporation,
Massachusetts business trust, or partnership, not formed for the specific
purpose of acquiring the securities offered, with total assets in excess of
$5,000,000;
(vi) The Purchaser is a trust, which trust has total
assets in excess of $5,000,000, which is not formed for the specific purpose of
acquiring the Shares offered hereby and whose purchase is directed by a
sophisticated person as described in Rule 506(b)(ii) of Regulation D and who has
such knowledge and experience in financial and business matters that he is
capable of evaluating the risks and merits of an investment in the Shares;
(vii) The Purchaser is a director or executive officer of
the Company; or
(viii) The Purchaser is an entity (other than a trust) in
which all of the equity owners meet the requirements of at least one of the
above subparagraphs.
(l) The Purchaser: (i) if a natural person represents that the
Purchaser has reached the age of 21 and has full power and authority to execute
and deliver this Stock Subscription Agreement and all other related agreements
or certificates and to carry out the provisions hereof and thereof and has
adequate means for providing for his or her current financial needs and
anticipated future needs and possible contingencies and emergencies and has no
need for liquidity in the investment in the Shares; (ii) if a corporation,
partnership, association, joint stock company, trust, unincorporated
organization or other entity represents that such entity was not formed for the
specific purpose of acquiring the Shares, such entity is duly organized validly
existing and in good standing under the laws do the jurisdiction of its
organization, the consummation of the transactions contemplated hereby is
authorized by, and will not result in a violation of any applicable law or its
charter or other organizational documents, such entity has full power and
authority to execute and deliver this Stock Subscription Agreement and all other
related agreements or certificates and to carry out the provisions hereof and
thereof and to purchase and
3
<PAGE>
hold the Shares, the execution and delivery of this Stock Subscription Agreement
has been fully authorized by all necessary action, this Stock Subscription
Agreement has been duly executed and delivered on behalf of such entity and is a
legal, valid and binding obligation of such entity; and (iii) if executing this
Stock Subscription Agreement in a representative or fiduciary capacity,
represents that it has full power and authority to execute and deliver this
Stock Subscription Agreement in such capacity and on behalf of the subscribing
individual, ward, partnership, trust, estate, corporation, or other entity for
whom the Purchaser is executing this Stock Subscription Agreement, and such
individual, ward, partnership, trust, estate, corporation, or other entity has
full right and power to perform pursuant to this Stock Subscription Agreement
and make an investment in the Company, and that this Stock Subscription
Agreement constitutes a legal, valid and binding obligation of such entity. The
execution and delivery of this Stock Subscription Agreement will not violate or
be in conflict with any order, judgment, injunction, agreement or controlling
document to which the Purchaser is a party or by which it is bound;
(m) The Purchaser has had the opportunity to obtain any
additional reasonably available information necessary to verify the accuracy of
the information contained in Exhibit "B" attached hereto and all reasonably
available documents received or reviewed in connection with the Offering and has
had the opportunity to meet with the Offerors or representatives of the Company
and to have them answer any questions and provide additional information
regarding the terms and conditions of this particular investment and the
finances, operations, business and prospects of the Company and the Offering
deemed relevant by the Purchaser and all such questions have been answered and
requested information provided to the Purchaser's full satisfaction;
(n) The information contained herein is complete and accurate
and may be relied upon by the Company and the Offerors in determining the
availability of an exemption from registration under federal and state
securities laws in connection with the Offering;
(o) The Purchaser has significant prior investment experience,
including investment in non-listed and non-registered securities. The Purchaser
is knowledgeable about investment consideration in small companies in early
stages of development. The Purchaser has a sufficient net worth to sustain a
loss of its entire investment in the Company in the event such a loss should
occur. The Purchaser's overall commitment to investments which are not readily
marketable is not excessive in view of its net worth and financial circumstances
and the purchase of the Shares will not cause such commitment to become
excessive. The investment is a suitable one for the Purchaser;
(p) The Purchaser is satisfied that it has received
information with respect to all matters which it considers material to the
Purchaser's decision to make this investment;
(q) The Purchaser acknowledges that the Offerors shall, in
their sole discretion, have the right to accept or reject Purchaser's
subscription, in whole or in part, for any reason or for no reason. If
Purchaser's subscription is accepted by the Offerors, Purchaser shall, and
Purchaser hereby elects to, execute any and all further documents necessary, in
the opinion of the Company, to complete the Purchaser's subscription and become
a shareholder of the Company.
(r) NOTICES TO PURCHASERS
THE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT,
OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE
ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
LAWS. THE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING
4
<PAGE>
OR THE ACCURACY OR ADEQUACY OF THE OFFERING DOCUMENTS. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
THE SHARES HAVE NOT BEEN REGISTERED UNDER THE FLORIDA
SECURITIES AND INVESTOR PROTECTION ACT (THE "FLORIDA ACT") IN RELIANCE UPON
EXEMPTIONS CONTAINED THEREIN. PROSPECTIVE INVESTORS WHO RESIDE IN FLORIDA ARE
ADVISED THAT WHERE SALES ARE MADE TO FIVE (5) OR MORE PERSONS PURSUANT TO
SECTION 517.061(11)(a)(5) OF THE FLORIDA ACT, SUCH SALES ARE VOIDABLE BY THE
PURCHASER WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE
BY THE PURCHASER TO THE ESCROW AGENT, OR WITHIN THREE (3) DAYS AFTER THE
AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO THE PURCHASER, WHICHEVER
OCCURS LATER.
4. REPRESENTATIONS BY THE OFFERORS. Each of the Offerors,
jointly and severally, acknowledges, represents, warrants and agrees as follows:
(a) ORGANIZATION AND GOOD STANDING. The Company and its
sole subsidiary, Galacticomm, Inc., are Florida corporations duly organized,
validly existing and in good standing under the laws of the State of Florida,
with full power and authority, corporate and other, to own or lease and operate
their respective properties and to conduct their business. The Company and its
subsidiary are duly qualified to do business as foreign corporations and are in
good standing in all jurisdictions where such qualification is necessary and
where failure to so qualify could have a material adverse effect on the
financial condition, results of operations, business or properties of the
Company or its subsidiary.
(b) CORPORATE AUTHORIZATION. Each of the Offerors have full
power and authority, to execute, deliver and perform this Agreement and will
cause the Company to have full power and authority to execute, deliver and
perform the Registration Rights Agreement in the form attached hereto as Exhibit
"C," and to consummate the transactions contemplated hereby and thereby. This
Agreement has been, and the Registration Rights Agreement will be, duly executed
and delivered by the Offerors and the Company, respectively, and constitute, or
will constitute, as applicable, valid and binding obligations of the Offerors
and the Company, respectively. This Agreement is enforceable against the
Offerors and the Registration Rights Agreement is enforceable against the
Company in accordance with their respective terms except as such enforceability
may be limited by applicable bankruptcy, insolvency, moratorium, or other
similar laws or arrangements affecting creditors' rights generally and the
discretion of courts in granting equitable remedies and except that
enforceability of the indemnification provisions set forth herein may be limited
by federal or state securities laws or public policy underlying such laws. The
execution, delivery and performance of this Agreement by each of the Offerors
and the execution, delivery and performance of the Registration Rights Agreement
by the Company, the consummation by the Offerors and the Company of transactions
herein and therein contemplated and the compliance by the Offerors and the
Company with the terms of this Agreement and the Registration Rights Agreement,
respectively, have been or will be duly authorized by all necessary corporate
action and do not and will not, with or without the giving of notice or the
lapse of time, or both: (i) result in any violation of the Articles of
Incorporation or Bylaws of the Company; (ii) result in a material breach of or
conflict with any of the terms of provisions of , or constitute a default under,
or result in the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the company pursuant to any indenture, mortgage, note,
contract, commitment or other agreement or instrument to which the Company or
its subsidiary, Galacticomm, Inc., is a party or by which the Company or such
subsidiary or any of their respective properties or assets are or may be bound
or affected; (iii) violate in any material respect any existing applicable law,
rule or regulation, or any judgment, order or decree of any governmental agency
or court, domestic or foreign, having jurisdiction over the Offerors, the
Company or Galacticomm, Inc., or any of their respective properties or business;
or (iv) have any effect or any permit, certification, registration, approval,
consent, license or franchise necessary for the Company or Galacticomm, Inc. to
own or lease
5
<PAGE>
and operate their respective properties and to conduct their
business or the ability of the Company or Galacticomm, Inc. to make use thereof.
(c) CONSENTS. No authorization, approval, consent,
order, registration, license or permit of any court or governmental agency or
body, other than under the Securities Act, the rules and regulations of the
Commission promulgated pursuant thereto, and the rules and regulations of the
state securities laws of the states in which offers or sales will be made, is
required for the valid authorization, issuance, sale and delivery of the Common
Stock in accordance herewith or the consummation by the Offerors or the Company
of the transactions contemplated by this Agreement or the Registration Rights
Agreement.
(d) COMPLIANCE WITH DOCUMENTS AND LAWS. Neither the
Company nor Galacticomm, Inc. is in violation of its respective Articles of
Incorporation or Bylaws, or other governing documents, or in material default in
the due performance of any material lease or other material contract, indenture,
mortgage, deed of trust, note, loan, or other material agreement or instrument
to which the Company or Galacticomm, Inc., as applicable, is a party or by which
it, or any of its properties or businesses is subject or any applicable material
license, franchise, certificate, permit, authorization, statute, rule or
regulation of or from any public, regulatory, or governmental agency or
authority having jurisdiction over the Company or Galacticomm, Inc. or any of
their respective properties or assets, or any approval, consent, order, judgment
or decree, except such as could not reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), earnings, business,
assets and results of operations of the Company.
(e) FINANCIAL STATEMENTS. Prior to the date hereof,
the Purchaser has been provided with the unaudited financial statements of the
Company for the twelve (12) month period ended December 31, 1997 and the
unaudited financial statements for the three (3) month period ended March 31,
1998 (the "Financial Statements"). The Financial Statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis, fairly represent the Company's financial condition and
results of its operations at and for the period specified therein and give a
true and accurate view of the affairs of the Company during such periods. The
Financial Statements are included as part of Exhibit "B."
(f) LEGAL PROCEEDINGS. There are no claims or
proceedings against the Company or Galacticomm, Inc. pending or, to the
knowledge of the Offerors, threatened in which, if adversely determined could
reasonably be expected to have a material adverse effect upon the business,
operations, assets or liabilities, results of operations or the financial
condition of the Company or Galacticomm, Inc.. The Company has recently settled
the litigation with DataSafe Publications, Inc. ("DataSafe"), which is described
on page 33 of the Company's prospectus dated January 22, 1998. Under the terms
of the settlement, DataSafe has dismissed its lawsuit and in return, the Company
has issued to DataSafe 253,907 shares of Common Stock. However, pursuant to the
settlement, the Company must complete an IPO before December 31, 1998 or
DataSafe has the option of returning its 253,907 shares of Common Stock to the
Company and resuming its lawsuit against the Company.
(g) OFFERORS SHARES IN THE COMPANY. Until the
completion of a Qualifying IPO (as defined in Paragraph 5(a) herein), the
Offerors shall not privately sell or grant any warrants or options in their
shares of Common Stock without first obtaining approval of such sale by a
majority of the disinterested members of the Company's Board of Directors and
the holders of a majority of the Shares purchased in this Offering.
5. VOTING RIGHTS. The Offerors will cause the Company to grant
the following voting rights to the Purchasers of the Shares offered hereby:
6
<PAGE>
(a) the right to nominate and have elected two (2)
persons to serve on the Board of Directors of the Company (the "Board") out of a
total of not more than nine (9) directors until an IPO totalling at least
$6,000,000 in gross proceeds (a "Qualifying IPO") is completed. After such a
Qualifying IPO is completed, the right to nominate two (2) persons will be
reduced to one (1) person for a period of two (2) years, after which time this
right shall terminate altogether.
(b) the right to approve or disapprove any proposed
amendments to the Company's Articles of Incorporation or Bylaws until a
Qualifying IPO is completed, at which time such right shall terminate.
(c) the right to approve the following major
transactions until the earlier to occur of the completion of a Qualifying IPO or
December 31, 1998:
(i) issuance on any preferred stock; and
(ii) any financing transaction in excess of
$100,000 which involves a change in the control of the Company.
6. CO-SALE RIGHTS.
(a) OBLIGATIONS OF THE COMPANY. The Offerors agree to
cause the Company not to issue or transfer on its records any common stock,
preferred stock, or other securities convertible into common stock or preferred
stock, held by the Offerors to any person, corporation, partnership or other
entity unless the Company has verified that the Offerors have complied with
their obligations under this Agreement.
(b) TAG-ALONG RIGHTS OF PURCHASER. With respect to
any proposed transfer of shares of Common Stock by the Offerors to a third party
(the "Third Party"), which transfer would result in a change of control of the
Company, the Offerors shall not effect such a transfer without first offering
the Purchaser the right to sell its shares of Common Stock, pro rata with the
Offerors, to the Third Party, at the same price per share and upon the same
terms and conditions of the proposed transfer by the Offerors. The Purchaser
shall have five (5) business days after receiving written notice of such
transaction to advise the Offerors in writing of the Purchaser's desire to
participate in such transaction. However, the Purchaser shall not be able to
exercise its rights under this paragraph with regard to any of its shares of
Common Stock if such shares are not registered with the Commission and the
Purchaser previously failed to exercise its right to register such shares in a
Piggyback Registration (as such term is defined in the Registration Rights
Agreement).
7. ANTI-DILUTION PROTECTION. If the Company issues or sells,
at any time, any shares ("Dilution Shares") of its equity securities for
consideration per share (the "Issue Price") which is less than $0.75 per share
(a "Dilutive Issuance"), other than by reason of the exercise of rights to
acquire such securities existing as of the date of this Agreement or employee
stock options pursuant to a plan approved by the Board and the shareholders of
the Company, the Offerors shall cause the Company to agree to promptly issue to
the Purchaser, without the payment of any additional consideration by the
Purchaser, the aggregate number of shares of Common Stock calculated by:
(a) multiplying (A) the "Weighted Average Price"
(defined as the aggregate Issue Price of all Dilution Shares issued in all prior
Dilutive Issuances divided by the aggregate number of Dilution Shares issued in
such Dilutive Issuances), by (B) the lesser of (x) the aggregate number of
Dilution Shares issued in such Dilutive Issuances and (y) the number of Shares
issued to the Purchaser on the date of this Agreement (the "Current Number");
7
<PAGE>
(b) adding to the resulting product, the product of
(A) $0.75 (the "Per Share Purchase Price") multiplied by (B) either (x) if the
number of Dilution Shares issued in such Dilutive Issuances is less than the
Current Number, the excess of the Current Number over the number of Dilution
Shares; or (y) if the number of Dilution Shares is equal to, or greater than,
the Current Number, zero (0);
(c) dividing the resulting sum by the Current Number;
(d) dividing the purchase price of the Shares by the
quotient resulting from the division referred to in (c); and
(e) subtracting the Current Number from the resulting
quotient.
7. INDEMNIFICATION. The Purchaser agrees to indemnify and hold
harmless the Offerors, the Company, its officers, directors, employees, agents,
control persons and affiliates against all losses, liabilities, claims, damages,
and expenses (including, but not limited to, any and all expenses incurred in
investigating, preparing, or defending against any litigation commenced or
threatened) by reason of or arising out of any actual or alleged false
representation or misrepresentation or warranty or breach or omission to state a
material fact by the Purchaser of any agreement herein or in any other document
delivered in connection with this Stock Subscription Agreement.
8. LOCK-UP AGREEMENT FOR PUBLIC OFFERING. In the event that
the Company undertakes a public offering of its securities, the Purchaser agrees
to fully cooperate with the Company and the underwriters of such offering and to
execute all documents and agreements that may be requested by either the Company
or the underwriters, including, without limitation, an agreement not to sell,
transfer, pledge or otherwise dispose of the Shares beneficially owned by the
Purchaser for a period of twelve (12) months after the effective date of such
public offering, or such longer period of time as required by the National
Association of Securities Dealers, Inc., The Nasdaq Stock Market, Inc. or other
regulatory authority and to thereafter sell such Shares through one of the
underwriters.
9. IRREVOCABILITY; BINDING EFFECT. The Purchaser hereby
acknowledges and agrees that the subscription hereunder is irrevocable by the
Purchaser, except as required by applicable law, and that this Stock
Subscription Agreement shall survive the death or disability of the Purchaser
and shall be binding upon and inure to the benefit of the parties and their
heirs, executors, administrators, successors, legal representatives, and
permitted assigns. If the Purchaser is more than one person, the obligations of
the Purchaser hereunder shall be joint and several and the agreements,
representations, warranties, and acknowledgments herein shall be deemed to be
made by and be binding upon each such person and his or her heirs, executors,
administrators, successors, legal representatives, and permitted assigns.
10. MODIFICATION. This Stock Subscription Agreement shall not
be modified or waived except by an instrument in writing signed by the party
against whom any such modification or waiver is sought.
11. NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given (a) if to the Offerors, at the address set forth
above, or (b) if to the Purchaser, at the address set forth on the signature
page hereof (or, in either case, to such other address as a party hereto shall
have furnished in writing in accordance with the provisions of this paragraph).
Any notice or other communication given by certified mail shall be deemed given
at the time of certification thereof, except for a notice changing a party's
address which shall be deemed given at the time of receipt thereof.
8
<PAGE>
12. ASSIGNABILITY. This Stock Subscription Agreement and the
rights, interests and obligations hereunder are not transferrable or assignable
by the Purchaser and the Purchaser further agrees that the transfer or
assignment of the Shares shall be made only in accordance with all applicable
laws.
