<PAGE>
As filed with the Securities and Exchange Commission on February 25, 1999
Registration No. ___
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FINANCIAL INTRANET, INC.
(Name of small business issuer in charter)
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<S> <C> <C>
NEVADA 7375 88-0357272
- ------------------------------- ---------------------------- --------------------------
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer I.D. Number)
incorporation or organization) Classification Code Number)
</TABLE>
(Address and telephone number, of registrant's
principal executive offices)
410 Saw Mill River Road
Ardsley NY 10502
(914) 693-5060
(Address of principal place of business or
intended principal place of business)
(Name, address and telephone number, of agent for service)
Michael Sheppard, President
c/o Financial Intranet, Inc.
410 Saw Mill River Road
Ardsley NY 10502
(914) 693-5060
Please send a copy of all communications to:
STEVEN W. SCHUSTER, ESQ.
McLaughlin & Stern, LLP
260 Madison Avenue
New York, New York 10016
(212) 448-1100
Fax (212) 448-0066
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933 (the "Securities Act"),
please check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement
================================================================================
<PAGE>
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to 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. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 of the Securities
Act, check the following box [ ]
------------------------------
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1. Calculation of Registration Fee
<TABLE>
<CAPTION>
Proposed
Maximum
Offering Proposed
Amount Price Per Maximum Amount of
Title of Each Class of Security Being Unit/Share Aggregate Offering Registration
Being Registered Registered (1) Price Fee
<S> <C> <C> <C> <C>
Shares of Common Stock $.001 par 3,000,000 $2.00 $ 6,000,000 $1,668.00
value (2)
Shares of Common Stock underlying 5,258,333 $2.00 $ 10,516,666 $2,923.63
Warrants (3) (4)
Shares of Common Stock (4) 92,994 $2.00 $ 185,988 $51.70
Shares of Common Stock underlying 6,975,000 $2.00 $ 13,950,000 $3,878.10
Convertible Promissory Notes (3) (4)
Total Registration Fee.............................................................................. $8,521.43
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Securities being registered for sale by the Company.
(3) Pursuant to Rule 416 there are also being registered such additional shares
as may be issued as a result of the anti-dilution provisions of the
Warrants and the Convertible Promissory Notes.
(4) Securities being registered for resale only.
------------------------------
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 or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
-----------------------------
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<PAGE>
2. Explanatory Note
This registration statement covers the primary offering of Common Stock
by Financial Intranet, Inc. ("Financial Intranet") and the offering of Common
Stock by certain Selling Securityholders ("Selling Securityholders"). The
Company is registering under the primary prospectus ("Primary Prospectus")
3,000,000 Shares of Common Stock for sale. The Selling Securityholders are
registering, under an alternate prospectus ("Alternate Prospectus") 5,258,333
shares of Common Stock underlying certain warrants, 6,975,000 shares of Common
Stock underlying certain convertible promissory notes (including an additional
2,325,000 shares of Common Stock being registered with respect to certain
anti-dilution provisions of such promissory notes), 55,000 shares of Common
Stock previously issued and 37,994 shares of Common Stock which may be issued.
The Alternate Prospectus pages, which follow the Primary Prospectus, contain
certain sections which are to be combined with all of the sections contained in
the Primary Prospectus, with the exceptions of the front and back cover pages
and the section entitled "The Offering." Furthermore, all references contained
in the Alternate Prospectus to the "Offering" shall refer to the Company's
offering under the Primary Prospectus.
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FINANCIAL INTRANET INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Caption Location
---- ------- --------
<S> <C> <C>
1. Forepart of Registration Statement and Outside Front Cover Outside Front Cover Page
Page of Page Prospectus
2. Inside Front and Outside Back Cover Outside Pages of Inside Front and Outside Back
Prospectus Cover
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Factors Plan of Distribution
6. Dilution Dilution
7. Selling Securityholders Selling Securityholders
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Business
10. Directors, Executive Officers, Promoters and Control Persons Management
11. Security Ownership of Certain Beneficial Owners and Principal Stockholders
Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification for Plan of Distribution--
Securities Act Indemnification
15. Organization Within Last Five Years Business
16. Description of Business Business; Risk Factors; Financial
Statements; Selected Financial
Data; Prospectus Summary; Use of
Proceeds
17. Management's Discussion and Analysis Discussion and or Management's Analysis of
Plan of Operation Financial Condition and Results of
Operation
18. Description of Property Business-Facilities
19. Certain Relationships and Related Transactions Certain Transactions
20. Market for Common Equity and Related Matters Market for Common Equity
21. Executive Compensation Management-Executive
Compensation
22. Financial Statements Financial Statements
23. Changes In and Disagreements With Accountants on Not Applicable
Accounting and Financial Disclosure
</TABLE>
v
<PAGE>
The information contained in this preliminary prospectus is not complete and may
be changed. These securities may not be sold until the registration statement
filed with the securities and exchange commission is effective. This prospectus
is not an offer to sell nor does it seek an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
Subject to Completion dated February 25, 1999
Prospectus
FINANCIAL INTRANET, INC.
3,000,000 SHARES OF COMMON STOCK
($ ) per share
Financial Intranet, Inc., a Nevada corporation ("Financial Intranet"),
offers 3,000,000 shares of its Common Stock, par value $0.001 per share ("Common
Stock" or the "Shares") on a best efforts basis. These Shares are being offered
directly by Financial Intranet without any discounts or selling commissions.
Therefore, if all of the Shares are sold, Financial Intranet will receive
$6,000,000 less an estimated $180,000 for expenses. No minimum number of Shares
must be sold.
We provide broker/dealers and financial advisors with communications
services and value-added services, such as customer leads, training and
marketing material from mutual funds, and video teleconferencing via a private
intranet. This intranet can be used by mutual funds and investment managers to
provide product information to broker/dealers and financial advisors who
subscribe to Financial Intranet's communications network.
To invest in this stock you must be able to bear a high degree of risk,
and your investment could result in a complete loss. You also must accept an
immediate, substantial dilution of the book value of your Shares. To read about
these issues see, "Risk Factors" which begins on Page 6 and "Dilution" which
begins on Page 15.
We anticipate that the public offering price will equal the average of
the closing bid and asked prices per share of our Common Stock as quoted on the
OTC Bulletin Board on the date prior to the commencement of the Offering under
this Prospectus. As of February 24, 1999, the closing bid price per share of
Common Stock was $1.23.
Licensed NASD broker/dealers may also participate and receive
commissions of up to 10% and a non-accountable expense allowance of 3% of the
offering price on sales of Shares made by them, which will reduce the proceeds
received by Financial Intranet by such amount.
Neither the Securities and Exchange Commission (the "SEC") nor any
state securities commission has approved or disapproved these securities or
passed upon the adequacy of the prospectus. Any representation to the contrary
is a criminal offense.
Selling Securityholders are offering, under an alternate prospectus
("Alternate Prospectus") 5,258,333 shares of Common Stock underlying certain
warrants (which have not been exercised to date), 4,650,000 shares of Common
Stock underlying certain convertible promissory notes (which have not been
converted to date), 55,000 shares of Common Stock previously issued and 37,994
shares of Common Stock which may be issued to the Selling Security holders. We
will receive proceeds from the exercise of the warrants issued to the Selling
Securityholders but will not receive any proceeds from the sale of the shares
offered by the Selling Securityholders.
The Date of this Prospectus is _________, 1999
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Prospectus Summary
The following summarizes certain information in this Prospectus. The
more detailed description elsewhere in the Prospectus governs the matters
discussed in this summary. Unless otherwise specified, all information in this
Prospectus assumes an offering price of $2.00. You should read the entire
Prospectus carefully, including the "Risk Factors" section and the financial
statements and notes thereto.
The Company
Financial Intranet, Inc. ("Financial Intranet") is an emerging media
and communications company providing specialized services to the investment
industry. Financial Intranet's headquarters are based in Ardsley, New York.
Financial Intranet offers services to a number of groups in the
investment industry:
o For mutual funds and investment managers, Financial Intranet
offers an opportunity to distribute product information and
provide training to broker/dealers and other financial
advisors through interactive video teleconferencing and the
transmission of video-on-demand, text and digitally stored
documents. Financial Intranet provides these services through
state-of-the-art data transmission over a high-speed, secure
intranet. Among other things, Financial Intranet's services
help mutual funds manage the distribution cost of sales and
marketing materials and ensure that broker/dealers have the
most current information available.
o For broker/dealers and financial advisors, Financial Intranet
offers communications services, including voice and data
transmission, at prices intended to be competitive with
others in the telecommunications industry, but with
value-added features, including immediate access to
information about mutual funds as discussed above, video
teleconferencing and leads to potential new customers who
visit Financial Intranet's web site. These customer leads
will be matched with suitable broker/dealers or financial
advisors using Financial Intranet's data mining technology.
Financial Intranet intends to expand its product offering to
broker/dealers to include continuing education and license
exam training material in video-on-demand format.
o For prospective investors, Financial Intranet maintains a web
site at www.fntn.com. The web site offers delayed quotes on
securities prices, advanced charting of security performance,
portfolio management tools and a searchable mutual fund
database. Users who register may participate in Financial
Intranet's "chat rooms" and utilize Financial Intranet's
message board.
Financial Intranet's revenues will come from two primary sources:
o Communications services are one of the largest recurring
expenses in the brokerage industry. Financial Intranet
resells interstate and international voice, data and video
communications services to broker\dealers and financial
advisors pursuant to tariffs filed with the Federal
Communications Commission. Financial Intranet resells
intrastate voice, data and video communications services
pursuant to tariffs filed with the various states in which
it is authorized to provide such services, including
California, Texas, New York, and Florida. Currently,
Financial Intranet resells its communications services to
approximately 20 customers which to date have generated only
limited revenues.
o Mutual funds and other entities selling financial products
use Financial Intranet to deliver material, including video
presentations, text and digitally stored documents, through
a cost-effective network to broker/dealers and financial
advisors who can distribute or recommend their products.
Financial
2
<PAGE>
Intranet intends to charge for such delivery as its subscriber
base grows.
To accomplish these objectives, Financial Intranet has established a
strategic relationship with Siemens Nixdorf Informationssysteme Ges.m.b.H. and
several of its subsidiaries, most significantly Siemens Information and
Communication Products LLC and Siemens Telecom Network. The Siemens companies
(sometimes referred to as "Siemens") have installed a fully integrated hardware
and software system at Financial Intranet's data center in Ardsley, New York.
Siemens manages the system and has trained Financial Intranet's internal
technical team. Financial Intranet and Siemens have developed applications based
on Siemens's proprietary video-on-demand and data mining technology. See
"Business -- Technology and Business Partners."
Financial Intranet operates primarily in the eastern United States.
Financial Intranet intends to expand throughout the United States and possibly
overseas (See "Business -- Expansion"). While Financial Intranet's initial focus
is on the financial services community, Financial Intranet believes its services
will be attractive to other industries.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered: 3,000,000 shares of Common Stock, par value $.001, per
share.
Offering Price(1): $2.00 per share of Common Stock
Securities Outstanding Prior to the
Company's Offering: 21,233,496 Shares
Securities Outstanding After the
Company's Offering (2): 34,179,823 Shares
Risk Factors and Dilution: An investment in any of the securities being offered hereby is
highly speculative and involves substantial risks including the
risks of limited operations, the possibility of a lack of market
acceptance, a limited amount of working capital, and risks
concerning the optimal use of the proceeds, including:
management's broad discretion in the application of proceeds,
the Company's dependence upon a key individual and the
possible need for additional financing and competition. An
investment will also involve immediate and substantial
dilution. Investors should carefully consider the matters set
forth under the captions "Risk Factors" and "Dilution."
Use of Proceeds: The Company will receive the net proceeds of its offer and sale
of the Common Stock of approximately $5,820,000 and
intends to use the net proceeds approximately as follows:
research and development, marketing and sales, deposits with
telecom carriers, expand network architecture, capital
expenditures and working capital. See "Use of Proceeds."
OTC Bulletin Board Symbol: FNTN
</TABLE>
- ---------------
(1) Estimated at $2.00 for purposes of this preliminary prospectus. The
offering price will equal the average of the closing bid and asked
prices per share of Common Stock as listed on the OTC Bulletin Board on
the trading date prior to the commencement of the Offering under this
Prospectus.
(2) Assumes conversion of the Selling Securityholders' convertible
promissory notes and exercise of the Selling Securityholders' warrants
and the issuance of certain additional shares but assumes no exercise
of any other outstanding options or warrants. See "Selling
Securityholders."
4
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data as of December 31, 1997 and 1998
(unaudited) and for the fiscal years ended December 31, 1997 and 1998
(unaudited) set forth below, other than the "As Adjusted" information reflecting
Financial Intranet's receipt and use of the net proceeds of its public offering
(see "Use of Proceeds"), have been derived from the audited and unaudited
consolidated financial statements ("Financial Statements") (including the
related notes thereto) of Financial Intranet included elsewhere in this
Prospectus. This financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto
appearing elsewhere in this Prospectus.
Selected Financial Data
<TABLE>
<CAPTION>
Statement of Operations Data: Year Ended December 31
-----------------------
1997 1998
(Unaudited)
---- ----
Total revenue ............................. $0 $91,281
Cost of revenue and services .............. $0 $146,533
Operating expenses ......................... $817,280 $2,109,814
Loss from operations .............. ($817,280) ($2,165,066)
Other expense ..................... ( $150) ( $2,138)
Net loss .......................... ($817,430) ($2,167,204)
Net loss per common share ......... ($0.07) ($0.12)
Weighted average shares outstanding ........ 10,932,900 18,328,984
Balance Sheet Data: December 31, 1998
(Unaudited)
As Adjusted
Actual (1)(2)
------ -----------
Working Capital (deficit) ................... ($586,062) $5,006,338
Total Assets ................................ $1,332,521 $9,275,921
Total Long-Term Debt ........................ $500,000 $0
Total stockholders' equity ........ $40,937 $8,484,337
(1) Assumes conversion of convertible promissory notes and the exercise of
warrants issued to the Selling Securityholders and issuance of 92,994
shares to the Selling Securityholders but assumes no exercise of any other
outstanding options or warrants. See "Selling Securityholders."
(2) Includes net proceeds of $5,820,000 from this Offering and use of the
proceeds. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
An investment in the Common Stock of Financial Intranet involves a high
degree of risk. As prospective investors you should carefully consider the
following factors, in addition to the other information included in this
document, before purchasing any of the shares offered.
Limited Relevant Operating History; Historical Losses; Substantial
Doubt About Our Ability to Continue as a Going Concern Without Proceeds of
Offering. We began our research and development of our intranet in February 1997
and have a limited relevant operating history to evaluate our prospects. You
should consider our prospects in light of the risks, expenses and difficulties
frequently encountered in connection with the operation and expansion of a new
business and commercialization of new products. Intense competition, substantial
financial requirements and a high failure rate characterize these difficulties.
In addition, we have experienced losses in each of our formative years according
to our audited financial statements, we had net losses of $817,430 (audited) for
the year ended December 31, 1997, and $2,167,204 (unaudited) for the year ended
December 31, 1998. Moreover, we expect to incur up-front operating costs in
connection with the expansion of our marketing efforts, which may result in
losses. Unless we generate sufficient revenues or obtain financing through this
offering or another means, our operations in the development stage
substantial doubt about our ability to continue as a going concern. We may
continue to incur operating losses until we derive substantial revenues from the
sale of products and there can be no assurance that we will ever be profitable.
Possible Need for Additional Financing. We anticipate that the net
proceeds from this Offering and income provided by operations will allow us to
meet our financial requirements for at least 24 months following the date of
this prospectus. We base this expectation on our current operating plan which
may change, and which may require additional funding sooner than anticipated. In
addition, opportunities, acquisition and development or other possibilities may
arise, which could also require additional financing. Sources of funds may
include the sale of stock in a public offering or in private placements, or the
issuance of debt or bank financing. If we raise additional proceeds through the
sale of stock, the ownership percentage of our existing stockholders will
decrease and such stock may have rights, preferences or privileges superior to
those of our existing stockholders. We may not be able to obtain funding on a
timely basis, on favorable terms, or at all. One Selling Securityholder is
obligated to purchase convertible promissory notes and warrants for an
additional $1,100,000 during the 10 months after the date of this Prospectus.
Except for that Selling Securityholder, we do not have a credit facility or any
committed source of financing. If we are unable to obtain such financing, or
generate sufficient funds from operations, our business, financial condition and
results of operations will be severely adversely affected.
Dependent On a Limited Number of Services. Our revenues will come from
two principal sources: fees for communications services provided to
broker/dealers and financial advisors and fees for marketing services from
mutual funds and other investment managers. Due to our dependence on specific
services, we may be adversely affected if one service fails to achieve
anticipated sales. We cannot assure you that we will not remain dependent upon
sales of a limited number of services.
Rapid Technological Change. Rapidly changing technology and industry
standards characterize the market for communications services. We have a
relationship with Siemens to help provide access to technological developments,
but future success will also depend on developing and introducing new services.
Specifically, we must offer services and enhancements that:
o continue to offer improved performance and features
o respond to evolving customer needs and
o achieve market acceptance
There can be no assurance that we will be successful in developing and marketing
our services.
6
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Intense Competition. Although we believe that we provide a unique
communications service, many communications service companies have greater
financial, technical, marketing, sales and customer support and other resources
than we, and have established reputations for successfully developing, licensing
and selling their products and technologies. Providing intranet and internet
communications services is increasingly competitive. Industry competition is
based primarily upon:
o product quality and features
o marketing effectiveness
o reliability and ease of use
o price and
o the quality of user support services
Future competitors with greater financial resources may be able to undertake
more extensive marketing campaigns and adopt more aggressive pricing policies
than we. In that case, we may face significant price competition and reduced
profit margins. We may not be able to compete successfully against current or
future competitors. Competitive pressures may have a material adverse effect on
our future operations.
Risks Associated with Future Acquisitions. We are considering an
acquisition in order to increase the services we offer. Acquisitions involve
numerous risks, including:
o difficulties in the assimilation of the operations and products
of the acquired companies;
o expenses incurred in connection with the acquisition and
subsequent assimilation of operations and products;
o diversion of management's attention from other business concerns;
and
o potential loss of key employees of the acquired company.
If we make any future acquisitions, there can be no assurance that we will be
able to integrate the acquired operations successfully, and any inability to do
so could adversely affect our business. There can be no assurance that any
future acquisitions will be consummated.
Limited Protection of Proprietary Information. We regard the technology
we use as proprietary, but have no patents or pending patent application. Our
success depends in part on our ability to protect our technology and other
intellectual property by relying on one or more of the following:
o patent laws
o copyright laws
o trademark laws
o trade secret laws
o confidentiality agreements with employees and third parties
o license agreements with consultants, vendors and customers
We have signed agreements with third parties, consultants, employees, vendors
and customers who have access to our technology. Despite such protections, the
following could occur:
o a third party could copy or otherwise obtain and use our products
or technology, or develop similar technology independently;
o misappropriation of our technology, or development and design by
others of products or technologies similar to or competitive with
ours;
o assertion of future infringement claims by third parties with
respect to current or future products;
o receipt of notices from third parties claiming infringement of
their intellectual property rights.
We intend to investigate these claims and respond appropriately. Litigation may
be necessary in the future to enforce
7
<PAGE>
our intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others, or to defend against
claims of infringement or invalidity. Any such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect.
Discretionary Use of Proceeds. Management has broad discretion to
allocate and apply proceeds to working capital. As a result, our success will be
substantially dependent upon the discretion and judgment of our management with
respect to the application and allocation of the net proceeds.
Dependence on Key Personnel and Employees. The success of our business
will continue to be highly dependent upon key members of senior management. The
loss of services of one or more of such employees, particularly Mr. Michael
Sheppard, our President and Chief Operating Officer, and Maura Marx, our
Executive Vice President, could have a materially adverse effect upon our
business and development. We have employment agreements with Mr. Sheppard and
Ms. Marx but no key-man life insurance on any of our employees. Our future
operations will also depend in part upon our ability to retain current employees
and to attract and retain additional qualified personnel. We may not be able to
attract and retain such personnel or, if we are able to do so, on terms deemed
favorably by management.
No Dividends Anticipated. We have not paid any income on our Common
Stock to date and do not anticipate declaring or paying any income in the
foreseeable future.
No NASDAQ Listing, Limited Liquidity and Marketability of Common Stock,
Disclosures Relating to Low Priced Stocks; Possible Restrictions on Resales of
Low Priced Stocks and on Broker Dealer Sales; Possible Adverse Effect of Penny
Stock Rules on Liquidity for Financial Intranet's Securities. Trading in our
Common Stock is conducted on the Over the Counter Bulletin Board.
Our shares of Common Stock are subject to Rule 15g-9 under the Exchange
Act. This rule imposes additional sales practice requirements on broker/dealers
which sell such securities to persons other than established customers and
accredited investors. Generally, these individuals have a net worth in excess of
$1,000,000 or annual incomes exceeding $200,000 or $300,000 together with their
spouses. For transactions covered by this Rule, a broker/dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently, such
Rule may affect the ability of broker/dealers to sell our Common Stock and may
affect the ability of purchasers in the Offering to sell any of the Shares
acquired hereby in the secondary market if such Shares become tradable on such
market, of which we can make no assurance.
The Commission has adopted regulations which generally define a penny
stock as any non-NASDAQ equity security that has a market price of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. The following rules apply to non-exempt penny stock:
o For any transaction by broker/dealers involving a penny stock,
the rules require delivery, prior to a transaction in a penny
stock, of a risk-disclosure document relating to the penny stock
market;
o Disclosure is also required to be made about compensation payable
to both the broker/dealer and the registered representative and
current quotations for the securities;
o Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
However, the penny stock restrictions will not apply to our securities
if such securities are listed on NASDAQ and have certain price and volume
information provided on a current and continuing basis or meet certain minimum
net tangible assets or average revenue criteria. There can be no assurance that
our securities will qualify for exemption from these restrictions. In any event,
even if our Common Stock were exempt from such restrictions, the Common Stock
would remain subject to Section 15(b)(6) of the Exchange Act, which gives the
Commission the authority to prohibit any person that is engaged in unlawful
conduct while participating in a distribution of penny stock from associating
with a broker/dealer or participating in a distribution of penny stock, if the
Commission finds that such
8
<PAGE>
a restriction would be in the public interest. If our securities were subject to
the rules on penny stocks, the market liquidity for our securities could be
severely adversely affected.
We must satisfy certain listing requirements in order to qualify for a
listing on NASDAQ. These requirements include: (1) a company having a minimum of
$4,000,000 in total assets and $2,000,000 in stockholders' equity and (2) our
common stock having a $4.00 minimum bid price. We cannot assure that we will
qualify for a listing of our Common Stock on NASDAQ or that such a listing, if
obtained, can be maintained.
No Assurance of Public Market; Possible Volatility of Market Price of
Common Stock. We currently trade our Common Stock over-the-counter through the
OTC Bulletin Board. The OTC Bulletin Board experiences a high level of price and
volume volatility. Market prices for many companies, particularly small and
emerging growth companies have experienced wide price fluctuations not
necessarily related to their operating performance as such:
o The market price for our Common Stock may be affected by general
stock market volatility;
o Investors may have trouble selling their stock;
o Broker/dealers may not be able to sell our stock as easily as
stocks which are traded on larger exchanges;
o Financial results and various factors affecting the financial
services industry in general may significantly affect the market
price for our Common Stock. We cannot assure that we can sustain
an active trading market.
Litigation. On July 23, 1998, H&H Acquisition Corp. et al. commenced an
action in federal court in the Southern District of New York (Civil No. 98 Civ.
5269) against us, Ben Stein, Michael Sheppard, Maura Marx et al. The complaint
is an action to recover shares of our Common Stock previously sold to Mr. Stein
and unspecified damages. We believe that the claims against us, Mr. Sheppard and
Ms. Marx are without merit and are vigorously defending the action, but we
cannot make assurances regarding the outcome of the litigation. We believe that
the plaintiffs' principal causes of action relate to Mr. Stein, who has filed a
motion to dismiss the complaint on the grounds, in part, that a mutual release
previously executed with the plaintiff covers the alleged action. However, if
the plaintiffs prevail against us, we could be adversely affected.
Ability to Manage and Sustain Growth. Our recent addition of a number
of new services has placed, and is expected to continue to place, a significant
strain on our managerial, technical, operational and financial resources. To
manage and market these services, we will have to implement and improve our
operational and financial systems and train and manage our growing employee
base. We will also need to maintain and expand our relationships with customers,
marketing partners, licensees, licensors, and other third parties. Our current
and planned personnel, financial and operating procedures and controls may not
be adequate to support our future operations. If we are unable to manage our
growth effectively, our business will be materially adversely affected.
Potential Control By Existing Shareholders and Officers of Financial
Intranet upon Exercise of Options. Michael Sheppard, President, Maura Marx, Vice
President and Ben B. Stein, our consultant, own an aggregate of 4,647,634 shares
of Common Stock, constituting approximately 22% of the outstanding shares of our
Common Stock as of February 8, 1999. They also beneficially own 41.8% of the
outstanding shares of Common Stock after giving effect to their options. They
also have the options to purchase 48.5% of all additional shares issued after
December 31, 1998 through December 31, 2002 at the market price per share of
Common Stock on the date the additional shares are issued. The exercise of such
options by Messrs. Sheppard and Stein and Ms. Marx will enable them to elect our
directors and thereby determine our policies.