13. APPLICABLE LAWS. This Stock Subscription Agreement shall
be governed by and construed in accordance with the laws of the State of Florida
without regard to its conflicts of laws principles. The Purchaser hereby
irrevocably submits to the jurisdiction of any Florida state or United States
federal court sitting in Miami-Dade, Florida over any action or proceeding
arising out of or relating to this Stock Subscription Agreement or any agreement
contemplated hereby, and the Purchaser hereby irrevocably agrees that all claims
in respect of such action or proceeding may be heard and determined in such
Florida state or federal court. The Purchaser further waives any objection to
venue in such state and any objection to an action or proceeding in such state
on the basis of a non-convenient forum. The Purchaser further agrees that any
action or proceeding brought against the Offerors and/or the Company shall be
brought only in Florida state or United States federal courts sitting in
Miami-Dade, Florida. THE PURCHASER AGREES TO WAIVE ITS RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS STOCK
SUBSCRIPTION AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY.
14. BLUE SKY QUALIFICATION. The right of the Purchaser to
purchase the Shares under this Stock Subscription Agreement is expressly
conditioned upon the exemption from qualification of the offer and sale of the
Shares from applicable federal and state securities laws. The Offerors and the
Company shall not be required to qualify this transaction under the securities
laws of any jurisdiction and, should qualification be necessary, the Offerors
shall be released from any and all obligations to maintain their offer, and may
rescind any sale contracted, in the jurisdiction.
15. USE OF PRONOUNS. All pronouns and any variations thereof
used herein shall be deemed to refer to the masculine, feminine, neuter,
singular or plural as the identify of the person or persons referred to may
require.
16. CONFIDENTIALITY. The Purchaser acknowledges and agrees
that any information or data the Purchaser has acquired from or about the
Company, not otherwise properly in the public domain, was received in
confidence. The Purchaser agrees not to divulge, communicate or disclose, except
as may be required by law or for the performance of this Stock Subscription
Agreement, or use to the detriment of the Company or for the benefit of any
other person or persons, or misuse in any way, any confidential information of
the Company, including any scientific, technical, trade or business secrets of
the Company and any scientific, technical, trade or business materials that are
treated by the Company as confidential or proprietary, including, but not
limited to, ideas, discoveries, inventions, developments and improvements
belonging to the Company and confidential information obtained by or given to
the Company about or belonging to third parties.
17. MISCELLANEOUS.
(a) This Stock Subscription Agreement constitutes the
entire agreement between the Purchaser and the Offerors with respect to the
subject matter hereof and supersedes all prior oral or written agreements and
understandings, if any, relating to the subject matter hereof. The terms and
provisions of this Stock Subscription Agreement may be waived, or consent for
the departure therefrom granted, only by a written document executed by the
party entitled to the benefits of such terms or provisions.
9
<PAGE>
(b) The Purchaser's representations and warranties made in
this Stock Subscription Agreement shall survive the execution and delivery
hereof and of the Shares.
(c) Each of the parties hereto shall pay its own fees and
expenses (including the fees of any attorneys, accountants, appraisers or others
engaged by such party) in connection with this Stock Subscription Agreement and
the transactions contemplated hereby whether or not the transactions
contemplated hereby are consummated.
(d) This Stock Subscription Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which shall together constitute one and the same instrument.
(e) Each provision of this Stock Subscription Agreement
shall be considered separable and if for any reason any provision or provisions
hereof are determined to be invalid or contrary to applicable law, such
invalidity shall not impair the operation of or affect the remaining portions of
this Stock Subscription Agreement.
(f) Paragraph titles are for descriptive purposes only and
shall not control or alter the meaning of this Stock Subscription Agreement as
set forth in the text.
NASD MATTERS
1. Do you know of any information pertaining to underwriting
compensation and arrangements or any dealings between any Underwriter or Related
Person (see definition), NASD Member (see definition) or Person Associated with
a Member of the NASD (see definition) on the one hand, and the Company or any
parent, subsidiary or controlling (see definition) shareholder thereof on the
other hand, other than information relating to the compensation to be paid to an
underwriter in connection with its proposed underwriting of the Company's
initial public offering of securities (the "IPO")?
[ ] Yes [ ] No
If "yes", please provide a detailed description (please attach a separate sheet
describing such information if necessary).
2. Are you an NASD Member (see definition), an owner of stock or other
securities of an NASD Member, a Person Associated with a Member of the NASD (see
definition), an Affiliate of an NASD Member (see definition), an Underwriter or
Related Person (see definition) with respect to the IPO or an Immediate Family
Member (see definition) of any of the aforementioned; or have you made any
outstanding subordinated loans to any NASD Member?
[ ] Yes [ ] No
If "yes", please provide a detailed description.
3. Have you been an underwriter, or a controlling (see definition)
person or member of any investment banking or brokerage firm which has been or
might be an underwriter for securities of the Company or which might participate
in the IPO?
10
<PAGE>
[ ] Yes [ ] No
If "yes", please provide a detailed description.
4. If your answer to Questions (2) or (3) above was "Yes", please set
forth below information as to (a) all of your previous purchases and/or
acquisitions (including contracts for purchase or acquisition) of securities of
the Company or of any subsidiary of the Company, (b) all purchases and/or
acquisitions (including contracts for purchase or acquisition) of any such
securities (regardless of who the purchaser or acquiror was ) which resulted in
your Beneficial Ownership (see definition) of such securities, and (c) all
proposed purchases and acquisitions of such securities by you, or which will
result in your Beneficial Ownership (see definition) thereof, which are to be
consummated, in whole or in part, within the next 12 months:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
SELLER OR PROSPECTIVE AMOUNT AND NATURE PRICE OR OTHER DATE OR PROPOSED
SELLER OF SECURITIES CONSIDERATION DATE OF ACQUISITION
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
5. Set forth below information as to all sales and/or dispositions
(including contracts to sell or to dispose) of securities of the Company or of
its subsidiaries by you to any NASD Member (see definition), any Person
Associated with a Member of the NASD (see definition), any Affiliate of an NASD
Member (see definition), any Underwriter or Related Person (see definition) with
respect to the IPO or any Immediate Family Member (see definition) of any of the
aforementioned, as well as to all proposed sales and/or dispositions of such
securities by you to any of the foregoing persons or entities which are to be
consummated, in whole or in part, within the next 12 months:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
SELLER OR PROSPECTIVE AMOUNT AND NATURE PRICE OR OTHER DATE OR PROPOSED
SELLER OF SECURITIES CONSIDERATION DATE OF ACQUISITION
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
6. If you have had, or are to have, any transactions of the character
referred to in Question (5) above, describe briefly the relationship,
affiliation or association of you and, if known, the other party or parties to
any such transaction with any underwriter or other person or entity "in the
stream of a distribution" with respect to the IPO. In any case, where the
purchaser (whether you or any such party) is known by you to be a member of a
private investment group, such as a hedge fund or other group of purchasers,
furnish, if know, the names of all persons comprising the Group (see definition)
and their association with or relationship to any broker-dealer.
7. Provide a detailed description of any services rendered by you,
directly or indirectly, to or on behalf of the Company, including also the dates
of such services and any compensation you received, either directly or
indirectly, in connection with such services.
11
<PAGE>
TRANSACTIONS RELATED TO THE IPO
Except with respect to the proposed IPO, do you know of any plan,
agreement, arrangement, authorization or understanding made or to be made by any
person, or any transaction already effected:
(a) To limit or restrict the sale of the Common Stock during
the period of the IPO?
[ ] Yes [ ] No
If "yes", please provide a detailed description.
(b) To stabilize the market for the Common Stock?
[ ] Yes [ ] No
If "yes", please provide a detailed description.
(c) To withhold commissions or otherwise to hold each
underwriter or dealer responsible for the distribution of its participation in
the IPO?
[ ] Yes [ ] No
If "yes", please provide a detailed description.
MATERIAL RELATIONSHIPS WITH UNDERWRITER
1. Do you have a material relationship with First Equity Corporation of
Florida, Security Capital Trading, Inc. or any other investment banking firm or
underwriting organization?
[ ] Yes [ ] No
If "yes", please provide a detailed description.
DEFINITIONS
For purposes of the foregoing questions, the following terms have the
following meanings:
AFFILIATE OF AN NASD MEMBER. The term "affiliate of an NASD member"
includes a company which controls, is controlled by or is under common control
with a member of the National Association of Securities Dealers, Inc. (the
"NASD"). A company will be presumed to control an NASD member if the company
beneficially owns 10 percent or more of the outstanding voting securities of an
NASD member which is a corporation, or beneficially owns a partnership interest
in 10 percent or more of the distributable profits or losses of an NASD member
which is a partnership. An NASD member will be presumed to control a company if
the NASD member and persons associated with the NASD member beneficially own 10
percent or more of the outstanding voting securities of the company (if it is a
corporation), or beneficially own a partnership interest in 10 percent or more
of the distributable profits
12
<PAGE>
or losses of the company (if it is a partnership). A company will be presumed to
be under common control with an NASD member if (i) the same natural person or
company controls both the NASD member and the company by beneficially owning 10
percent or more of the outstanding voting securities of the NASD member (if it
is a corporation) or a partnership interest in 10 percent or more of the
distributable profits or losses of the NASD member (if it is a partnership) AND
10 percent or more of the outstanding voting securities of the company (if it is
a corporation) or a partnership interest in 10 percent or more of the
distributable profits or losses of the company (if it is a partnership) or (ii)
a person having the power to direct or cause the direction of the management or
policies of the NASD member also has the power to direct or cause the direction
of the management or policies of the company.
BENEFICIAL OWNERSHIP. The terms "beneficial ownership" and
"beneficially owns" shall mean the right to the economic benefits of a security.
COMPANY. The term "company" includes a corporation, partnership,
association, joint stock company, trust, fund, or any organized group of
persons, whether incorporated or not, or any receiver, trustee in bankruptcy or
similar official or any liquidating agent for any of the foregoing, in its
capacity as such.
CONTROL. The term "control" (including the terms " controlling,"
"controlled by" and "under common control with") includes the possession, direct
or indirect, of the power, either individually or with others, to direct or
cause the direction of the management and policies of a person or entity,
whether through the ownership of voting securities, by contract, or otherwise.
GROUP. The term "group" includes a partnership, syndicate or other
group, whether formally organized or not, which has as a purpose the acquiring,
holding or disposing of securities of the Company.
IMMEDIATE FAMILY MEMBER. An "immediate family member" includes mother,
father, sister, brother, cousin, niece, nephew, spouse, father-in-law,
mother-in-law, brother-in-law, sister-in-law, son, daughter, son-in-law or
daughter-in-law or any other person who is supported, directly or indirectly, to
a material extent by an employee of, or person associated with, an NASD member.
NASD MEMBER OR MEMBER OF THE NASD. The terms "NASD member" and "member
of the NASD" means any broker or dealer or any individual, partnership,
corporation or other legal entity admitted to membership in the NASD under the
provisions of Article I of the By-Laws of the NASD.
PERSON ASSOCIATED WITH A MEMBER OF THE NASD. The term " person
associated with a member" of the NASD shall be deemed to include every sole
proprietor, partner (general or limited), shareholder, officer, director or
branch manager of any member or any natural person occupying a similar status or
performing similar functions, or any natural person engaged in the investment
banking or securities business who is directly OR INDIRECTLY controlling or
controlled by such member, whether or not such person is registered by exempt
from registration with the NASD pursuant to its By-Laws.
UNDERWRITER OR RELATED PERSON. The term "underwriter or related person"
shall be deemed to include, with respect to a public offering, underwriters,
underwriters' counsel, financial consultants and advisors, finders, members of
the selling or distribution group, any NASD member participating in the public
offering and any and all other persons associated with or related to any of the
aforementioned persons.
13
<PAGE>
IN WITNESS WHEREOF, the Purchaser has executed this Stock Subscription
Agreement this _______ day of _________________ 1998.
______________________ x $0.75 = ____________________________
(Shares being purchased) (Share Price) (Aggregate Subscription Price)
If the Purchaser is an INDIVIDUAL, and if purchased as JOINT TENANTS,
as TENANTS IN COMMON, or as COMMUNITY PROPERTY:
- ----------------------------------- ---------------------------------------
Print Name Print Name
- ----------------------------------- ---------------------------------------
Social Security Number Social Security Number
- ----------------------------------- ---------------------------------------
Signature of Purchaser Signature of Purchaser
- ----------------------------------- ---------------------------------------
Date Address
If the Purchaser is a PARTNERSHIP, CORPORATION, or TRUST:
- ----------------------------------- ---------------------------------------
Name of Partnership, Federal Taxpayer
Corporation or Trust Identification Number
By:
- ----------------------------------- ---------------------------------------
Name Title
- ----------------------------------- ---------------------------------------
Address
- ----------------------------------- ---------------------------------------
Date State of Organization
SUBSCRIPTION ACCEPTED AND AGREED
this ______ day of _________1998.
PETER BERG YANNICK TESSIER
- ----------------------------------- ---------------------------------------
14
EXHIBIT 10.66
GALACTICOMM TECHNOLOGIES, INC.
4101 S.W. 47 Avenue
Suite 101
Ft. Lauderdale, Florida 33314
June 11, 1998
Dear Prospective Investors
The purpose of this letter is to advise you that there has been a
modification to the settlement of the litigation between DataSafe Publications,
Inc. and Galacticomm Technologies, Inc., which is referred to in Section 4(f) of
the Stock Subscription Agreement (the "Agreement") dated May 29, 1998. Rather
than 253,907 shares of the Company's common stock being issued to DataSafe, a
total of 406,251 have been issued pursuant to the settlement.
Accordingly, we hereby advise you that we are modifying the
representation we made in Section 4(f) of the Agreement. The only modification
to Section 4(f) is to replace the number 253,907 with the number 406,251.
Please acknowledge your receipt of this letter and acceptance of the
modification to Section 4(f) of the Agreement by signing and dating a copy of
this letter and returning it to us as soon as possible. We would appreciate it
if you would fax a copy of this letter to us at (954) 587-1417.
Of course, if you have any questions, please do not hesitate to contact
either one of us.
Sincerely,
/s/ PETER BERG /s/ YANNICK TESSIER
- -------------------------- ---------------------------
Peter Berg Yannick Tessier
The undersigned hereby acknowledges receipt of this letter and accepts
the modification to Section 4(f) of the Agreement referred to herein.
---------------------------
Dated: June _____, 1998 (Signature)
---------------------------
(Print Name)
EXHIBIT 10.67
GALACTICOMM TECHNOLOGIES, INC.
REGISTRATION RIGHTS AGREEMENT
AGREEMENT, dated as of the _____ day of __________, 1998, between the
person whose name and address appear on the signature page attached hereto
(individually a "Holder" or, collectively with the Holders of the shares of
common stock issued in the Offering, each as defined below, the "Holders") and
Galacticomm Technologies, Inc., a company incorporated under the laws of
Florida, having its principal place of business at 4101 S.W. 47 Avenue, Suite
101, Ft. Lauderdale, Florida 33314 (the "Company").
RECITALS:
A. Simultaneously with the executive and delivery of this Agreement,
the Holders are purchasing from Peter Berg and Yannick Tessier (collectively,
the "Executives") an aggregate of up to 400,000 shares of the Company's common
stock, par value $.0001 per share (the "Common Stock"), owned by them, upon the
terms set forth in the Subscription Purchase Agreement dated May 29, 1998; and
B. In consideration of the Executives loans to the Company of the gross
proceeds from the sale of such Common Stock, the Company desires to grant to the
Holder the registration rights set forth herein with respect to the Shares
(sometimes referred to hereinafter as the "Registrable Securities");
NOW THEREFORE, the parties hereto mutually agree as follows:
1. PIGGYBACK REGISTRATION. Commencing 12 months from the closing (the
"IPO Closing Date") of the Company's initial public offering of securities (or
such longer period of time as required by the National Association of Securities
Dealers, Inc., The Nasdaq Stock Market, Inc. or any other regulatory authority)
up to and including the date that the Holder of the Registrable Securities
receives an opinion of counsel to the Company that all Registrable Securities,
other than securities held by "affiliates" of the Company, as such term is
defined in Rule 144 of the Securities Act of 1933 (the "Act"), may be freely
traded (without limitation or restriction as to quantity or timing and without
registration under the Act) pursuant to Rule 144 of the Act or otherwise (the
"Piggyback Registration Period") , if the Company proposes to prepare and file a
registration statement (other than a registration statement on Form S-4 or Form
S-8) under the Act with the Securities and Exchange Commission (the "SEC")
covering equity or debt securities of the Company, or any such securities of the
Company held by its shareholders, the Company will give written notice of its
intention to do so by registered mail ("Notice"), at least 30 business days
prior to the filing of each such registration statement, to the Holders. Upon
the written request of a Holder (a "Requesting Holder"), made within 20 business
days after the date of the Notice, that the Company include any of the
Requesting Holder's Registrable Securities in such proposed registration
statement, the Company shall use its best efforts to cause such registration
statement (a "Piggyback Registration Statement") to be declared effective under
the Act by the SEC so as to permit the public sale of the Requesting Holder's
Registrable Securities pursuant thereto, at the Company's sole cost and expense
and at no cost or expense to the Requesting Holders; provided, however, that if,
in the written opinion of the Company's managing underwriter, if any, for such
offering, the inclusion of all or a portion of the Registrable Securities
requested to be registered, when added to the securities
<PAGE>
being registered by the Company or the selling shareholder(s), will exceed the
maximum amount of the Company's securities which can be marketed (i) at a price
reasonably related to their then current market value, or (ii) without otherwise
materially adversely affecting the entire offering, then the Company may exclude
from such offering all or a portion of the Registrable Securities which it has
been requested to register on a pro rata basis with any other shares of Common
Stock held by other shareholders of the Company for which registration rights
have been granted prior to the IPO Closing Date. Notwithstanding the provisions
of this Section 1, the Company shall have the right, at any time after it shall
have given Notice pursuant to this Section (irrespective of whether any written
request for inclusion of Registrable Securities) to elect not to file any
Piggyback Registration Statement or to withdraw the same after the filing but
prior to the effective date thereof.
2. ADDITIONAL TERMS.
(a) If any stop order shall be issued by the SEC in connection
with a Piggyback Registration Statement, the Company will use its best efforts
to obtain the removal of such order. Following the effective date of the
Piggyback Registration Statement, the Company shall, upon the request of the
Holder, forthwith supply such reasonable number of copies of the Piggyback
Registration Statement, preliminary prospectus and final prospectus meeting the
requirements of the Act, and other documents necessary or incidental to the
registration and public offering of the Registrable Securities, as shall be
reasonably requested by the Holder to permit the Holder to make a public
distribution of such securities. The Company will use its reasonable efforts to
qualify the Registrable Securities for sale in such states as the holders of
such securities shall reasonably request, provided that no such qualification
will be required in any jurisdiction where, solely as a result thereof, the
Company would be subject to (i) general service of process or to taxation or
qualification as a foreign corporation doing business in such jurisdiction or
(ii) qualification requirements which would require the Company to (A) amend its
Articles of Incorporation or Bylaws or (B) rescind, modify or amend any action
taken by the Board of Directors of the Company in accordance with their
fiduciary obligations to the Company and its shareholders; provided, however,
that the Company will make a good faith effort to obtain a waiver of any such
requirement. The obligations of the Company hereunder with respect to the
Registrable Securities are expressly conditioned on the Holder's furnishing to
the Company such appropriate information concerning the Holder,the Holder's
Registrable Securities and the terms of the Holder's offering of such
securities, as the Company may reasonably request.
(b) The Company shall bear the entire cost and expense of each
registration of the Registrable Securities provided for herein; provided,
however, that the Holder shall be solely responsible for the fees of any legal
counsel or financial advisors retained by the Holder in connection with such
registration and any transfer taxes or underwriting discounts, commissions or
fees applicable to the Registrable Securities sold by the Holder pursuant
thereto.
(c) The Company shall indemnify and hold harmless the Holder
and each underwriter, within the meaning of the Act, who may purchase from or
sell for the Holder, any Registrable Securities, from and against any and all
losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in the Piggyback Registration Statement, any other
registration statement filed by the Company under the Act, any
2
<PAGE>
post-effective amendment to such registration statements, or any prospectus
included therein required to be filed or furnished by reason of this Agreement
or caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission based upon information furnished or required to be
furnished in writing to the Company by the Holder or underwriter expressly for
use therein, which indemnification shall include each person, if any, who
controls either the Holder or underwriter within the meaning of the Act and each
officer, director, employee and agent of the Holder and underwriter; provided,
however, that the indemnification in this paragraph (c) with respect to any
prospectus shall not inure to the benefit of the Holder or underwriter (or to
the benefit of any person controlling the Holder or underwriter) on account of
any such loss, claim, damage or liability arising from the sale of Registrable
Securities by the Holder or the underwriter, if a copy of a subsequent
prospectus correcting the untrue statement or omission in such earlier
prospectus was provided to the Holder or underwriter by the Company prior to the
subject sale and the subsequent prospectus was not delivered or sent by the
Holder or underwriter to the purchaser prior to such sale.
(d) The Holder or underwriter or other person, as the case may
be, shall indemnify the Company, its directors, each officer signing the
Piggyback Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, from and against any and all losses,
claims, damages and liabilities caused by any untrue statement of a material
fact contained in the Piggyback Registration Statement, any registration
statement or any prospectus required to be filed or furnished by reason of this
Agreement or caused by any omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or omission based upon information furnished in writing to the Company
by the Holder or underwriter expressly for use therein.
(e) If for any reason the indemnification provided for in
either the two preceding subparagraphs is held by a court of competent
jurisdiction to be unavailable to an indemnified party with respect to any loss,
claim, damage, liability or expense referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by the indemnified party as a result of
such loss, claim, damage or liability in such proportion as is appropriate to
reflect not only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified party and the
indemnifying party, as well as any other relevant equitable considerations.
(f) Neither the filing of a Piggyback Registration Statement
by the Company pursuant to this Agreement nor the making of any request for
prospectuses by the Holder shall impose upon the Holder any obligation to sell
the Holder's Registrable Securities.
(g) The Holder, upon receipt of notice from the Company that
an event has occurred which requires a post-effective amendment to the Piggyback
Registration Statement or a supplement to the prospectus included therein, shall
promptly discontinue the sale of Registrable Securities pursuant to such
registration statement until the Holder receives a copy
3
<PAGE>
of the amended Piggyback Registration Statement or supplemented prospectus from
the Company, which the Company shall provide as soon as practicable after such
notice.
3. GOVERNING LAW.
(a) The Shares are being, and will be, delivered in Florida.
This Agreement shall be deemed to have been made and delivered in the State of
Florida and shall be governed as to validity, interpretation, construction,
effect and in all other respects by the internal laws of the State of Florida.
(b) The Company and the Holder each (i) agrees that any legal
suit, action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in the state courts of Broward or Dade Counties, Florida
("Florida Courts"), or in the United States District Court for the Southern
District of Florida, (ii) waives any objection which the Company or such Holder
may have now or hereafter based upon FORUM NON CONVENIENS or to the venue of any
such suit, action or proceeding, and (iii) irrevocably consents to the
jurisdiction of the Florida Courts and the United States District Court for the
Southern District of Florida in any such suit, action or proceeding. The Company
and the Holder each further agrees to accept and acknowledge service of any and
all process which may be served in any such suit, action or proceeding in the
Florida Courts or in the United States District Court for the Southern District
of Florida and agrees that service of process upon the Company or the holder
mailed by certified mail to the Company at the address set forth above, in the
case of the Company, and to the Holder's address set forth below, in the case of
the Holder,shall be deemed in every respect effective service of process upon
the Company or the Holder, as the case may be, in any suit, action or
proceeding.
4. AMENDMENT. This Agreement may only be amended by a written
instrument executed by the Company and the Holder.
5. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
6. EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
7. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand or five days after such notice is mailed by registered or certified mail,
postage prepaid, return receipt requested, as follows:
(a) if to the Holder, to his or her address set forth on the
signature page of this Agreement;
(b) if to the Company, to the address set forth on the first
page of this Agreement.
4
<PAGE>
8. BINDING EFFECT; BENEFITS. The Holder may not assign his or her
rights hereunder. This Agreement shall inure to the benefit of, and be binding
upon, the parties hereto and their respective heirs, legal representatives and
successors. Nothing herein contained, express or implied, is intended to confer
upon any person other than the parties hereto and their respective heirs, legal
representatives and successors, any rights or remedies under or by reason of
this Agreement.
9. HEADINGS. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
10. SEVERABILITY. Any provision of this Agreement which is held by a
court of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto as of the date first above written.
GALACTICOMM TECHNOLOGIES, INC.
By:
-----------------------------------------
Name:______________________________________
Title:_____________________________________
HOLDER:
-------------------------------------------
Signature
-------------------------------------------
Print Name
Address of Holder:
-------------------------------------------
-------------------------------------------
-------------------------------------------
5
EXHIBIT 10.68
ESCROW AGREEMENT
This Agreement is entered into as of June 1, 1998, among Will Jeffrey,
Esq. (the "Escrow Agent"), Galacticomm Technologies, Inc. (the "Company"), and
DataSafe Publications, Inc. ("DataSafe").
RECITALS
A. The Company and DataSafe have entered into a Settlement Agreement,
dated as of the date hereof (the "Settlement Agreement"), with respect to the
settlement of all claims by DataSafe against the Company and all claims by the
Company against DataSafe.
B. Pursuant to the Settlement Agreement, the Company has agreed to
issue to DataSafe up to a maximum of 420,744 shares (the "Maximum Shares") of
its common stock, par value $.0001 per share ("Common Stock"), as adjusted in
accordance with Section 7 hereof.
C. The actual number of shares of Common Stock to be issued to DataSafe
shall be determined in accordance with this Agreement on the date (the
"Distribution Date") which is one year from the closing date of an initial
underwritten public offering ("IPO") of the Company's securities.
D. Pending the Distribution Date, the parties have agreed that the
Maximum Shares will be held in escrow by the Escrow Agent pursuant to the terms
and conditions set forth herein.
NOW, THEREFORE, it is agreed as follows:
1. RECITALS. The above recitals are true, correct and incorporated
herein by reference.
2. DEPOSITS WITH ESCROW AGENT. On or prior to the date of this
Agreement, A. the Company shall deposit with the Escrow Agent a duly authorized
and executed stock certificate in the name of DataSafe representing the Maximum
Shares, and B. DataSafe shall deposit with the Escrow Agent the originals and
all copies in DataSafe's possession, custody and control of Exhibits 1 through
28 (the "Exhibits") listed by DataSafe in the Initial Pretrial Report filed with
the court. Until this Agreement is terminated in accordance with Section 4B.
hereof, DataSafe shall be and is hereby deemed the owner of the Maximum Shares
with all attendant voting rights and privileges ("Ownership Rights").
3. DISBURSEMENTS ON DISTRIBUTION DATE. On the Distribution Date (or
promptly thereafter in the case of a disbursement pursuant to Section 3.B
hereof, but in no event later than three (3) business days), the Escrow Agent
shall disburse to DataSafe a stock certificate ("Certificate") of the Company
representing the lesser of:
A. the Maximum Shares; or
<PAGE>
B. the number of shares of Common Stock determined by dividing
$650,000 by the Market Price (as defined below) of the Common Stock.
For purposes of this Agreement, Market Price shall mean the average of
the closing prices of the Common Stock during the 20 business days prior to the
Distribution Date. The closing price for each such business day shall be: (i)
the last reported sale price of the Common Stock on the principal securities
exchange registered under the Securities Exchange Act of 1934 on which the
Common Stock is listed or admitted to trading; (ii) if the Common Stock is not
listed or admitted to trading on any such exchange, the last reported sale price
of the Common Stock (or the average of the quoted closing bid and asked prices
if there were no reported sales) as reported by NASDAQ or any comparable system;
or (iii) if the Common Stock is not quoted on NASDAQ or any comparable system,
the average of the closing bid and asked prices as certified by Morgan Stanley
Dean Witter. In the event that there is no trading market for the Common Stock
on the Distribution Date, then the Market Price shall be $2.56 per share.
As soon as practicable after the Distribution Date, and in no event
later than three (3) business days after the Distribution Date, the Company and
DataSafe shall jointly notify the Escrow Agent in writing of the number of
shares of Common Stock determined in accordance with this Section 3.B. In the
event that such number of shares of Common Stock is less than the Maximum
Shares, the Company shall, within 3 business days of such notice, furnish the
Escrow Agent with a Certificate in the name of DataSafe representing the number
of shares of Common Stock set forth in the notice. Upon receipt of the
Certificate, the Escrow Agent shall promptly: (i) disburse the Certificate to
DataSafe; and (ii) return to the Company for cancellation the stock certificate
for the Maximum Shares placed in escrow pursuant to Section 2 hereof.
C. If the Certificate is disbursed to DataSafe pursuant to Section 3.B
hereof, and if the Company, as required under the Registration Rights Agreement
(the form of which is attached hereto as Annex "A"), effects the registration
with the Securities and Exchange Commission of the shares of Common Stock
represented by the Certificate which DataSafe has requested to be so registered,
then promptly after such registration DataSafe and the Company shall jointly
notify the Escrow Agent in writing to disburse the Exhibits to the Company.
Within two (2) business days' of the Escrow Agent's receipt of such notice, the
Escrow Agent shall disburse the Exhibits to the Company.
4. TERMINATION OF ESCROW. This Agreement shall terminate on the earlier
to occur of:
A. the disbursement of the Certificate and the Exhibits by the
Escrow Agent pursuant to Section 3 hereof; or
2
<PAGE>
B. December 31, 1998, if there has not been a closing of the
IPO prior to December 31, 1998. Promptly upon the termination of the escrow
pursuant to this Section 4.B., the Escrow Agent shall return the stock
certificate for the Maximum Shares to the Company and shall return the Exhibits
to DataSafe. In such event, DataSafe shall be entitled to reinstate the
Litigation, and the Company shall be entitled to assert all defenses and
counterclaims the Company has against DataSafe in connection with the
Litigation.
5. REGISTRATION RIGHTS. The shares ("Shares") of Common Stock
represented by the Certificate disbursed to DataSafe by the Escrow Agent shall
be entitled to the demand registration rights set forth in the Registration
Rights Agreement. The Company and DataSafe shall each execute and deliver the
Registration Rights Agreement to the other party contemporaneous with the
execution and delivery of this Agreement.
6. IPO. During the term of this Agreement, DataSafe agrees to fully
cooperate with and to take such action as may be reasonably requested by the
Company at the Company's expense in order to consummate its planned IPO,
provided that DataSafe and its shareholders, officers and directors shall have
no liability for, and shall be fully defended and indemnified by the Company
against all claims, demands, lawsuits, liabilities and expenses arising in
connection with or as a result of the Company's IPO, unless DataSafe provides
the Company with written information, including but not limited to, written
answers to the NASD Questionnaire, which includes any untrue statement of a
material fact or omits to state a material fact necessary in order for the
written statements made by DataSafe, in light of the circumstances under which
they were made, not to be misleading. Without limiting the generality of the
foregoing, DataSafe shall, contemporaneous with the delivery of this Agreement,
complete, execute and deliver to the Company the NASD Questionnaire, a copy of
which is attached hereto as Annex "B".
7. ADJUSTMENT OF SHARES. In the event of any increase or decrease in
the Common Stock of the Company by reason of stock dividends, split-ups,
reorganization, merger, consolidation or a combination or exchange of shares or
the like, the kind of shares and the number of shares subject to this Agreement
shall be appropriately adjusted so that the kind and number of shares subject to
this Agreement shall be increased to include any new shares issued in respect of
the Common Stock or decreased proportionately.
8. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to DataSafe that as of the date hereof and the
Distribution Date:
A. The Maximum Shares and the Shares are and, will be as of the
Distribution Date, of the same class of Common Stock as will be made available
by the Company for sale in their IPO, duly authorized and validly issued to
DataSafe as the rightful owner, fully paid, non-assessable, with all documentary
stamp taxes of any kind prepaid and free and clear of all encumbrances, other
than those restrictions imposed by this Agreement, the Registration Rights
Agreement and by applicable United States federal and state securities laws.
B. The Company has all necessary power and authority to enter into
this Agreement, to carry out its obligations hereunder and to consummate the
transactions
3
<PAGE>
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and (assuming due authorization, execution and delivery by the other
parties hereto) constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
such enforcement may be subject to bankruptcy or other similar laws now or
hereafter in effect relating to creditors' rights generally.
C. The information provided by the Company to DataSafe in connection
with DataSafe's acquisition of the Maximum Shares or the Shares covered by the
Certificate, as the case may be, is true, correct and complete as of this date,
and does not make any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they are being made, not misleading.
D. The Company has entered into and intends to perform the
Settlement Agreement, this Agreement and the Registration Rights Agreement in
good faith and shall not engage in any course of conduct or fail to take any
reasonable and necessary actions which will preclude the fulfillment of its
obligations under the terms and conditions thereof.
9. REPRESENTATIONS AND WARRANTIES OF DATASAFE. DataSafe hereby
represents and warrants to the Company that as of the date hereof and the
Distribution Date:
A. DataSafe is acquiring the Shares for investment purposes and not
with a view to, or for resale in connection with, the distribution or
disposition thereof (except in a transaction or transaction permitted under the
applicable securities laws). DataSafe represents that it has such knowledge and
experience in financial and business matters (as required by Rule 506 of
Regulation D of the Securities Act of 1933) and has had such opportunity as it
deems necessary or appropriate to ask questions of and receive answers from
personnel of the Company so as to enable DataSafe to evaluate the merits and
risks associated with ownership of the Shares and the business, assets,
liabilities, financial condition, cash flow and operations of the Company. All
materials and information requested by DataSafe in connection with the
Settlement Agreement, this Agreement and the Registration Rights Agreement have
been provided to DataSafe to its reasonable satisfaction.
B. DataSafe understands that the Shares have not been registered
under the Securities Act and the following legend shall be placed on the back of
the Certificate representing the Shares:
The securities represented by this certificate can only be
transferred in compliance with the Securities Act of 1933, as
amended, and applicable state securities laws. The securities may
not be sold, transferred or assigned in the absence of an effective
registration statement unless, in the opinion of counsel to the
Company, such registration is not then required.
C. DataSafe has all necessary power and authority to enter into this
Agreement, to carry out its obligations hereunder and to consummate the
transactions
4
<PAGE>
contemplated hereby. This Agreement has been duly executed and delivered by
DataSafe and (assuming due authorization, execution and delivery by the other
parties hereto) constitutes the legal, valid and binding obligation of DataSafe,
enforceable against DataSafe in accordance with its terms, except as such
enforcement may be subject to bankruptcy or other similar laws now or hereafter
in effect relating to creditors' rights generally.
D. DataSafe has entered into and intends to perform the Settlement
Agreement, this Agreement and the Registration Rights Agreement in good faith
and shall not engage in any course of conduct or fail to take any reasonable and
necessary actions which will preclude the fulfillment of its obligations under
the terms and conditions hereof.