Necessity for Updating Registration Statement. So long as the warrants
issued to the Selling Securityholders are exercisable, we are required to file
one or more Post-Effective Amendments to our Registration Statement on Form SB-2
("Registration Statement") to update the general and financial information
contained in this document. These obligations could result in substantial
expense to us and could be a hindrance to any future financing. Although we have
undertaken and intend to keep our Registration Statement current, we cannot
assure that we will
9
<PAGE>
be able to keep our Registration Statement current.
Substantial Dilution to Purchasers. Purchasers in this Offering will
incur immediate and substantial dilution of $1.69 (84%) dilution per Share in
the net book value per share of their investment. In addition, purchasers in
this Offering will be contributing approximately 87.3% of the total investment
consideration to us but will receive only 13% of the shares outstanding
(assuming the Selling Securityholders' warrants are exercised and their
convertible promissory notes are converted). Additional dilution will occur upon
the exercise of the warrants and the conversion of the convertible promissory
notes. Accordingly, in the aggregate, purchasers in this Offering will bear a
greater risk of loss than the current stockholders.
Selling Securityholders. This Prospectus is part of a larger
Registration Statement. The Registration Statement contains a second prospectus
(the "Alternate Prospectus") which allow a number of investors to sell up to
10,001,327 shares of our Common Stock. They include two shareholders who own
55,000 shares of the Common Stock as well as investors who have warrants and
promissory notes exerciseable or convertible into shares of Common Stock (the
"Selling Securityholders"). If the Selling Securityholders sell any shares, they
will be entitled to receive the purchase price for those Shares. We will not
receive any money from the sale of the Common Stock by the Selling
Securityholders. However we will receive any price paid by holders of warrants
covered by such shares who exercise them. Outstanding convertible promissory
notes in the principal amount of $1,100,000 are convertible into shares of
Common Stock at prices between the lower of (a) $.40 - $.60 per share and (b)
75% of the market price per share of Common Stock when the notes are converted.
The sale of the Common Stock by the Selling Securityholders (or even the
potential of such sales or issuances to them below market price) may reduce the
market price of the Common Stock being offered by us. We will pay the costs
incurred in connection with the registration of the Selling Securityholders'
stock.
Shares Eligible for Future Sale. Sales of substantial amounts of shares
of Common Stock, pursuant to Rule 144 or otherwise, could adversely affect the
market price of the shares and make it more difficult for us to sell equity
securities in the future at a time and price which it deems appropriate. Upon
completion of the Offering, approximately 34,179,823 shares of Common Stock will
be outstanding, after giving effect to the exercise of the warrants and
conversion of the promissory notes by the Selling Securityholders, assuming a
conversion price of $.40, $.50 and $.60 per share with respect to promissory
notes in the aggregate principal amounts of $1,100,000, $200,000 and $900,000,
respectively. 4,741,004 shares of Common Stock held by present shareholders have
not been registered under the Securities Act of 1933, as amended ("Securities
Act").
Future Issuance of Stock by Financial Intranet. Our Certificate of
Incorporation authorizes us to issue 50,000,000 shares of Common Stock, of which
21,233,496 have been issued. The remaining unissued or unreserved shares of
Common Stock, may be issued without any action or approval by our minority
shareholders. We have no present plans, agreements or undertakings involving the
issuance of such shares, except as disclosed in this document. Any such
issuances could be used as a method of discouraging, delaying or preventing a
change in our control or could dilute our public ownership. There can be no
assurance that we will not undertake to issue such shares if we deem appropriate
to do so.
Developing Market; Unproven Acceptance of Financial Intranet's Online
Services. The market for our intranet services has only recently begun to
develop, is rapidly evolving and is characterized by an increasing number of
market entrants. As is typical of a new and rapidly evolving industry, demand
and market acceptance for recently introduced services is subject to a high
level of uncertainty and risk. Because the market for our services is new and
evolving, it is difficult to predict the future growth rate, if any, and size of
this market. There can be no assurance either that the market for our services
will continue to develop or become sustainable. If use of our services fails to
continue to grow, our ability to establish other online services would be
materially and adversely affected. In addition, our business strategy includes
extending our services model to additional vertical markets. However, there can
be no assurance that we will be successful in our efforts.
Dependence on Computer Infrastructure. Substantially all of our
communications hardware and certain
10
<PAGE>
of our computer hardware operations are located at our offices in Ardsley, New
York. There can be no assurance that a system failure at our present location
would not adversely affect the performance of our services. Our system is
vulnerable to damage from fire, flood, earthquakes, power loss,
telecommunications failures, break-ins and similar events. We believe that a
total system failure would not result in interruption of our business for more
than two weeks. We have a disaster recovery plan and carry business interruption
insurance. While we do not have any secondary "Off-Site" systems, we intend to
establish such a system with the proceeds of this offering. See "Use of
Proceeds."
Online Security Risks. We are potentially vulnerable to attempts by
unauthorized computer users ("hackers") to penetrate our network security. If
successful, such individuals could misappropriate proprietary information or
cause interruptions in our services. We may be required to expend significant
capital and resources to protect against the threat of such security breaches or
to alleviate problems caused by such breaches. In addition to security breaches,
inadvertent transmission of computer viruses could expose us to risk of loss or
litigation and possible liability.
Year 2000 Risk. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field. As a
result, software that records only the last two digits of the calendar year may
not be able to distinguish whether "00" means 1900 or 2000. This may result in
software failures or the creation of erroneous results. We believe that our
products and internal systems are currently year 2000 compliant. We have
confirmed our year 2000 compliance by obtaining representations by third party
vendors of their products' year 2000 compliance, as well as specific testing of
our products. The failure of products or systems maintained by third parties or
our products and systems to be year 2000 compliant could cause us to incur
significant expenses to remedy any problems, or seriously damage our business.
We have not incurred significant costs to date complying with year 2000
requirements, and we do not believe that we will incur significant costs for
such purposes in the foreseeable future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Risk." To
the extent the systems of our suppliers and advertising customers are not fully
Year 2000 compliant, we cannot assure you that potential system interruptions or
the cost necessary to update software will not have a material adverse affect on
our business, results of operation or financial condition.
Government Regulation and Legal Uncertainties. We and the companies who
provide the telephone services we resell are subject to regulation at the
federal level by the Federal Communications Commission and at state levels by
public service, public utility or state corporation commissions (referred to as
"PUCs").
Financial Intranet has filed tariffs with the FCC. Tariffs contain the
terms, conditions and rates for each telecommunications service offered or
provided by Financial Intranet. Tariffs are not approved by the FCC, but may be
reviewed by the FCC on its own motion or pursuant to complaint by a customer, a
non-customer member of the public or a competing communications company.
Financial Intranet is classified as a "non-dominant" carrier
(telecommunications service provider). All non-dominant carriers' rates are
presumed to be reasonable and non-discriminatory and any new or revised rate may
be filed on only one day's prior notice. The FCC does not review specific tariff
filings unless a protest is filed, or some issue of lawfulness is brought to its
attention in some other manner. Should issues be raised against any tariff
filing, the FCC may find that the tariff or tariff provision complained of is
"patently unlawful," that is, contrary on its face to some law, rule,
regulation, policy or pre-existing decision of the courts of FCC. Such a finding
could have a material adverse impact on Financial Intranet.
While we do not operate in foreign countries at this time, we may
desire to do so in the future. At such time we will become subject to regulation
in those countries as well. We will need to comply with the applicable laws and
obtain the approval of the regulatory authority of each country in which we
provide or propose to provide telecommunications services. The laws and
regulatory requirements vary from country to country. Some countries have
substantially deregulated various communications services, while other countries
have maintained strict regulatory regimes. The application procedure can be
time-consuming and costly, and terms of licenses vary for different countries.
There can be no assurance that we will be able to operate in desired foreign
markets.
11
<PAGE>
Since few laws or regulations are directly applicable to access or
commerce on the internet, our business on our web site is not subject to direct
government regulation, other than regulations applicable to businesses
generally. However, a number of legislative and regulatory proposals are under
consideration by federal, state, local and foreign governmental organizations
and, as a result, a number of laws or regulations may be adopted with respect to
internet user privacy, taxation, infringement, pricing, quality of products and
services and intellectual property ownership. It is also uncertain as to how
existing laws will be applied to the internet in areas such as property
ownership, copyright, trademark, trade secret, federal securities regulations,
state "blue sky" laws and defamation. It cannot be predicted how the adaptation
of existing laws and adoption of new laws will affect the use of the internet in
general or our use in particular, other than that the costs to use the internet
are likely to increase due to the likelihood that governments at all levels will
impose assessments, various taxes and regulatory requirements, none of which are
anticipated to be materially adverse to our future operations.
Our customers are subject to various federal and state laws regarding
the sale of securities. Broker/dealers are subject to regulations of the
National Association of Securities Dealers regarding continuing education.
Changes in these laws or regulations could adversely affect our ability to
attract subscribers or advertising. Moreover, while our web site states that we
are not responsible for the information presented by third parties, there is a
possibility that we could be held liable if the information was inaccurate.
Liability for Internet Content. Because content from our Web site is
distributed to others, we may be subjected to claims of negligence, copyright,
patent or trademark infringement, defamation, indecency and other claims. Such
claims have been brought, sometimes successfully, against internet content
distributors. In addition, we could be subjected to claims based upon the
content that is accessible from our Web site through links to other Web sites.
Although we maintain general liability insurance in the amount of $2,000,000,
and are applying for errors and omission insurance, our insurance may not cover
potential claims of this type or may not be adequate to indemnify us 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 our business, financial condition and results of operations.
Forward-Looking Information May Prove Inaccurate. When used within this
document, the words "may," "will," "expect," "anticipate," "continue,"
"estimate," "project," "intend" and similar expressions are intended to identify
forward-looking statements within the meaning of Section 27A of the Act and
Section 21E of the Exchange Act regarding events, conditions and financial
trends that may affect our future plans of operations, business strategy,
operating results and financial position. You are cautioned that any
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties and that actual results may differ materially
from those included within the forward-looking statements as a result of various
factors. The accuracy of such forward-looking statements are subject to certain
risks, uncertainties and assumptions, including those identified above.
12
<PAGE>
USE OF PROCEEDS
The net proceeds which Financial Intranet will receive from the sale of
its shares of Common Stock offered hereby, after deducting offering expenses
payable by Financial Intranet of approximately $180,000, will be $5,820,000.
Financial Intranet intends to use the net proceeds of the offering as follows:
Application of Proceeds Approximate
- ----------------------- dollar amount Percentage
------------- ----------
<S> <C> <C>
Research and development (1) $ 500,000 8.6%
Marketing and sales (2) 1,600,000 27.4%
Deposits with telecom carriers (3) 150,000 2.6%
Expand network architecture (4) 700,000 12.0%
Capital expenditures for equipment 900,000 15.5%
Disaster recovery programs and expansion into other
geographic markets 750,000 12.9%
Working capital 1,220,000 21.0%
---------- -------
$5,820,000 100.0%
========== ======
(1) Includes additional product development and software development tools.
(2) Includes expenditures for advertising, brand marketing, trade shows,
product catalogs, public relations and the hiring of additional sales and
marketing personnel.
(3) Deposits are required by telcom carriers who provide the communications
services resold by Financial Intranet.
(4) To expand switching and installation of cabling to customers.
The allocation of net proceeds of the Offering set forth above
represents Financial Intranet's best estimate based upon its present plans. If
any of these plans change, Financial Intranet may find it necessary or advisable
to reallocate some of the proceeds with the above-described categories or to
other purposes. Accordingly, Financial Intranet will have broad discretion as to
the application of a significant portion of the net proceeds.
In the event that one or more selected broker\dealers participate in
the Offering by Financial Intranet, selling commissions of up to $600,000 and
non-accountable expense allowances of up to $180,000 may be deducted from the
above proceeds and a reallocation would occur.
While there can be no assurance given, Financial Intranet believes that
the net proceeds from its Offering and revenues generated by Financial
Intranet's planned operations will be adequate to satisfy Financial Intranet's
working capital needs for the next 24 months. However, Financial Intranet may
require additional financing in the future in order to expand its business.
Financial Intranet anticipates obtaining $1,100,000 in additional financing over
the next 10 months as agreed upon by the investor in a private placement of
convertible promissory notes and warrants in February 1999. Financial Intranet
is not able at this time to predict the amount or potential source of other
additional funds and has no current other commitments to obtain such funds.
There can be no assurance that additional financing on acceptable terms will be
available to Financial Intranet when needed, if at all. "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1998 Financial
Intranet's capitalization on a proforma basis and as adjusted to give effect to
this Offering to reflect the sale of 3,000,000 shares of Common Stock and its
net proceeds, assuming an offering price of $2.00 per share of Common Stock. The
information below should be read in conjunction with the Financial Statements
and related notes thereto contained in this Prospectus, which should be read in
their entirety. See "Use of Proceeds."
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------
Actual As Adjusted (1) (2)
(Unaudited)
------ -------------------
<S> <C> <C>
Total short-term debt including current maturities
of long-term debt ........................................ $ -0- $ -0-
Total long-term debt, less current maturities .............. 500,000 -0-
Stockholders's equity: ........................ 40,937 10,634,337
Common Stock, $.001 par value; 50,000,000 shares authorized;
20,561,048 shares outstanding (actual); 33,562,375 shares
outstanding (as adjusted) ................................ 20,561 33,562
Paid in capital ............................................ 4,102,386 14,682,784
Deferred Compensation Cost ................................. (1,062,878) (1,062,878)
Accumulated deficit during the development stage ........... (3,019,132) (3,019,132)
Total stockholder's equity .................... $ 40,937 $ 10,634,337
</TABLE>
- ----------------------------------------------------------
(1) Gives effect to the anticipated net proceeds of $5,820,000 from this
Offering and $2,482,000 from the exercise of the Selling Securityholders'
warrants and the conversion of the convertible promissory notes in the
aggregate principal amount of $2,200,000.
(2) Includes: (a) 5,258,333 shares of Common Stock issuable upon exercise of
the warrants issued to Selling Securityholders; (b) 4,650,000 shares of
Common Stock issuable upon conversion of the convertible promissory notes
issued to the Selling Securityholders (assuming conversion prices of $.40,
$.50 and $.60 per share for convertible promissory notes in the principal
amounts of $1,100,000, $200,000 and $900,000, respectively) and (c)55,000
shares of Common Stock issued to the Selling Securityholders; and (d)
37,994 shares of Common Stock which may be issued to the Selling
Securityholders. Does not include: (a) 858,442 shares of Common Stock
issuable upon exercise of outstanding stock options and warrants at
exercise prices from $.18 to $1.20 per share ; (b) 7,222,109 shares of
Common Stock issuable upon exercise of options at an exercise price of $.19
per share; (c) 5,266,988 shares of Common Stock issuable upon exercise of
additional stock options that Financial Intranet has agreed to issue if the
shares to the Selling Securityholders are issued and the other outstanding
options and warrants for 858,442 shares are exercised, which additional
options will be exerciseable at the market price per share of Common Stock
on date of issuance; or (d) shares that may be issuable pursuant to
anti-dilution provisions and market price protection provisions of certain
securities. See "Description of Securities," "Certain Transactions,"
"Management" and "Plan of Distribution."
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<PAGE>
DILUTION
Purchasers of the shares of Common Stock offered hereby will experience
an immediate and substantial dilution in the net tangible book value per share
of their investment. As of December 31, 1998, Financial Intranet had an
aggregate of 20,561,048 shares of Common Stock outstanding and a net tangible
book value of $(172,278) or $(.01) per share of Common Stock ( 23,561,048
shares, net tangible book value of $5,647,722 or $.24 per share on a proforma
basis. See December 31, 1998 financial statements. "Net Tangible Book Value Per
Share" represents the total amount of Financial Intranet's tangible assets, less
the total amount of its liabilities, divided by the total number of shares of
Common Stock outstanding.
After giving effect to the sale of 3,000,000 shares of Common Stock by
Financial Intranet at the offering price of $2.00 per share of Common Stock, the
proforma net tangible book value of Financial Intranet would be $.24 per share
of Common Stock. This amount represents an immediate dilution (the difference
between the attributed price per share of Common Stock to purchasers in
Financial Intranet's offering and the proforma net tangible book value per share
of Common Stock as of December 31, 1998) of approximately $1.76 per share of
Common Stock to new investors and an immediate increase (the difference between
the proforma net tangible book value per share of Common Stock as of December
31, 1998 and the proforma net tangible book value per share of Common Stock as
of December 31, 1998 after giving effect to the issuance of 10,001,327 shares of
Common Stock) of $.31 per share of Common Stock to Financial Intranet's
stockholders. Such increase to Financial Intranet's current stockholders is
solely attributable to the cash price paid by purchasers of the Common Stock
offered for sale by Financial Intranet.
The following table illustrates the per share dilution as of December 31,
1998 (1):
Public offering price per share $2.00
Net proforma tangible book value per share before giving
effect to Financial Intranet's offering $(.01)
Increase per share attributable to the net proceeds of the
sale of 3,000,000 shares of Common Stock offered by
Financial Intranet $.24
Proforma net tangible book value per share as of December 31,
1998 reflecting Financial Intranet's Offering $.31
Dilution per share to purchasers in Financial Intranet's offering $1.69
(1) Includes: (a) 5,258,333 shares of Common Stock issuable upon exercise of
the warrants issued to Selling Securityholders; (b) 4,650,000 shares of
Common Stock issuable upon conversion of the convertible promissory notes
issued to the Selling Securityholders (assuming conversion prices of $.40,
$.50 and $.60 per share for convertible promissory notes in the principal
amounts of $1,100,000, $200,000 and $900,000, respectively); (c) 55,000
shares of Common Stock issued to the Selling Securityholders; and (d)
37,994 shares of Common Stock which may be issued to the Selling
Securityholders. Does not include: (a) 858,442 shares of Common Stock
issuable upon exercise of outstanding stock options and warrants at
exercise prices from $.18 to $1.20 per share ; (b) 7,222,109 shares of
Common Stock issuable upon exercise of options at an exercise price of $.19
per share; (c) 5,266,988 shares of Common Stock issuable upon exercise of
additional stock options that Financial Intranet has agreed to issue if the
shares to the Selling Securityholders are issued and the other outstanding
options and warrants for 858,442 shares are exercised, which additional
options will be exerciseable at the market price per share of Common Stock
on date of issuance; or (d) shares that may be issuable pursuant to
anti-dilution provisions and market price protection provisions of certain
securities. See "Description of Securities," "Certain Transactions,"
"Management" and "Plan of Distribution."
The following table sets forth, as of December 31, 1998, a comparison
of the number of shares of Common Stock acquired by current stockholders, the
total consideration paid for such shares of Common Stock and the average price
per share paid by current stockholders of Common Stock and to be paid by the
prospective purchasers of the shares of Common Stock offered for sale by
Financial Intranet (based upon the anticipated public offering price of
15
<PAGE>
$2.00 per share of Common Stock, before deducting estimated offering expenses).
<TABLE>
<CAPTION>
Common Stock Acquired Total Consideration
--------------------- -------------------
Number Percent Amount Percent Average Price Per Share
------ ------- ------ ------- -----------------------
<S> <C> <C> <C> <C>
Current Stockholders: 20,561,048 87.3% $4,122,947 40.7% $ .201
New Investors: 3,000,000 12.7% 6,000,000 59.3% 2.00
---------- ------ ------------ ------ -----
Total: 23,561,048 100% $10,122,947 100% $.430
</TABLE>
DIVIDEND POLICY
Financial Intranet has not paid and does not anticipate paying any
dividends on its Common Stock in the foreseeable future. Financial Intranet
currently intends to retain all working capital and earnings, if any, for use in
Financial Intranet's business operations and in the expansion of its business.
The payment of any dividends on the Common Stock will be at the discretion of
Financial Intranet's Board of Directors and will be dependent upon Financial
Intranet's results of operations, financial condition, capital requirements,
contractual restrictions and other factors deemed relevant by the Board of
Directors. See "Description of Securities-Common Stock."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of Financial Intranet should be read in conjunction with
Financial Intranet's financial statements and notes thereto and the other
financing information included elsewhere in this prospectus. In addition to
historical information, this Management's Discussion and Analysis of Financial
Condition and Results of Operations and other parts of this prospectus contain
forward-looking information as a result of certain factors, including but not
limited to, those set forth under "Risk Factors" and elsewhere in this
prospectus.
Overview
Financial Intranet was incorporated in 1993 as Alexis and Co. under the
laws of the State of Nevada. Its name was subsequently changed to Wee Wees Inc.
and thereafter, on December 17, 1996 to Financial Intranet, Inc. Prior to
December 1996, Financial Intranet had not conducted any business.
Financial Intranet believes that its success depends largely on
building superior technology and quality into its products and services and
offering communications services at competitive prices. Accordingly, Financial
Intranet expects to spend heavily on marketing, expansion of its network
architecture and additional equipment. In light of Financial Intranet's limited
operating history and significant start-up costs and changes in its technology
and services, Financial Intranet believes that period-to-period comparisons of
its operating results are not necessarily meaningful and should not be relied
upon as indicative of its future performance. See "Use of Proceeds."
Results of Operations: Year Ended December 31, 1998 Compared with Year Ended
December 31, 1997
Revenue.
Financial Intranet's principal source of revenue consists of income
from the resale of telephone and data communication. Revenue for the year ended
December 31, 1998 were $ 91,281 as compared with no revenue in the prior year.
Financial Intranet is a development stage company, and in 1997 had not commenced
operations. Management expects to derive growth in revenues primarily through
increased volume of communications usage sold.
Cost of Revenue.
Financial Intranet's cost of revenue consists primarily of telephone
communications lines, and the internet access and hosting expenses required to
support and deliver Financial Intranet's communications services which generate
revenues. Cost of revenues for the year ended December 31, 1998 was $146,533
compared with no costs in the prior year. Management expects cost of revenues to
increase in direct relationship to the future revenues anticipated from
increases in usage volume.
Sales and Marketing Expenses.
Sales and marketing expenses consist primarily of outside commissions
of Financial Intranet's sales force, as well as promotional, advertising and
public relations costs. Sales and marketing expenses decreased 10% from $55,794
to $50,246. Lower advertising and promotion costs were partially offset by
commission expenses paid to Financial Intranet's sales force which did not
exist in 1997. Management expects sales and marketing expenses to increase due
to the growth of its sales force as well as the increased advertising and
promotional activities.
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<PAGE>
General and Administrative Expenses
General and administrative expenses consist primarily of employee
compensation and related expenses (including payroll taxes and benefits) for
executive, administrative and operations personnel, as well as licensing, legal
and other professional fees, travel and entertainment, facility and
office-related costs (such as rent, insurance, telephone). These costs increased
39% from $748,214 to $1,037,615, principally due to increased payroll and office
costs, as well as higher legal fees and a $41,200 reserve for the potential
uncollectibility of a long-term note receivable. Management expects general and
administrative expenses to increase in future periods to support the growth of
the business.
Other Financing-related Expenses
Other financing-related expenses charged to operations consists of
certain non-cash costs of the issuance of common stock, warrants and stock
options. These expenses increased from $13,272 in 1997 to $897,808 in 1998.
Depreciation and Amortization
Depreciation and amortization consists primarily of depreciation of
computer equipment and amortization of software development costs. These
activities were effectively placed in service in 1998, and therefore there were
no depreciation and amortization costs in 1997. The 1998 expenses were
$124,145, which represents a half year of depreciation and amortization.
Other Income and Expense
Other income consists principally of interest from loans and notes
receivable, as well as dividends from short-term investments. Interest and other
income increased 67% from $ 2,475 for the year ended December 31, 1997 to $4,140
for the year ended December 31,1998. Interest expense consists of interest
accrued on loans and notes payable to officers. Interest expense more than
doubled from $2,675 for the year ended December 31, 1997 to $6,278 for the year
ended December 31, 1998.
Income Taxes
No provision for federal and state income taxes has been recorded as
Financial Intranet incurred net operating losses in both 1997 and 1998. As of
December 31, 1997, Financial Intranet had approximately $634,000 of net
operating loss carryforwards for federal income tax purposes which, coupled with
a 1998 NOL not yet determined, will be available to offset future taxable
income. Given Financial Intranet's limited operating history, losses incurred to
date and the difficulty in accurately forecasting Financial Intranet's future
results, management does not believe that the realization of the potential
future benefits of these carryforwards meets the criteria for recognition of a
deferred tax asset required by generally accepted accounting principles and,
accordingly, a full 100% valuation allowance has been provided.
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
Financial Intranet began as a development stage company in December,
1996 and, therefore, had expenses of only $9,760 in 1996, consisting entirely of
consulting costs for which stock was issued in lieu of payment. For the year
ended December 31, 1997, while still in a development stage, Financial Intranet
had selling, general and administrative costs of $817,280, which were discussed
in the above analysis. In addition, there was $2,625 in interest costs for the
year ended December 31, 1997 and none for the prior year.
18
<PAGE>
Liquidity and Capital Resources
The Company had a balance of $149,225 in cash and cash equivalents at
December 31, 1998.
Financial Intranet had negative working capital of $(586,062) at
December 31, 1998. Net cash used in operating activities was $511,539 for the
year ended December 31, 1998. Cash used in operating activities was primarily
attributable to a net loss of $2,167,204 partially offset by non-cash items such
as depreciation and amortization of $124,145, stock compensation costs of
$1,011,634, as well as positive changes in working capital. Net cash used in
operating activities for the year ended December 31, 1997 was $533,042 which was
principally due to the net loss of $817,430, partially offset by stock
compensation expense of $172,562 and positive changes in working capital.