10. PLATINUM VAR STATUS. From the execution of, and until the
termination of, this Agreement in accordance with its terms (the "Status
Period"), DataSafe shall be designated a Platinum Value Added Reseller ("VAR")
of the Company (or such other comparable status designation as the Company may
adopt to designate its top level resellers) and entitled to all the rights and
privileges afforded to the Company's Platinum VARs (or such other comparable
status designation as the Company may adopt to designate its top level
resellers), including, without limitation, the right to purchase the Company's
products at a 47 percent discount off their retail sales price (or whatever
maximum percentage discount off their retail sales prices the Company may give
its top level resellers under a comparable status designation). In addition,
DataSafe shall not be required to meet the monthly volume, certification or
initial purchaser requirements imposed by the Company in order to attain and
retain Platinum VAR status (or such other comparable status designation as the
Company may adopt to designate its top level resellers). The Company shall
provide DataSafe during the Status Period with advertising funds and other
marketing support equal to the same provided to any other Platinum VAR of the
Company (or such other comparable status designation as the Company may adopt to
designate its top level resellers). The Company shall also provide to DataSafe
during the Status Period (or such other comparable status designation period as
the Company may adopt to designate its top level sellers),a readable copy of
each of the Company's products and accompanying development tools, which shall
only be used by DataSafe in connection with its sale of the Company's software
products. Moreover, upon DataSafe's written request, the Company shall promptly,
and in no event later than five (5) business days after receipt of the written
request, designate in writing a mailing house which shall be available to mail
(once per month during the Status Period or such other comparable status
designation period as the Company may adopt to designate its top level
resellers), DataSafe's marketing and sales material relating to DataSafe's
product line for the software of the Company, provided that DataSafe's sales and
marketing materials are supplied to the Company at least ten (10) business days
in advance of DataSafe's submission of such materials to the mailing house for
the Company's written approval, which approval shall not be unreasonably
withheld. In the event the Company withholds its written approval, the Company
shall designate, in writing, to DataSafe within three (3) business days of the
Company's disapproval, the corrections or changes to DataSafe's sales and
marketing materials that will be deemed acceptable to the Company. DataSafe
shall be responsible to pay all reasonable mailing house fees applicable to bulk
mailings.
11. INDEMNITY. Each of the Company and DataSafe agrees to indemnify the
Escrow Agent and hold it harmless from any and all claims, liabilities, losses,
actions, suits, or
5
<PAGE>
proceedings, at law or in equity, that it may incur or with which it may be
threatened by reason of its acting as Escrow Agent as described herein; and in
connection herewith, to indemnify the Escrow Agent against any and all expense
(including attorney's fees and expenses) or costs of defending any such action,
suit, or proceeding or resisting any such claim; provided, however, that the
provisions of this paragraph shall not apply in the event of any claim,
liability, loss, action, suit, or proceeding resulting from the breach by the
Escrow Agent of any provision of this Agreement or from its gross negligence or
willful misconduct.
12. SEVERABILITY. If one or more of the provisions contained herein
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions hereof, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
13. EFFECT OF TERMINATION. Upon the termination of this Agreement
pursuant to Section 4 hereof, the provisions of Sections 11, 17 and 18 shall
nevertheless remain in full force and effect for so long as Escrow Agent may
have any liability hereunder.
14. REIMBURSEMENT OF EXPENSES. DataSafe and the Company shall equally
share all of the reasonable legal fees and expenses incurred by the Escrow Agent
in connection with the preparation, operation and administration of this
Agreement. However, any and all reasonable legal fees and expenses incurred by
the Escrow Agent relating to the enforcement of a party's obligations hereunder
shall be borne by the party which is determined by a final, non-appealable court
order to have been in breach of such obligations.
15. KNOWLEDGE AND SUFFICIENCY OF DOCUMENTS. The Escrow Agent shall not
be bound by any agreement between any of the other parties hereto. The Escrow
Agent's only duty, liability, and responsibility being to receive, hold and
deliver the Certificate as herein provided. The Escrow Agent shall not be
required in any way to determine the validity or sufficiency, whether in form or
substance, of any instrument, document, certificate, statement or notice
referred to in this Agreement or contemplated hereby, or the identity or
authority of the persons executing the same, and it shall be sufficient if any
writing purporting to be such instrument, document, certificate, statement or
notice is delivered to the Escrow Agent and purports on its face to be: (i)
correct in form and (ii) signed or otherwise executed by the party or parties
required to sign or execute the same under this Agreement.
16. RIGHT OF INTERPLEADER. If any controversy arises between or among
the parties hereto with respect to this Agreement, or if the Escrow Agent is in
doubt as to what action to take, Escrow Agent may: (i) withhold delivery of the
Certificate until the controversy is resolved, the conflicting demands are
withdrawn or its doubt is resolved, and (ii) institute a bill of interpleader in
any court of competent jurisdiction to determine the rights of the parties
hereto. However, the Escrow Agent's right to institute such bill of interpleader
shall not be deemed to modify the manner in which Escrow Agent may make
disbursements of the Certificate as set forth herein other than to tender the
Certificate into the registry of such court. If a bill of interpleader is
instituted, or if the Escrow Agent is threatened with litigation or becomes
involved in litigation relating to this Agreement or the Certificate, then the
parties hereto, as well as their respective successors, heirs, executors and
assigns shall jointly and severally be
6
<PAGE>
responsible for the payment to the Escrow Agent of its reasonable attorney's
fees and any and all other disbursements, expenses, losses, costs and damages of
Escrow Agent in connection with or resulting from such threatened or actual
litigation.
17. JURY WAIVER. In the event of a lawsuit arising under or otherwise
in connection with this Agreement, the parties hereto agree to waive any right
to trial by jury.
18. LIMITATION OF LIABILITY. Except as specifically provided in this
Agreement, the Escrow Agent undertakes no duties at law or in equity, expressed
or implied, to any of the parties to this Agreement or to any beneficiaries
(intended or incidental) of this Agreement. Escrow Agent shall not be liable for
loss of profits, indirect, special, consequential, or other similar damages
arising out of any breach of this Agreement or obligations under the Agreement.
19. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made) upon the earliest to occur of
(a) receipt, if made by personal service, (b) three days after dispatch, if made
by reputable overnight courier service, (c) upon the delivering party's receipt
of a written confirmation of a transmission made by cable, by telecopy, by
telegram, or by telex or (d) seven days after being mailed by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 19):
if to THE COMPANY:
Galacticomm Technologies, Inc.
4101 SW 47 Avenue
Suite 101
Ft. Lauderdale, Florida 33314
Attention: Chief Executive Officer
Telecopy: (954) 587-1417
with a copy to:
Lucio, Mandler, Croland, Bronstein, Garbett,
Stiphany & Martinez, P.A.
701 Brickell Avenue, Suite 2000
Miami, Florida 33131
Attention: Leslie J. Croland, Esq.
Telecopy: (305) 375-8075
7
<PAGE>
if to DATASAFE:
1345 E. Main Street, Suite 111
Mesa, Arizona 85203
Attention: Chief Executive Officer
Telecopy: (602) 890-0837
with a copy to:
Thompson, Kushner & Rhoades LLP
6400 Uptown Blvd. N.E., Suite 550-East
Albuquerque, New Mexico 87110
Attention: Randall L. Thompson, Esq.
Telecopy: (505) 884-8008
if to ESCROW AGENT:
Will Jeffrey, Esq.
Lynch, Printz, Aldridge & Grammar, P.A.
1200 Pennsylvania, N.E.
Albuquerque, New Mexico 87110
Telecopy: (505) 255-4029
20. MISCELLANEOUS.
A. The Escrow Agent may act in reliance upon any instrument or
signature believed to be genuine and may assume that any person purporting to
give any writing, notice, advice, or instruction in connection with the
provisions hereof has been duly authorized to do so.
B. Except as set forth in this Agreement, the Escrow Agent
shall have no responsibility or obligation of any kind in connection with this
Agreement and the Certificate, nor shall the Escrow Agent be required to take
any action with respect to any matters that might arise in connection therewith,
other than to receive, hold, and make deliveries of the certificate covering the
Maximum Shares and the Certificate as herein provided or by reason of a judgment
or order of a court of competent jurisdiction.
C. This Agreement shall be construed and enforced according to
the laws of the State of Florida, without regard to principles of conflicts of
law thereof. By execution and delivery of this Agreement, each of the parties
hereto irrevocably and unconditionally submits to the jurisdiction of any
federal court of competent jurisdiction located in Albuquerque, New Mexico.
E. The rights created by this Agreement shall inure to the
benefit of, and the obligations created thereby shall be binding upon, the
successors and assigns of the parties to this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ESCROW AGENT DATASAFE PUBLICATIONS, INC.
By: /s/ WILL JEFFREY By: /s/ DEAN M. KERL
----------------- ------------------
Name: Will Jeffrey Name: Dean M. Kerl
Title: Escrow Agent/Lawyer Title: President
GALACTICOMM TECHNOLOGIES, INC.
By: /s/ PETER BERG
----------------
Name: Peter Berg
Title: CEO
9
EXHIBIT 10.69
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of the 1st day of
June 1998 between DATASAFE PUBLICATIONS, INC., a New Mexico corporation
("DataSafe"), and GALACTICOMM TECHNOLOGIES, INC., a Florida corporation (the
"Company").
RECITALS:
A. An Escrow Agreement, dated as of June 1, 1998 (the "Escrow
Agreement"), was entered into by Galacticomm Technologies, Inc. and DataSafe
Publications, Inc. as part of the settlement of litigation among such parties.
Pursuant to the Escrow Agreement, DataSafe has the right to acquire up to
420,744 shares of common stock, par value $.0001 per share, of the Company.
B. As an inducement to DataSafe to enter into the Escrow Agreement, the
Company has agreed to grant the rights set forth herein for all "Demand
Registrable Securities" of DataSafe (as such term is defined in Section 1.2
hereof).
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises herein contained, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms have the following
meanings and include the plural as well as the singular:
1.1 "Commission" means the United States Securities and Exchange
Commission.
1.2 "Demand Registrable Securities" means the shares of Common Stock
issued to and owned by DataSafe and that are to be distributed pursuant to the
terms of the Escrow Agreement. However, any such shares shall be "Demand
Registrable Securities" only so long as they are "Restricted Securities". Any
share or other security shall be deemed a "Restricted Security" until such time
as such share or other security: (a) has been effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering it to a Person who is eligible to resell such share or other security
under Section 4(1) of the Securities Act (or any similar provision then in
force) without compliance with Rule 144 (or any similar rule then in effect) or
any other rule under the Securities Act; or (b) has been sold pursuant to
Rule 144 (or any similar provision then in force) under the Securities Act to a
Person who is eligible to resell such share or other security under Section 4(1)
of the Securities Act (or any similar provision then in force) without
compliance with Rule 144 (or any similar rule then in effect) or any other rule
under the Securities Act.
<PAGE>
1.3 "Demand Registration" shall have the meaning set forth in Section
2.1 hereof.
1.4 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.5 "IPO" means the initial underwritten public offering of the
Company's securities.
1.6 "Person" means any individual, partnership, firm, corporation,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity, as well as any syndicate or group that would be
deemed to be a person under Section 13(d)(3) of the Exchange Act.
1.7 "Registration Expenses" shall have the meaning set forth in Article
II hereof.
1.8 "Securities Act" means the Securities Act of 1933, as amended.
ARTICLE II
DEMAND REGISTRATION RIGHTS
2.1 REQUESTS FOR REGISTRATION. Subject to the limitations set forth in
Section 2.4 hereof, DataSafe may request registration under the Securities Act
of all or part of their Demand Registrable Securities on Form S-1 or any other
registration form available for use by the Company (a "Demand Registration").
The request for a Demand Registration shall specify the number of Demand
Registrable Securities requested to be registered and the anticipated per share
price range for such offering. However, (a) the Company shall not be required to
effectuate the Demand Registration if the Company promptly delivers to DataSafe
an unqualified written opinion, addressed to DataSafe, of the Company's legal
counsel to the effect that DataSafe could immediately sell all of the Demand
Registrable Securities requested to be included in such Demand Registration,
under Rule 144 promulgated under the Securities Act; (b) after written notice
given to DataSafe within seven (7) days of DataSafe's demand for registration
the Company may postpone, for a reasonable period of time not to exceed 120 days
(but in any event not to extend beyond the date of public disclosure of the
information, or the date of abandonment or termination of the transactions or
negotiations, hereinafter referred to), the filing of a registration statement
otherwise required to be prepared and filed by it pursuant to this subsection
2.1 if: (i) at the time the Company receives a registration request, the
Company's Board of Directors determines, in good faith and in its reasonable
business judgment, that (A) such Demand Registration would require the public
disclosure of material non-public information concerning any pending or ongoing
material transaction or negotiations involving the Company which, in the opinion
of the Company's outside legal counsel, is not yet required to be publicly
disclosed, and (B) such disclosure would materially interfere with such
transaction or negotiations or have a material adverse effect on the Company,
and (ii) the Company diligently and in good faith continues to pursue such
transaction or negotiations throughout the period of such postponement.
2
<PAGE>
2.2 SELECTION OF UNDERWRITERS. If the Demand Registration is solely for
an underwritten offering of the Demand Registerable Securities, DataSafe shall
select the managing underwriter or underwriters to administer such offering, who
shall be reasonably satisfactory to the Company.
2.3 DEMAND EXPENSES. Subject to the limitations set forth in Section
2.4 hereof, the Company shall pay for all Registration Expenses relating to the
Demand Registration.
2.4 LIMITATIONS ON DEMAND RIGHTS. Commencing twelve (12) months from
and ending eighteen (18) months from, the closing of the IPO, DataSafe shall
have the right to request one (1) Demand Registration. A registration will not
count as a Demand Registration until the registration statement relating to such
Demand Registration has been declared effective by the Commission.
ARTICLE III
REGISTRATION PROCEDURES
3.1 PROCEDURE. With respect to a Demand Registration, the Company,
subject to Article II hereof, shall use its best efforts to effect the
registration of all the Demand Registrable Securities, which DataSafe has
requested to be included therein, as expeditiously as possible. In connection
with any such request, the Company shall do the following:
(a) subject to Section 2.1 hereof, prepare and file with the
Commission, no later than ninety (90) days after the Company's receipt of a
request for a Demand Registration, a registration statement on any form for
which the Company then qualifies and which is available for the registration of
the Demand Registrable Securities requested to be registered;
(b) include in the registration on such form all the Demand
Registrable Securities requested to be included and use its best efforts to
cause such registration statement to become effective; provided, however, that
at least ten (10) days before filing such registration statement or any
prospectus or any amendment or supplement thereto, including documents to be
incorporated by reference upon or after the initial filing of such registration
statement, the Company will furnish to DataSafe copies of all such documents
proposed to be filed (including documents to be incorporated by reference
therein), which documents will be subject to the reasonable review and comments
of DataSafe;
(c) unless the Company qualifies to use a Form S-3 registration
statement or any similar form then in effect, prepare and file with the
Commission such amendments and post-effective amendments and supplements to the
registration statement or any prospectus as may be necessary to keep the
registration statement effective for a period of not more than one hundred
twenty (120) days and comply with the provisions of the Securities Act
applicable to the Company with respect to the disposition of all the Demand
Registrable Securities covered by such registration statement or any supplement
to any such prospectus provided that the Company will use its best efforts to
file in a timely manner all reports and information required
3
<PAGE>
to be filed during the twelve (12) calendar months and any portion of a calendar
month immediately preceding the filing of the registration statement so as to
permit the use of Form S-3;
(d) if the Company qualifies to use a Form S-3 registration
statement or any similar form then in effect and if the Company receives a
request for a Demand Registration, prepare and file with the Commission such
registration statement to permit the offering of the Demand Registrable
Securities to be made on a continuous basis pursuant to Rule 415 (or any similar
rule that may be adopted by the Commission) under the Securities Act (a "Shelf
Registration") and keep the Shelf Registration current and continuously
effective until DataSafe is legally able to sell all of the Demand Registrable
Securities in a consecutive three-month period without registration under the
Securities Act in accordance with Rule 144 under the Securities Act, as such
Rule may be amended from time to time;
(e) furnish to DataSafe such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement and such other documents as DataSafe may reasonably
request;
(f) use its best efforts to register or qualify such Demand
Registrable Securities under such other securities or blue sky laws of such
jurisdiction as DataSafe reasonably requests and do any and all other acts and
things which may be reasonably necessary or advisable to enable DataSafe to
consummate the disposition in such jurisdiction; provided, however, that the
Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
subparagraph, (ii) subject itself to taxation in any such jurisdiction, (iii)
consent to general service of process in any such jurisdiction); or (iv) (A)
amend its Articles of Incorporation or Bylaws or (B) rescind, modify or amend
any action taken by the Board of Directors of the Company in accordance with
their fiduciary obligations to the Company and its shareholders.
(g) notify DataSafe at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such registration
statement contains an untrue statement of material fact or omits any fact
necessary to make the statements therein not misleading, and, at the request of
DataSafe, the Company will prepare a supplement or amendment to such prospectus
so that, as thereafter delivered to subsequent purchasers of such Demand
Registrable Securities, such prospectus will not contain an untrue statement of
a material fact or omit to state any fact necessary to make the statements
therein not misleading;
(h) cause all such Demand Registrable Securities, to be listed on
each securities exchange on which similar securities issued by the Company are
then listed and, if not so listed, to be listed on the NASD automated quotation
system ("NASDAQ");
(i) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as DataSafe or the
underwriters, if any,
4
<PAGE>
reasonably request in order to expedite or facilitate the disposition of such
Demand Registrable Securities;
(j) make available for inspection by DataSafe, any underwriter
participating in any distribution pursuant to such registration statement and
any attorney, accountant or other agent retained by DataSafe or such
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records") to the extent reasonably
necessary to enable such persons to exercise their due diligence
responsibilities and cause the Company's officers, directors, employees and
independent accountants to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in connection with such
registration statement. Records and other information which the Company
determines, in good faith, to be confidential and of which determination
DataSafe is notified shall not be disclosed by DataSafe unless (i) the
disclosure of such Records or other information, in the opinion of counsel
reasonably acceptable to the Company, is necessary to avoid or correct a
misstatement or omission in the registration statement, any preliminary
prospectus, any prospectus or prospectus supplement, or (ii) the release of such
Records or other information is ordered pursuant to subpoena, court order or
request by a governmental authority or otherwise is required by applicable law
or (iii) the information in such Records or such other information is generally
available to the public. DataSafe shall, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction or by governmental
authority, give notice to the Company and allow the Company, at the expense of
the Company, to undertake appropriate action to prevent disclosure of the
Records deemed confidential; and
(k) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, use its reasonable best efforts promptly to obtain the withdrawal
of such order.
3.2 DATASAFE INFORMATION. With respect to any Demand Registration,
DataSafe shall furnish to the Company in writing such information and affidavits
as the Company reasonably requests for use in connection with the registration
of the Demand Registrable Securities.
ARTICLE IV
REGISTRATION EXPENSES
4.1 REGISTRATION EXPENSES. The Company shall pay for all costs and
expenses ("Registration Expenses") of the Demand Registration, including, but
not limited to, the following: (i) registration and filing fees, (ii) fees and
expenses relating to the Company's compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with blue
sky qualifications), (iii) expenses incident to the preparation, printing and
filing of the registration statement, each preliminary prospectus and definitive
prospectus and each amendment or supplement to any of the foregoing and copies
thereof, (iv)
5
<PAGE>
internal expenses (including, without limitation, all salaries and expenses of
officers and employees of the Company performing legal or accounting duties),
(v) fees and expenses incurred in connection with the listing of the Demand
Registrable Securities, (vi) fees and disbursements of counsel for the Company
and fees and expenses of independent certified public accountants retained by
the Company, (vii) fees and expenses of any special experts retained by the
Company in connection with such registration, and (viii) fees and expenses
associated with any filings with or submission to the NASD (including, if
applicable, the fees and expenses of any "qualified independent underwriters,"
as such term is defined in Schedule E of the By-laws of the NASD, and its
counsel). The Company shall not have any obligation to pay any underwriting
fees, discounts or commissions attributable to the sale of Demand Registrable
Securities, as the case may be, by DataSafe, or fees and disbursements of any
counsel or other advisors for DataSafe.
ARTICLE V
INDEMNIFICATION AND CONTRIBUTION
5.1 INDEMNIFICATION BY THE COMPANY. The Company shall indemnify
DataSafe, its officers and directors and each Person who controls DataSafe
(within the meaning of the Securities Act) against all losses, claims, damages,
liabilities and expenses caused by any untrue or alleged untrue statement of
material fact contained in any registration statement, preliminary prospectus or
definitive prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in writing to the
Company by DataSafe specifically for use in the preparation thereof or by
DataSafe's failure, if required, to deliver a copy of the registration statement
or prospectus or any amendments or supplements thereto after the Company has
furnished DataSafe with a sufficient number of copies of the same. In connection
with an underwritten offering, the Company will indemnify such underwriters,
their officers and directors and each Person who controls such underwriters
(within the meaning of the Securities Act) to the same extent as provided above
with respect to the indemnification of DataSafe.
5.2 INDEMNIFICATION BY DATASAFE. In connection with any registration
statement in which DataSafe is participating, DataSafe shall indemnify the
Company, its directors and officers and each Person who controls the Company
(within the meaning of the Securities Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue statement
of material fact contained in the registration statement, preliminary prospectus
or definitive prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in information furnished in
writing by DataSafe to the Company specifically for use in the preparation of
such registration statement or prospectus.
5.3 PROCEDURE. Any Person entitled to indemnification hereunder will:
(a) give prompt written notice to the indemnifying party of any claim with
respect to which it seeks
6
<PAGE>
indemnification, provided that the failure of any indemnified party to give
notice shall not relieve the indemnifying party of its obligations hereunder
except to the extent the indemnifying party is actually prejudiced by such
failure; and (b) unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
with respect to such claim, permit such indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified party. If
such defense is assumed, the indemnifying party will not be subject to any
liability for any settlement made by the indemnified party without its consent
(but such consent will not be unreasonably withheld). An indemnifying party who
is not entitled to, or elects not to assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
5.4 SURVIVAL. The indemnification provided for under this Agreement
will remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
Person of such indemnified party and will survive the transfer of securities.
5.5 CONTRIBUTION. If the indemnification provided for in this Article V
from the indemnifying party is unavailable to the indemnified party, then the
indemnifying party, instead of indemnifying the indemnified party, shall
contribute to and pay the amount paid or payable by such indemnified party as a
result of the loss, claim, damage, liability or expenses (collectively, the
"Claim") giving rise to indemnification hereunder in such proportion as is
appropriate to reflect the relative fault of the indemnifying and indemnified
party in connection with the actions which gave rise to the Claim. The relative
fault of the indemnifying party and the indemnified party shall be determined by
reference to, among other things, whether the action in question has been made
by, or relates to, information supplied by such indemnifying party or
indemnified party, and the parties' relevant intent, knowledge, access to
information and opportunity to correct or prevent such action. The Company and
DataSafe agree that it would not be just and equitable if contribution and
payment pursuant to this Section 5.5 were determined by pro rata allocation or
by any other allocation method which does not take into account the equitable
considerations referred to in the preceding sentence. The amount paid or payable
as a result of a Claim shall include any legal or other fees and expenses
reasonably incurred by such party in connection with such Claim subject to the
limitation that DataSafe shall not contribute in excess of the proceeds received
by Data Safe from the sale of Demand Registrable Securities. However, no Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contributions and payment from any
Person who was not guilty of such fraudulent misrepresentation.
7
<PAGE>
ARTICLE VI
MISCELLANEOUS
6.1 RULE 144. After the IPO, the Company shall file, on a timely basis,
any reports required to be filed by it under the Securities Act and the Exchange
Act so as to enable DataSafe to sell the Demand Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by: (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time; or (b) any similar rule adopted by the Commission.
6.2 AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers of or consents to departures from the provisions hereof may not be
given, unless approved in writing by the Company and DataSafe.
6.3 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made) upon the earliest to occur of
(a) receipt, if made by personal service, (b) three days after dispatch, if made
by reputable overnight courier service, (c) upon the delivering party's receipt
of a written confirmation of a transmission made by cable, by telecopy, by
telegram, or by telex or (d) seven days after being mailed by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 6.3):
(a) if to THE COMPANY:
Galacticomm Technologies, Inc.
4101 S.W. 47 Avenue
Suite 101
Ft. Lauderdale, Florida 33314
Attention: Chief Executive Officer
Telecopy: (954) 587-1417
with a copy to:
Lucio, Mandler, Croland, Bronstein, Garbett,
Stiphany & Martinez, P.A.
701 Brickell Avenue, Suite 2000
Miami, Florida 33131
Attention: Leslie J. Croland, Esq.
Telecopy: (305) 375-8075
(b) if to DATASAFE:
1345 E. Main Street, Suite 111
Mesa, Arizona 85203
Attention: Chief Executive Officer
Telecopy: (602) 890-0837
8
<PAGE>
with a copy to:
Thompson, Kushner & Rhoades LLP
6400 Uptown Blvd. N.E., Suite 550-East
Albuquerque, New Mexico 87110
Attention: Randall L. Thompson, Esq.
Telecopy: (505) 884-8008
6.4 ENTIRE AGREEMENT. This Agreement constitutes the final written
expression of all of the agreements between the parties as to the subject matter
hereof.
6.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida as such laws are applied by
Florida courts to agreements entered into and to be performed in Florida by and
between residents of Florida (without regard to its principles regarding
conflicts of law).
6.6 HEADINGS. Headings of the Sections of this Agreement are for the
convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
6.7 SEVERABILITY. If for any reason whatsoever, any one or more of the
provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid as applied to any particular case or in all cases, such
circumstances shall not have the effect of rendering such provision invalid in
any other case or of rendering any of the other provisions of this Agreement
inoperative, unenforceable or invalid.
6.8 ASSIGNABILITY. This Agreement and the rights and duties hereunder
may not be assigned or assumed by operation of law or otherwise without the
express prior written consent of the other party hereto (which consent may be
granted or withheld in the sole discretion of such other party.
6.9 ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or its breach which is not settled between the parties, shall be
settled by arbitration in accordance with the then governing rules of the
American Arbitration Association, with proceedings to take place in Albuquerque,
New Mexico. Judgment upon any arbitration award may be entered and enforced in
any court of competent jurisdiction. An arbitration award may cover all costs,
legal fees and other charges reasonably incurred by the prevailing party in such
proceedings.
6.10 BINDING EFFECT; BENEFITS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Notwithstanding anything contained in this Agreement to
the contrary, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
successors, executors, administrators or permitted assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
DATASAFE PUBLICATIONS, INC. GALACTICOMM TECHNOLOGIES, INC.
By: /s/ Dean M. Kerl By: /s/ Peter Berg
----------------- ---------------
Name: Dean M. Kerl Name: Peter Berg
Title: President Title: CEO
10
EXHIBIT 10.70
21st January, 1998
Peter Berg, Chairman
Galacticomm Technologies, Inc.
4101 S.W. 47 Avenue, Suite 101
Ft. Lauderdale, Florida 33314
Peter Berg, Chairman
c/o Galacticomm Technologies, Inc.
4101 S.W. 47 Avenue, Suite 101
Ft. Lauderdale, Florida 33314
Yannick Tessier
c/o Galacticomm Technologies, Inc.
4101 S.W. 47 Avenue, Suite 101
Ft. Lauderdale, Florida 33314
RE: SECURED CONVERTIBLE PROMISSORY NOTE (THE "NOTE") OF
GALACTICOMM TECHNOLOGIES, INC., F/K/A I-VIEW SOFTWARE,
INC. (THE "COMPANY"), PAYABLE TO KENWORTHY INVESTMENTS
LIMITED IN THE PRINCIPAL AMOUNT OF $1,250,000.
Gentlemen:
This letter constitutes written demand for conversion of the principal amount
due under the Note into shares of the Company's common stock, effective as of
December 31, 1997. The conversion of such principal amount will result in the
issuance to Kenworthy Investments Limited ("Kenworthy") of 488,488 shares of the
Company's common stock.
This letter also serves as an offer to convert the interest accrued through
December 31, 1997 on the Note into shares of the Company's common stock at the
conversion price referenced in Section 1(d) of the Note, as adjusted pursuant to
Section 6 of the Note. The conversion of such accrued interest will result in
the issuance to Kenworthy of an additional 55,407 shares of the Company's common
stock.
<PAGE>
Galacticomm Technologies, Inc.
Peter Berg
Yannick Tessier
21st January, 1998
Page 2
Kenworthy is willing to convert the interest accrued under the Note into 55,407
shares of the Company's common stock, provided that the Company agrees to the
following modification to the Stock Purchase Agreement, dated November 21, 1996,
as amended on September 8, 1997, among the Company, Peter Berg, Yannick Tessier
and Kenworthy, the assignee of Hemingfold Investments, Ltd.'s rights thereunder:
For so long as Kenworthy beneficially owns (as such term is defined in Rule
13(d)-3 of the Securities Exchange Act of 1934) 20% or more of the Company's
outstanding common stock, Peter Berg and Yannick Tessier hereby agree to vote
all their shares of the Company's common stock to elect: (a) one person
nominated by Kenworthy to the Company's board of directors (the "Board"); and
(b) upon the earlier to occur of (i) the date on which the Company's
registration statement regarding the initial public offer of its securities is
declared effective by the Securities and Exchange Commission or (ii) March 31,
1998, three persons nominated by Kenworthy to the Board. Kenworthy acknowledges
and agrees that Claus Stenback, who is already a member of the Board, shall
count as one of the two Kenworthy nominees for election to the Board.
In order to induce the Company to enter into this letter agreement, Kenworthy
hereby represents and warrants to the Company the following:
(a) Kenworthy is acquiring the shares of the Company's common stock to be
received pursuant to this letter for its own account and for investment
and not with a view towards, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing or
selling such shares;
(b) Kenworthy acknowledges that: (i) it has had an opportunity to visit
with the Company and meet its officers and other representatives to
discuss the Company's business, assets, liabilities, financial
condition, cash flow and operations; and (ii) any materials requested
by Kenworthy have been provided to Kenworthy's reasonable satisfaction;
(c) Kenworthy has made its own independent examination,
investigation, analysis and evaluation of the Company; and
(d) Kenworthy has undertaken such due diligence (including a review of the
assets, liabilities, books, records and contracts of the Company) as
Kenworthy deems adequate.
<PAGE>
Galacticomm Technologies, Inc.
Peter Berg
Yannick Tessier
21st January, 1998
Page 3
If the terms and conditions set forth in this letter are acceptable, please sign
this letter in the spaces provided below and return an original signed copy of
this letter to us.
Very truly yours,
Kenworthy Investments Limited
/S/ WILLIAM KENNEDY
----------------------------------------------
William Kennedy, its Authorized Representative
Agreed to and Accepted:
Galacticomm Technologies, Inc.
/S/ PETER BERG
- ------------------------------
Peter Berg, Chairman & CEO
/S/ PETER BERG
- ------------------------------
Peter Berg, individually
/S/ YANNICK TESSIER
- ------------------------------
Yannick Tessier, individually
EXHIBIT 10.71
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION
UNDER SUCH ACT OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATION IS NOT REQUIRED.
$125,000.00 May 7, 1998
SECURED CONVERTIBLE PROMISSORY NOTE
OF
GALACTICOMM TECHNOLOGIES, INC.
FOR VALUE RECEIVED, GALACTICOMM TECHNOLOGIES, INC., a Florida
corporation (the "Company"), hereby promises to pay to the order of KENWORTHY
INVESTMENTS, LTD., whose address is c/o Bayard Trust Company Limited, 28-30 The
Parade, St. Helier, Jersey JE4 8X4, Channel Islands (the "Payee"), on the
Maturity Date (as hereinafter defined) the principal amount of One Hundred and
Twenty Five Thousand Dollars ($125,000), together with all accrued and unpaid
interest. The unpaid principal balance of this Secured Convertible Promissory
Note (the "Note") shall bear interest at a rate of ten percent (10%) per annum.
The Company shall make payments of accrued interest and principal under this
Note, to the Payee on January 1, 1999.
1. DEFINITIONS.
(a) "Bankruptcy" means: (a) an adjudication of bankruptcy under the
U.S. Bankruptcy Reform Act of 1978, as amended, or any successor statute; (b) an
assignment for the benefit of creditors; (c) the filing of a voluntary petition
in bankruptcy or reorganization or the passing of a resolution for voluntary
liquidation or reconstruction; or (d) the failure to vacate the appointment of a
receiver or trustee, for any part or all of the assets or property of a party
within 60 days from the date of such appointment.
(b) "Common Stock" means the common stock of the Company, par value
$0.0001 per share.
(c) "Common Stock Deemed Outstanding" means the number of shares of
Common Stock actually outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Section 6(a) hereof, at and
previous to any given time.
(d) "Conversion Price" means $0.75, as adjusted pursuant to Section 6
hereof.
(e) "Converted Shares" shall have the meaning set forth in Section 4(a)
hereof.
<PAGE>
(f) "Fair Value" means a value determined jointly by the Company and
the Payee. However, if the Company and the Payee are unable to reach an
agreement, "Fair Value" shall be determined by an appraiser jointly selected by
the Company and the Payee, at the Company's sole expense and cost.
(g) "Maturity Date" means January 1, 1999.
(h) "Person" shall mean any individual, partnership, firm, corporation,
limited liability company, association, joint venture, trust, unincorporated
organization or other entity, as well as any syndicate or group that would be
deemed to be a person under Section 13(d)(3) of the Securities Exchange Act of
1934, as amended.
(i) "Security Agreement" means the security agreement between the
Company and the Payee, of even date hereof.
(j) "Stock Purchase Agreement" means the stock purchase agreement among
the Company, Payee's predecessor in interest, Peter Berg and Yannick Tessier,
dated November 21, 1996, as amended.
2. VOLUNTARY PREPAYMENT; INVOLUNTARY PREPAYMENT.
(a) VOLUNTARY PREPAYMENT. This Note may not be prepaid in whole or in
part without the prior written consent of the Payee. If such prepayment is
consented to by the Payee, the Company shall prepay the principal to which such
consent has been given.
(b) INVOLUNTARY PREPAYMENT. The Payee may demand prepayment in full of
this Note at any time that an Event of Default under this Note exists and has
not been cured or waived, in which event this Note shall be immediately due and
payable. Prepayment shall be made by the Company by the close of business on the
first business day after the Company's receipt of the demand notice, by full
payment of the principal amount of this Note, together with all accrued and
unpaid interest.
3. DEFAULTS, AMENDMENTS, WAIVERS, ETC.
(a) EVENTS OF DEFAULT. Each of the following events is herein called an
"Event of Default":
(i) The occurrence of an event of Bankruptcy with regard to
the Company;
(ii) The Company defaults in the due and punctual payment of
principal or interest on any of its indebtedness other than that evidenced by
this Note, or there exists any
2
<PAGE>
default under any mortgage, agreement or note securing, relating to or
evidencing such indebtedness, which default is not cured within any applicable
cure period;
(iii) Any default by the Company in the performance of any
covenant or condition contained in this Note including, but nor limited to, the
timely payment of principal and interest hereunder, which default is not cured
with five (5) business days;
(iv) The Company commits an event of default under the Stock
Purchase Agreement or the Security Agreement; or
(v) The Company fails to deliver to Payee the amount of Common
Stock, duly authorized and issued, fully paid and nonassessable, which the Payee
is entitled to receive upon tendering of the Note for conversion into the
Converted Shares as provided in Section 4(a) hereof.
(b) REMEDIES FOR DEFAULT. If an Event of Default occurs, then this Note
shall become immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived by the
Company.
(c) ENFORCEMENT OF REMEDIES. If an Event of Default occurs, the Payee
may proceed to protect and enforce its rights at law and/or in equity, or
proceed to enforce payment of this Note or to enforce any other legal or
equitable right of the Payee, all of which shall be deemed separate and
cumulative, and not exclusive of each other.
(d) AMENDMENTS AND WAIVERS. No course of dealing between the Company
and the Payee, and no failure or delay on the part of the Payee in exercising
any rights under this Note shall operate as a waiver of the rights of the Payee.