Net cash used in investing activities of $801,590 for the year ended
December 31, 1998 was primarily attributable to capital expenditures of
$802,217, capitalized software development costs of $19,783 partially offset by
a $20,410 loan repayment from an officer. Net cash used in investing activities
of $365,597 for the year ended December 31, 1997 was due to $235,712 in capital
equipment acquired, $68,275 in software development costs, $20,410 in loans
advanced to an officer and notes receivable advances of $41,200.
Net cash provided by financing activities for the year ended December
31, 1998 was $1,460,425 and consisted of proceeds from the issuance of common
stock and convertible promissory notes, less related financing costs and a
$47,250 repayment of a vendor loan. Net cash provided by financing activities
for the year ended December 31, 1997 was $900,466, and consisted of proceeds
from the issuance of common stock, less related financing fees, and proceeds
from a vendor loan, which was repaid during 1998.
Financial Intranet currently believes that the cash proceeds from the
Offering, together with existing private placement arrangements, will be
sufficient to meet anticipated cash requirements until such time as Financial
Intranet generates positive cash flow from operations. However, unless Financial
Intranet generates significant revenue or obtains financing through this
offering or another means in the near future, Financial Intranet's operations in
the development stage raise substantial doubt about its ability to continue as a
going concern. There can be no assurance that additional capital beyond the
amounts currently forecasted by Financial Intranet will not be required, nor
that any such required additional capital will be available on reasonable terms,
if at all, at such time as required by Financial Intranet. See "Risk Factors."
Financial Intranet has satisfied its cash requirements primarily
through private placements of warrants and convertible debentures, convertible
into shares of Financial Intranet's common stock, as well as the issuance of
common stock in lieu of payment for services. Also, officers of Financial
Intranet have loaned Financial Intranet funds as needed to provide working
capital.
On May 20, 1998, Financial Intranet issued a 6% Convertible Debenture
in the principal amount of $500,000. The entire principal amount of the
debenture and all accrued interest thereon was converted into an aggregate of
1,070,800 shares of the Common Stock.
On June 5, 1998, Financial Intranet issued a 12% Convertible Promissory
Note in the principal amount of $500,000. The entire principal amount of this
promissory note was converted into 1,237,666 shares of Common Stock.
On December 31, 1998, Financial Intranet issued a 7% Convertible
Promissory Note in the principal amount of $500,000 with a maturity date of
December 31, 2001. In conjunction with the issuance of the Note, Financial
Intranet issued warrants to purchase 1,250,000 shares of Financial Intranet's
Common Stock for $0.60 per share. The shares issuable upon conversion of the
promissory note and exercise of the warrant are being registered pursuant the
Registration Statement of which this prospectus is a part but there can be no
assurance that the warrants will be exercised or the note converted. See
"Selling Securityholders" and "Description of Securities."
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On February 8, 1999, Financial Intranet issued a 7% Convertible
Promissory Note in the principal amount of $600,000. The principal amount of
$240,000 is payable on demand commencing March 10, 1999 and the balance of
$360,000 is payable on demand commencing May 9, 1999. Financial Intranet also
issued warrants to purchase 1,500,000 shares of Common Stock for $0.40 per
share. The investor granted Financial Intranet the right to demand that the
investor purchase, for $1,100,000, additional convertible promissory notes and
warrants to purchase 1,833,333 shares of Common Stock, which amount can be
demanded over 10 months from the date of this prospectus. The promissory notes
will bear interest at the rate of seven per cent per annum. Financial Intranet
anticipates using the proceeds of the additional promissory notes for working
capital. The shares issuable upon conversion of the promissory note and exercise
of the warrant are being registered pursuant the Registration Statement of which
this prospectus is a part but there can be no assurance that the warrants will
be exercised or the note converted. See "Selling Securityholders" and
"Description of Securities."
From time to time, officers of Financial Intranet have loaned Financial
Intranet funds as needed to provide working capital. As of the date of this
Prospectus, Financial Intranet has outstanding notes in favor of Ben B. Stein, a
shareholder, consultant and former officer and director, in a principal amount
of $60,889. The notes are payable on demand and $55,000 bears interest at 8% per
annum. Additionally, Financial Intranet has an outstanding note in favor of
Michael Sheppard in the amount of $36,115 due on demand. The promissory note has
an interest rate of 8% per annum.
Year 2000 Compliance
Financial Intranet has undertaken a comprehensive review of its
computer-based systems and applications to identify modifications necessitated
by the century change in the year 2000, and will be implementing a plan to make
such modifications. Financial Intranet intends to have all critical systems
compliant with the century change prior to December 31, 1999. Financial Intranet
is in the process of updating all accounting and computer programs and does not
expect the costs of compliance to be material relative to its financial
condition. Financial Intranet is making inquiries with its suppliers in regards
to year 2000 compliance issues, and expects to receive assurance that these
suppliers will be year 2000 compliant. However, the business of Financial
Intranet could be adversely affected should Financial Intranet or other entities
with whom Financial Intranet does business be unsuccessful in completing
critical modifications in a timely manner.
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BUSINESS
Introduction
Financial Intranet, Inc. ("Financial Intranet") is an emerging New York
based media and communications company which delivers services to the investment
community. Financial Intranet's initial objectives are to obtain a share of the
telephony resale market by offering a number of value-added services to
broker/dealers and financial advisors and to provide mutual funds and other
investment managers with a cost-efficient method for distributing information
about their products.
To accomplish these goals, Financial Intranet and its technology
partners have developed a secure intranet capable of delivering high quality
narrow-band video-on-demand. Broker/dealers and financial advisors who are
customers of Financial Intranet can use the same communications lines for the
transmission of voice, video and text data. Financial Intranet expects that
mutual funds will use its intranet to educate broker/dealers about their
products using video, text and graphics and to distribute its documentation at
lower cost than of the printing and distribution of the same materials.
Financial Intranet also intends to offer its network to deliver continuing
education course material to broker/dealers. Financial Intranet also has a web
site, www.fntn.com, which offers financial information to individuals. At the
same time, these individuals provide information which Financial Intranet
collects and analyzes which can be used by broker/dealers who purchase
communications services from Financial Intranet. Revenues will be generated both
by the resale of telecommunications services bundled with value-added services
to subscribing broker/dealers and from fees from mutual funds for the use of
Financial Intranet's network and access to its subscribers.
The technology underlying Financial Intranet's high-speed intranet,
video-on-demand service and data mining capability was developed by Financial
Intranet in association with several members of the Siemens group of companies.
Financial Intranet has signed agreements creating a strategic alliance with a
number of Siemens companies. See "Technology and Business Partners."
History of Financial Intranet
Financial Intranet was incorporated in 1993 as Alexis and Co. under the
laws of the State of Nevada. Its name was subsequently changed to Wee Wees Inc.
and thereafter, on December 17, 1996 to Financial Intranet, Inc. upon the
purchase of a controlling interest by Ben B. Stein. Prior to that date,
Financial Intranet had not conducted any business.
In 1997, Financial Intranet received its certificate from the Federal
Communication Commission to provide international telecommunications services
originating in the United States, subject to the filing of an effective tariff.
Upon the effective date of the tariff in 1997, Financial Intranet became
authorized to provide domestic interstate telecommunications services in
accordance with its tariffs. Financial Intranet is also authorized to offer
intrastate telephone services in New York, Texas, California, Florida, New
Jersey and Colorado (although it only offers intrastate long distance service at
this time). In June 1997, Financial Intranet entered into an agreement with
MCI/WorldCom which allows Financial Intranet to resell communications services
to end users. See "Suppliers." Financial Intranet entered into its first
contracts with Siemens in July 1997 to provide hardware and develop technology
for its intranet. In October 1997, Financial Intranet began providing
communications services to broker/dealers. Financial Intranet derived its 1998
revenues from the resale of communications services to approximately twenty
broker/dealers.
Financial Intranet launched its web site, www.fntn.com, in July 1998.
At the end of 1998, Financial Intranet began delivering video-on-demand on its
web site, and in January 1999, added a chat room. Hits on the Financial Intranet
web site increased from approximately 13,000 to 85,000 per day after the chat
room's introduction. Financial Intranet has begun to use its data mining
software to take the information gathered there and generate live customer leads
for broker/dealers and has begun offering mutual funds the opportunity to
deliver product information over Financial Intranet's network (although at this
point it is not charging for this service). Financial Intranet has also
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started to offer live interactive video teleconferencing.
Markets
Financial Intranet has identified three different groups in the
investment industry as targets for its services. Each of these groups will use a
variety of the services Financial Intranet provides, although the importance of
the different services will vary from group to group.
Mutual Funds and Other Providers of Investment Products
According to Research Magazine Online, as of July 1996, between 7,000
and 8,000 mutual funds (measured by share class) were being offered to
investors. In order to attract broker/dealers to market its products, a fund
must provide them with sales information, including a current prospectus. The
broker/dealer and its registered representatives must review the prospectus and
the fund's rate of return history and sign a selling agreement with the fund
before they can solicit or offer the product to the public. Moreover, most funds
desire to provide the information in a compelling manner to attract the interest
of broker/dealers and their registered representatives and distinguish the fund
from its competitors.
Historically, information has been provided to broker/dealers and their
registered representatives by mass mailings of printed material, such as
prospectuses, sales aids and charts. Funds also utilize wholesalers to introduce
the mutual funds to broker/dealers. Reaching a large group of broker/dealers and
their registered representatives and distributing documentation is expensive and
can be a particular burden for smaller funds without large marketing budgets. In
focus group sessions conducted by Financial Intranet, fund managers have
identified the need for a more effective and economic way to educate and inform
a wider range of broker/dealers about each product offered in order to increase
the percentage of closed sales to prospective investors.
Financial Intranet offers an alternative to the traditional methods of
mailings and wholesalers used by mutual funds to disseminate information. Using
Financial Intranet's high speed secure intranet, a fund can distribute plain
text, graphics, digitally stored documents (such as prospectuses), and video
content to all of Financial Intranet's broker/dealer subscribers.
Financial Intranet's services also appeal to broker/dealers and their
registered representatives who will have immediate access to fund information
without having to leave their trading screen. A broker can listen to audio or
view a video or digitally stored document in a window while still being able to
follow real-time trading information. The advantage to the broker is more
information available at his convenience in his office and more product to sell
in a user-friendly format.
Mutual funds have begun to take advantage of Financial Intranet's
network to advertise their products. Financial Intranet expects that as more
broker/dealers purchase its communication services and participate on its
intranet, mutual funds and other investment managers will be willing to pay
Financial Intranet to allow efficient distribution of information about their
product. In the long term, Financial Intranet's plans to expand beyond the
United States and to increase the number of subscribers through penetration of
world-wide financial markets.
More specifically, Financial Intranet offers the following services to
mutual funds, insurance companies, commodity trading advisors, commodity pool
operators, banks and other investment product creators:
o Funds and investment managers can use Financial Intranet's
network to deliver real-time interactive training and support.
This service will be delivered through point to multi-point live
video teleconferencing which will allow the funds to answer
questions about the features of their products.
o Funds and investment managers can also use Financial Intranet's
network to deliver pre-recorded information and educational video
content. This service will be delivered using Financial
Intranet's
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point to point video-on-demand capability.
o Financial Intranet's network can also be used as an efficient
method for distributing material whether it be simple text,
graphics or digitally stored documents which can be viewed on
screen or printed by the recipient as necessary. Financial
Intranet handles the digitalization of the fund's documents and
can transmit them over the network.
Funds managers and other investment managers will determine the
material to be distributed and the manner of its presentation. They are able to
schedule live video conferences and distance learning sessions. Financial
Intranet may offer them pages on its web site.
Broker/Dealers and Financial Advisors
Telecommunications represent one of the largest recurring expenses to
the broker/dealers and financial advisors. Financial Intranet will continue to
provide discount, long-distance telephony to broker/dealers and financial
advisors, and it plans to enter the local resale market. Financial Intranet's
reseller agreements with MCI WorldCom Inc. and Frontier Corp. allow it to
utilize those companies' communication infrastructures while incurring little
up-front installation and maintenance costs. Financial Intranet will also offer
its customers "managed bandwidth." For Financial Intranet, the term, "managed
bandwidth" means the ability to utilize any given channel in its network for the
transmission of voice, video, text and digitally stored documents as and when
needed.
In addition to the technical enhancements to its basic communication
services, Financial Intranet provides broker/dealers and financial advisors
business-related value-added services. One such service is the generation of
live consumer leads. Financial Intranet has developed a web site accessible to
individuals (see "Individual Investors"). Those individuals are given the
opportunity to "register" by completing a questionnaire and consenting to
specified limited use of the information. In exchange for registration, the
individual receives a reward and access to additional features on the web site
such as "chat rooms", multimedia information and education on participating
mutual funds. Financial Intranet will also keep track of the products in which
each visitor to its web site shows an interest. The information gathered from
each investor is analyzed using Financial Intranet's data mining technology (See
"Data Mining Technology"), and the name and profile of a consenting individual
is given to one broker/dealer or financial advisor operating in that person's
geographical area or area of expertise. The benefit to the broker/dealer or
financial advisor is not only the possible sale of one product, but the
opportunity to develop a relationship with the individual.
In its research on this matter, Financial Intranet has reviewed the
first 500 questionnaires completed at its web site. Of the individuals
responding:
o 95% claim to do a substantial amount of research regarding
investment opportunities
o 92% have a brokerage account
o Approximately half execute trades through their broker.
o 87% trade at least once a month, the majority trading either
weekly or monthly
o 67% earn over $50,000 per year; 20% earn over $100,000 per year
o 90% reside in the United States; 8% reside in Europe; 2% reside
elsewhere
Financial Intranet believes that these individuals are potential customers of
Financial Intranet's subscribing broker/dealers and financial advisors.
Financial Intranet can also assist broker/dealers in closing the sale to a
potential investor by using the network to provide the various sales application
forms on-line to the registered representatives.
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Another service offered by Financial Intranet to broker/dealers and
financial advisors is training on mutual funds and other investment products
using video-on-demand, plain text and digitally-stored documents which can be
viewed or read at the recipient's location. The information can be updated as
needed by the provider of the product. Training is also available through point
to multi-point (e.g. mutual fund to broker/dealers) through live interactive
video teleconferencing. This live interchange allows broker/dealers to ask
questions about the fund or other product.
Brokerage firms can utilize Financial Intranet's network to help them
fulfill their continuing education requirement for the National Association of
Securities Dealers ("NASD"). Financial Intranet intends to offer broker/dealers
the ability to obtain education and training materials for examinations
administered by the NASD through the presentation of courses via video-on-demand
at the broker/dealer's trading terminal or personal computer.
Broker/dealers and financial advisors are offered two levels of access,
informational access and interactive access. The information interface provides
video-on-demand and news, and, for an additional charge, quotes and market
indicators through Financial Intranet's co-marketing agreement with S&P
Comstock. Interactive access allows broker/dealers and financial advisors to
schedule video conferences and long distance learning sessions. Financial
Intranet will also offer links to broker/dealer web sites.
Individual Investors
Individual investors have access to Financial Intranet's web site. The
web site offers delayed quotes, advanced, customizable charting, portfolio
management and a searchable mutual fund database. Registered users will be able
to participate in Financial Intranet's "chat rooms" and utilize Financial
Intranet's message center. Since the chat rooms were launched in January 1999,
the number of "hits" per day on Financial Intranet's web site has increased from
approximately 13,000 to 85,000. Registered users will also be able to hear and
view certain portions of Financial Intranet's video-on-demand library of
information. Each registrant is asked whether his or her name may be given to a
broker/dealer or financial advisor. The registrant acknowledges that the
material presented at the web site is derived from outside sources and Financial
Intranet is not responsible for its content.
Individual investors do not pay to access or register at Financial
Intranet's web site. Financial Intranet is offering some fee based services and
products (such as books and newsletters) and investors may become an ancillary
source of revenue.
Expansion
To date, Financial Intranet has concentrated its attention on the
investment industry. Financial Intranet believes this industry is the most
likely to benefit from its information and communications services and that the
investment industry presents the most immediate opportunity for revenue.
Financial Intranet hopes that as it becomes established as a provider of
financial services information, it will be able to capture a larger portion of
the long distance resale business.
In addition Financial Intranet hopes to expand its intranet services
to other industries and associations. There are many other markets (e.g. legal,
real estate, insurance, travel and entertainment) which Financial Intranet
believes can benefit from its telecommunications products and from participating
in an industry-centered intranet.
Financial Intranet intends to expand from the Eastern United States
throughout the United States and possibly Europe and the Pacific Rim. Overseas
expansion may entail adding data centers to service those markets and provide
Financial Intranet with a redundant data source.
Products and Services
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Resale of Long Distance and Local Communication Services
According to the Telecommunications Resellers Association, resellers
are among the fastest growing segment of the telecommunications industry, having
grown at a rate of 16% between 1994-96 as compared to a 6% rate for the overall
long distance industry. According to the Telecommunications Resellers
Association, while resellers have historically engaged in the resale of long
distance communications only, they are now adding other services such as local
resale, pagers, travel cards and PCS phones/cellular phones. Financial Intranet
believes that its value-added services provide an advantage over other
resellers.
A key element of Financial Intranet's services to the investment
community is the resale of discount, long distance telephony and other
communication services to broker/dealers and financial advisors. Voice,
video-on-demand services, text, and digitally-stored documents share the same
network connection to each customer's office. Financial Intranet has reseller
agreements with MCI WorldCom Inc. and Frontier Corp. The agreement with
MCI/WorldCom expires in March 2001 and may be extended on a month-to-month basis
thereafter. Financial Intranet can also enter into such agreements with other
carriers who may be more competitive in specific geographical areas or with
respect to specific services. Resale of communication services has been the
principal source of Financial Intranet's revenue to date and is expected to be
one of the major revenue producing products for Financial Intranet during the
initial years of operation.
Financial Intranet is permitted to provide interstate and international
long distance service. In order to provide intrastate toll telecommunications
services and in anticipation of entering the local resale business, Financial
Intranet tariffed in New York, Florida, Texas and California. It is registered
in New Jersey and Colorado (no tariffs being required) and has tariffs pending
in Connecticut, Georgia, Illinois, Massachusetts, Pennsylvania and Maryland, and
is legally permitted to offer intrastate toll telecommunications services in
four other states without filing a tariff by either filing a registration or
commencing operations. None of these authorizations include the authority to
provide Financial Intranet's telecommunications services on a local exchange,
non-toll basis for which separate applications and/or tariff filings are
required.
Video On Demand Training and Marketing
Financial Intranet provides distance video-on-demand training and
marketing applications. These applications use stored video content, and are
available on demand to Financial Intranet's customers via its private intranet
and to individual investors at its web site. Content is delivered at different
speeds depending on its destination. Broker/dealers receive video and detailed
sales fulfillment material at high speed and have direct contact with mutual
funds. Financial Intranet's video image will occupy one quarter of the screen of
the desktop computer and will not interfere with access to real time financial
data. Individuals have access to more general information and in addition to
stored video, can access certain digitally-stored documents such as prospectuses
which are delivered at the transmission speed available to them.
The video content informs broker/dealers and financial advisors about
various investment products. In addition, Financial Intranet intends to use a
portion of the proceeds of this offering to develop a system for delivering
continuing education training to meet NASD requirements. As conceived, this
system will track the progress of a broker/dealer's registered representatives
and provide courses appropriate to their requirements and skill levels.
Video Conferencing
Point to point and point to multi-point video conferencing may be
provided to facilitate both marketing and training. A client, such as a mutual
fund, is be able to schedule a point to multi-point live video conference.
Scheduling information will be accessible to the client on Financial Intranet's
private intranet.
Financial Intranet's intranet can transmit full screen downstream video
(originator to viewer) at 30 frames per second. The upstream video (viewers to
originator) is delivered at 5 frames per second, a sufficient quality for the
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originator to be able to identify who is asking a question.
Distance Learning
Distance learning is essentially a combination of the video
conferencing and video-on-demand services and may be augmented with the addition
of electronic blackboard technology.
Individual Investor Web Site
Financial Intranet will recruit and qualify prospective investors as
leads for the broker/dealers, financial advisors, mutual funds, thereby
expanding their number of potential clients. The web site is essentially a
mechanism to deliver multimedia information and education to individual
investors while capturing information about those investors. A continuous
background feature, partly developed in-house, partly obtained from third
parties, is the provision of 20 minute-delayed stock quotes, exchange
information and market news and information about mutual funds.
Data Mining Technology
Financial Intranet keeps track of the activities of its broker/dealer
subscribers and the visitors to its web site. It obtains information provided by
investors who register, and maintains information about specific materials
downloaded by broker/dealers and registered investors and subsequent actions
relating to the information received.
Financial Intranet is able to use this data to provide customer leads,
surveys and reports based on criteria provided by its broker/dealer and
financial advisor customers through the use of its proprietary data mining
system. Financial Intranet believes its ability to convert the data it gathers
into practical knowledge gives Financial Intranet an advantage over its
competitors in the communication service resale industry.
Technology and Business Partners
Financial Intranet's overall delivery system is comprised of three
parts. The first is the data center located in Ardsley, NY, which houses
Financial Intranet's video library and video processing software and its data
warehouse and data mining capability. The second part of the system is the link
between Financial Intranet and its customers. This includes private lines by
Financial Intranet from UUNet, an MCI WorldCom company, and the "last miles" on
either end connecting the leased lines to Financial Intranet and each of its
customers. This creates a virtual private network. The third part is the
services gateway which resides at each customer's office.
In order to deliver its services Financial Intranet has entered into a
strategic alliance with Siemens Nixdorf Informationssysteme Ges.m.b.H. and
several of its subsidiaries, most significantly Siemens Information and
Communication Products LLC and Siemens Telecom Network. Steven Weller, a member
of the Board of Directors of Financial Intranet, is the Vice President of Sales
for the Computer Systems division of Siemens Information and Communication
Products LLC. See "Management."
The Siemens companies have installed a fully integrated system
including hardware and software in Financial Intranet's data center. They have
provided full documentation and have trained Financial Intranet's internal
technical team. Financial Intranet has entered into an agreement with Siemens
pursuant to which Siemens will provide full time remote management of Financial
Intranet's system for a twelve month period beginning February 1, 1999. The cost
to Financial Intranet is $105,000 for the year. Financial Intranet anticipates
renewing the management agreement after one year. Financial Intranet believes at
least three full-time employees would be required to perform these services
in-house.
Siemens has licensed its proprietary video-on-demand and data mining
technology to Financial Intranet. For the data-mining technology, Financial
Intranet paid a one-time single site fee. For the video-on-demand technology,
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Financial Intranet received a license at no cost through 1999 and will pay a
licensing fee based upon the number of concurrent users commencing in 2000. If
Financial Intranet establishes additional data centers, it will be required to
make additional license payments to Siemens.
Competition
Financial Intranet does not believe any other company offers the same
array of services which it offers although a number of companies compete with
Financial Intranet in specific areas.
Telecommunications Carriers and Resellers
Financial Intranet's communications resale services compete with other
resellers, local exchange carriers, local phone carriers, regional Bell
operating companies and long distance carriers. Some may offer a wider range of
communications services than Financial Intranet, and some have significantly
greater assets. Financial Intranet believes it has an advantage over other
resellers, because of the value-added-services Financial Intranet can offer.
Mutual fund Information Services for Financial Sales Professionals
Financial Intranet believes it has no direct competition in providing
mutual fund information to financial services professionals such as
broker/dealers and financial planners. The large brokerage houses have long had
internal systems for the redistribution of mutual fund data to their employees.
These systems use data replication to replace paper distribution of mutual fund
sales and marketing materials to in-house brokers.
Financial Intranet's most direct competitor as an outside electronic
redistributor of fund sales and marketing materials is First Data Investor
Services Group, developer of BROKERCONNECT. Financial Intranet believes it has a
significant advantage over BROKERCONNECT. Financial Intranet delivers the same
electronic text redistribution services, but adds video-on-demand content
provided by the fund, as well as interactive video training. Additionally,
Financial Intranet offers the prospect of receiving live customer leads; an
advantage to Financial Intranet's business model.
Real Time Data Redistribution
Brokerage firms purchase trading desks equipped with terminals and
real-time data feeds for their registered representatives. There are many
providers of real-time data feeds, including PC Quote, Quotron and S&P Comstock.
Through Financial Intranet's co-marketing agreement with S&P Comstock, Financial
Intranet believes it can deliver S&P terminals and data feeds to broker/dealers
at a competitive price. Financial Intranet does not see data feeds as a
significant independent revenue source for Financial Intranet; rather it is part
of Financial Intranet's value enhancement which will attract brokers to purchase
Financial Intranet's communication services.
Government Regulation
Financial Intranet and its underlying carriers who provide the network
facilities and services we resell are subject to certain regulation at the
federal level by the FCC and, with limited exceptions, at the state level by
public service, public utility or state corporation commissions (hereinafter
commonly referred to as "PUCs").