Furthermore, no single or partial exercise of any right hereunder shall prevent
any other or further exercise of such right or of any other right. No covenant
or other provision of this Note may be changed, and no Event of Default may be
waived, except by a written document signed by the party consenting to such
change or waiving such Event of Default.
(e) COST AND EXPENSE OF ENFORCEMENT. If an Event of Default occurs
hereunder, the Company shall, to the extent permitted under applicable law, pay
to the Payee such further amount as shall be sufficient to cover the cost and
expense of enforcement, including the reasonable attorney fees and expenses of
the Payee.
4. CONVERSION OF NOTE.
(a) Upon the occurrence of either of the following events, all
principal and accrued interest due and payable under this Note (the "Outstanding
Amount") shall be converted into that number of shares of Common Stock (the
"Converted Shares") equal to the Outstanding Amount
3
<PAGE>
divided by the Conversion Price. Upon the written demand of the Payee received
on or before January 15, 1999; or
(b) The Company shall take appropriate action to reserve from the
Company's authorized but unissued Common Stock, sufficient Common Stock to
permit the conversion of the Outstanding Amount pursuant to Section 4(a), which
reservation shall be noted in the books, records and, if appropriate, the
financial statements of the Company.
(c) The Company covenants that all Converted Shares which may be issued
will, upon issuance, be validly issued, fully paid and non-assessable, and free
from all taxes, excluding income taxes, gross receipts taxes or any similar tax
based upon the earnings, receipts, income or gain to the Payee.
5. REGISTRATION RIGHTS. The Payee shall have the same piggyback
registration, demand registration, tag along and bring along rights, regarding
the Converted Shares, as are contained in the Stock Purchase Agreement.
6. ADJUSTMENT OF SHARES AND CONVERSION PRICE.
(a) CONVERSION PRICE
(i) GENERAL.
(A) In order to prevent dilution of the conversion
rights granted under this Note, the Conversion Price shall be subject to
adjustment from time to time pursuant to this Section 6(a).
(B) If the Company issues or sells or, in accordance
with Section 6(a)(ii) hereof, is deemed to have issued or sold, any shares of
Common Stock for a consideration per share less than the Conversion Price in
effect immediately prior to the time of such issuance or sale (except for the
issuance or deemed issuance of securities in a transaction described in Section
6(a)(i)(C)), then immediately upon each such issuance or sale the Conversion
Price shall be reduced to a price determined by multiplying the Conversion Price
in effect immediately prior to the issuance or sale by a fraction, the numerator
of which shall be the sum of (i) the number of shares of Common Stock actually
outstanding prior to the issuance or sale and (ii) the number of shares of
Common Stock that the amount receivable by the Company upon such issuance or
sale on that occasion would purchase at the initial Conversion Price, and the
denominator of which shall be the number of shares of Common Stock actually
outstanding and Common Stock Deemed Outstanding under Subsection 6(a)(ii)
immediately after such issuance or sale.
4
<PAGE>
(C) The existence and any exercise of any option,
warrant, or other right to purchase Common Stock, that is outstanding on the
date hereof shall be excluded from the operation of Paragraph (B) of this
Subsection 6(a)(i) and from the operation of Subsection 6(a)(ii)
(ii) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes
of determining the adjusted Conversion Price under Subsection 6(a)(i) above, the
following provisions shall be applicable:
(A) ISSUANCE OF RIGHTS AND OPTIONS. If the Company in
any manner grants any rights or options to subscribe for or to purchase Common
Stock or any stock or other securities convertible into or exchangeable for
Common Stock (such rights or options being herein called "Options" and such
convertible or exchangeable stock or securities being herein called "Convertible
Securities") and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such Convertible
Securities is less than the Conversion Price in effect immediately prior to the
time of the granting of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible Securities issuable
upon the exercise of such Options shall be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. For purposes of
this paragraph, the "price per share for which Common Stock is issuable upon
exercise of such Options or upon conversion or exchange of such Convertible
Securities" shall be determined by dividing (i) the total amount, if any,
received by the Company as consideration for the granting of such Options plus
the minimum aggregate amount of additional consideration payable to the Company
upon exercise of all such Options plus, in the case of Options that relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
such Convertible Securities, by (ii) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options and upon the conversion
or exchange of all Convertible securities issuable upon the exercise of such
Options.
(B) ISSUANCE OF CONVERTIBLE SECURITIES. If the
Company in any manner issues or sells any Convertible Securities, and the price
per share for which Common Stock is issuable upon conversion or exchange of such
Convertible Securities is less than the Conversion Price in effect immediately
prior to the time of such issuance or sale, then the maximum number of shares of
Common Stock issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of this paragraph, the "price
per share for which Common Stock is issuable upon such conversion or exchange"
shall be determined by dividing (i) the total amount received by the Company as
consideration for the issuance or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities.
5
<PAGE>
(C) CHANGE IN OPTION PRICE AND CONVERSION RATE. If
the purchase price provided for in any Options, the additional consideration, if
any, payable upon the conversion or exchange or any Convertible Securities, or
the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock changes at any time, the Conversion Price in
effect at the time of such change shall be reduced to the Conversion Price that
would have been in effect at such time had such Options or Convertible
Securities provided for such changed purchase price, additional consideration,
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
(D) CALCULATION OF CONSIDERATION RECEIVED. If any
Common Stock, Options, or Convertible Securities are issued or sold or deemed to
have been issued or sold for consideration that includes unrestricted cash, then
the amount of cash consideration actually received by the Company shall be
deemed to be the full monetary value of the unrestricted cash portion thereof.
If any Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for a consideration part or all of which is
other than unrestricted cash, then the amount of the consideration other than
unrestricted cash received by the Company shall be deemed to be in the Fair
Value of such consideration.
(E) INTEGRATED TRANSACTIONS. If any Option is issued
in connection with the issuance or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued without consideration.
(F) TREASURY SHARES. The number of shares of Stock
Deemed Outstanding at any given time shall not include shares owned or held by
or for the account of the Company, and the disposition of any shares so owned or
held shall be considered an issuance or sale of Common Stock.
(iii) SUBDIVISION AND COMBINATION OF COMMON STOCK; STOCK
DIVIDENDS. If the Company shall at any time after the date hereof (a) issue any
shares of Common Stock or Convertible Securities, or any rights to purchase
Common Stock or Convertible Securities as a dividend upon Stock, (b) issue any
shares of Common Stock in subdivision of outstanding shares of Common Stock by
reclassification, stock split or otherwise, or (c) combine outstanding shares of
Common Stock by reclassification, stock split or otherwise, then the Conversion
Price that would apply if purchase rights hereunder were being exercised
immediately prior to such action by the Company shall be reduced only by
multiplying it by a fraction, the numerator of which shall be the number of
shares of Common Stock Deemed Outstanding immediately prior to such dividend,
subdivision or combination and the denominator of which shall be the number of
shares of Common Stock Deemed Outstanding immediately after such dividend,
subdivision or combination.
(iv) CERTAIN DIVIDENDS AND DISTRIBUTIONS. If the Company
declares a dividend or distribution upon the Common Stock payable otherwise than
out of earnings or earned surplus and otherwise than in Common Stock, Options or
Convertible Securities, the Conversion Price
6
<PAGE>
shall be reduced by an amount equal, in the case of a dividend or distribution
in cash, to the amount thereof payable per share of the Stock or, in the case of
any other dividend or distribution, to the Fair Value of such dividend or
distribution per share of Common Stock. For purposes of the foregoing, a
dividend or distribution other than in stock shall be considered payable out of
earnings or earned surplus only to the extent that such earnings or earned
surplus are charged an amount equal to the Fair Value of such dividend or
distribution. Such reductions shall take effect as of the date on which a record
is taken for the purpose of such dividend or distribution, of, if a record is
not taken, the date as of which the holders of Common Stock or record entitled
to such dividend or distribution are to be determined.
(v) MANNER OF CALCULATING ADJUSTMENTS; NO DE MINIMIS
ADJUSTMENTS. The calculation of each adjustment of the Conversion Price shall be
made accurate to the nearest ten-thousandth. No adjustment of the Conversion
Price shall be made if the amount of such adjustment would be less than one cent
per share. In such case any adjustment that otherwise would be required to be
made shall be carried forward and shall be made at the time and together with
the next subsequent adjustment that, together with any adjustment or adjustments
so carried forward, shall amount to not less than one cent per share.
(b) ADJUSTMENT OF NUMBER OF STOCK ISSUABLE UPON EXERCISE. Upon each
reduction of the Exercise Price pursuant to Section 6(a) hereof, the Payee shall
thereafter (until another such reduction) be entitled to purchase, at the
Exercise Price in effect on the date the conversion rights under this Note are
exercised, the number of shares of Common Stock, calculated to the nearest whole
number of Common Stock, determined by (a) multiplying the number of shares of
Common Stock purchasable hereunder immediately prior to the reduction of the
Conversion Price by the Conversion Price in effect immediately prior to such
reduction, and (b) dividing the product so obtained by the Conversion Price in
effect on the date of such exercise.
7. COVENANTS OF THE COMPANY. So long as this Note is outstanding, the Company
covenants and agrees as follows:
(a) The Company shall maintain in full force and effect its existence
as a Florida corporation, its rights and franchises and all licenses, permits
and other rights to use trademarks, trade names, copyrights, trade secrets,
patents or processes owned or possessed by it and deemed by it to be necessary
to the conduct of its business, and shall comply with all applicable laws and
regulations, whether now in effect or hereinafter enacted or promulgated by any
governmental authority having jurisdiction.
(b) The Company shall duly pay and discharge or cause to be duly paid
and discharged, before the same becomes delinquent, all taxes (including all
employment and payroll taxes), assessments and other governmental charges
imposed upon it or any of its properties or in respect of its franchise or
income. However, no such tax or charge need be paid if being contested in good
faith by proper proceedings diligently conducted and if such reservation or
7
<PAGE>
other appropriate provisions, if any, as shall be required by generally accepted
accounting principles, shall have been made therefor.
(c) The Company shall promptly notify the Payee in writing of: (i) any
litigation against it that is instituted or pending, or to the Company's
knowledge threatened, the outcome of which might have a material adverse effect
on the Company's financial condition, business, operations, assets or
liabilities, or results of operations; (ii) any default by the Company in the
due and punctual payment of principal or interest on any of its indebtedness
other than that evidenced by this Note, or any default by the Company under any
mortgage, agreement or note securing, relating to or evidencing such
indebtedness.
(d) Upon request of the Payee, the Company will provide the Payee with
copies of all filings made by the Company with federal, state or local
governmental bodies or agencies.
(e) While any principal or interest is owed and outstanding hereunder,
the Company shall not declare or make any dividends or distributions to the
Company's stockholders.
8. MISCELLANEOUS PROVISIONS.
(a) NON-ASSIGNMENT. Neither the Company nor the Payee may assign its
rights or delegate its duties hereunder to any other person, except with the
prior written consent of the other party.
(b) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made) upon the earliest to occur of
(a) receipt, if made by personal service, (b) two days after dispatch, if made
by reputable overnight courier service, (c) upon the delivering party's receipt
of a written confirmation of a transmission made by cable, by telecopy, by
telegram, or by telex, or (d) three days after being mailed by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section:
If to the Company: 4101 S.W. 47 Avenue
Suite 101
Ft. Lauderdale, Florida 33314
Tel: (954) 583-5990
Fax: (954) 583-7846
Attn: Yannick Tessier, President
8
<PAGE>
If to the Payee: c/o Bayard Trust Company Limited
28-30 The Parade
St. Helier
Jersey JE4 8X4
Channel Islands
Tel: (44) 1534-636211
Fax: (44) 1534-666215
Attention: Martyn Crespel
(c) GOVERNING LAW. This Note shall be governed in accordance with the
internal laws of the State of Florida (without regard to its conflict of laws
principles). All actions or proceedings initiated by any party hereto and
arising directly or indirectly out of this Agreement which are brought to
judicial proceedings shall be litigated in the Florida state courts sitting in
Broward County, Florida.
(d) SECTION HEADINGS. The section headings in this Note are intended
for convenience only and do not constitute and shall not be interpreted as part
of this Note.
GALACTICOMM TECHNOLOGIES, INC.
By: /s/ YANNICK TESSIER
--------------------------
Yannick Tessier, President
9
EXHIBIT 10.72
SECURITY AGREEMENT
This Security Agreement (the "Security Agreement") is entered into this
7th day of May, 1998, between Kenworthy Investments, Ltd. (the "Secured Party")
and Galacticomm Technologies, Inc. (the "Borrower").
RECITALS:
A. Secured Party is loaning the principal amount of $125,000 to
Borrower, pursuant to the terms of that certain Secured Convertible Promissory
Note (the "Note"), from Borrower in favor of Secured Party, of even date
herewith;
B. Secured Party requires that Borrower grant a security interest in
the Collateral to Secured Party, and Borrower is willing to grant such a
security interest.
NOW THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS. As used herein, the following words shall have the
following meanings:
(a) "Accounts" means all accounts, instruments, documents,
chattel paper and obligations in any form owing to Borrower and which arise out
of the sale or lease of goods or the rendition of services by Borrower whether
or not earned by performance, as well as all guaranties, credit insurance,
letters of credit and other security for any of the foregoing.
(b) "Collateral" means the following described collateral,
whether now owned or hereafter acquired by Borrower, together with all
documents, records and information relating thereto:
(i) All of Borrower's Accounts (the "Accounts").
(ii) All of Borrower's "documents" (as defined in the
UCC) or other receipts covering, evidencing or representing goods that relate
to any Account;
(iii) All of Borrower's Inventory;
(iv) All of Borrower's Equipment;
(v) All of Borrower's General Intangibles;
(vi) All of Borrower's Instruments;
(vii) All monies on deposit in any bank account maintained
by Borrower;
1
<PAGE>
(viii) All of Borrower's other personal property not
otherwise described herein, including all currency held by or for the benefit of
Borrower;
(ix) All books, records, ledger cards, files,
correspondence, computer programs, tapes, disks and related data processing
software that any time evidence or contain information relating to any of the
property described above or are otherwise necessary or helpful in the collection
thereof or realization thereon; and
(x) All of the proceeds, products, renewals,
replacements, accessions, additions or replenishments of or to any of the above.
(c) "Equipment" means all equipment, fixtures, machinery,
machine tools, office equipment, furniture, furnishings, motors, motor vehicles,
tools, dies, parts, jigs, goods and all improvements thereto and all supplies
used in connection therewith.
(d) "General Intangibles" means all general intangibles,
causes of action and all other personal property of every kind (other than goods
and accounts) including, without limitation: (i) patents, trademarks, trade
names, service marks, copyrights and any applications for registration or
registrations of the foregoing; (ii) goodwill; (iii) trade secrets; (iv)
licenses; (v) franchises; (vi) contract rights; (vii) deposit accounts; and
(viii) tax refunds and tax refund claims.
(e) "Indebtedness" means the principal and interest due
hereunder.
(f) "Instrument" means a negotiable instrument, a certificated
security, or any other writing which evidences a right to the payment of money.
(g) "Inventory" means all goods, wares, merchandise and other
tangible personal property including, without limitation, raw materials, work in
process, supplies and components, finished goods, packing and shipping
materials, and all documents of title, whether negotiable or non-negotiable,
that represent any of the foregoing.
2. SECURITY INTEREST. Borrower hereby gives the Secured Party a
security interest in the collateral subordinate to Union Planters Bank, Union
Atlantic Partners and Lucio, Mandler, Croland, Bronstein, Garbett, Stiphany and
Martinez, P.A.
3. REPRESENTATIONS AND WARRANTIES OF BORROWER. In addition to such
other representations and warranties as Borrower may make to the Secured Party
pursuant to the Note, the Purchase Agreement and under the other documents
contemplated or referred to therein, the Borrower continuously represents and
warrants to the Secured Party, for so long as any portion of the Indebtedness
remains unpaid, that:
2
<PAGE>
(a) The Borrower is the owner of the Collateral free and clear
of all security interests, restrictions, claims, liens, or other encumbrances of
any kind, except for the Security Interest, except as otherwise disclosed in
writing to the Secured Party; and
(b) The Borrower is authorized to enter into this Security
Agreement.
4. COVENANTS OF BORROWER. So long as this Agreement has not been
terminated as provided hereunder, the Borrower:
(a) shall defend the Collateral against the claims and demands
of all other parties;
(b) shall keep the Collateral free from all security interests
or other encumbrances, except as noted in Section 2, and shall not sell,
transfer, assign, deliver or otherwise dispose of any of the Collateral, or any
interest therein except in the ordinary course of business or with the express
prior written consent of the Secured Party;
(c) shall notify the Secured Party promptly, in writing, of
any change in: (i) the Borrower's name; (ii) the Borrower's address; (iii) the
location(s) at which the Collateral is kept;
(d) shall execute and deliver to the Secured Party such
financing statements and other documents, pay all costs of UCC searches and
filing financing statements and other documents in all public offices requested
by the Secured Party and do such other things as the Secured Party may
reasonably request;
(e) shall not hide the Collateral or remove the Collateral
from the State of Florida;
(f) shall, at Borrower's expense, duly execute and deliver, or
cause to be duly executed and delivered, such further agreements, instruments
and documents, as requested by Secured Party, to evidence, perfect, maintain and
enforce Secured Party's security interest and the priority thereof in the
Collateral and to otherwise effectuate the provisions or purposes of the
Security Agreement, the Note and any other documents contemplated or referred to
therein.
5. DEFAULT.
(a) Each of the following events shall constitute an event of
default ("Event of Default"):
(i) if Borrower commits a breach of any of the
material terms and conditions of this Security Agreement; or
3
<PAGE>
(ii) if Borrower commits an event of default under
the Purchase Agreement or the Note.
(b) Upon the happening of an Event of Default, the Secured
Party may declare all or part of the unpaid Indebtedness to be immediately due.