Financial Intranet and all other "non-dominant" carriers
(telecommunications service providers) are authorized to provide interstate
telecommunication services under a general policy decision adopted by the FCC as
opposed to any company specific authorization and hence is not subject to
periodic renewal requirements. In mid-1997, Financial Intranet was granted its
certificate of public convenience and necessity pursuant to Section 214 of the
Communications Act of 1934, as amended (a "214 Certificate"). This certificate
authorizes Financial Intranet
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to provide its international services, that is, communications originated by its
customers in the United States and its possessions and terminating in foreign
countries. Financial Intranet's 214 certificate has no expiration date and is
not therefore subject to periodic renewal requirements.
After obtaining its 214 certificate, Financial Intranet filed tariffs
with the FCC. FCC regulations require that Financial Intranet, like all
carriers, must file and maintain separate tariffs for its interstate and
international service offerings. Tariffs contain the terms, conditions and rate
for each telecommunications service offered or provided by Financial Intranet.
Tariffs are not approved by the FCC, but may be reviewed by the FCC on its own
motion or pursuant to complaint by a customer, a non-customer member of the
public or a competing communications company. Tariffs are strictly construed and
any ambiguity in the tariff is construed in favor of the public (customer) and
against the carrier. Financial Intranet has the right to file revisions to its
tariff and change any rate, term or condition at any time, except that any term,
condition or rate once filed must remain, by FCC rule, effective for a minimum
of 30 days. The FCC may not interfere with nor reject any filed tariff rate,
term or condition unless it makes certain specific findings of fact and law that
such rate, term or condition is unjust or unreasonable or unduly discriminatory.
All non-dominant carriers' rates are presumed to be reasonable and
non-discriminatory and any new or revised rate may be filed on only one day's
prior notice. The FCC does not review specific tariff filings unless a protest
is filed, or some issue of lawfulness is brought to its attention in some other
manner. Should issues be raised against any tariff filing, the FCC must find
that the tariff or tariff provision complained of is "patently unlawful," that
is, contrary on its face to some law, rule, regulation, policy or pre-existing
decision of the courts or FCC. Where patent unlawfulness is not shown, the FCC
may suspend a tariff filing's effectiveness for no more than 120 days, request
that a carrier voluntarily "defer" the effective date or investigate the tariff
after the suspension is over.
Financial Intranet is also tariffed in New York, California, Florida
and Texas which allows it to provide intrastate toll communications services. It
is registered in New Jersey and Colorado (no tariffs being required) and has
tariffs pending in Connecticut, Georgia, Illinois, Massachusetts, Pennsylvania
and Maryland, and is legally permitted to offer intrastate toll
telecommunications services in four other states without filing a tariff by
either filing a registration or commencing operations. None of these
authorizations include the authority to provide Financial Intranet's
telecommunications services on a local exchange, non-toll basis for which
separate applications and/or tariff filings are required.
Should operations be expanded to countries other than the United
States, Financial Intranet will be required to comply with the laws and
regulations applicable to that country's telecommunications industry. In Western
Europe, the telecommunications industry is also subject to the actions, policies
and regulations of the European Commission. Beginning January 1, 1998,
regulation of telecommunications in Western Europe was formally liberalized,
meaning that similar motivations and government goals favoring competition in
telecommunications as are used in the United States have been embraced by the
countries comprising the European Union. The timing and degree of liberalization
however varies, sometimes widely, country by country, and some countries like
Portugal and Greece have delayed implementation of new regulations.
Since few laws or regulations currently are directly applicable to
access or commerce on the internet, Financial Intranet's internet and intranet
is not subject to direct government regulation, other than regulations
applicable to businesses generally. However, a number of legislative and
regulatory proposals are under consideration by federal, state, local and
foreign governmental organizations and, as a result, a number of laws or
regulations may be adopted with respect to internet user privacy, taxation,
infringement, pricing, quality of products and services and intellectual
property ownership.
Financial Intranet's customers are subject to various federal and state
laws, and regulations of self-regulatory agencies such as the NASD, regarding
the sale of securities and continuing education. Changes in these laws and
regulations may affect Financial Intranet's business. While Financial Intranet's
web site states that Financial Intranet is not responsible for the information
presented, Financial Intranet will make reasonable efforts to assure that its
services are not misused. See "Risk Factors -- Government Regulations and Legal
Uncertainties."
28
<PAGE>
Suppliers
Financial Intranet's principal suppliers with respect to the resale of
communication services are MCI WorldCom Inc. and Frontier Corp. Financial
Intranet uses third party production companies to produce video on terms
negotiated with respect to each project. Financial Intranet uses computer
hardware and software and related services provided by Siemens Nixdorf
Informationssysteme Ges.m.b.H. and several of its subsidiaries. Although
Financial Intranet believes that it has good relationships with its suppliers,
it believes that alternate suppliers of telephony, computer hardware, software
and servicing are available at competitive prices. Regulatory and other changes
in the industry have lowered network costs so that Financial Intranet believes
it will obtain agreements from suppliers of communications services which
permits the contained resale of its services at acceptable margins. Financial
Intranet could experience a disruption in its business if it were required to
replace the Siemens companies without sufficient notice.
Facilities
Financial Intranet's principal offices are located at 410 Saw Mill
River Road, Ardsley, New York. Such offices are located on two floors leased by
Financial Intranet under two leases. A lease for 909 square feet at an annual
rent of $18,675 terminates on December 31, 2000. A lease for 700 square feet for
annual rent of $15,575 terminates on December 31, 2000. Financial Intranet
believes that the offices are sufficient for its current operations and proposed
operations through the term of the lease.
Employees
Financial Intranet has five employees, four of whom are officers, and
five outside consultants. None of the employees are represented by a collective
bargaining agreement and management believes it has good relations with its
employees.
Legal Proceedings
On July 23, 1998, H&H Acquisition Corp. et al. commenced an action in
federal court in the Southern District of New York (Civil No. 98 Civ. 5269)
against Financial Intranet, Ben Stein, Michael Sheppard, Maura Marx et al. The
complaint is an action to recover shares of Common Stock of Financial Intranet
previously sold to Mr. Stein and unspecified damages. Financial Intranet
believes that the claims against Financial Intranet, Mr. Sheppard and Ms. Marx
are without merit and is vigorously defending the action, but there can be no
assurance regarding the outcome of the litigation. Financial Intranet believes
that the plaintiffs' principal causes of action relate to Mr. Stein, who has
filed a motion to dismiss the complaint on the grounds, in part, that a mutual
release previously executed with the plaintiff covers the alleged action.
However, if the plaintiffs prevail against Financial Intranet, Financial
Intranet could be adversely affected.
Available Information
When this prospectus becomes effective, Financial Intranet will begin
to file various documents that are required by the Securities and Exchange
Commission. These include annual reports, quarterly reports, special reports and
proxy statements. Financial Intranet plans to give its stockholders annual
reports containing audited financial statements, all other reports which
Financial Intranet is legally required to provide and any other documents which
Financial Intranet believes its shareholders should have.
This Prospectus is part of a Registration Statement filed with the
Securities and Exchange Commission. It does not contain all of the information
in the Registration Statement; nor does it include a number of exhibits or the
schedules which were included with the Registration Statement. If you want
further information about Financial Intranet you can contact the Securities and
Exchange Commission at 1 (800) SEC-0330. You can also visit its web
29
<PAGE>
site at http://www.sec.gov or Financial Intranet's web site at
http://www.fntn.com.
30
<PAGE>
MANAGEMENT
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Michael Sheppard 49 Director, President, Chief Operating Officer
Joseph F. Engelberger 74 Director
Steven S. Weller 44 Director
Maura Marx 35 Senior Vice President, Secretary
Alan Spar 26 Chief Technical Officer/Vice President, Technology
Alan M. Ross 55 Vice President, Finance and Administration
</TABLE>
Michael Sheppard - President, Chief Operating Officer and Director
Mr. Sheppard joined Financial Intranet as a consultant in February 1997
and became President, Chief Operating Officer and Director in April 1997. Mr.
Sheppard has been involved in setting up the corporate infrastructure of several
early stage development companies and undertaking their day-to-day operations as
chief executive and chief operating officer. From January 1996 through January
1997, Mr. Sheppard was Chief Operating Officer of Freelinq Communications,
formerly Televideo Corporation, based in New York City. Freelinq offers real
time video-on-demand via ATM/XDSL technology with high-speed internet
transmission and advertiser supported free theatrical films delivered through
twisted pair telephone lines. In 1980 he founded Belden Communications and
served as its Chief Executive Officer until it was acquired in 1985. It was
engaged in the sale and distribution of proprietary products used in the motion
picture and television markets, and was merged in 1985 with Lee Lighting Ltd.,
one of the largest facilities companies in the world serving the motion picture
and TV industries.
Joseph F. Engelberger
Mr. Engelberger became a Director of Financial Intranet in August 1998.
Joseph Engelberger founded Helpmate Robotics, Inc. Since 1984, he has been
Chairman and Chief Executive Officer of Helpmate Robotics, Inc. He received B.S.
and M.S. degrees from Columbia University in 1946 and 1949, respectively, and he
has authored numerous articles in the instrumentation and robotics fields.
His honors include the Progress Award of the Society of Manufacturing
Engineers, the Leonardo da Vinci Award of the American Society of Mechanical
Engineers and the 1982 American Machinist Award. The University of Liverpool
bestowed the first McKechnie Award on him in 1983. In 1984, he was elected to
the National Academy of Engineering; he was the recipient of the Egleston Medal
for distinguished engineering achievement from Columbia University. Honorary
doctorates have come from the University of Bridgeport, Spring Garden College,
Briarwood College, Trinity College and Carnegie-Mellon University. In January
1997, he received the Beckman Award for pioneering and original research in the
general field of automation. He is the 1997 recipient of the highest Japanese
technology honor, the Japan Prize, for the establishment of the robot industry.
Mr. Engelberger serves on the Board of Directors of EDO Corporation
(NYSE:EDO).
Steven Weller
Mr. Weller became a director of Financial Intranet in November 1998.
Since 1989, Mr. Weller has been the Vice President of Siemens Information and
Communication Products LLC. He is currently the Vice President of Sales for the
Computer Systems division, where he is responsible for all sales and technical
support personnel. Prior to this
31
<PAGE>
assignment, he was Vice President of Sales for the North American Key Accounts.
Maura Marx - Executive Vice President, Secretary
Ms. Marx became Executive Vice President in February 1999 and Secretary
in December 1998. She had been the Senior Vice President and Assistant Secretary
since September 1997. From 1994 until 1996, she was employed as a salesperson in
the Sales and Leasing Department of the Friedman Realty Group, a major New York
commercial real estate firm. Her responsibilities centered on selling, servicing
and expanding the firm's client base of foreign banking institutions. Ms. Marx
was head of the Sales & Marketing Department for Warner Bros. Film Gesmbh based
in Vienna Austria from 1992 until 1994. She was responsible for tactical and
budget planning, and for distribution and promotion of Warner films and Warner
retail goods throughout Austria. From 1990 until 1992, she served as Assistant
Director of European Development for the Guggenheim Museum Salzburg Advisory
Board (GMSAB).
Consultants
Ben B. Stein - Director of Brokerage Sales
Mr. Stein founded Financial Intranet in December 1996. Since November
1998, he has been a consultant to Financial Intranet as Director of Brokerage
Sales. From December 1996 through November 1998, he was a member of the Board of
Directors and Secretary of the Company. Mr. Stein has over 25 years experience
in the securities industry during which time he has held Series 3, Series 4,
Series 7, Series 8, Series 24, Series 27 and Series 63 Licenses issued by the
National Association of Securities Dealers ("NASD"). From 1993 to 1996, Mr.
Stein was Chief Executive Officer of Stein Shore Securities, Inc., a
full-service broker/dealer with three branch offices. From 1991 through 1993,
Mr. Stein operated as Senior Vice President of Marsh Block & Company, a
securities firm specializing in investment banking. Mr. Stein received a
Bachelor of Science degree in Business Administration from Roosevelt University
in Chicago, Illinois in 1961. He became a Certified Public Accountant in 1968.
Kevin M. Haggerty - Consultant for Mutual Fund & Brokerage Industries
Mr. Haggerty became a consultant to Financial Intranet in January 1998.
From 1990 to April 1997, Mr. Haggerty was the Senior Vice President - Manager
for equity trading at Fidelity Capital Markets in Boston, a division of Fidelity
Investments, the mutual fund complex. He was in charge of all U.S. Institutional
and broker/dealer equity trading. He was also responsible for option, agency
over-the-counter training, and all of the exchanges, floor operations and
execution, including the Chicago Board Options Exchange, New York Stock
Exchange, American Stock Exchange, the Pacific Stock Exchange and the Boston
Stock Exchange.
Executive Compensation
Employees
Michael Sheppard receives a salary of $150,000 per year pursuant to his
employment agreement dated September 12, 1997. The employment agreement expires
on December 31, 2002. Mr. Sheppard received an incentive bonus of 750,000 shares
of Common Stock upon execution of a consulting agreement on February 27th, 1997.
Pursuant to his employment agreement, Mr. Sheppard will receive options to
purchase 14.5% of the shares of Common Stock issued through December 31, 2002,
provided that the aggregate number of options shall be reduced by the sum of (a)
750,000; (b) any shares issued upon exercise of the option; and (c) any shares
issued in lieu of cash expenses advanced by Mr. Sheppard or accepted as
previously earned consulting fees in lieu of cash. The purchase price for such
shares is $0.19 per share for 2,231,352 shares of Common Stock as of December
31, 1998. The exercise price for options issued after December 31, 1998 is the
market price per share of Common Stock on the date that Financial Intranet
issues any additional shares of Common Stock, including options to purchase
2,009,667 shares if all outstanding options, warrants and convertible securities
outstanding as of the date of this Prospectus are exercised.
32
<PAGE>
The option expires upon the earlier to occur of December 31, 2002 or 90 days
after the termination of Mr. Sheppard's employment. The option is personal to
Mr. Sheppard and is not assignable. Mr. Sheppard has not purchased any shares of
Common Stock pursuant to his option as of the date hereof.
Ms. Marx receives a salary of $100,000 per year pursuant to her
employment agreement dated September 12, 1997 and amended as of December 15,
1998. The employment agreement expires on December 31, 2002. Ms. Marx received
an incentive bonus of 500,000 shares of Common Stock upon execution of the
employment agreement. Pursuant to her employment agreement, she will receive
options to purchase 9% of the of shares of Common Stock issued by Financial
Intranet through December 31, 2002, reduced by the sum of (a) 500,000 shares;
(b) any shares issued upon exercise of the option; and (c) any shares issued in
lieu of cash expenses advanced by Ms. Marx or accepted as previously earned
consulting fees in lieu of cash. The purchase price for such shares is $0.19 per
share for 1,350,495 shares of Common Stock. The exercise prices for options
issued after December 31, 1998 are the market prices per share of Common Stock
on the date that Financial Intranet issues any additional shares including
options to purchase 1,247,379 shares if all options, warrants and convertible
promissory notes outstanding as of the date of this Prospectus are exercised.
The option expires upon the earlier to occur of December 31, 2002 or 90 days
after the termination of Ms. Marx's employment. The option is personal to Ms.
Marx and is not assignable. Ms. Marx has not purchased any shares of Common
Stock pursuant to her option as of the date of this Prospectus.
Mr. Ross receives a salary of $80,000 per year and has an unvested
option to purchase 250,000 shares of Common Stock at an exercise price of $0.62
1/2 per share. One third of Mr. Ross's options shall vest on December 7 of each
year commencing in December 1999.
Mr. Spar receives a salary of $100,000 per year and has an unvested
option to purchase 250,000 shares at an exercise price of $0.62 1/2 per share.
One third of Mr. Spar's options shall vest on December 9 of each year commencing
in December 1999.
Consultants
Pursuant to a consulting agreement dated February 7, 1997, Mr. Stein
received compensation of $150,000 per year and 1,500,000 shares of Common Stock
at par value as a signing bonus and 1,500,000 shares of Common Stock in lieu of
his compensation for 1997. Mr. Stein ceased his employment and became a
consultant pursuant to a consulting agreement dated as of December 15, 1998. Mr.
Stein receives a consulting fee of $12,500 per month. Financial Intranet has
accrued Mr. Stein's consulting fee for 1998 in the aggregate amount of $150,000
but has paid $30,000 of such accrued amount in 1999.
Pursuant to Mr. Stein's employment and consulting agreements, he will
receive options to purchase 25% of the shares of Common Stock issued by
Financial Intranet through December 31, 2002 minus the sum of (a) 1,500,000; (b)
any shares previously issued upon the exercise of his option; and (c) any shares
issued in lieu of cash expenses advanced by Mr. Stein or accepted as previously
earned consulting fees in lieu of cash. The purchase price for such shares is
$0.19 per share with respect to 3,640,262 shares of Common Stock as of December
31, 1998. The exercise prices for his options issued after December 31, 1998 are
the market prices per share of Common Stock on the date that Financial Intranet
issues any additional shares, including options for 3,464,942 shares upon
exercise of all options, warrants and convertible promissory notes outstanding
as of the date of this Prospectus. The option expires upon the earlier to occur
of December 31, 2002 or 90 days after the termination of Mr. Stein's consulting
agreement. The option is personal to Mr. Stein and is not assignable. Mr. Stein
has not purchased any shares of Common Stock pursuant to his option as of the
date of this Prospectus.
Mr. Haggerty received a warrant to purchase 1,000,000 shares of
Financial Intranet's common stock at a price of $0.01 per share for consulting
activities for 24 months through October 6, 1999 pursuant to an agreement dated
October 6, 1997. Haggerty exercised this warrant on October 9, 1998. His
consulting agreement terminates on December 31, 1999. He will be paid at the
rate of $10,000 per month commencing November 1999 in the event the term is
extended at Financial Intranet's option.
33
<PAGE>
Total Compensation
The following tabulation shows the total compensation paid by Financial
Intranet for services in all capacities during the years ended December 31,
1998, 1997 and 1996 to the officers of Financial Intranet who received
compensation in excess of $100,000 per year.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
Name and Principal Position Year Salary Bonus Other Restricted Stock Awards Stock Options
- --------------------------- ---- ------ ----- ----- ----------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ben B. Stein (1) 1998 $150,000 $0 $0 $0 1,242,955
1997 $150,000 $0 $10,500 $54,000 2,397,307
1996 $0 $0 $0 $0 0
Michael Sheppard 1998 $150,000 $0 $0 $0 720,914
1997 $116,352 $0 $0 $27,000 1,510,438
1996 $0 $0 $0 $0 0
Maura Marx 1998 $100,000 $0 $0 $0 447,464
1997 $48,750 $0 $0 $18,000 903,031
1996 $0 $0 $0 $0 0
</TABLE>
(1) On February 27, 1997, Mr. Stein signed a consulting agreement that provided
him a total of 1,500,000 shares of common stock that compensated him for his
fees in 1997 and an additional 1,500,000 shares of common stock as an inducement
to execution of the consulting agreement.
34
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR - INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------------------------------------
PERCENT OF TOTAL
NUMBER OF OPTIONS GRANTED
SECURITIES TO EMPLOYEES IN
UNDERLYING FISCAL YEAR ENDED EXERCISE OR BASE
NAME OPTIONS GRANTED DECEMBER 31 1998 PRICE PER ($/SHARE) EXPIRATION DATE
- ---- --------------- ---------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Ben B. Stein 1,242,955 51.5% $.19 12-31-2002
Michael Sheppard 720,914 29.9% $.19 12-31-2002
Maura Marx 447,464 18.6% $.19 12-31-2002
</TABLE>
Fiscal Year End Option Values
The following table sets forth information concerning the value of
unexercised in-the-money options held by the Named Executive Officers as of
December 31, 1998.
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
- --------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END
-------------------------------------- ---------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ben B. Stein 3,640,262 0 $1,674,521 0
Michael Sheppard 2,231,352 0 $1,026,422 0
Maura Marx 1,350,495 0 $621,228 0
</TABLE>
Director's Compensation
Financial Intranet's Directors who are not full-time employees of
Financial Intranet receive compensation of $350 and reimbursement of expenses
for attendance at each meeting of the Board of Directors. Mr. Weller has
received options to purchase 10,000 shares of Common Stock at an exercise price
of $.60 per share, which options are exerciseable through November 12, 2001. Mr.
Engelberger has received options to purchase 10,000 shares of Common Stock at an
exercise price of $.725 per share, which options are exerciseable through August
31, 2001.
Committees of the Board
The Board of Directors has one committee, the Stock Option Committee.
The Stock Option Committee administers the Stock Option Plan and authorizes the
award of stock options by Financial Intranet. Messrs. Sheppard, Weller and
Engleberger are the members of the Stock Option Committee.
Indemnification of Directors and Officers and Related Matters
The By-Laws of Financial Intranet provide that, to the fullest extent
permitted by applicable law, as amended from time to time, Financial Intranet
will indemnify any person who was or is a party or is threatened to be made a
party to an action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was director,
officer, employee or agent of Financial Intranet or serves or served any other
enterprise at the request of Financial Intranet.
35
<PAGE>
Financial Intranet will purchase and maintain Directors' and Officers'
Insurance as soon as the Board of Directors determines practicable, in amounts
which they consider appropriate, insuring the directors against any liability
arising out of the director's status as a director of Financial Intranet
regardless of whether Financial Intranet has the power to indemnify the director
against such liability under applicable law.
Financial Intranet has been advised that it is the position of the
Commission that insofar as the foregoing provisions may be invoked to disclaim
liability for damages arising under the Securities Act, such provisions are
against public policy as expressed in the Securities Act and are, therefore,
unenforceable.
Stock Option Plans
Financial Intranet has established the 1998 Stock Option Plan ("1998
Plan") which provides for the granting of options which are intended to qualify
either as incentive stock options ("Incentive Stock Options") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended, or as options
which are not intended to meet the requirements of such section ("Nonstatutory
Stock Options"). The total number of shares of Common Stock reserved for
issuance under the 1998 Plan is 1,500,000. Options to purchase shares may be
granted under the 1998 Plan to persons who, in the case of Incentive Stock
Options, are key employees (including officers) of Financial Intranet, or, in
the case of Non-statutory Stock Options, are key employees (including officers)
or non-employee directors of, or non-employee consultants to, Financial
Intranet.
The 1998 Plan will be administered by the Board of Directors or a
committee chosen by the Board of Directors, which will have discretionary
authority, subject to certain restrictions to determine the number of shares
issued pursuant to Incentive Stock Options and Nonstatutory Stock Options and
the individuals to whom, the times at which and the exercise price for which the
options will be granted. On November 13, 1998, Financial Intranet appointed
Steven S. Weller, Michael Sheppard and Joseph F. Engelberger to constitute the
Stock Option Committee to administer the 1998 Plan.
The exercise price of all Incentive Stock Options granted under the
1998 Plan must be at least equal to the fair market value of such shares on the
date of the grant or, in the case of Incentive Stock Options granted to the
holder of more than 10% of Financial Intranet's Common Stock, at least 110% of
the fair market value of such shares on the date of the grant. The maximum
exercise period for which Incentive Stock Options may be granted is ten years
from the date of grant (five years in the case of an individual owning more than
10% of Financial Intranet's Common Stock). The aggregate fair market value
(determined at the date of the option grant) of shares with respect to which
Incentive Stock Options are exercisable for the first time by the holder of the
option during any calendar year shall not exceed $100,000.
The exercise price of all Non-Statutory Stock Options granted under the
1998 Plan must be at least equal to the 85% of the fair market value of such
shares on the date of the grant
As of the date hereof, no options have been granted pursuant to the
1998 Plan.
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<PAGE>
CERTAIN TRANSACTIONS
On February 7, 1997, Financial Intranet issued Ben Stein, the principal
shareholder of Financial Intranet, 1,500,000 shares of Common Stock in lieu of
salary due for 1997 in the amount of $150,000.
On February 8, 1999, Financial Intranet issued a 7% Convertible
Promissory Note in the principal amount of $600,000. The principal amount of
$240,000 is payable on demand on March 10, 1999 and the principal amount of
$360,000 is payable on demand on April 9, 1999. The promissory note is
convertible into Common Stock of Financial Intranet at a conversion price equal
to the lesser of : (i) 75% of the average of the five lowest closing bid prices
of Financial Intranet's Common Stock during the 30 trading days ending on the
trading day immediately preceding the Conversion Date, or (ii) $.40 per share.
Mr. Ben Stein has guaranteed, with recourse, Financial Intranet's obligations
under the convertible promissory note and pledged 1,500,000 shares of Common
Stock as collateral security for such obligations.
37
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of February 8, 1999 by (i) each stockholder
known by Financial Intranet to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each director of Financial Intranet and (iii) all
directors and executive officers as a group. Except as otherwise indicated,
Financial Intranet believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable.
<TABLE>
<CAPTION>
Number of Shares Percentage of Shares Number of Shares Percentage of Shares
Shareholder Prior to Offering Prior to Offering After Offering after Offering
- ----------- ----------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
Ben B. Stein (1)(2) 7,320,220 29.4% 10,570,552 25.7%
Michael Sheppard (1)(3) 2,732,177 11.4% 4,617,369 12.1%
Maura Marx (1)(4) 1,817,346 7.9% 2,987,465 8.1%
Joseph Engelberger (1)(5) 10,000 ___ 10,000 ___
Steven Weller (1)(5) 10,000 ___ 10,000 ___
All Shareholding Officers 4,569,523 18.4% 7,624,834 18.7%
and Directors as a Group
(4 Persons)
</TABLE>
(1) Assumes the exercise of all stock options held by the respective
shareholder.
(2) Includes 1,020,000 shares owned by Financial Intranet Holdings,
Inc., a company in which Mr. Stein is the sole shareholder and
3,640,262 shares issuable upon the exercise of anti-dilution
options at an exercise price of $.19 per share . Upon completion
of this offering by Financial Intranet of 3,000,000 shares of
Common Stock and assuming the exercise of all warrants and
conversion of the convertible promissory notes issued to the
Selling Securityholders, Mr. Stein will be entitled to additional
options to purchase 3,250,332 shares of Common Stock exerciseable
at the market prices on the date that such warrants and
convertible promissory notes are exercised or converted. Mr.
Stein has disclaimed ownership of 183,000 shares owned by his
children, 80,000 shares owned by his wife and 30,000 shares owned
by his mother and sister.
(3) Includes 2,231,352 shares issuable upon the exercise of
anti-dilution options at an exercise price of $.19 per share.
Upon completion of this offering by Financial Intranet of
3,000,000 shares of Common Stock and assuming the exercise of all
warrants and conversion of the convertible promissory notes
issued to the Selling Securityholders, Mr. Sheppard will be
entitled to additional options to purchase 1,885,192 shares of
Common Stock exerciseable at the market prices on the date that
such warrants and convertible promissory notes are exercised or
converted.
(4) Includes 1,350,495 shares issuable upon the exercise of
anti-dilution options at an exercise price of $.19 per share.
Upon completion of this offering by Financial Intranet of
3,000,000 shares of Common Stock and assuming the exercise of all
warrants and conversion of the convertible promissory notes
issued to the Selling Securityholders, Ms. Marx will be entitled
to additional options to purchase 1,170,119 shares of Common
Stock exerciseable at the market prices on the date that such
warrants and convertible promissory notes are exercised or
converted.
(5) Includes 10,000 shares of Common Stock issuable upon the exercise
of stock options at a price of $.725 per share for Mr.
Engelberger's options and $.60 per share for Mr. Weller's
options.
38
<PAGE>
SELLING SECURITYHOLDERS
In addition to the Shares, the Registration Statement, of which this
Prospectus forms a part, also covers the registration of an aggregate of
5,258,333 shares of Common Stock issuable upon the exercise of warrants,
4,650,000 shares of Common Stock issuable upon conversion of certain convertible
promissory notes, 55,000 shares of common stock previously issued and 37,994
shares otherwise issuable to the Selling Securityholders. The number of shares
of Common Stock which may be issued to the Selling Securityholders are subject
to certain market price protection provisions and additional shares of Common
Stock may be sold by the Selling Securityholders pursuant to the Alternative
Prospectus. Financial Intranet may receive proceeds if the warrants are
subsequently exercised, as to which there can be no assurance. The costs of
qualifying these shares of Common Stock under federal and state securities laws,
together with legal and accounting fees, printing and other costs in connection
with this offering, will be paid by Financial Intranet.
Set forth below is a list of the Selling Securityholders and the number
of shares of Common Stock owned by such Selling Securityholder along with shares
available upon the exercise of the respective options, warrants, or conversion
rights which are being registered pursuant to the Registration Statement, of
which this Prospectus forms a part:
<TABLE>
<CAPTION>
Number of Percentage of Number of
Shares Owned Shares Owned Shares Owned Percentage of Shares
Shareholder Before Offering (1) Before Offering (1) After Offering (7) Owned after Offering
- ----------- --------------- --------------- -------------- --------------------
<S> <C> <C> <C> <C>
Ahood Sharbatly (2) 1,059,550 4.99 0 0
Zubair Kazi (3) 1,059,550 4.99 0 0
Cardinal Capital
Management Inc.(4) 376,497 1.7 0 0
Josephberg Grosz & Co.(5) 341,497 1.6 0 0
Corporate Capital
Management Corp.(6) 50,000 --- 0 0
</TABLE>
(1) Assumes exercise of warrants and conversion of all promissory
notes issued to the Selling Securityholders. However, pursuant to
the terms of the convertible promissory notes and warrants, each
Selling Securityholder and its affiliates may not beneficially
own more than 4.99% of the issued and outstanding common stock of
Financial Intranet at any time and, therefore, cannot convert the
promissory notes or exercise the warrants to the extent that such
conversion or exercise will result in the selling Securityholder
exceeding such limitation.
(2) Mr. Sharbatly may receive an aggregate of up to 2,500,000 shares
of Common Stock upon exercise of all warrants and conversion of
his promissory note in the principal amount of $500,000. Assumes
a conversion price of $.40 per share for the convertible
promissory note. See "Description of Securities."
(3) Mr. Kazi may receive an aggregate of 6,733,333 shares of Common
Stock upon exercise of all warrants and conversion of promissory
notes in the aggregate principal amount of $1,700,000. Assumes
conversion prices of $.40, $.50 and $.60 per share for promissory
notes in the principal amount of $600,000, $200,000 and $900,000,
respectively. See "Description of Securities."
(4) Includes three warrants to purchase 160,000, 75,000 and 95,000
shares of Common Stock at exercise prices of $.64, $.40 and $.60,
respectively.
(5) Includes three warrants to purchase 125,000, 75,000 and 95,000
shares of Common Stock at exercise prices of $.40, $.40 and $.60,
respectively.
(6) Includes warrants to purchase 50,000 shares of Common Stock at an
exercise price of $.64.
(7) Assumes exercise of all warrants and conversion of all promissory
notes held by the Selling Securityholders.
39
<PAGE>
Plan of Distribution
The securities offered by the Selling Securityholders may be sold from
time to time directly by the Selling Securityholders. Alternatively, the Selling
Securityholders may, from time to time, offer such securities through
underwriters, dealers and/or agents. The distribution of securities by the
Selling Securityholders may be effected in one or more transactions,
privately-negotiated transactions or through sales to one or more broker/dealers
for resale of such securities as principals, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Securityholders in connection with
such sales. The Selling Securityholders, and intermediaries through whom such
securities are sold, may be deemed "underwriters" within the meaning of the
Securities Act with respect to the securities offered, and any profits realized
or commissions received may be deemed underwriting compensation.
At the time a particular offer of securities is made by or on behalf of
the Selling Securityholders to the extent required, a prospectus will be
distributed which will set forth the number of securities being offered and the
terms of the offering, including the name or names of any underwriter, dealer or
agent, the purchase price paid by the underwriter for securities purchased from
the Selling Securityholders and any discounts, commissions or concessions
allowed or reallowed or paid to dealers and the proposed selling price to the
public.
Sales of securities by the Selling Securityholders or even the
potential of such sales would likely have an adverse effect on the market prices
of the securities offered hereby. Following the closing of this offering (which
assumes the exercise of all warrants and conversion of all promissory notes held
by the Selling Securityholders), the freely tradeable securities of Financial
Intranet ("public float"), including this offering, will be 30,067,933 shares of
Common Stock. See "Descriptions of Securities" and "Plan of Distribution".
40
<PAGE>
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY
Market Information
The following table sets forth the high and low prices for the periods
indicated as reported by the National Daily Quotation Service, Inc. between
dealers and do not include retail mark-ups, mark-downs, or commissions and do
not necessarily represent actual transactions, as reported by the National
Association of Securities Dealers Composite Feed or other qualified inter-dealer
quotation medium. As of February 23, 1999, the closing bid price was $1.23 per
share.
Low High
--- ----
1997 Fiscal Year:
- -----------------
First Quarter 3.75 6.375
Second Quarter .38 4.625
Third Quarter .156 .484
Fourth Quarter .125 .594
1998 Fiscal Year:
- -----------------
First Quarter .219 .547
Second Quarter .22 .95
Third Quarter .58 1.99
Fourth Quarter .41 1.00
The Common Stock is recorded on the OTC Bulletin Board with the symbol
FNTN. As of December 31, 1998, Financial Intranet had 42 record holders of its
Common Stock and an estimated 2,015 beneficial holders.
41
<PAGE>
DESCRIPTION OF SECURITIES
The following descriptions of Financial Intranet's securities are
qualified in all respects by reference to the Certificate of Incorporation and
By-laws of Financial Intranet and the terms of certain convertible promissory
notes and warrants, copies of which are filed as Exhibits to the Registration
Statement of which this Prospectus is a part. The Certificate of Incorporation
of Financial Intranet authorizes Financial Intranet to issue up to 50,000,000
shares of Common Stock, par value $.001 per share, and no preferred stock.
Common Stock
As of the date hereof, 21,233,496 shares of Common Stock are issued and
outstanding. Each share of Common Stock entitles the holder to one vote on each
matter submitted to the stockholders of Financial Intranet for a vote. 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;
(ii) are entitled to share ratably in all of the assets of Financial Intranet
available for distribution to holders of Common Stock upon liquidation,
dissolution or winding up of the affairs of Financial Intranet; (iii) do not
have preemptive, subscription or conversion rights, or redemption or sinking
fund provisions applicable thereto; and (iv) as noted above, are entitled to one
non-cumulative vote per share on all matters submitted to stockholders for a
vote at any meeting of stockholders. Financial Intranet has not paid any
dividends on its Common Stock to date. Financial Intranet anticipates that, for
the foreseeable future, it will retain earnings, if any, to finance the
continuing operations of its business. The payment of dividends will depend
upon, among other things, capital requirements and the operating and financial
conditions of Financial Intranet.
Shareholders do not have any pre-emptive rights to subscribe for or
purchase any stock, warrants or other securities of Financial Intranet. The
Common Stock is not convertible or redeemable. Neither Financial Intranet's
Certificate of Incorporation nor its By-Laws provide for pre-emptive rights.
Options
Financial Intranet has issued options to three affiliates (including
two executive officers) to purchase 7,222,109 shares of Common Stock at an
exercise price of $.19 per share, which options are exerciseable through
December 31, 2001. Financial Intranet has issued options to two other employees
to purchase 500,000 shares of Common Stock at an exercise price of $.625 per
share, one-third of which vests each year commencing December 7, 1999 and are
exerciseable for two years after vesting. Financial Intranet has issued options
to persons not affiliated with Financial Intranet to purchase an aggregate of
352,630 shares of Common Stock at exercise prices ranging from $.18 to $1.20.
See "Management" and "Principal Shareholders."
Convertible Notes and Warrants
$500,000 7% Convertible Promissory Note and Warrants
On December 31, 1998, Financial Intranet issued a 7% Convertible
Promissory Note in the principal amount of $500,000 with a maturity date of
December 31, 2001 and warrants to purchase 1,250,000 shares of Common Stock at
an exercise price of $.60 per share through December 31, 2003. The promissory
note is convertible into Common Stock of Financial Intranet.
The promissory note may be converted and the warrants may be exercised,
in whole or in part, at any time. However, the promissory note may not be
converted nor the warrants exercised to the extent that after such conversion,
the sum of (1) the number of shares of Common Stock beneficially owned by the
holder and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
promissory note) and (2) the aggregate number of shares of Common Stock issuable
upon the proposed conversion of the promissory note and the warrants would
result in beneficial ownership by the holder and its affiliates of 4.99% or more
of Financial Intranet's issued and outstanding shares of Common Stock following
such exercise or
42
<PAGE>
conversion. This restriction shall be binding upon any transferee of the
promissory note from the purchaser of such shares from Financial Intranet.
On the maturity date, Financial Intranet shall be required to
automatically convert any and all remaining outstanding principal amount and
accrued interest of the promissory note at the Conversion Price into Financial
Intranet's Common Stock (the "Automatic Conversion"). The 4.99% limitations set
forth above shall not apply to the Automatic Conversion provision contained
herein.
The "Conversion Price" shall be the lesser of : (i) 75% of the average
of the five lowest closing bid prices of the Common Stock during the 30 trading
days ending on the trading day immediately preceding the Conversion Date, or
(ii) $.40 per share.
Each of the 1,250,000 warrants issued in conjunction with the
promissory note entitle the holder to purchase one share of Common Stock at an
exercise price per share of Common Stock of $0.60. The warrants may be exercised
for the period ending December 31, 2003. The shares to be issued upon exercise
of the warrants are being registered pursuant to the Alternate Prospectus.
$1,700,000 7% Convertible Promissory Notes and Warrants
Initial Note and Warrants
In February 1999, Financial Intranet issued a 7% Convertible Promissory
Note in the principal amount of $600,000, with $240,000 principal amount, and
all accrued interest thereon, payable on demand commencing March 10, 1999, and
$360,000 principal amount, and all accrued interest thereon, payable on demand
commencing April 8, 1999. Financial Intranet issued 1,500,000 warrants on
documents which will entitle the holder to purchase one share of Common Stock at
an exercise price per share of Common Stock of $.60. The warrants may be
exercised through February 6, 2002. The investor also agreed to lend Financial
Intranet an additional $1,100,000 in four subsequent tranches. Financial
Intranet's obligations under the Promissory Note for $600,000 are subject to a
guarantee by Ben B. Stein and secured by a pledge of 1,500,000 shares of Common
Stock (with 600,000 shares of Common Stock as collateral for Financial
Intranet's obligation payable on February 16, 1999, and 900,000 shares as
collateral for Financial Intranet's obligation payable April 8, 1998).
The initial promissory note in the principal amount of $600,000 may be
converted at the Conversion Price with respect to $240,000 principal amount at
any time on or after March 10 and the balance of $360,000 principal amount may
be converted at any time commencing April 18, 1999. The holder of the promissory
note may not convert any promissory note or exercise any warrant to the extent
that after such conversion, the sum of the number of shares of Common Stock
beneficially owned by the holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Promissory Note) would result in ownership by the
holder and its affiliates of 4.99% or more of Financial Intranet's issued and
outstanding shares of Common Stock following such exercise or conversion. This
restriction shall be binding upon any transferee of the promissory note and
warrants.
On February 6, 2002, Financial Intranet shall be required to
automatically convert any and all remaining outstanding principal amount and
accrued interest of the promissory note at the Conversion Price into Financial
Intranet's Common Stock (the "Automatic Conversion"). The 4.99% limitations in
the promissory note and warrants shall not apply to the Automatic Conversion.
The "Conversion Price" shall be the lesser of : (i) 75% of the average
of the five lowest closing bid prices of the Common Stock during the 30 trading
days ending on the trading day immediately preceding the Conversion Date, or
(ii) $.40 per share with respect to the promissory note for $600,000.
Installment- Convertible Promissory Notes and Warrants
43
<PAGE>
Commencing on the date of this Prospectus and terminating 30 days
later, Financial Intranet may serve a demand notice or the investor may serve a
purchase notice, with respect to the purchase for $200,000 of a promissory note
in the principal amount of $200,000 and a warrant for the purchase of 333,333
shares of Common Stock at an exercise price of $.60 per share. During the 90 day
period after the closing of the Installment for a promissory note in the
principal amount of $200,000, Financial Intranet may serve a demand notice or
the investor may serve a purchase notice, with respect to the purchase for
$300,000 of a promissory note in the principal amount of $300,000 and a warrant
for the purchase of 500,000 shares of Common Stock (the "Third Installment").
During the 90 day period after the Third Installment, Financial Intranet may
serve a demand notice or the investor may serve a purchase notice, with respect
to the purchase for $300,000 of a promissory note in the principal amount of
$300,000 and a warrant for the purchase of 500,000 shares of Common Stock (the
"Fourth Installment"). During the 90 day period after the Fourth Installment,
Financial Intranet may serve a demand notice or the investor may serve a
purchase notice, with respect to the purchase for $300,000 of a Promissory Note
in the principal amount of $300,000 and a warrant for the purchase of 500,000
shares of Common Stock. The warrants are exercisable for a period of five years
after issuance at an exercise price of $.60 per share.
The "Conversion Price" for the promissory notes shall be the lesser of:
(i) 75% of the average of the five lowest closing bid prices of the Common Stock
during the 30 trading days ending on the trading day immediately preceding the
Conversion Date, or (ii) $.40, $.50 and $.60 per share with respect to the
promissory note for the $200,000 promissory note and the promissory notes in the
principal amount of $300,000 respectively.
Transfer Agent
The transfer agent for the Common Stock is Liberty Transfer Co., 191
New York Avenue, Huntington, New York 11743.
44
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, Financial Intranet will have
outstanding an aggregate of 34,179,823 shares of Common Stock, assuming exercise
of the warrants and conversion of the promissory notes issued to the Selling
Securityholders. 29,438,819 shares of Common Stock will be freely tradable
without restriction or further registration under the Securities Act. Of the
remaining shares of Common Stock outstanding, 4,647,634 shares are "restricted"
shares that are owned by "affiliates" of Financial Intranet as such terms are
defined under the Securities Act and 93,370 shares are "restricted" shares that
are owned by nonaffiliates of Financial Intranet.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned restricted securities within the meaning
of Rule 144 ("Restricted Shares") for at least one year, including the holding
period of any securities which are converted into the Restricted Shares and
including the holding period of any prior owner, except an affiliate of
Financial Intranet, would be entitled to sell within any three-month period,
only that a number of shares that do not exceed the greater of 1% of the then
outstanding shares of Common Stock or the average weekly trading volume of the
Common Stock reported during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about Financial
Intranet. Any person (or persons whose shares are aggregated with such person)
who is not deemed to have been an affiliate of Financial Intranet at any time
during the 90 days preceding a sale, and who has beneficially owned shares for
at least three years (including any period of ownership of preceding
non-affiliated holders), would be entitled to sell shares under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.
The Registration Statement of which this Prospectus is a part also
registers 55,000 shares of Common Stock previously issued to Selling
Securityholders, 9,908,333 shares of Common Stock to be issued upon exercise of
warrants and convertible promissory notes and 37,994 shares which may otherwise
be issued to the Selling Securityholders, thus permitting the resale of such
shares by non-affiliates in the public market without restriction under the
Securities Act. See "Selling Securityholders."
45
<PAGE>
PLAN OF DISTRIBUTION
The Company, through its officers and directors, is offering the shares
of Common Stock for sale on a "best efforts" basis. No officer or director will
receive any compensation for sales of shares of Common Stock in this Offering.
Licensed broker/dealers may also participate in the Offering. The
Company will pay a commission of 10% and a non-accountable expense allowance of
3% to NASD registered broker/dealers for sales of Shares effected by NASD
members. The names of the NASD member broker/dealers that may participate in
this Offering, if any, are identified on the annexed broker/dealer list, which
list shall be updated by Post-Effective Amendment to the extent that additional
broker/dealers, if any, agree to participate in this Offering after the date of
this Prospectus.
The Offering shall commence on the date hereof and terminate ninety
(90) days thereafter, unless extended by the Company for up to an additional 90
days. All subscription proceeds will be deposited no later than noon of the next
business day after receipt into the Company's bank account. Subscriptions will
be accepted as they are received.
The Selling Securityholders may sell their shares of common stock from
time to time in transactions, which may include block transactions by or for the
account of the Selling Securityholders, in the over-the-counter market or in
negotiated transactions, or through the writing of options on their shares,
through a combination of such methods of sale, or otherwise. Sales may be made
at fixed prices which may be changed, at market prices prevailing at the time of
sale, or at negotiated prices. If any Selling Securityholder sells shares of
common stock, or options thereon, pursuant to this prospectus at a fixed price
or at a negotiated price which is, in either case, other than the prevailing
market price or in a block transaction to a purchaser who resells, or if any
Selling Securityholder pays compensation to a broker/dealer that is other than
the usual and customary discounts, concessions or commissions, or if there are
any arrangements either individually or in the aggregate that would constitute a
distribution of such shares, a post-effective amendment to the registration
statement of which this prospectus is a part, would need to be filed and
declared effective by the Securities and Exchange Commission before such Selling
Securityholders could make such sale, pay such compensation or make such a
distribution. Financial Intranet is under no obligation to file a post-effective
amendment to the registration statement of which this prospectus is a part under
such circumstances.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the securities
being offered by Financial Intranet will be passed upon for Financial Intranet
by McLaughlin & Stern, LLP, New York, New York. McLaughlin & Stern, LLP owns
options to purchase 75,000 shares of Common Stock at an exercise price of $.60
per share and 75,000 shares of Common Stock at an exercise price of $1.20 per
share.
EXPERTS
The financial statements as of December 31, 1997 and December 31, 1996
and for the year ended December 31, 1997 and the period December 17, 1996 (date
of inception) to December 31, 1996 included in this Prospectus have been so
included in reliance on the report of Reminick, Aarons & Company, LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
46
<PAGE>
FINANCIAL INTRANET, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Financial Statements
Balance Sheets as of December 31, 1997 and December 31, 1998 (Unaudited) F-2
Statement of Operations for the years ended December 31, 1997
and December 31, 1998 (Unaudited) F-3
Statement of Changes in Stockholders' Equity for the years
ended December 31, 1997 and 1998 (Unaudited) F-4
Statement of Cash Flows for the years ended December 31, 1997
and December 31, 1998 (Unaudited) F-5
Notes to Financial Statements (Unaudited for 1998) F-7
Audited Financial Statements
Report of Independent Public Accountants F-22
Balance Sheets as of December 31, 1996 and 1997 F-23
Statements of Operations for the period December 17, 1996
(date of inception) to December 31, 1996 and
for the year ended December 31, 1997 F-24
Statements of Changes in Stockholders' Equity for the period
December 17, 1996 (date of inception) to December 31, 1996 and
for the year ended December 31, 1997 F-25
Statements of Cash Flows for the period December 17, 1996
(date of inception) to December 31, 1996 and for the year
ended December 31, 1997 F-27
Notes to Financial Statements F-29
</TABLE>
F-1
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
Balance Sheets
December 31
-----------
1997 1998
---- ----
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $1,929 $149,225
Accounts receivable 0 51,919
Due from officers 20,410 0
Prepaid expenses 4,693 4,378
------ -------
Total current assets 27,032 205,522
Property and equipment, net 235,712 913,784
Deferred offering costs 0 44,000
Deferred debt issuance costs 0 55,000
Notes receivable 41,200 0
Capitalized software development costs, net 68,275 88,058
Other assets 23,773 26,157
------ ------
Total assets $395,992 $1,332,521
======== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $140,292 $692,966
Due to officers 43,489 98,618
Loan payable 47,250 0
------ -
Total current liabilities 231,031 791,584
Note payable 0 500,000
- -------
Total liabilities 231,031 1,291,584
------- ---------
Commitments and contingencies
Stockholders' Equity:
Common stock, $.001 par value, 25,000,000 shares
authorized and 15,589,228 shares issued and
outstanding December 31, 1997; 50,000,000
shares authorized and 20,561,048 shares
issued and outstanding December 31, 1998
(unaudited) 15,589 20,561
Additional paid-in capital 1,306,622 4,102,386
Accumulated deficit during the development stage (851,928) (3,019,132)
Less: Stock subscriptions receivable (75,000) 0
Deferred compensation cost (230,322) (1,062,878)
-------- ----------
Total stockholders' equity 164,961 40,937
------- ------
Total liabilities and stockholders'
equity $395,992 $1,332,521
======== ==========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
Statements of Operations
Year Ended December 31,
------------------------------
1997 1998
---- ----
(Unaudited)
Revenue $0 $91,281
------- ---------
Operating costs and expenses:
Cost of revenue 0 146,533
Sales and marketing expenses 55,794 50,246
General and administrative expenses 748,214 1,037,615
Depreciation and amortization 0 124,145
Stock compensation expense 13,272 897,808
------ -------
Total operating costs and expenses 817,280 2,256,347
------- ---------
Loss from operations (817,280) (2,165,066)
Other income (expense):
Interest income 2,475 4,140
Interest expense (2,625) (6,278)
------ ------
Total other (expense) (150) (2,138)
---- ------
Net loss ($817,430) ($2,167,204)
--------- -----------
Basic and diluted net loss per share ($0.07) ($0.12)
====== ======
Number of shares used in calculating basic
and diluted net loss per share 10,932,900 18,328,984
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in
Description Shares Amount Capital
<S> <C> <C> <C>
Balance - January 1, 1997 3,980,000 $ 3,980 $ 30,620
February 29, 1997 - issuance of stock in lieu of compensation to
key executives 4,250,000 4,250 148,500
May 1997 through December 31, 1997 - Private Placement 6,904,228 6,904 877,823
August 4, 1997 - issuance of stock in lieu of $6,500 in promotional fees 100,000 100 6,400
September, 1997 - issuance of stock to employees and increase in additional
paid-in capital resulting from stock options granted 40,000 40 243,594
November 15, 1997 - issuance of stock per non-dilution provisions
of consulting agreement 315,000 315 (315)
Net loss - - -
---------- --------- -----------
Balance - December 31, 1997 15,589,228 15,589 1,306,622
January, 1998 - issuance of stock subscribed in 1997 400,000 400 29,600
Jan.-July 1998 - issuance of stock per non-dilution provisions of
consulting agreement 346,742 347 (347)
May-Dec., 1998 - issuance of stock in lieu of services 309,249 309 119,515
June and July, 1998 - Promissory notes converted 1,070,800 1,071 463,932
June and October, 1998 - Private placement 1,237,666 1,238 443,262
June 11, 1998 - issuance of stock in lieu of fees on June, 1998
private placement 38,393 38 (38)
July 17, 1998 - issuance of stock to release security interest in
certain equipment 500,000 500 314,500
October 15, 1998 - issuance of stock in lieu of fees on 1997
private placement 68,970 69 (69)
October 15, 1998 - issuance of stock resulting from exercise of warrants 1,000,000 1,000 159,000
Increase in additional paid-in capital resulting from stock options
and warrants granted - - $ 1,266,409
Net loss - - -
---------- --------- -----------
Balance - December 31, 1998 (unaudited) 20,561,048 $ 20,561 $ 4,102,386
========== ========= ============
<CAPTION>
Subscriptions Deferred Stock Accumulated
Description Receivable Compensation Deficit
<S> <C> <C> <C>
Balance - January 1, 1997 - $ - $ (34,498)
February 29, 1997 - issuance of stock in lieu of compensation to
key executives - - -
May 1997 through December 31, 1997 - Private Placement (75,000) - -
August 4, 1997 - issuance of stock in lieu of $6,500 in promotional fees - - -
September, 1997 - issuance of stock to employees and increase in additional
paid-in capital resulting from stock options granted - (230,322) -
November 15, 1997 - issuance of stock per non-dilution provisions
of consulting agreement - - -
Net loss - - (817,430)
--------- ------------ -----------
Balance - December 31, 1997 $(75,000) (230,322) (851,928)
January, 1998 - issuance of stock subscribed in 1997 75,000 - -
Jan.-July 1998 - issuance of stock per non-dilution provisions of
consulting agreement - - -
May-Dec., 1998 - issuance of stock in lieu of services - - -
June and July, 1998 - Promissory notes converted - - -
June and October, 1998 - Private placement - - -
June 11, 1998 - issuance of stock in lieu of fees on June, 1998
private placement - - -
July 17, 1998 - issuance of stock to release security interest in
certain equipment - - -
October 15, 1998 - issuance of stock in lieu of fees on 1997
private placement - - -
October 15, 1998 - issuance of stock resulting from exercise of warrants - - -
Increase in additional paid-in capital resulting from stock options
and warrants granted - (832,556) -
Net loss - - ($2,167,204)
--------- ------------ -----------
Balance - December 31, 1998 (unaudited) $ - $(1,062,878) $ (3,019,132)
=========== ============ =============
<CAPTION>
Stockholder's
Description Equity
<S> <C>
Balance - January 1, 1997 $ 102
February 29, 1997 - issuance of stock in lieu of compensation to
key executives 152,750
May 1997 through December 31, 1997 - Private Placement 809,727
August 4, 1997 - issuance of stock in lieu of $6,500 in promotional fees 6,500
September, 1997 - issuance of stock to employees and increase in additional
paid-in capital resulting from stock options granted 13,312
November 15, 1997 - issuance of stock per non-dilution provisions
of consulting agreement -
Net loss (817,430)
-----------
Balance - December 31, 1997 164,961
January, 1998 - issuance of stock subscribed in 1997 105,000
Jan.-July 1998 - issuance of stock per non-dilution provisions of
consulting agreement -
May-Dec., 1998 - issuance of stock in lieu of services 119,824
June and July, 1998 - Promissory notes converted 465,003
June and October, 1998 - Private placement 444,500
June 11, 1998 - issuance of stock in lieu of fees on June, 1998
private placement -
July 17, 1998 - issuance of stock to release security interest in
certain equipment 315,000
October 15, 1998 - issuance of stock in lieu of fees on 1997
private placement -
October 15, 1998 - issuance of stock resulting from exercise of warrants 160,000
Increase in additional paid-in capital resulting from stock options
and warrants granted 433,853
Net loss (2,167,204)
----------
Balance - December 31, 1998 (unaudited) $ 40,937
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
Statements of Cash Flows
Year Ended December 31,
-----------------------
1997 1998
---- ----
(Unaudited)
Cash flows from operating activities:
Net loss ($817,430) ($2,167,204)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 0 124,145
Reserve for bad debts 0 41,200
Stock compensation expense 172,562 1,011,634
Changes in operating assets and liabilities:
Accounts receivable 0 (51,919)
Prepaid expenses (4,693) 315
Deferred offering costs 0 (20,000)
Other assets (23,773) (2,384)
Accounts payable and accrued expenses 140,292 552,674
------- -------
Net cash used in operating activities (533,042) (511,539)
-------- --------
Cash flows from investing activities:
Notes receivable advances (41,200) 0
Loans advanced (to) from officer (20,410) 20,410
Purchase of property and equipment (235,712) (802,217)
Software development costs (68,275) (19,783)
------- -------
Net cash used in investing activities (365,597) (801,590)
-------- --------
Cash flows from financing activities:
Proceeds from (repayments of) loan payable 47,250 (47,250)
Proceeds from issuance of promissory notes 0 1,500,000
Payment of financing fees (70,523) (156,000)
Proceeds from issuance of common stock 880,250 37,500
Collection of stock subscriptions receivable 0 70,000
Proceeds from issuance of warrants 0 1,046
Advances from officers 43,489 55,129
------ ------
Net cash provided by financing activities 900,466 1,460,425
------- ---------
Net increase in cash and cash equivalents 1,827 147,296
Cash and cash equivalents - beginning 102 1,929
--- -----
Cash and cash equivalents - ending $1,929 $149,225
====== ========
F-5
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
Statements of Cash Flows - continued
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998
---- ----
(Unaudited)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $2,625 $4,167
====== ======
Noncash investing and financing activities:
The following noncash transactions occurred during the
year ended December 31, 1997:
- 100,000 shares of the Company's common stock were
issued to outside consultants in lieu of $6,500 in
promotional fees.