(c) Upon the happening of an Event of Default, the Secured
Party's rights with respect to the Collateral shall be those of a secured party
under the Uniform Commercial Code and any other applicable law from time to time
in effect. The Secured Party shall also have any additional rights granted
herein and in any other agreement now or hereafter in effect between the
Borrower and the Secured Party. If requested by the Secured Party, the Borrower
shall assemble the Collateral and make it available to the Secured Party at a
place to be designated by the Secured Party.
6. MISCELLANEOUS.
(a) No delay or omission by the Secured Party in exercising
any right hereunder or with respect to any Indebtedness shall operate as a
waiver of that or any other right, and no single or partial exercise of any
right shall preclude the Secured Party from any other or future exercise of the
right or the exercise of any other right or remedy. All rights and remedies of
the Secured Party under this agreement and under the Uniform Commercial Code
shall be deemed cumulative.
(b) This Agreement may not be modified or amended nor shall
any provision of it be waived except by in writing signed by the Borrower and by
an authorized officer of the Secured Party.
(c) This Agreement shall be construed under the laws of the
State of Florida. If any part or provision of this Agreement is invalid or in
contravention of any applicable law or regulation, such part or provision shall
be severed without affecting the validity of any other part or provision of this
Agreement.
(d) This Security Agreement is a continuing agreement which
shall remain in force until all of the Indebtedness has been paid in full to the
Secured Party.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first above written.
GALACTICOMM TECHNOLOGIES, INC. KENWORTHY INVESTMENTS, LTD.
By: /s/ YANNICK TESSIER By:
--------------------- -------------------------
Name: Yannick Tessier Name:______________________
Title: President Title:_____________________
4
EXHIBIT 10.73
_______________
Contract Number
SECURITY AGREEMENT
(GENERAL)
GALACTICOMM TECHNOLOGIES, INC., A FLORIDA CORPORATION
(Name(s) of Borrower(s))
(and if more than one, each of them jointly and severally), hereinafter called
"Borrower", of 4101 SW 47TH AVENUE, SUITE 101 FORT LAUDERDALE
(No. and Street) (City)
BROWARD FL, for value received, hereby grants to
[County] [State]
CAPITAL BANK, A FLORIDA BANKING CORPORATION hereinafter called "Secured Party",
a security interest in the following property:
ALL INVENTORY, ACCOUNTS, CONTRACT RIGHTS, GENERAL INTANGIBLES, FURNITURE,
FIXTURES, LEASEHOLD IMPROVEMENTS AND EQUIPMENT, WHEREVER SITUATED, NOW OWNED
BY THE BORROWER OR HEREAFTER ACQUIRED, TOGETHER WITH THE PROCEEDS OF THE ABOVE
DESCRIBED COLLATERAL AS SECURITY FOR PRESENT AND FUTURE ADVANCES.
together with all accessories, parts, equipment. and accessions now attached to
or used in connection therewith or which may hereafter at any time be placed in
or added to the above-described property, and also any and all replacements of
any such property (all of which is hereinafter called "Collateral"), to secure
the payment of that certain indebtedness evidenced by a promissory note or notes
executed by Borrower in the amount of TWO HUNDRED THOUSAND AND 00/100 Dollars
($200,000.00) of even date,herewith, and any and all extensions or renewals
thereof, and any and all other liabilities or obligations of the Borrower to the
Secured Party, direct or indirect, absolute or contingent, now existing or
hereafter arising, now due or hereafter to become due (all hereinafter called
the "Obligations.").
Borrower hereby warrants and agrees that:
1. The Collateral is acquired or used primarily for [ ]personal, family,
or household purposes; [X]business use; or [ ]farming operations; and, if
checked here [ ] is being acquired with the proceeds of the loan provided for
in or secured by this agreement, and the Secured Party may disburse such
proceeds or any part thereof directly to the seller of the Collateral.
2. The Collateral will be kept at SAME AS ABOVE or if left blank
the address shown at the beginning of this agreement: Borrower will promptly
notify Secured party of any change in the location of the Collateral within said
state; and Borrower will not remove the Collateral from said state without the
written consent of Secured Party.
3. If the Collateral is acquired or used primarily for personal, family or
household purposes, or for farming operations use, borrowers residence in
Florida is that shown at the beginning of this agreement and Borrower will
immediately notify Secured Party of any change in the location of said
residence.
4. If the Collateral is to be attached to real estate, a description of
the real estate, located in ___________County, Florida, is as follows,
________________________________________________________________________________
_______________________________________________________________________________,
and the name of the known owner is:____________________________________________;
and if the Collateral is attached to real estate prior to the perfection of the
security interest granted hereby, Borrower will, on demand of Secured Party,
furnish the latter with a disclaimer or disclaimers, signed by all persons
having an interest in the real estate, of any interest in the Collateral that is
prior to Secured Party's interest.
5. If the Collateral is acquired or used primarily for business use and is
of a type normally used in more than one state, whether or not so used, and
Borrower has a place of Business in more than one state, the chief place of
business of Borrower is:_______________________________________________________
(No. and Street]
_______________________________________________________________________________
[City] (County] (State]
if left blank, is that shown at the beginning of this agreement, and Borrower
will immediately notify Secured Party in writing of any change in Borrower's
chief place of business; and if certificates of title are issued or outstanding
with respect to any of the Collateral. Borrower will cause the interest of
Secured Party to be properly noted thereon.
6. Except for the security interest granted hereby, Borrower is the owner
of the Collateral free from any adverse lien, security interest, or encumbrance;
and Borrower will defend the Collateral against all claims and demands of all
persons at any time claiming the same or any interest thereon.
7. No Financing Statement covering any Collateral or any proceeds thereof
is on file in any public office; Borrower authorizes Secured Party to file, in
jurisdictions where this authorization will be given effect, a Financing
Statement signed only by the Secured Party describing the Collateral in the Same
manner as t is described herein; and from time to time at the request of Secured
Party, execute one or more Financing Statements and such other documents (and
pay the cost of filing or recording the same in all public offices deemed
necessary or desirable by the Secured Party) and do such other acts and things,
all as the Secured Party may request to establish and maintain a valid security
interest in the Collateral (free of all other liens and claims whatsoever) to
secure the payment of the Obligations, including, without limitation, deposit
with Secured Party of any certificate of title issuable with respect to any of
the Collateral and notation thereon of the security interest hereunder.
8. Borrower will not sell, transfer, lease, or otherwise dispose of any
of the Collateral or any interest therein, or offer so to do, without the prior
written consent of Secured Party.
<PAGE>
9. Borrower will at all times keep the Collateral insured against loss,
damage, theft, and such other risks as Secured Party may require in such amounts
and companies and under such policies and in such form, and for such periods, as
shall be satisfactory to Secured Party, and each such Policy shall provide that
loss thereunder and proceeds payable thereunder shall be payable to Secured
Party as its interest may appear (and Secured Party may apply any proceeds of
such insurance which may be received by Secured Party toward payment of the
Obligations, whether or not due, in such order of application as Secured Party
may determine) and each such policy shall provide for 10 days' written minimum
cancellation notice to Secured Party; and each such policy shall, if Secured
Party so requests, be deposited with Secured Party; and Secured Party may act as
attorney for Borrower in obtaining, settling, and cancelling such insurance and
endorsing any drafts.
10. Borrower shall at all times keep the Collateral free from any adverse
lien, security interest, or encumbrance and in good order and repair and will
not waste or destroy the Collateral or any part thereof; and Borrower will not
use the Collateral in violation of any statute or ordinance; and Secured Party
may examine and inspect the Collateral at any time, wherever located.
11. Borrower will pay promptly when due all taxes and assessments upon the
Collateral or for its use or operation or upon this agreement or upon any note
or notes evidencing the Obligations, or any of them.
12. At its option, Secured Party may discharge taxes, liens or security
interests or other encumbrances at any time levied or placed on the Collateral,
may pay for insurance an the Collateral, and may pay for the maintenance and
preservation of the Collateral. Borrower agrees to reimburse Secured Party on
demand for any payment made, or any expense incurred, by Secured Party, pursuant
to the foregoing authorization. Until default, Borrower may have possession of
the Collateral and use it in any lawful manner not inconsistent with this
agreement and not inconsistent with any policy of insurance thereon.
13. Borrower shall be in default under this agreement upon the happening
of any of the following events or conditions: (a) failure or omission to pay
when due any Obligation (or any installment thereof or interest thereon), or
default in the payment or performance of any obligation, covenant, agreement, or
liability contained or referred to herein; (b) any warranty, representation, or
statement made or furnished to Secured Party by or on behalf of any Borrower
Proves to have been false in any material respect when made or furnished; (c)
loss, theft, substantial damage, destruction, sale, or encumbrance to or of any
of the Collateral, or the making of any levy, seizure, or attachment thereof or
thereon; (d) any Obligor (which term, as used herein, shall mean each Borrower
and each other party primarily or secondarily or contingently liable on any of
the Obligations) becomes insolvent or unable to pay debts as they mature or
makes an assignment for the benefit of creditors, or any proceeding is
instituted by or against any Obligor alleging that such Obligor is insolvent or
unable to pay debts as they mature: (e) entry of any judgment against any
Obligor; (t) death of any Obligor who is a natural person, or of any partner of
any Obligor which is a partnership; (g) dissolution, merger or consolidation, or
transfer of a substantial part of the property of any Obligor which is a
corporation or a partnership; (h) appointment of a receiver for the Collateral
or any thereof or for any property in which any Borrower has an interest.
14. Upon the occurrence of any such default or at any time thereafter, or
whenever the Secured Party feels insecure for any reason whatsoever, Secured
Party may, at its option, declare all Obligations secured hereby, or any of them
(notwithstanding any provisions thereof), immediately due and payable without
demand or notice of-any kind and the same thereupon shall immediately become and
be due and payable without demand or notice (but with such adjustments, if any,
with respect to interest or other charges as may be provided for in the
promissory note or other writing evidencing such liability), and Secured Party
shall have and may exercise from time to time any and all rights and remedies of
a Secured Party under the Uniform Commercial Code and any and all rights and
remedies available to it under any other applicable law; and upon request or
demand of Secured Party, Borrower shall, at its expense assemble the Collateral
and make it available to the Secured Party at a convenient place acceptable to
Secured Party; and Borrower shall promptly pay all costs of Secured Party of
collection of any and all the Obligations, and enforcement of rights hereunder.
including reasonable attorneys' fees and legal expenses and expenses of any
repairs to any of the Collateral and expenses of any repairs to any realty or
other property to which any of the Collateral may be affixed or be a part.
Unless the Collateral is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, Secured Party will give
Borrower reasonable notice of the time and place of any Public sale thereof or
of the time after which any private sale or any other intended disposition
thereof is to be made. The requirements of reasonable notice shall be met if
such notice is mailed, postage prepaid, to any Borrower at the address of
Borrower shown at the beginning of this agreement or at any other address shown
on the records of Secured Party, at least five days before the time of the sale
or disposition. Expenses of retaking, holding, preparing for sale, selling, or
the like, shall include Secured Party's reasonable attorneys' fees and legal
expenses. Upon disposition of any Collateral after the occurrence of any default
hereunder or if Secured Party feels insecure for any reason, Borrower shall be
and remain liable for any deficiency; and Secured Party shall account to
Borrower for any surplus, but Secured Party shall have the right to apply all or
any part of such surplus (or to hold the same as a reserve against) all or any
of the Obligations. whether or not they, or any of them, be then due, and in
such order of application as Secured Party may from time to time eject.
15. No waiver by Secured Party of any default shall operate as a waiver of
any other default or of the same default on a future occasion. No delay or
omission an the part of Secured Party in exercising any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by Secured Party
of any right or remedy shall preclude any other or further exercise thereof or
the exercise of any other right or remedy. Time is of the essence of this
agreement. The provisions of this agreement are cumulative and in addition to
the Provisions of any note secured by this agreement and Secured Party shall
have all the benefits, rights and remedies of and under any note secured hereby.
If more than one party shall execute this agreement, the term "Borrower" shall
mean all parties signing this agreement and each of them, and all such parties
shall be jointly and severally obligated and liable hereunder. The singular pro-
noun, when used herein, shall include the plural. If this agreement is not dated
when executed by the Borrower, the Secured Party is authorized without notice
to the Borrower, to date this agreement. This agreement shall become effective
as of the date of this agreement. All rights of Secured Party hereunder shall
inure to the benefit of its successors and assigns; and all Obligations of
Borrower shall bind the heirs, executors, administrators, successors and assigns
of each Borrower.
16. This agreement has been delivered in the State of Florida and shall be
construed in accordance with the laws of Florida. Wherever possible, each
provision of this agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
agreement.
IN WITNESS HEREOF this agreement has been duly executed as of the 5TH day
of NOVEMBER 1997.
GALACTICOMM TECHNOLOGIES, INC.
Signed, sealed and delivered A FLORIDA CORPORATION
in the presence of:
/s/ [illegible] BY: /s/ PETER BERG
- ----------------------------- --------------------------(SEAL)
PETER BERG, C.E.O./SECRETARY
- ----------------------------- --------------------------(SEAL)
--------------------------(SEAL)
Borrower
(Secured Party need sign only
if agreement is to be used as
a Financing Statement.)
PETER BERG, PERSONALLY KNOWN TO
ME SIGNED BEFORE ME THIS 9TH DAY
OF JANUARY 1998 IN BROWARD
COUNTY FLORIDA
/s/ MICHAEL JOSEPH HUNT
-----------------------
MICHAEL JOSEPH HUNT
[SEAL] NOTARY PUBLIC
STATE OF FLORIDA
MICHAEL JOSEPH HUNT
COMMISSION #CC557571
EXPIRES MAY 27, 2000
EXHIBIT 10.74
[LOGO] CAPITAL BANK
CONTINUING GUARANTY
FOR VALUABLE CONSIDERATION, the undersigned (hereinafter called
"Guarantors"), for themselves, their heirs, personal representatives, successors
and assigns, hereby, jointly and severally, unconditionally guarantee to CAPITAL
BANK, a Florida banking corporation (hereinafter called "Lender"), and its
successors, participants, endorsees or assigns, the due performance and full and
prompt payment when due, whether at maturity or by acceleration, or otherwise,
of any and all obligations and indebtedness of GALACTICOMM TECHNOLOGIES, INC., A
FLORIDA CORPORATION hereinafter called ("Borrower") to Lender.
The word "indebtedness" is used herein in its most comprehensive sense
and includes any and all advances, debts, obligations and liabilities, including
interest of Borrower heretofore, now or hereafter made, incurred or created or
held or to be held, by Lender for its own account or as agent for another, or
otherwise, whether created or held or to be held, by Lender for its own account
or as agent for another, or otherwise, whether created directly of acquired by
assignment, or otherwise, whether voluntary or involuntary, and however arising,
whether due or not, absolute or contingent, liquidated or non-liquidated, and
whether Borrower may be liable individually or jointly with others, or whether
recovery upon such indebtedness may be or hereafter become barred by any statute
of limitations, or whether such indebtedness may be or hereafter become
otherwise unenforceable. This is a Continuing Guaranty relating to said
indebtedness, including that arising under subsequent or successive transactions
between Borrower and Lender, which shall either continue or increase the
indebtedness and is not limited as to amount.
The obligations hereunder are joint and several, and independent of the
obligations of Borrower, and a separate action or actions may be brought and
prosecuted against Guarantors or any of them, whether action is brought against
Borrower or whether Borrower may be joined in any such action or actions. This
is a guaranty of payment and not of collection.
Guarantors acknowledge that the loan referred to herein is a valid and
binding obligation of the Borrower. Guarantors authorize Lender, without notice
of demand, and without affecting their liability hereunder, from time to time,
and on any number of occasions, to (a) renew, amend, compromise, extend,
accelerate, reinstate or otherwise change the time for payment of, or otherwise
change the terms of the indebtedness of any part thereof, including increase or
decrease of the rate of interest thereon; (b) take and hold security of the
payment of this guaranty or the indebtedness guaranteed, exchange, enforce,
waive and release any such security; (c) apply such security and direct the
order or manner of sale thereof as Lender in its discretion may determine; and
(d) release or substitute any one or more of the endorsers or guarantors.
Guarantors acknowledge and agree that no act or omission of any kind by Lender,
including, but not limited to, the failure to take or perfect a security
interest in any security for the indebtedness guaranteed, shall affect or impair
this guaranty and the Lender shall have no duties in respect thereof to
Guarantors. Lender, may, without notice, assign this guaranty in whole or in
part.
Guarantors waive any right to require Lender to (a) proceed against
Borrower; (b) proceed against or exhaust any security held from Borrower; or (c)
pursue any other remedy in Lenders power whatsoever. Guarantors waive any
defense arising by reason of any disability or other defense of Borrower or by
reason of the cessation from any cause whatsoever of the liability of Borrower.
Until all indebtedness of Borrower to Lender shall have been paid in full,
Guarantors shall have no right of subrogation, and waive any right to enforce
any remedy which Lender now has or may hereafter have against Borrower, and
waive any benefit of, and any right to participate in, any security now or
hereafter held by Lender. Guarantors waive all presentments, demands for
performance, notices of nonperformance, protests, notices of dishonors and
notices of acceptance of this guaranty and of the existence creation or
incurring of new or additional indebtedness. Guarantors covenant to cause the
Borrower to maintain and preserve the enforceability of any instruments now or
hereafter executed in favor of the Lender, and to take no action of any kind
which might be the basis for a claim that the Guarantors have any defense
hereunder other than payment in full of all indebtedness of the Borrower to
Lender. Guarantors hereby indemnify Lender against loss, cost or expense by
reason of the assertion by the Guarantors of any defense hereunder based upon
any such action or inaction of the Borrower. Guarantors waive any right or claim
of right to cause a marshaling of the Borrower's assets or to require the Lender
to proceed against the Guarantors in any particular order. No delay on the part
of the Lender in the exercise of any right, power or privilege under the
documentation with the Borrower or under this guaranty shall operate as a waiver
of any such privilege, power or right.