- 4,250,000 shares of the Company's common stock were
issued to three (3) key executives in lieu of $152,750 for
executive compensation and consulting fees.
- 315,000 shares of the Company's common stock valued
at $315 were issued at par value to outside consultants in
accordance with the anti-dilution provisions of the consulting
agreement entered into by the Company in December 1996.
- Additional paid-in capital was increased by $243,594 and
deferred compensation of $230,322 was recorded resulting
from stock options granted.
The following noncash transactions occurred during the
year ended December 31, 1998:
- 309,249 shares of the Company's common stock were
issued to outside consultants in lieu of $113,826 in
services and $16,000 in deferred offering costs.
- 1,000,000 shares of the Company's common stock in exchange
for $10,000 were issued to an independent consultant (as
discussed in Note 5) for providing various marketing, sales,
general, and public relations consulting services.
- 346,742 shares of the Company's common stock at par
value were issued to outside consultants in accordance with
the anti-dilution provisions of the consulting agreement
entered into by the Company which terminated in July 1998.
- 500,000 shares valued at $315,000 were issued to an outside
facilitator as a settlement in order to release its security
interest in certain of the Company's equipment.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
Financial Intranet, Inc. (the "Company"), formerly Wee Wees, Inc.
(which was formerly Alexis & Co.) is a Nevada corporation incorporated
on December 16, 1993. The founder of the Company acquired all of the
outstanding shares of Wee Wees, Inc. to obtain the benefits of a
corporate entity for the business. The Company provides a secure
on-demand proprietary network (intranet) for broker-dealers and their
registered representatives. The network is designed to provide updated
training and data information concerning, among other things, those
mutual funds planning to participate in the Company's network. In
addition, the Company has developed an Internet presence accessible to
the general public, which will highlight the Company's clients. It is
the Company's plan to connect over 500 U.S. broker-dealer locations and
subsequently provide local access ports in various cities around the
world. The Company has not yet generated significant revenue from its
operations and is therefore considered to be a development stage
company in accordance with Statement of Financial Accounting Standards
No. 7.
Going Concern Uncertainty
-------------------------
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. At December 31, 1997, the
Company had a negative working capital of $203,999 and a stockholders'
equity of $164,961. At December 31, 1998, the Company has a negative
working capital of $586,062 and a stockholders' equity of $40,937. As
the Company is still in the development stage and has experienced
significant losses since its inception, there is substantial doubt that
it will be able to continue as a going concern without the additional
funding as contemplated by the Company's private placement and initial
public offering (see Note 12). If the public offering is not effected
and successful, management plans to seek alternate funding from an
affiliated third party. The financial statements do not include any
adjustments that might be necessary should the Company be unable to
continue as a going concern.
Unaudited Financial Information
-------------------------------
The unaudited balance sheet as of December 31, 1998 and the unaudited
statements of operations, changes in stockholders' equity and cash
flows for the year ended December 31, 1998 include, in the opinion of
management, all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the Company's financial
position, results of operations and cash flows.
F-7
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Accounts Receivable
-------------------
Accounts receivable are principally from users of the Company's
communications network. Accounts receivable at December 31, 1998 was
$51,919. There were no accounts receivable at December 31, 1997 as no
revenues were generated during 1997. Management believes that all
accounts receivable are fully collectible and no allowance for
uncollectible accounts has been provided.
Property and Equipment
----------------------
Property and equipment are stated at cost. At December 31, 1997, the
computer hardware and software that was acquired to implement the
Company's intranet and internet systems was not fully operational. As
such, no depreciation or amortization had been calculated for these
assets for the year then ended. Depreciation for the year ended
December 31, 1998 was $102,377 as the equipment and related software
were placed in service during 1998. These assets are being depreciated
on a straight-line basis over their estimated lives, which range from
three to five years.
Deferred Offering and Debt Issuance Costs
-----------------------------------------
Costs incurred in connection with the proposed offering of securities
(see Note 12) and with the issuance of the December 31, 1998
convertible promissory note have been deferred and will be offset
against the proceeds of the offering and conversion of debt. If the
offering and/or conversion of debt are not effected, these costs will
be expensed and/or amortized over the life of the debt, respectively.
Capitalized Software Development Costs
--------------------------------------
Capitalized software development costs represent the costs of
developing and updating an Internet presence at the Company's web site.
These costs are being amortized on a straight-line basis over its
estimated life of two years. Amortization of software development
costs was $21,768 for the year ended December 31, 1998. There was no
amortization in 1997 because the web site was not placed in service
until 1998.
F-8
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
Income Taxes
------------
The Company accounts for income taxes in accordance with the asset and
liability method of accounting for income taxes proscribed by Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Under the asset and liability method of 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 and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to the 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.
Revenue Recognition
-------------------
Revenue is recognized at the time telephone communications usage is
incurred.
Advertising
-----------
Advertising and marketing costs are expensed as incurred.
Earnings Per Share
------------------
During the year ended December 31, 1997, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128"). SFAS 128 requires the presentation
of basic and diluted earnings per share ("EPS"). Basic EPS is computed
by dividing income (loss) available to common stockholders by the
weighted-average number of common shares outstanding during the period.
Diluted EPS is computed by dividing that income (loss) by the
weighted-average number of common shares and common stock equivalents
outstanding during the period. Common stock equivalents have been
excluded from the weighted-average shares for 1997 and 1998, because
their inclusion is anti-dilutive. All prior period EPS information has
been computed in accordance with the new pronouncement.
Stock-Based Compensation
------------------------
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 is effective for
fiscal years beginning after December 31, 1995 and prescribes
accounting and reporting
F-9
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
standards for all stock-based compensation plans, including employee
stock options, restricted stock, employee stock purchase plans and
stock appreciation rights. SFAS 123 requires compensation expense to be
recorded (i) using the new fair value method or (ii) using existing
accounting rules prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair
value method. The Company accounts for its stock-based compensation in
accordance with the provisions of APB 25.
Effect of Recently Issued Accounting Standards
----------------------------------------------
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") establishes standards for reporting
and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements. The Company's net loss is the only item of
comprehensive income through December 31, 1997 and December 31, 1998.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and related Information" ("SFAS 131"), which
supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise",
establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in
interim financial statements regarding products and services,
geographic areas and major customers. SFAS 131 defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information
for earlier years to be restated.
In February 1998, the Financial Accounting Standards Board issued
Statement of
F-10
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
Financial Accounting Standards No. 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits" ("SFAS 132"), which
standardizes the disclosure requirements for pensions and other
postretirement benefits. SFAS 132 is applicable for fiscal years
beginning after December 15, 1997. The Company does not expect adoption
of SFAS 132 to have a material effect, if any, on the financial
statements and results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), which establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
collectively referred to as derivatives and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. The Company has not determined the
effect on its financial statements or results of operations, if any,
from the adoption of this statement.
In October 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 134, "Accounting for
Mortgage-backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise" (SFAS
134). This is an amendment to Statement of Financial Accounting
Standards No. 65, "Accounting for Certain Mortgage Banking Activities",
which establishes standards requiring that, after a securitization of a
mortgage loan is held for sale, an entity engaged in mortgage banking
activities classify the resulting mortgage-backed security as a trading
security. SFAS 134 is effective for fiscal years beginning after
December 15, 1998. The Company's financial statements and results of
operations are unaffected by SFAS 134.
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting
for the Cost of Computer Software Developed or Obtained for Internal
Use" (SOP 98-1), which provides guidance on accounting for the cost of
computer software developed or obtained for internal use regarding
either the capitalization or expensing of software costs that meet
certain specified criteria. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998 with earlier application encouraged.
SOP 98-1 has been adopted by the Company for the year ended December
31, 1998.
In April, 1998 the AICPA issued Statement of Accounting Position 98-5
"Reporting on the costs of Start up Activities" (SOP 98-5), which
provides guidance on defining start up activities and requires that
entities expense start-up costs and organizational costs as they are
incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998 with earlier application encouraged, and was
adopted by the Company in 1997.
Reclassifications
-----------------
Certain accounts from the 1997 financial statements have been
reclassified in order to conform with the 1998 financial statement
presentation. These
F-11
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
reclassifications have no effect on the previously reported net loss.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2 - NOTES RECEIVABLE
In connection with entering into a Letter of Intent to acquire 80% of
the equity of Micro-Intelligent Systems, Inc. (MIS), a private
corporation that manufactures a portable electronic document device,
the Company provided loans to MIS. On February 25, 1997, in conjunction
with the signing of the Letter of Intent, the Company provided a loan
of $20,000, due on demand on or after February 25, 2007, together with
interest at the rate of 4% per annum. On March 21, 1997, the Company
issued an additional loan of $20,000, due on demand on or after March
21, 2007, together with interest at the rate of 4% per annum.
Subsequently, management has rescinded plans for the acquisition.
Accrued interest of $1,200 and $2,800 was due on these notes receivable
at December 31, 1997 and 1998, respectively. As of December 31, 1998,
the Company had fully reserved the balance of $41,200 for the potential
uncollectibility of this note and related accrued interest.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997
and December 31, 1998:
12/31/97 12/31/98
---------- ------------
(Unaudited)
Computer equipment $ 235,712 $ 1,016,161
Accumulated depreciation - (102,377)
---------- ------------
$ 235,712 $ 913,784
========== ============
NOTE 4 - LOAN PAYABLE
In September 1997, Civilization Communications Inc. (CivCom), a
consultant, (see Note 5) advanced funds to various vendors on behalf of
the Company. These payments were memorialized in a promissory note
dated January 2, 1998
F-12
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
in the principal amount of $47,250 at the prime rate due on June 30,
1998. On August 28, 1998 the balance, including principal and
interest, was fully repaid.
NOTE 5 -NOTE PAYABLE
On December 31, 1998, the Company entered into a subscription agreement
for a private placement of $500,000 consisting of a 7% convertible
promissory note in the principal amount of $500,000, and warrants to
purchase 1,250,000 shares of the Company's common stock, at an exercise
price of $.60 per share as defined in the agreement.
The Company paid, on the closing date, fees of $55,000 as a reduction
of the proceeds. In addition, the two placement agents, as part of
their fees, were to receive 25,000 shares of common stock and warrants
to purchase 160,000 shares of common stock at an exercise price of $.64
per share and 125,000 shares of common stock at an exercise price of
$.40 per share, respectively, of common stock. The 25,000 shares were
not issued until January 1999.
NOTE 6 - COMMITMENTS
Operating Leases
----------------
The Company subleased its office space in New York City until April
1998. Rent expense under this lease charged to operations was $22,431
and $16,299 for the years ended December 31, 1997 and 1998,
respectively.
In October 1997, the Company entered into a lease agreement for office
space in Ardsley, New York for a term of three (3) years commencing on
January 1, 1998. The lease agreement provides for a fixed annual base
rent of $15,575 payable in equal monthly installments plus a
proportionate share of certain incremental building operating expenses
as defined in the lease agreement.
In June 1998, the Company entered into another lease agreement for
additional office space in Ardsley, New York for a term commencing on
July 15, 1998 and expiring on December 31, 2000. This lease provides
for an annual base rent of $8,303 payable in equal monthly
installments, plus a proportionate share of certain incremental
building operating expenses as defined in the lease agreement. Rent
expense under these leases charged to operations was $0 and $22,062
for the years ended December 31, 1997 and 1998, respectively.
F-13
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
Minimum required future rental payments under these operating leases at
December 31, 1998 are as follows:
1999 $ 23,878
2000 23,878
---------
$ 47,756
=========
Consulting Agreement - Civilization Communications Inc.
-------------------------------------------------------
In October 1996, the Company entered into an agreement executed by its
founder (amended December 20, 1996), with Civilization Communications
Inc. (CivCom), to provide various consulting services. Specifically,
CivCom assisted in the preparation of the Company's Business Plan and
the preparation of the initial Private Placement Memorandum (PPM) as
well as associated and relevant documents. In addition, the agreement
provides for CivCom, at the Company's request, to assist in the
preparation of all filings and prepare the documentation required to be
filed on a timely basis with various state and federal agencies
concerning the raising of the funds encompassed by the PPM. In
consideration of the services provided, the agreement provides for
$25,000 in compensation, payable as follows: a $15,000 cash payment
from the funds acquired through the placement of any of the Company's
securities and 200,000 shares (subsequently adjusted to 240,000 shares)
of common stock (in lieu of $10,000).
In accordance with the non-dilutive provisions of the agreement, CivCom
was entitled to maintain a 6.1% share of the total outstanding shares
of the Company's common stock through July 7, 1998. As such, CivCom was
issued 315,000 shares during 1997 and 346,742 shares during 1998 at
which time the agreement was cancelled by the Company. Subsequent to
July 1998, CivCom continued to consult the Company on a fixed price per
hour basis.
Consulting Agreements - Key Executives
--------------------------------------
In February 1997, the Company entered into consulting agreements with
three key executives to whom the Company was intending to eventually
offer long-term employment agreements (see below). The consulting
agreements provide for monthly stipends from the date of signing to the
date the Company and the executives enter into the employment
agreements. The consulting agreements also provide for the issuance of
the Company's common stock at par value since at the time there was no
determined market value for the shares issued. The key executives and
the related provisions within their respective agreements are as
follows:
F-14
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
<TABLE>
<CAPTION>
Par Value of
Monthly Common Stock Stock
Executive Stipend Issued Issued
--------- ------- ------------ ------
<S> <C> <C> <C>
Founder $ 12,500 1,500,000 shares $ 1,500
President and Chief Operating
Officer $ 12,500 750,000 shares $ 750
Senior Vice-President - Sales and
Marketing $ 5,417 500,000 shares $ 500
</TABLE>
In addition, in February 1997, in lieu of $150,000 in compensation for
consulting services through December 31, 1997, the founder was issued
an additional 1,500,000 shares of the Company's common stock.
Employment Agreements
---------------------
On September 12, 1997, the Company entered into employment agreements
with three key executives. The agreements are for a five-year period
commencing on September 12, 1997 and may be extended by the Company for
an additional three-year period upon written notice six months prior to
the third anniversary of the original term. The agreements stipulate
the duties, compensation and benefits, indemnification, termination and
various other terms of employment. Included in compensation for all
three executives is an option to purchase, at any time while the
executive is employed by the Company, additional shares (in addition to
any shares previously issued) of the Company's common stock. Through
December 31, 1998, the purchase price for such shares is at a price per
share equal to eighty percent of the per share bid price averaged over
five working days prior to the date of the signed employment agreement.
The exercise price for options issued after December 31, 1998 is the
market price per share of common stock on the date the Company issues
any additional shares of common stock. The options shall permit each
executive to purchase up to a certain percentage (see below) of the
Company's issued and outstanding shares of common stock less; i) shares
previously issued according to the consulting agreement; ii) less any
shares previously issued as a result of the exercise of this option and
(iii) less any shares issued in lieu of cash expenses advanced by the
executive or accepted as previously earned consulting fees paid to the
executive in lieu of cash.
The number of the Company's issued and outstanding common stock for the
purpose of calculating the total number of shares which may be
purchased by the executive in exercising the option shall be: i) the
number of shares issued on the later of the exercise date or any date
prior to December 31, 1998, providing that ii) the total number of
shares issued as utilized in the calculation of the shares
F-15
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
available for purchase under the option shall not exceed the number of
shares issued and outstanding at December 31, 1998 as recorded on the
Company's stock ledger and as reported by the Company's transfer agent.
These options are non-transferable and expire on the last date of the
original employment term or any extension thereof (See note 8). The
executives and the related provisions of their employment agreement are
detailed below:
Stock Option
Executive Base Salary Percentage
--------- ----------- ----------
Founder $150,000 25.0%
President and Chief Operating
Officer $150,000 14.5%
Senior Vice-President - Sales and
Marketing $100,000 9.0%
Consulting Agreement - Independent Consultant
---------------------------------------------
On October 6, 1997, the Company entered into a consulting agreement
with an individual to provide various marketing, sales, general and
public relations consulting in connection with undertaking the
promotion of the Company's products, training programs and services to
broker/dealers, underwriters and administrators of mutual funds. In
consideration for services provided, the agreement granted the
consultant a warrant to purchase up to one million (1,000,000) shares
of the common stock of the Company at $.01 per share. In addition, all
travel, mailing, entertainment, printing, postage and all other
expenses directly related to services will be reimbursed by the
Company. The warrant was exercised on October 9, 1998 for 1,000,000
shares.
The terms of the agreement are for a period commencing with the date of
the signing of the agreement and shall terminate on October 20, 1999,
with an extension convertible to October 20, 2000, unless sooner by
death of the consultant or a 30-day notice of termination by either
party. Stock compensation costs charged to operations for warrants
issued was $150,000 for the year ended December 31, 1998.
Major Customers
---------------
A substantial portion of the Company's revenue is derived from three
major customers which, individually, constitute approximately 37.4%,
21.5% and 15.2% of total revenue.
NOTE 7 - PRIVATE PLACEMENTS
The Company had a private placement offering in June 1997, whereby
6,904,228 shares of common stock were issued. The Company had two
outstanding subscription agreements from investors totaling $75,000 at
December 31, 1997.
F-16
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
400,000 shares of the Company's common stock were subsequently issued
in January 1998.
On May 20, 1998, the Company entered into subscription agreements to
issue a total of $500,000 in convertible debentures, due November 20,
1998. The debentures pay 6% cumulative interest annually, payable in
cash or in freely trading common stock of the Company, at the Company's
option at the time of each conversion until the principal amount is
paid in full or has been converted. The debentures are subject to
automatic conversion at the end of six months from the date of issuance
based on a formula as defined under the agreements. The holder of the
debenture has the right, at their option, to convert it into shares of
the Company's common stock at any time before the close of business on
the maturity date. The debentures were converted into 1,070,800 shares
in June and July 1998.
On June 4, 1998, the Company entered into a Placement Agent Agreement
with Corporate Capital Management LLC (CCM). The agreement appointed
CCM exclusive placement agent of the Company during the offering period
as defined in the agreement for the purpose of assisting the Company in
the sale of $500,000 (the Funds) in principal amount of its convertible
12% promissory note due December 1, 1998 (the Note). The agreement
provides for a cash fee in an amount equal to 10% of the gross proceeds
from the sale of the Note plus warrants to purchase 50,000 shares of
the Company's common stock. The warrants shall be exercisable at a
price equal to 110% of the bid price for the common stock on the date
of closing of the sale of the Note. In conjunction with the agreement
to retain CCM as placement agent, on June 4, 1998, the Company entered
into a subscription agreement for the Note. The Note is convertible, at
the holder's option, at any time, into shares of common stock of the
Company. The number of shares of common stock into which the Note may
be converted shall be determined at the lesser of (i) 72.5% of the
lowest closing bid price quoted on the over-the-counter Bulletin Board
market of the common stock for the five-day trading period ending on
the day prior to the conversion date or (ii) the lowest closing bid
price quoted on the Bulletin Board of the common stock for the five-day
trading period ending on the day prior to the closing of the sale of
the Note. The note was converted to 1,352,718 shares of the Company's
common stock in June 1998 and 115,052 shares were subsequently
cancelled in October 1998.
NOTE 8 - STOCK OPTIONS AND WARRANTS
The following stock options were granted during 1997 and 1998:
Warrants to purchase 1,000,000 shares of common stock exercisable at
$.01 per share pursuant to a consulting agreement (See note 6).
F-17
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
166,667 shares of common stock to a consultant on July 15, 1998 which
expire June 22, 2003, at an exercise price of $.40 per share.
250,000 shares of common stock to each of two employees at an exercise
price of $.625 per share, which vest one-third each year over the next
three years beginning in December 1999.
150,000 shares of common stock for legal services: 75,000 shares on
July 10, 1998 which expire July 10, 2003, at an exercise price of $1.20
per share; and 75,000 shares on November 25, 1998 which expire November
24, 2003, at an exercise price of $.60 per share.
The following warrants were granted during 1997 and 1998:
Stock options to purchase 4,810,776 and 2,411,333 shares of common
stock during 1997 and 1998, respectively, exercisable at $.19 per share
pursuant to employment agreements with three key executives (See note
6).
Warrants to purchase 10,000 shares of common stock to each of two
directors, one issued on September 1, 1998 which expires August 31,
2001, exercisable at a price of $.725 per share; and the other issued
on November 13, 1998 which expires November 13, 2001, exercisable at a
price of $.60 per share.