In addition to all liens upon, and rights of setoffs against, the
monies, securities, or other property of Guarantors, or any of them, given to
Lender by law. Lender shall have a lien upon, and a right of setoff against, all
monies, securities and other property of Guarantors, or any of them, now or
hereafter in the possession of or on deposit with Lender, whether held in a
general or special account of deposit, or for safekeeping, or otherwise; and
every such lien and right of setoff may be exercised without demand upon or
notice to Guarantors. No lien or right of setoff shall be deemed to have been
waived by any act or conduct on the part of the Lender, or by any neglect to
exercise such right of setoff or to enforce such lien, or by any delay in so
doing; and every right of setoff and lien shall continue in full force and
effect until such right of setoff or lien is specifically waived or released by
an instrument in writing executed by Lender.
Any indebtedness of Borrower now or hereafter held by Guarantors, or any
of them is hereby subordinated to the indebtedness of Borrower to Lender; and
such indebtedness of Borrower to Guarantors if Lender so requests shall be
collected, enforced and received by Guarantors as trustees for Lender and be
paid over to Lender on account of the indebtedness of, Borrower to Lender, but
without reducing or affecting in any manner the liability of Guarantors under
the other provisions of this guaranty.
<PAGE>
Guarantors agree to pay a reasonable attorneys' fee and all other costs
and expenses which may be incurred or expended by Lender in the enforcement of
the Borrower's obligation and of this guaranty, whether suit be brought or not,
and in the event suit is brought, then for all services in trial and appellate
courts. Guarantors do hereby waive the right to trial by jury or any claims or
actions arising hereunder or resulting from the indebtedness referred to herein.
Upon the default of the Borrower with respect to any of its obligations
or liabilities to Lender, or in case Borrower, or any Guarantor shall become
insolvent or make an assignment for the benefit of creditors, or if a petition
in bankruptcy or for corporate reorganization or for an arrangement be filed by
or against Borrower or any Guarantor, or in the event of the appointment of a
receiver for Borrower or for any Guarantor or their properties, or in the event
that a judgment is obtained or warrant of attachment issued against Borrower or
any Guarantor, or in the event Lender deems itself insecure, or should Lender
request additional security and Guarantor or Borrower should fail to provide
same, all or any part of the indebtedness of the Borrower and of the obligations
and liabilities of the Guarantors to Lender, whether direct or contingent, and
of every kind and description, shall, without notice or demand, at the option of
the Lender, become immediately due and payable and shall be paid forthwith by
the Guarantors.
Where the Borrower is a corporation or a partnership, it is not
necessary for the Lender to inquire into the powers of the Borrower, or the
officers, directors, partners or agents acting or purporting to act in the
Borrower's behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder.
Notwithstanding any provision herein or in any instrument now or
hereafter evidencing said indebtedness, the total liability for payments in the
nature of interest shall not exceed the limits imposed from time to time by the
usury laws of the State of Florida. This guaranty and the rights and obligations
of the Lender and the Guarantor shall be governed and construed in accordance
with the laws of the State of Florida.
The terms "Borrower," "Borrowers," "Guarantor" or "Guarantors" shall
denote the single or the plural, and natural or artificial persons whenever and
wherever the context so requires or admits.
The Guarantors acknowledge that the Lender has been induced by this
Guaranty to make financial accommodations, now and in the future, to the
Borrower, and would not make such financial accommodations without this
Guaranty, and this Guaranty agreement shall, without further reference or
assignment, pass to, and may be relied upon and enforced by, any successor or
participant or assignee of the Lender.
As to each of the undersigned, this Guaranty shall continue until
written notice of revocation signed by such undersigned or until written notice
of the death of such undersigned shall in each case have been actually received
by the Lender, notwithstanding revocation by, or the death of, or complete or
partial release for any cause of, any one or more of the remainder of the
undersigned, or of the Borrower or of anyone liable in any manner for the
indebtedness hereby guaranteed or for the indebtedness (including those
hereunder) incurred directly or indirectly in respect thereof or hereof, and
notwithstanding the dissolution, termination of increase, decrease or change in
personnel of any one or more of the undersigned which may be partnerships. No
revocation of termination hereof shall affect in any manner rights arising under
this Guaranty with respect to (a) liabilities which shall have been created,
contracted, assumed or incurred prior to receipt by the Lender of written notice
of such revocation or termination, or (b) liabilities which shall have been
created, contracted, assumed or incurred after receipt of such written notice
pursuant to any contract entered into by the Lender prior to receipt of such
notice; and the sole effect of revocation or termination hereof shall be to
exclude from this Guaranty liabilities thereafter arising which are unconnected
with liabilities theretofore arising or transactions theretofore entered into.
All notices required or permitted to be given to the Lender herein shall
be sent by registered or certified mail, return receipt requested, directed to
the President of the Lender.
Wherever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law; however, if
any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals this 5TH day of NOVEMBER, 1997.
Signed, sealed and delivered in the presence of:
/s/ [illegible] /s/ YANNICK TESSIER
- ----------------------Witness --------------------------------Seal
- ----------------------Witness --------------------------------Seal
NOTARY PUBLIC MICHAEL JOSEPH HUNT YANNICK TESSIER, PERSONALLY KNOWN
STATE OF FLORIDA COMMISSION # CC557571 TO ME, SIGNED BEFORE ME THIS 9TH DAY
EXPIRES MAY 27, 2000 OF JANUARY 1998 IN BROWARD COUNTY,
FLORIDA.
/s/ MICHAEL JOSEPH HUNT
------------------------------Seal
EXHIBIT 10.75
[LOGO] CAPITAL BANK
CONTINUING GUARANTY
FOR VALUABLE CONSIDERATION, the undersigned (hereinafter called
"Guarantors"), for themselves, their heirs, personal representatives, successors
and assigns, hereby, jointly and severally, unconditionally guarantee to CAPITAL
BANK, a Florida banking corporation (hereinafter called "Lender"), and its
successors, participants, endorsees or assigns, the due performance and full and
prompt payment when due, whether at maturity or by acceleration, or otherwise,
of any and all obligations and indebtedness of GALACTICOMM TECHNOLOGIES, INC., A
FLORIDA CORPORATION hereinafter called ("Borrower") to Lender.
The word "indebtedness" is used herein in its most comprehensive sense
and includes any and all advances, debts, obligations and liabilities, including
interest of Borrower heretofore, now or hereafter made, incurred or created or
held or to be held, by Lender for its own account or as agent for another, or
otherwise, whether created or held or to be held, by Lender for its own account
or as agent for another, or otherwise, whether created directly of acquired by
assignment, or otherwise, whether voluntary or involuntary, and however arising,
whether due or not, absolute or contingent, liquidated or non-liquidated, and
whether Borrower may be liable individually or jointly with others, or whether
recovery upon such indebtedness may be or hereafter become barred by any statute
of limitations; or whether such indebtedness may be or hereafter become
otherwise unenforceable. This is a Continuing Guaranty relating to said
indebtedness, including that arising under subsequent or successive transactions
between Borrower and Lender, which shall either continue or increase the
indebtedness and is not limited as to amount.
The obligations hereunder are joint and several, and independent of the
obligations of Borrower, and a separate action or actions may be brought and
prosecuted against Guarantors or any of them, whether action is brought against
Borrower or whether Borrower may be joined in any such action or actions. This
is a guaranty of payment and not of collection.
Guarantors acknowledge that the loan referred to herein is a valid and
binding obligation of the Borrower. Guarantors authorize Lender, without notice
of demand, and without affecting their liability hereunder, from time to time,
and on any number of occasions, to (a) renew, amend, compromise, extend,
accelerate, reinstate or otherwise change the time for payment of, or otherwise
change the terms of the indebtedness of any part thereof, including increase or
decrease of the rate of interest thereon; (b) take and hold security of the
payment of this guaranty or the indebtedness guaranteed, exchange, enforce,
waive and release any such security; (c) apply such security and direct the
order or manner of sale thereof as Lender in its discretion may determine; and
(d) release or substitute any one or more of the endorsers or guarantors.
Guarantors acknowledge and agree that no act or omission of any kind by Lender,
including, but not limited to, the failure to take or perfect a security
interest in any security for the indebtedness guaranteed, shall affect or impair
this guaranty and the Lender shall have no duties in respect thereof to
Guarantors. Lender, may, without notice, assign this guaranty in whole or in
part.
Guarantors waive any right to require Lender to (a) proceed against
Borrower; (b) proceed against or exhaust any security held from Borrower; or (c)
pursue any other remedy in Lendees power whatsoever. Guarantors waive any
defense arising by reason of any disability or other defense of Borrower or by
reason of the cessation from any cause whatsoever of the liability of Borrower.
Until all indebtedness of Borrower to Lender shall have been paid in full,
Guarantors shall have no right of subrogation, and waive any right to enforce
any remedy which Lender now has or may hereafter have against Borrower, and
waive any benefit of, and any right to participate in, any security now or
hereafter held by Lender. Guarantors waive all presentments, demands for
performance, notices of nonperformance, protests, notices of dishonors and
notices of acceptance of this guaranty and of the existence creation or
incurring of new or additional indebtedness. Guarantors covenant to cause the
Borrower to maintain and preserve the enforceability of any instruments now or
hereafter executed in favor of the Lender, and to take no action of any kind
which might be the basis for a claim that the Guarantors have any defense
hereunder other than payment in full of all indebtedness of the Borrower to
Lender. Guarantors hereby indemnify Lender against loss, cost or expense by
reason of the assertion by the Guarantors of any defense hereunder based upon
any such action or inaction of the Borrower. Guarantors waive any right or claim
of right to cause a marshaling of the Borrowecs assets or to require the Lender
to proceed against the Guarantors in any particular order. No delay on the part
of the Lender in the exercise of any right, power or privilege under the
documentation with the Borrower or under this guaranty shall operate as a waiver
of any such privilege, power or right.
In addition to all liens upon, and rights of setoffs against, the
monies, securities, or other property of Guarantors, or any of them, given to
Lender by law. Lender shall have a lien upon, and a right of setoff against, all
monies, securities and other property of Guarantors, or any of them, now or
hereafter in the possession of or on deposit with Lender, whether held in a
general or special account of deposit, or for safekeeping, or otherwise; and
every such lien and right of setoff may be exercised without demand upon or
notice to Guarantors. No lien or right of setoff shall be deemed to have been
waived by any act or conduct on the part of the Lender, or by any neglect to
exercise such right of setoff or to enforce such lien, or by any delay in so
doing; and every right of setoff and lien shall continue in full force and
effect until such right of setoff or lien is specifically waived or released by
an instrument in writing executed by Lender.
Any indebtedness of Borrower now or hereafter held by Guarantors, or any
of them is hereby subordinated to the indebtedness of Borrower to Lender; and
such indebtedness of Borrower to Guarantors if Lender so requests shall be
collected, enforced and received by Guarantors as trustees for Lender and be
paid over to Lender on account of the indebtedness of Borrower to Lender, but
without reducing or affecting in any manner the liability of Guarantors under
the other provisions of this guaranty.
<PAGE>
Guarantors agree to pay a reasonable attorneys' fee and all other costs
and expenses which may incurred or expended by Lender in the enforcement of the
Borrower's obligation and of this guaranty, whether suit be brought or not, and
in the event suit is brought, then for all services in trial and appellate
courts. Guarantors do hereby waive the right to trial by jury or any claims or
actions arising hereunder or resulting from the indebtedness referred to herein.
Upon the default of the Borrower with respect to any of its obligations
or liabilities to Lender, or in case Borrower or any Guarantor shall become
insolvent or make an assignment for the benefit of creditors, or if a petition
in bankruptcy or for corporate reorganization or for an arrangement be filed by
or against Borrower or any Guarantor, or in the event of the appointment of a
receiver for Borrower or for any Guarantor or their properties, or in the event
that a judgment is obtained or warrant of attachment issued against Borrower or
any Guarantor, or in the event Lender deems itself insecure, or should Lender
request additional security and Guarantor or Borrower should fail to provide
same, all or any part of the indebtedness of the Borrower and of the obligations
and liabilities of the Guarantors to Lender, whether direct or contingent, and
of every kind and description, shall, without notice or demand, at the option of
the Lender, become immediately due and payable and shall be paid forthwith by
the Guarantors.
Where the Borrower is a corporation or a partnership, it is not
necessary for the Lender to inquire into the powers of the Borrower, or the
officers, directors, partners or agents acting or purporting to act in the
Borrowees behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder.
Notwithstanding any provision herein or in any instrument now or
hereafter evidencing said indebtedness, the total liability for payments in the
nature of interest shall not exceed the limits imposed from time to time by the
usury laws of the State of Florida. This guaranty and the rights and obligations
of the Lender and the Guarantor shall be governed and construed in accordance
with the laws of the State of Florida.
The terms "Borrower," "Borrowers" "Guarantor" or "Guarantors" shall
denote the single or the plural, and natural or artificial persons whenever and
wherever the context so requires or admits.
The Guarantors acknowledge that the Lender has been induced by this
Guaranty to make financial accommodations, now and in the future, to the
Borrower, and would not make such financial accommodations without this
Guaranty, and this Guaranty agreement shall, without further reference or
assignment, pass to, and may be relied upon and enforced by, any successor or
participant or assignee of the Lender.
As to each of the undersigned, this Guaranty shall continue until
written notice of revocation signed by such undersigned or until written notice
of the death of such undersigned shall in each case have been actually received
by the Lender, notwithstanding revocation by, or the death of, or complete or
partial release for any cause of, any one or more of the remainder of the
undersigned, or of the Borrower or of anyone liable in any manner for the
indebtedness hereby guaranteed or for the indebtedness (including those
hereunder) incurred directly or indirectly in respect thereof or hereof, and
notwithstanding the dissolution, termination of increase, decrease or change in
personnel of any one or more of the undersigned which may be partnerships. No
revocation of termination hereof shall affect in any manner rights arising under
this Guaranty with respect to (a) liabilities which shall have been created,
contracted, assumed or incurred prior to receipt by the Lender of written notice
of such revocation or termination, or (b) liabilities which shall have been
created, contracted, assumed or incurred after receipt of such written notice
pursuant to any contract entered into by the Lender prior to receipt of such
notice; and the sole effect of revocation or termination hereof shall be to
exclude from this Guaranty liabilities thereafter arising which are unconnected
with liabilities theretofore arising or transactions theretofore entered into.
All notices required or permitted to be given to the Lender herein shall
be sent by registered or certified mail, return receipt requested, directed to
the President of the Lender.
Wherever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law; however, if
any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals this 5TH day of NOVEMBER, 1997.
Signed, sealed and delivered in the presence of:
/s/ [illegible] /s/ PETER BERG
- ----------------------Witness --------------------------------Seal
PETER BERG
- ----------------------Witness --------------------------------Seal
NOTARY PUBLIC MICHAEL JOSEPH HUNT PETER BERG, PERSONALLY KNOWN
STATE OF FLORIDA COMMISSION # CC557571 TO ME SIGNED BEFORE ME THIS 9TH DAY
EXPIRES MAY 27, 2000 OF JANUARY 1998 IN BROWARD COUNTY,
FLORIDA.
/s/ MICHAEL JOSEPH HUNT
------------------------------Seal
EXHIBIT 11
GALACTICOMM TECHNOLOGIES, INC.
PER SHARE COMPUTATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------------- ---------------
<S> <C> <C>
BASIC
Weighted average common shares outstanding,
exclusive of nominal issuances prior to the IPO ....................... 2,188,474 973,649
Nominal common shares and equivalents issued
prior to the IPO assumed to be outstanding for the entire period ...... -- --
--------- -------
Weighted average common shares outstanding at end of year ............... 2,188,474 973,649
========= =======
Net loss ................................................................ $ (3,754,035) (1,088,591)
============ ==========
Net loss per share ...................................................... $ (1.72) (1.12)
============ ==========
</TABLE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Galacticomm Technologies, Inc.
and Subsidiary:
We consent to the use of our report included herein and to the
reference to our firm under the heading "Experts" in the Prospectus.
Our report dated January 30, 1998 except as to note 10(b) which is as
of June 26, 1998, the third paragraph of note 10(e) which is as of June 1, 1998,
note 11(a) which is as of June 23, 1998, note 11(b) which is as of May 7, 1998,
note 11(c) which is as of May 29, 1998 and note 11(d) which is as of July 1,
1998, contains an explanatory paragraph that states that the Company has
suffered recurring losses from operations and has negative working capital, that
raise substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
KPMG Peat Marwick
Fort Lauderdale, Florida
July 2, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 226,281 17,900
<SECURITIES> 0 0
<RECEIVABLES> 805,864 509,578
<ALLOWANCES> (494,436) (227,106)
<INVENTORY> 83,730 63,443
<CURRENT-ASSETS> 648,367 397,872
<PP&E> 968,015 737,198
<DEPRECIATION> (197,111) (202,837)
<TOTAL-ASSETS> 3,850,567 3,284,600
<CURRENT-LIABILITIES> 1,314,222 3,868,265
<BONDS> 0 0
0 0
0 0
<COMMON> 264 264
<OTHER-SE> (35,681) (1,236,578)
<TOTAL-LIABILITY-AND-EQUITY> 3,850,567 3,284,600
<SALES> 3,418,057 428,043
<TOTAL-REVENUES> 3,418,057 428,043
<CGS> 869,252 140,027
<TOTAL-COSTS> 6,762,775 1,392,803
<OTHER-EXPENSES> 409,317 236,137
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 434,410 239,501
<INCOME-PRETAX> (3,754,035) (1,200,897)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,754,035) (1,200,897)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,754,035) (1,200,897)
<EPS-PRIMARY> (1.72) (.45)
<EPS-DILUTED> (1.72) (.45)
</TABLE>