Warrants to purchase 285,000 shares of common stock to two investment
bankers as commissions for a December 31, 1998 private placement of
convertible promissory notes, one of which is for 125,000 shares of
common stock exercisable at a price of $.40 per share, and the other
which is for 160,000 shares of common stock exercisable at a price of
$.64 per share.
Warrants to purchase 50,000 shares of the Company's common stock were
issued to the placement agent for a June, 1998 private placement. The
warrants are exercisable at $.64 per share.
The charge to operations for the above grants of options and warrants
for the year ended December 31, 1998 was $156,150.
F-18
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
Summary information with respect to stock options granted is as
follows:
Outstanding Outstanding
Exercise Options Options
Price Granted Exercisable
----- ------- -----------
Balance, January 1, 1997 - -
Activity:
Options granted $.19 4,810,776 4,810,776
Options exercised - -
Options cancelled - -
---------- ---------
Balance, December 31, 1997 $.19 4,810,776 4,810,776
Activity:
Options granted $.19 2,411,333 2,411,333
Options exercised - -
Options cancelled - -
--------- ---------
Balance, December 31, 1998 $.19 7,222,109 7,222,109
========= =========
Compensation cost charged to operations for stock options granted was
$13,272 and $276,658 for the years ended December 31, 1997 and 1998,
respectively.
1998 Stock Option Plan
----------------------
In December, 1998, the Company established the 1998 Stock Option Plan
("1998 Plan") which provides for the granting of options which are
intended to qualify either as incentive stock options ("Incentive Stock
Options") within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended, or as options which are not intended to meet
the requirements of such section ("Non-statutory Stock Options"). The
total number of shares of Common Stock reserved for issuance under the
1998 Plan is 1,500,000. Options to purchase shares may be granted under
the 1998 Plan to persons who, in the case of Incentive Stock Options,
are key employees (including officers) of the Company or, in the case
of Non-statutory Stock Options, are key employees (including officers)
or non-employee directors of, or non-employee consultants to, the
Company.
The exercise price of all Incentive Stock Options granted under the
1998 Plan must be at least equal to the fair market value of such
shares on the date of the grant or, in the case of Incentive Stock
Options granted to the holder of more than 10% of the Company's Common
Stock, at least 110% of the fair market value of such shares on the
date of the grant. The maximum exercise period for which Incentive
Stock Options may be granted is ten years from the date of grant
F-19
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
(five years in the case of an individual owning more than 10% of the
Company's Common Stock). The aggregate fair market value (determined at
the date of the option grant) of shares with respect to which Incentive
Stock Options are exercisable for the first time by the holder of the
option during any calendar year shall not exceed $100,000.
The exercise price of all Non-statutory Stock Options granted under the
1998 Plan must be at least equal to 85% of the fair market value of
such shares on the date of the grant.
No options have been granted during 1998 pursuant to the 1998 Plan.
NOTE 9 - INCOME TAXES
The Company has net operating loss carryforwards available for income
tax reporting purposes of approximately $3,000,000, in the aggregate,
expiring in 2011 to 2013 which, upon recognition, gives rise to a
deferred income tax asset of approximately $1,200,000 and $340,000 at
December 31, 1998 and 1997, respectively.
The Company has recorded a 100% valuation allowance on the net deferred
tax asset since management cannot determine if it is more likely than
not that the deferred tax asset will be utilized.
NOTE 10 - RELATED PARTY TRANSACTIONS
Due from Officer
----------------
At December 31, 1997, the Company had a $19,500 note receivable from an
officer/stockholder of the Company. The note receivable, which is due
on demand, bears interest at 8% per annum. At December 31, 1997, there
was $910 of accrued interest on the note receivable. The balance of
this note receivable was fully repaid on November 19, 1998.
Due to Officer
--------------
At December 31, 1997, the Company had an unsecured note payable in the
amount of $43,489 to an officer/stockholder. The borrowings, advanced
to meet current operating obligations, were due on demand and are
non-interest bearing. The remaining balance at December 31, 1998 was
$5,889.
In addition, on August 27, 1998 and December 16, 1998, the Company
borrowed an additional $50,000 and $5,000, respectively from the same
officer. The
F-20
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
promissory notes, with an interest rate of 8% per annum, are due in 180
days. At December 31, 1998, interest of $1,350 was accrued on this
note.
At December 31, 1998, the Company had an unsecured note payable in the
amount of $36,115 to another officer/stockholder, due on demand. The
promissory note bears an interest rate of 8% per annum. At December 31,
1998, interest of $254 was accrued on this note.
NOTE 11 - CONTINGENCY
Litigation
----------
On July 23, 1998, H & H Acquisition Corp., individually and on behalf
of the Company, commenced an action in federal court in the Southern
District of New York against the Company, the founder and certain
officers, among others. The complaint is an action to recover shares of
common stock of the Company previously sold to an officer/stockholder
and unspecified damages. Management believes that the claims against
the Company and certain officers are without merit and is vigorously
defending the action. In addition, management believes that the
plaintiffs' principal causes of action relate to the founder, who has
filed a motion to dismiss the complaint on the grounds, in part, that a
mutual release previously executed with the plaintiff covers the
alleged action. No provision has been made in these financial
statements for any possible losses arising from this litigation.
Settlement Agreement
--------------------
In February 1998, a collateral pledge agreement was executed between
the Company and two outside parties to arrange for the Company to
receive $350,000 to purchase certain network computer and
telecommunications equipment. Pursuant to that collateral pledge
agreement, the Company granted a first priority security interest to
one of the parties (the "facilitator") in order to secure the
obligations of the other party ("the borrower") under said agreement.
The proceeds from this financing arrangement were received directly by
the borrower who never remitted these funds to the Company. The
Company, as a result of not receiving the contemplated funds, had to
make other arrangements to fund its purchase of the equipment.
In July 1998, pursuant to a settlement agreement with the facilitator,
in order to obtain a release of the security interest in the equipment,
the Company issued 500,000 shares of its common stock to the
facilitator in settlement of the obligation. If the facilitator
subsequently desires to sell the shares, the Company has a right of
first refusal to purchase those shares. In the event there is a sale of
the total shares, the facilitator receives the first $175,000 of the
net proceeds, and the balance shall be divided equally between the
facilitator and the Company. If the sale of shares has not taken place
by July 31, 1999, this agreement shall terminate and the facilitator
shall retain ownership of the shares. The charge to operations with
respect to the issuance of the 500,000 shares of common stock was
$315,000 for the year ended December 31, 1998.
F-21
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
NOTE 12 - SUBSEQUENT EVENTS
Private Placement
-----------------
On February 8, 1999, the Company entered into a subscription agreement
for a private placement of up to $1,700,000 principal amount of 7%
convertible promissory notes and warrants to purchase up to 3,333,333
shares of common stock in up to five separate installments at an
exercise price of $.40 per share for the initial warrants and $.60 per
share for the installments. The agreements consist of an initial
purchase of a Promissory Note in the principal amount of $600,000 (the
"Initial Note") and Initial Warrants to purchase 1,500,000 shares of
Common Stock for a purchase price of $600,000.
At the Initial Closing, the Company issued an Initial Note which will
be convertible into common stock of the Company in the principal amount
of $600,000, with $240,000 of the principal amount, and all accrued
interest thereon, payable upon conversion by the holder thereof
commencing March 10, 1999, and $360,000 of the principal amount, and
all accrued interest thereon, payable upon conversion by the holder
thereof commencing 90 days after the Initial Closing Date. The Initial
Note may be converted with respect to the $240,000 principal amount at
any time on or after March 10, 1999 and the balance of the $360,000
principal amount may be converted at any time commencing 90 days after
the Initial Closing Date. The Installment Notes in the aggregate
principal amount of $1,100,000 may be converted, in whole or in part,
at any time after issuance at the option of the holder.
Commencing on the date the offering becomes effective, and terminating
30 days later, Financial Intranet may serve a demand notice or the
investor may serve a purchase notice, with respect to the purchase for
$200,000 of a promissory note in the principal amount of $200,000 and a
warrant for the purchase of 333,333 shares of Common Stock at an
exercise price of $.60 per share.
The "Conversion Price" shall be the lessor of: (i) 75% of the average
of the five lowest closing bid prices of the Common Stock during the 30
trading days ending on the trading day immediately preceding the
Conversion Date, or (ii) $.40, $.50 and $.60 per share with respect to
the promissory note for the $200,000 promissory note and the promissory
notes in the principal amount of $300,000, respectively.
During the 90 day period after the closing of the installment for a
promissory note in the principal amount of $200,000, Financial Intranet
may serve a demand notice or the investor may serve a purchase notice,
with respect to the purchase for $300,000 of a promissory note in the
principal amount of $300,000 and a
F-22
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Information with respect to December 31, 1998 is unaudited)
warrant for the purchase of 500,000 shares of Common Stock (the "Third
Installment"). During the 90 day period after the Third Installment,
Financial Intranet may serve a demand notice or the investor may serve
a purchase notice, with respect to the purchase for $300,000 of a
promissory note in the principal amount of $300,000 and a warrant for
the purchase of 500,000 shares of Common Stock (the "Fourth
Installment"). During the 90 day period after the Fourth Installment,
Financial Intranet may serve a demand notice or the investor may serve
a purchase notice, with respect to the purchase for $300,000 of a
Promissory Note in the principal amount of $300,000 and a warrant for
the purchase of 500,000 shares of Common Stock The warrants are
exercisable for a period of five years after issuance at an exercise
price of $.60 per share.
The two Placement Agents, as part of their fee, each shall also
receive, on the Initial Closing Date, 15,000 shares of Common Stock and
Initial Warrants to purchase 75,000 shares of Common Stock at an
exercise price equal to $0.40 per share of Common Stock and otherwise
on terms set forth in the Common Stock Purchase Warrant.
On each Closing Date for an installment: (i) the two Placement Agents,
as part of their fee, each shall also receive 1,727 shares of Common
Stock for each $100,000 funded to the Company by the Investor and
Installment Warrants to purchase 10,000 shares of Common Stock on the
Closing Date for each $100,000 funded on the second installment, and
Installment Warrants to purchase 8,333 shares of Common Stock on each
Closing Date for each $100,000 funded on the third, fourth and fifth
installments. The Installment Warrants will have an exercise price of
$0.60 per share.
Public Offering
---------------
In February 1999, the Company plans to file a Registration Statement
(Form SB-2) covering the primary offering of Common Stock by the
Company and the offering of Common Stock by certain Selling
Securityholders. The Company is registering under the primary
prospectus 3,000,000 Shares of Common Stock, par value $.001 per share,
for sale. The Selling Securityholders are registering under an
alternate prospectus 5,258,333 shares of Common Stock underlying the
warrants, 6,975,000 shares of Common Stock underlying the convertible
promissory notes (including an additional 2,325,000 shares of Common
Stock being registered with respect to certain anti-dilution provisions
of such promissory notes), 55,000 shares of Common Stock previously
issued and 37,994 shares of Common Stock which will be issued upon
conversion of certain promissory notes. These shares will be offered to
the public at an offering price of $2.00 per share.
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Financial Intranet, Inc. (formerly Wee Wees, Inc.)
(a Development Stage Company)
We have audited the accompanying balance sheets of Financial Intranet, Inc.
(formerly Wee Wees, Inc.) (a Development Stage Company) as of December 31, 1996
and 1997, and the related statements of operations, changes in stockholders'
equity, and cash flows for the period December 17, 1996 (date of inception)
to December 31, 1996 and the year ended December 31, 1997. 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 audits 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 financial position of Financial Intranet, Inc.
(formerly Wee Wees, Inc.) (a Development Stage Company) as of December 31, 1996
and 1997, and the results of its operations, changes in stockholders' equity,
and its cash flows for the period December 17, 1996 (date of inception) to
December 31, 1996, and the year ended December 31, 1997 in conformity with
generally accepted accounting principles.
REMINICK, AARONS & COMPANY, LLP
New York, New York
October 9, 1998, except for Note 9, as
to which the date is December 1, 1998
F-24
<PAGE>
BALANCE SHEETS
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 1997
----- -----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 102 $ 1,929
Due from officer 0 20,410
Prepaid expenses 0 4,693
------ --------
Total current assets 102 27,032
Property and equipment 0 303,987
Notes receivable 0 41,200
Other assets 0 23,773
------ --------
$ 102 $395,992
===== ========
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
December 31,
1996 1997
----- -----
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Accounts payable and accrued liabilities $ 0 140,292
Due to officer 0 43,489
Loan payable 0 47,250
--------- -----------
Total current liabilities 231,031
--------- -----------
Commitments and contingency
Stockholders' equity
Common stock, $.001 par value, 25,000,000 shares
authorized; 3,980,000 and 15,589,228 shares issued
and outstanding in 1996 and 1997, respectively 3,980 15,589
Additional paid-in capital 30,620 1,306,622
Deficit accumulated during the development stage (34,498) (851,928)
Less: Stock subscriptions receivable 0 (75,000)
Deferred compensation cost 0 (230,322)
--------- -----------
Total stockholders' equity 102 164,961
--------- -----------
$ 102 $ 395,993
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-26
<PAGE>
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
December 17, 1996
(Inception) to Year Ended
December 31, 1996 December 31, 1997
----------------- -----------------
<S> <C> <C>
Revenue
Interest income $ 0.00 $ 2,475
---------- ----------
Total revenue 0.00 2,475
---------- ----------
Expenses
General and administrative 9,760 817,280
Interest expense 0.00 2,625
---------- ----------
Total expenses 9,760 819,905
---------- ----------
Net loss $ (9,760) $(817,430)
=========== ==========
Net loss per common share:
Basic $ 0.00 $ (0.07)
=========== ==========
Diluted $ 0.00 $ (0.07)
=========== ==========
Weighted number of common shares
outstanding:
Basic 3,840,000 10,932,883
========= ==========
Diluted 3,840,000 10,932,883
========= ==========
</TABLE>
F-27
<PAGE>
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 17, 1996 (DATE OF INCEPTION)
TO DECEMBER 31, 1996 AND THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Total
Additional Deferred Stockholders'
Common Stock Paid-in Subscriptions Accumulated Stock (Deficiency)
Date Shares Amount Capital Receivable Deficit Compensation Equity
---- ------ ------ ------- ---------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
December 17, 1996 (inception) 3,700,000 $3,700 $ 20,900 $ 0.00 $(24,738)(a) $ $ (138)
December 17, 1996 - issuance in lieu
services by director of
of former company (Wee Wees, Inc.) 40,000 40 (40) 0.00 0.00 0.00
December 20, 1996 - issuance in lieu of
$10,000 in consulting
fees 240,000 240 9,760 0.00 0.00 10,000
Net loss 0.00 0.00 0.00 0.00 (9,760) (9,760)
--------- ----- ------- ------ ------- ------- -------
Balance - December 31, 1996 3,980,000 3,980 30,620 0.00 (34,498) 102
February 29, 1997 - issuance in lieu
of compensation to key executives 4,250,000 4,250 148,500 0.00 0.00 152,750
May 1997 through December 31, 1997 -
Private Placement 6,904,228 6,904 877,823 (75,000) 0.00 809,727
August 4, 1997 - issuance in lieu of
$6,500 in promotional fees 100,000 100 6,400 0.00 0.00 6,500
September 1997 - issuance of
common stock to employees and
increase in additional paid-in
capital resulting from stock
options granted 40,000 40 243,594 0.00 0.00 (230,322) 13,312
</TABLE>
F-28
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
November 15, 1997 - issuance of stock
per non-dilution provisions
of consulting agreement 315,000 $ 315 $ (315) 0.00 0.00 0.00
Net loss 0.00 0.00 0.00 0.00 (817,430) (817,430)
---------- ------ ---------- -------- --------- --------- ---------
Balance - December 31, 1997 15,589,228 $15,589 $1,306,622$ (75,000) $(851,928) $(230,322) $164,961
=========== ====== ========== ======== ========= ========= ========
</TABLE>
(a) The accumulated deficit at the beginning of the period of inception
represents the accumulated deficit of Wee Wees Inc. prior to its acquisition by
the founder of Financial Intranet, Inc. (see Note 1).
F-29
<PAGE>
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December
17, 1996
(Inception) Year Ended
to December December
31, 1996 31, 1997
<S> <C> <C>
Cash flows from operating activities
Net loss $(9,760) $(817,430)
Adjustments to reconcile net loss to net cash
used by operating activities
Consulting services paid by issuance of common
stock 9,760 159,290
Compensation expense resulting from stock
options granted 0 13,272
Changes in assets and liabilities:
Notes receivable 0 (41,200)
Prepaid expenses 0 (4,693)
Other assets 0 (23,773)
Accounts payable 0 140,292
Due to officer 0 43,489
Loan payable 0 47.250
--------- ---------
Net cash used by operating activities 0 (483,503)
--------- ---------
Cash flows from investing activities
Loan advanced to officer 0 (20,410)
Capital expenditures 0 (303,987)
--------- ---------
Net cash used by investing activities 0 324,397
--------- ---------
Cash flows from financing activities
Cash acquired at inception 102 0
Commissions on issuance of common stock 0 (20,523)
Proceeds from issuance of common stock 0 880,250
--------- ---------
Net cash provided by financing activities 102 809,727
--------- ---------
Net increase in cash and cash equivalents 102 1,827
</TABLE>
F-30
<PAGE>
<TABLE>
<S> <C> <C>
Cash and cash equivalents - beginning 0.00 102
--------- ---------
Cash and cash equivalents - ending $ 102 $ 1,929
========= ========
Supplementary disclosure of cash flow
information
Cash paid during the year for:
Interest $ 0 $ 2,625
========= ========
</TABLE>
F-31
<PAGE>
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Financial Intranet, Inc. (the "Company"), formerly Wee Wees, Inc.
(which was formerly Alexis & Co.) is a Nevada corporation incorporated
on December 16, 1993. The founder of the Company acquired all of the
outstanding shares of Wee Wees, Inc. to obtain the benefits of a
corporate entity for the business. For the purpose of these financial
statements, the date of inception is considered to be the date Wee
Wees, Inc. was acquired by the founder. The accumulated deficit of Wee
Wees, Inc., at the date of its acquisition by the founder of the
Company, consists primarily of legal fees and general business
consulting expenses. The Company, a development stage company, is to
provide a secured on-demand proprietary network (intranet) for
broker-dealers and their registered representatives. The network will
be designed to provide updated training and data information
concerning, among other things, those mutual funds planning to
participate in the Company's network. In addition, the Company has
developed an internet presence accessible to the general public which
will highlight the Company's mutual fund clients. It is the Company's
initial intention to connect over 200 U.S. broker-dealer locations and
subsequently provide local access ports in various cities around the
world.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
F-32
<PAGE>
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Property and Equipment
Property and equipment are stated at cost. At December 31, 1997, the
computer hardware and software acquired to implement the Company's
intranet and internet systems were not fully installed or online; as
such, no depreciation or amortization has been calculated for these
assets for the year then ended.
Income Taxes
The Company accounts for income taxes in accordance with the asset and
liability method of accounting for income taxes proscribed by Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes.
Under the asset and liability method of 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 and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to the 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. At December 31, 1997, the primary difference giving
rise to a deferred tax asset consisted primarily of net operating loss
carryforwards available to offset future taxable income. A 100%
valuation allowance was provided against the deferred tax asset.
Advertising
Advertising costs are expensed as incurred.
F-33
<PAGE>
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Earnings Per Share
During the year ended December 31, 1997, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 128,
'Earnings Per Share" ("SFAS 128"). SFAS 128 requires the presentation
of basic and diluted earnings per share ("EPS"). Basic EPS is computed
by dividing income (loss) available to common stockholders by the
weighted-average number of common shares outstanding during the period.
Diluted EPS is computed by dividing that income (loss) by the
weighted-average number of common shares and common stock equivalents
outstanding during the period. Common stock equivalents have been
excluded from the weighted-average shares for 1997 and 1996, because
their inclusion is anti-dilutive. All prior period EPS information has
been computed in accordance with the new pronouncement.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 is effective for
fiscal years beginning after December 31, 1995 and prescribes
accounting and reporting standards for all stock-based compensation
plans, including employee stock options, restricted stock, employee
stock purchase plans and stock appreciation rights. SFAS 123 requires
compensation expense to be recorded (i) using the new fair value method
or (ii) using existing accounting rules prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations with pro forma
disclosure of what net income and earnings per share would have been
had the Company adopted the new fair value method. The Company accounts
for its stock-based compensation in accordance with the provisions of
APB 25.
F-34
<PAGE>
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Effect of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") establishes standards for reporting
and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements. The Company's net loss is the only item of
comprehensive income through December 31, 1997.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and related Information" ("SFAS 131"), which
supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise",
establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in
interim financial statements regarding products and services,
geographic areas and major customers. SFAS 131 defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. The Company's results of
operations and financial position will be unaffected by implementation
of these new standards.
F-35
<PAGE>
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Effect of Recently Issued Accounting Standards (Continued)
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits" ("SFAS
132"), which standardizes the disclosure requirements for pensions and
other postretirement benefits. The adoption of SFAS 132 in 1998 is not
expected to materially impact the Company's current disclosures.
NOTE 2 - NOTES RECEIVABLE
In connection with entering into a Letter of Intent to acquire 80% of
the equity of Micro-Intelligent Systems, Inc. (MIS), a private
corporation that manufactures a portable electronic document device,
the Company provided loans to MIS. On February 25, 1997, in conjunction
with the signing of the Letter of Intent, the Company provided a loan
of $20,000, due on demand on or after February 25, 2007, together with
interest at the rate of 4% per annum. On March 21, 1997, the Company
issued an additional loan of $20,000, due on demand on or after March
21, 2007, together with interest at the rate of 4% per annum.
Subsequently, management has rescinded plans for the acquisition. At
December 31, 1997, there was accrued interest of $1,200 due on these
notes receivable.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997:
<TABLE>
<S> <C>
Computer equipment $ 235,712
Software development 68,275
---------
303,987
Accumulated depreciation and amortization -
---------
$ 303,987
=========
</TABLE>
There was no depreciation or amortization expense charged to operations
for the year ended December 31, 1997 since the equipment has not yet
been placed into service.
F-36
<PAGE>
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - LOAN PAYABLE
In September 1997, Civilization Communications Inc. (CivCom), a
consultant, (see Note 5) advanced funds to various vendors on behalf of
the Company. These payments were memorialized in a promissory note
dated January 2, 1998 for $47,250 at an annual interest rate of prime
due on June 30, 1998. Subsequently, on August 28, 1998 the balance,
including principal and interest, was fully repaid.
NOTE 5 - COMMITMENTS
Operating Leases
The Company subleases its office space in New York City on a
month-to-month basis. Rent expense under this lease charged to
operations was $22,431 for the year ended December 31, 1997.
In October 1997, the Company entered into a lease for office space in
Ardsley, New York for a term of three (3) years commencing on January
1, 1998. The lease provides for a fixed annual base rent of $15,575
payable in equal monthly installments plus a proportionate share of
certain incremental building operating costs as defined in the lease.
In June 1998, the Company entered into a lease for additional office
space in Ardsley, New York for a term commencing on July 15, 1998 and
expiring on December 31, 2000. This lease provides for an annual base
rent of $8,303 payable in equal monthly installments, plus a
proportionate share of certain incremental building operating costs as
defined in the lease.
Minimum required future rental payments under these operating leases
are as follows:
1998 $ 19,726
1999 23,878
2000 21,282
---------
$ 64,886
=========
F-37
<PAGE>
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS (CONTINUED)
Consulting Agreement - Civilization Communications Inc.
In October 1996, the Company entered into an agreement (amended
December 20, 1996), with Civilization Communications Inc. (CivCom), to
provide various consulting services. Specifically, CivCom assisted in
the preparation of the Company's Business Plan and the preparation of
the initial Private Placement Memorandum (PPM) as well as associated
and relevant documents. In addition, the agreement provides for CivCom,
at the Company's request, to assist in the preparation of all filings
and prepare the documentation required to be filed on a timely basis
with various state and federal agencies concerning the raising of the
funds encompassed by the PPM. In consideration of the services
provided, the agreement provides for $25,000 in compensation, payable
as follows: a $15,000 cash payment from the funds acquired through the
placement of any of the Company's securities and 200,000 shares
(subsequently adjusted to 240,000 shares) of common stock (in lieu of
$10,000).
In accordance with the non-dilutive provisions of the agreement, CivCom
is entitled to maintain a 6.1% share of the total outstanding shares of
the Company's common stock through July 7, 1998. As such, CivCom has
been issued 555,000 shares through December 31, 1997. Subsequent to
July 7, 1998, CivCom continued to consult the Company on a fixed price
per hour basis.
Consulting Agreements - Key Executives
On February 29, 1997, the Company entered into consulting agreements
with three key executives to whom the Company was intending to
eventually offer long-term employment agreements (see below). The
consulting agreements provide for monthly stipends from the date of
signing to the date the Company and the executives enter into the
employment agreements. The consulting agreements also provide for the
issuance of the Company's common stock at par value since at the time
there was no determined market value for the shares issued. The key
executives and the related provisions within their respective
agreements are as follows:
F-38
<PAGE>
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS (CONTINUED)
Consulting Agreements - Key Executives (Continued)
<TABLE>
<CAPTION>
Monthly Common Stock Par Value of
Executive Stipend Issued Stock
Issued
<S> <C> <C> <C>
Founder - Managing Director
and Secretary $12,500 1,500,000 shares $1,500
President and Chief Operating
Officer $12,500 750,000 shares $ 750
Senior Vice-President - Sales
and Marketing $ 5,417 500,000 shares $ 500
</TABLE>
In addition, on February 29, 1997, in lieu of $150,000 in compensation
for prior consulting services through December 31, 1997, the founder
was issued an additional 1,500,000 shares of the Company's common
stock.
Employment Agreements
On September 12, 1997, the Company entered into employment agreements
with three key executives. The agreements are for a three- or five-year
period commencing on January 1, 1998 and may be extended by the Company
for an additional three-year period upon written notice six months
prior to the third anniversary of the original term. The agreements
stipulate the duties, compensation and benefits, indemnification,
termination and various other terms of employment. Included in
compensation for all three executives is an option to purchase, at any
time while the executive is employed by the Company, additional shares
(in addition to any shares previously issued) of the Company's common
stock at a price per share equal to eighty percent of the per share bid
price averaged over five working days prior to the date of the signed
employment agreement. The options shall permit each executive to
purchase up to a certain percentage (see below) of the Company's issued
and outstanding shares of common stock less; (i) shares previously
issued according to the consulting agreement; (ii) less any shares
previously issued as a result of the exercise of this option and (iii)
less any shares issued in lieu of cash expenses advanced by the
executive or accepted as previously earned consulting fees paid to the
executive in lieu of cash.
F-39
<PAGE>
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS (CONTINUED)
Employment Agreements (Continued)
The number of the Company's issued and outstanding common stock for the
purpose of calculating the total number of shares which may be
purchased by the executive in exercising the option shall be; i) the
number of shares issued on a fully diluted basis on the later of the
exercise date or any date prior to December 31, 1998, providing that
ii) the total number of shares issued on a fully diluted basis utilized
in the calculation of the shares available for purchase under the
option shall not exceed the number of shares issued and outstanding at
December 31, 1998 as recorded on the Company's stock ledger as reported
by the Company's transfer agent. These options are non-transferable and
expire on the last date of the original employment term or any
extension thereof. The executives and the related provisions of their
employment agreement are detailed below:
<TABLE>
<CAPTION>
Stock Option
Executive Base Salary Percentage
<S> <C> <C>
Founder - Managing Director and Secretary $150,000 25.0%
President and Chief Operating Officer $150,000 14.5%
Senior Vice-President - Sales and Marketing $100,000 9.0%
</TABLE>
F-40
<PAGE>
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS (CONTINUED)
Employment Agreements (Continued)
Summary information with respect to stock options granted is as
follows:
<TABLE>
<CAPTION>
Outstanding Outstanding
Exercise Options Options
Price Granted Exercisable
<S> <C> <C> <C>
Balance, December 17, 1996
(inception)
Activity:
Options granted - -
Options exercised - -
Options cancelled - -
---------- ----------
Balance, December 31, 1996 - -
---------- ----------
Activity:
Options granted $.19 4,810,776 4,810,776
Options exercised -
Options cancelled - - -
----------- ----------
Balance, December 31, 1997 $.19 4,810,776 4,810,776
========== ==========
</TABLE>
Compensation cost charged to operations was $13,272 for the year ended
December 31, 1997 resulting from stock options granted during 1997.
Consulting Agreement - Independent Consultant
On October 6, 1997, the Company entered into a consulting agreement
with an individual to provide various marketing, sales, general and
public relations consulting in connection with undertaking the
promotion of the Company's products, training programs and services to
broker/dealers, underwriters and administrators of mutual funds. In
consideration of the "best effort" services provided, the agreement
granted the consultant a Warrant to purchase up to
F-41
<PAGE>
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - COMMITMENTS (CONTINUED)
Consulting Agreement - Independent Consultant (Continued)
one million (1,000,000) shares of the common stock of the Company at
$.01 per share. The window of time in which the Warrant can be
exercised is one year from date of issue through the last day of the
sixth year from the date of issue of the Warrant. In addition, all
travel, mailing, entertainment, printing, postage and all other
expenses directly related to services will be reimbursed by the
Company.
The terms of the agreement are for a period commencing with the date of
the signing of the agreement and shall terminate on October 20, 1999,
with an extension convertible to October 20, 2000, unless sooner by
death of the consultant or a 30-day notice of termination by either
party.
The Warrant was exercised on October 9, 1998 for 1,000,000 shares.
NOTE 6 - STOCKHOLDERS' EQUITY
The Company had a private placement offering in May of 1997, whereby
6,904,228 shares of common stock were issued. The Company had two
outstanding subscription agreements from investors totaling $75,000 for
the purchase of a total 600,000 shares of the Company's common stock at
December 31, 1997. The Company authorized the issuance of 25,000,000
shares of common stock, and 15,589,228 shares are issued and
outstanding at December 31, 1997.
NOTE 7 - RELATED PARTY TRANSACTIONS
Due from Officer
At December 31, 1997, the Company had a $19,500 note receivable from an
officer/stockholder of the Company. The note receivable, which is due
on demand, bears interest at 8% per annum. At December 31, 1997, there
was $910 of accrued interest on the note receivable. The balance of
this note receivable, including accrued interest, was fully repaid by
November 6, 1998.
F-42
<PAGE>
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - RELATED PARTY TRANSACTIONS (CONTINUED)
Due to Officer
At December 31, 1997, the Company had an unsecured note payable to an
officer/stockholder of $43,489. The borrowings, advanced to meet
current operating obligations, are due on demand and are non-interest
bearing.
NOTE 8 - CONTINGENCY
On July 23, 1998, H & H Acquisition Corp., individually and on behalf
of the Company, commenced an action in federal court in the Southern
District of New York against the Company, the founder and certain
officers, among others. The complaint is an action to recover shares of
common stock of the Company previously sold to an officer/stockholder
and unspecified damages. Management believes that the claims against
the Company and certain officers are without merit and is vigorously
defending the action. In addition, management believes that the
plaintiffs' principal causes of action relate to the founder, who has
filed a motion to dismiss the complaint on the grounds, in part, that a
mutual release previously executed with the plaintiff covers the
alleged action. No provision has been made in these financial
statements for any possible losses arising from this litigation.
NOTE 9 - SUBSEQUENT EVENTS
On May 20, 1998, the Company entered into subscription agreements to
sell a total of $500,000 in convertible debentures, due November 20,
1998. The debentures pay 6% cumulative interest annually, payable in
cash or in freely trading common stock of the Company, at the Company's
option at the time of each conversion until the principal amount is
paid in full or has been converted. The debentures are subject to
automatic conversion at the end of six months from the date of issuance
based on a formula as defined under the agreements. The holder of the
debenture has the right, at their option, to convert it into shares of
the Company's common stock at any time before the close of business on
the maturity date.
F-43
<PAGE>
FINANCIAL INTRANET, INC.
(formerly Wee Wees, Inc.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - SUBSEQUENT EVENTS (CONTINUED)
On June 4, 1998, the Company entered into a Placement Agent Agreement
with Corporate Capital Management LLC (CCM). The agreement appoints CCM
exclusive placement agent of the Company during the offering period as
defined in the agreement for the purpose of assisting the Company in
the sale of $500,000 (the Funds) in principal amount of its convertible
12% promissory note due December 1, 1998 (the Note). The agreement
provides for a cash fee in an amount equal to 10% of the gross proceeds
from the sale of the Note plus warrants to purchase 50,000 shares of
the Company's common stock. The warrants shall be exercisable at a
price equal to 110% of the bid price for the common stock on the date
of closing of the sale of the Note. In conjunction with the Placement
Agent Agreement, the Company entered into an Escrow Agreement with
Ferber Chan & Essner to hold the Funds in escrow pursuant to the terms
outlined in the agreement.
In conjunction with the agreement to retain CCM as placement agent, on
June 4, 1998, the Company entered into a subscription agreement for the
Note. The note is convertible, at the holder's option, at any time,
into shares of common stock of the Company. The number of shares of
common stock into which the Note may be converted shall be determined
at the lesser of (i) 72.5% of the lowest closing bid price quoted on
the over-the-counter Bulletin Board market of the common stock for the
five-day trading period ending on the day prior to the conversion date
or (ii) the lowest closing bid price quoted on the Bulletin Board of
the common stock for the five-day trading period ending on the day
prior to the closing of the sale of the Note.
F-44
<PAGE>
Alternate Cover Page - The Offering
SUBJECT TO COMPLETION, DATED FEBRUARY 25, 1999
PROSPECTUS
10,001,327 Shares of Common Stock
Financial Intranet Inc.
This Prospectus relates to the offering of 10,001,327 Shares of Common
Stock ("Common Stock"), par value $.001 per share, of Financial Intranet Inc., a
Nevada corporation (the "Company").
The Securities offered by this Prospectus may be sold from time to time
by the Selling Securityholders, or by their transferees. No underwriting
arrangements have been entered into by the Selling Securityholders. The
distribution of the securities by the Selling Securityholders may be effected in
one or more transactions that may take place on the over-the-counter market
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more dealers for resale of such shares as principals at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with sales of such securities. Transfers of the
securities may also be made pursuant to applicable exemptions under the
Securities Act of 1933 (the "Securities Act") including but not limited to sales
under Rule 144 under the Securities Act.
The Selling Securityholders and intermediaries through whom such
securities may be sold may be deemed "underwriters" within the meaning of the
Securities Act with respect to the securities offered, and any profits realized
or commissions received may be deemed underwriting compensation. Financial
Intranet has agreed to indemnify the Selling Securityholders against certain
liabilities, including liabilities under the Securities Act.
On the date hereof, FNTN commenced, pursuant to the Registration
Statement of which this Prospectus is a part, a public offering of 3,000,000
shares of Common Stock.
FNTN will not receive any of the proceeds from the sale of the
securities by the Selling Securityholders, but will receive proceeds from the
options covered by such shares. All costs incurred in the registration of the
securities of the Selling Securityholders are being borne by FNTN. See "Selling
Securityholders."
FNTN intends to furnish its securityholders with annual reports
containing audited financial statements and the audit report of the independent
certified public accountants and such interim reports as it deems appropriate or
as may be required by law. FNTN's fiscal year ends December 31.
To invest in this stock you must be able to bear a high degree of risk
and an investment could result in a complete loss. You also must accept an
immediate, substantial dilution of the book value of your Shares. To read about
these issues see, "Risk Factors" which begins on Page 6 and "Dilution" which
begins on Page 15.
Neither the Securities and Exchange Commission (the "SEC") nor any
state securities commission has approved or disapproved these securities or
passed upon the adequacy of the prospectus. Any representation to the contrary
is a criminal offense.
----------------------------
The date of this Prospectus ______ __ , 1999
A-1
<PAGE>
The Offering
<TABLE>
<S> <C>
Securities Offered by Selling Securityholders: Shares of Common Stock
Securities Outstanding Prior to FNTN's Offering: 21,233,496 Shares of Common Stock
Securities Outstanding after FNTN's Offering: 34,179,823 Shares of Common Stock(1)
Risk Factors and Dilution: An investment in any of the securities being offered
hereby is highly speculative and involves substantial
risks including limited operations, market acceptance,
working capital, use of proceeds; broad discretion in
application of proceeds, dependence upon a key
individual and possible need for additional financing
and competition. An investment also involves
immediate and substantial dilution. Investors should
carefully consider the matters set forth under the
captions "Risk Factors" and "Dilution."
OTC Bulletin Board Symbol: FNTN
</TABLE>
- ------------------------------
(1) Includes: (a) 5,258,333 shares of Common Stock issuable upon exercise of
the warrants, (b) 4,650,000 shares of Common Stock issuable upon conversion
of the promissory notes issued to the Selling Securityholders, (c) 55,000
shares of Common Stock previously issued to the Selling Securityholders,
and (d) 37,994 shares otherwise issuable to the Selling Securityholders and
(e) 3,000,000 shares of Common Stock being offered by FNTN. See
"Description of Securities," "Principal Stockholders," and "Plan of
Distribution."
A-2
<PAGE>
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this Prospectus. You must not
rely on any unauthorized information. This Prospectus does not offer to sell or
buy any shares in any jurisdiction where it is unlawful. The information in this
Prospectus is current only as of the date of this Prospectus.
------------------------------------------
TABLE OF CONTENTS
Page
Prospectus Summary 3
Risk Factors 6
Use of Proceeds 13
Capitalization 14
Dilution 15
Dividend Policy 16
Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Business 22
Management 32
Certain Transactions 38
Principal Stockholders 39
Selling Securityholders 40
Description of Securities 43
Shares Eligible for Future Sale 46
Plan of Distribution 47
Legal Matters 47
Experts 47
Financial Statements F-1
Until _________, 1999 (25 days after the date of this Prospectus), all dealers
effecting transactions in the securities offered hereby, whether or not
participating in the 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 regard to their unsold allotments or subscription.
FINANCIAL INTRANET INC.
10,001,327 Shares Of Common Stock
--------------------------
Prospectus
--------------------------
<PAGE>
PART II
Information Not Required in Prospectus
ITEM 24. Indemnification of Officers and Directors
Subsection 1 of Section 78.7302 of Chapter 78 of the Nevada General
Corporation Law ("NGCL") empowers a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (except in an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe his action was unlawful.
Subsection 2 of Section 78.7502 of the NGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
acted in any of the capacities set forth above, against expenses, including
amounts paid in settlement and attorneys' fees, actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if he
acted in accordance with the standard set forth above, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged by a court of competent jurisdiction after
exhaustion of all appeals therefrom to be liable to the corporation or for
amounts paid in settlement to the corporation unless and only to the extent that
the court in which such action or suit was brought or other court of competent
jurisdiction determines that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court deems proper.
Section 78.751 of the NGCL provides that unless indemnification is
ordered by a court, the determination to provide indemnification must be made by
the stockholders, by a majority vote of a quorum of the board of directors who
were not parties to the action, suit or proceeding, or in certain circumstances
by independent legal counsel in a written opinion. In addition, the articles of
incorporation, bylaws or an agreement made by the corporation may provide for
the payment of the expenses of a director or officer of the expenses of
defending an action as incurred upon receipt of an undertaking to repay the
amount if it is ultimately determined by a court of competent jurisdiction that
the person is not entitled to indemnification. Section 78.751 of the NGCL
further provides that, to the extent a director or officer of a corporation has
been successful on the merits or otherwise in the defense of any action, suit or
proceeding referred to in subsection (1) and (2) , or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification provided for by Section 78.751 of the
NGCL shall not be deemed exclusive of any other rights to which the indemnified
party may be entitled and that the scope of indemnification shall continue as to
directors, officers, employees or agents who have ceased to hold such positions,
and to their heirs, executors and administrators.
Finally, Section 78.752 of the NGCL empowers the corporation to
purchase and maintain insurance on behalf of a director, officer, employee or
agent of the corporation against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such whether or not
the corporation would have the authority to indemnify him against such
liabilities and expenses.
The Registrant's bylaws provide for indemnification of officer,
directors and others to the fullest extent permitted by the laws of the State of
Nevada.
II-1
<PAGE>
ITEM 25. Other Expenses of Issuance and Distribution
The expenses payable by Registrant in connection with the issuance and
distribution of the securities being registered are estimated as follows:
Securities and Exchange Commission Fees...............................$8,521.43
Accounting Fees and Expenses.........................................$30,000.00
Blue Sky Fees and Expenses...........................................$25,000.00
Printing Expenses (including Securities).............................$30,000.00
Legal Fees...........................................................$70,000.00
Miscellaneous........................................................$16,478.57
TOTAL.............................................$180,000.00
ITEM 26. Recent Sales of Unregistered Securities
All issuances were under Section 4(2) unless otherwise indicated.
COMMON STOCK
On January 21, 1999, Financial Intranet issued 197,402 shares of Common
Stock to Barry Stein in consideration for services valued at $43,837.55.
On January 21, 1999, Financial Intranet issued 205,825 shares of Common
Stock to Michael Sheppard in consideration for services valued at $55,854.14.
On January 21, 1999, Financial Intranet issued 208,409 shares of Common
Stock to Maura Marx in consideration for services valued at $56,109.39 pursuant
to Rule 144.
On December 17, 1998, Financial Intranet issued 26,667 shares of Common
Stock to Civilization Communication in consideration for services valued at
$16,000 pursuant to Rule 701.
On October 9, 1998, Financial Intranet issued 1,000,000 shares of
Common Stock to Kevin Haggerty in consideration for services valued at $10,000.
On October 15, 1998, Financial Intranet issued 60,637 shares of Common
Stock to Great North Capital in consideration for fees pursuant to a 1997
private placement.
On October 15, 1998, Financial Intranet issued 8,333 shares of Common
Stock to Ganesh Asset Management in consideration for fees pursuant to a 1997
private placement.
On July 17, 1998, Financial Intranet issued 500,000 shares of Common
Stock to Internet Credit in consideration for release of security interest in
equipment.
On July 15, 1998, Financial Intranet issued 112,093 shares of Common
Stock to Civilization Communication pursuant to anti-dilution provisions of a
consulting agreement.
On June 12, 1998, Financial Intranet issued 60,000 shares of Common
Stock to JG Partners, LP in consideration for services valued at $48,200.
On June 11, July 11, and July 23, Financial Intranet issued a total of
1,070,800 shares of Common Stock to Thomas Kernaghan & Co. in consideration for
$500,000 pursuant to Rule 504.
On June 11, 1998, FNTN issued 28,794 and 9,599 shares to Great North
Capital and Corp. Capital Management respectively in consideration for fees on
Cadence Capital Funding.
II-2
<PAGE>
On June 5, 1998, Financial Intranet issued 1,352,718 shares of Common
Stock to Cadence Capital Corporation in consideration for $500,000 pursuant to
Rule 504 of Regulation D.
On May 19, 1998, Financial Intranet issued 38,066 shares of Common
Stock to Steven Sanders in consideration for services valued at $9,453.50.
On May 19, 1998, Financial Intranet issued 9,516 shares of Common Stock
to Debra Millman in consideration for services valued at $2,422.
On May 19, 1998, Financial Intranet issued 175,000 shares of Common
Stock to Civilization Communication Corp. in consideration for services valued
at $43,750.
On February 9, 1998, Financial Intranet issued 234,649 shares of Common
Stock to Civilization Communication Corp. pursuant to anti-dilution provisions
of a consulting agreement.
On January 14, 1998, Financial Intranet issued 400,000 shares of Common
Stock to Landmark Capital in consideration for $107,500.
On November 15, 1997, Financial Intranet issued 315,000 shares to
Civilization Communication Corp. pursuant to anti-dilution provisions of a
consulting agreement.
On September 5, 1997, Financial Intranet issued 20,000 shares of Common
Stock to Ron Pauls, an employee, in consideration for services rendered.
On September 5, 1997, Financial Intranet issued 20,000 shares of Common
Stock to James Reiff, an employee, in consideration for services rendered.
On August 4, 1997, Financial Intranet issued 100,000 shares of Common
Stock to CHEZ, INC. in consideration for $6,500.
In June 1997, Financial Intranet issued 6,904,228 shares of Common
Stock to investors of which 4,304,228 were purchased by non-U.S. residents
overseas for an aggregate consideration of $1,000,000 pursuant to Rule 504 of
Regulation D.
On February 27, 1997, Financial Intranet issued 750,000 shares of
Common Stock to Michael Sheppard as an incentive payment for execution of
employment contract pursuant to Section 701.
On February 27, 1997, Financial Intranet issued 500,000 shares of
Common Stock to Maura Marx as an incentive payment for execution of employment
contract pursuant to Section 701.
On February 2, 1997, Financial Intranet issued 1,500,000 shares of
Common Stock to Barry Stein as an incentive payment for execution of employment
contract pursuant to Section 701.
On December 20, 1996, Financial Intranet issued 240,000 shares of
Common Stock to Civilization Communication Corp. in consideration for services
valued at $10,000.
On December 17, 1996, Financial Intranet issued 40,000 shares of Common
Stock to Michael Daniels in consideration for services rendered.
OPTIONS AND WARRANTS
Pursuant to his employment agreement, dated September 12, 1997, Michael
Sheppard will receive options to purchase 14.5% of the shares of Common Stock
issued through December 31, 2002, provided that the aggregate number
II-3
<PAGE>
of options shall be reduced by the sum of (a) 750,000; (b) any shares issued
upon exercise of the option; and (c) any shares issued in lieu of cash expenses
advanced by Mr. Sheppard or accepted as previously earned consulting fees in
lieu of cash. The purchase price for such shares is $0.19 per share for
2,231,352 shares of Common Stock as of December 31, 1998. The exercise price for
options issued after December 31, 1998 is the market price per share of Common
Stock on the date that Financial Intranet issues any additional shares of Common
Stock, including options to purchase 2,009,667 shares if all outstanding
options, warrants and convertible securities outstanding as of the date of this
Registration Statement are exercised.
Pursuant to her employment agreement, dated September 12, 1997, Ms.
Marx will receive options to purchase 9% of the shares of Common Stock issued by
Financial Intranet through December 31, 2002, reduced by the sum of (a) 500,000
shares; (b) any shares issued upon exercise of the option; and (c) any shares
issued in lieu of cash expenses advanced by Ms. Marx or accepted as previously
earned consulting fees in lieu of cash. The purchase price for such shares is
$0.19 per share for 1,350,495 shares of Common Stock. The exercise prices for
options issued after December 31, 1998 are the market prices per share of Common
Stock on the date that Financial Intranet issues any additional shares including
options to purchase 1,247,379 shares if all options, warrants and convertible
promissory notes outstanding as of the date of this Registration Statement are
exercised.
Pursuant to Mr. Stein's employment agreement, dated September 12, 1997,
he will receive options to purchase 25% of the shares of Common Stock issued by
Financial Intranet through December 31, 2002 minus the sum of (a) 1,500,000; (b)
any shares previously issued upon the exercise of his option; and (c) any shares
issued in lieu of cash expenses advanced by Mr. Stein or accepted as previously
earned consulting fees in lieu of cash. The purchase price for such shares is
$0.19 per share with respect to 3,640,262 shares of Common Stock as of December
31, 1998. The exercise prices for his options issued after December 31, 1998 are
the market prices per share of Common Stock on the date that Financial Intranet
issues any additional shares, including options for 3,464,942 shares upon
exercise of all options, warrants and convertible promissory notes outstanding
as of the date of this Registration Statement.
On December 21, 1998, Financial Intranet issued 75,000 warrants to
purchase Common Stock to McLaughlin & Stern, LLP with an exercise price of $.60
per share in consideration of services rendered and disbursements incurred. The
warrants expire on November 24, 2003.
On December 21, 1998, Financial Intranet agreed to issue options to
purchase 250,000 shares of Common Stock to Alan Spar at a price of $.625 per
share. The warrants were issued as part of a compensation package, vest over
three years and expire on December 31, 2001.
On December 21, 1998, Financial Intranet issued 250,000 warrants to
purchase Common Stock to Alan Ross at a price equal to $.625 per share. The
warrants were issued as part of a compensation package, vest over three years
and expire on December 31, 2001.
On November 13, 1998, Financial Intranet issued 10,000 warrants to
purchase Common Stock at $.60 per share to Steven Weller. The warrants were
issued in consideration for Mr. Weller's agreement to serve as a Director and
expire on November 12, 2001.
On September 1, 1998, Financial Intranet issued 10,000 warrants to
purchase Common Stock at $.725 per share to Joseph F. Engelberger. The warrants
were issued in consideration for Mr. Engelberger's agreement to serve as a
Director and expire on August 31, 2001.
On July 15, 1998, Financial Intranet issued 166,667 warrants to McCap,
Inc. at an exercise price of $.40 per share expiring June 22, 2003.
On July 11, 1998, Financial Intranet issued 75,000 warrants to purchase
Common Stock for $1.20 per share to McLaughlin & Stern, LLP in consideration of
services rendered and disbursements incurred. The warrants expire on July 10,
2003.
On July 1, 1998, Financial Intranet issued 980 warrants to purchase
Common Stock for $.32 per share to Corporate Capital Management. The warrants
expire on September 15, 2000.
II-4
<PAGE>
On June 5, 1998, the Company issued warrants to purchase 50,000 shares
of Common Stock to Cadence Capital Corp. with an exercise price of $.64 per
share.
On September 15, 1997, Financial Intranet issued 2,422 warrants to
purchase Common Stock for $.18 per share to Corporate Capital Management. The
warrants expire on September 15, 2000.
On September 15, 1997, Financial Intranet issued 5,812 warrants to
purchase Common Stock for $.18 per share to Ganesh Asset Management. The
warrants expire on September 15, 2000.
On September 15, 1997, Financial Intranet issued 2,353 warrants to
purchase Common Stock for $.32 per share to Ganesh Asset Management. The
warrants expire on September 15, 2000.
On September 15, 1997, Financial Intranet issued 7,266 warrants to
purchase Common Stock for $.18 per share to Great North Capital. The warrants
expire on September 15, 2000.
On September 15, 1997, Financial Intranet issued 2,942 warrants to
purchase Common Stock for $.32 per share to Great North Capital. The warrants
expire on September 15, 2000.
ITEM 27. Exhibits and Financial Statement Schedules
(a) Exhibits
3.1 Registrant's Restated Articles of Incorporation
dated December 22, 1998
3.2 Registrant's By-Laws
4.1 Form of Common Stock Certificate
4.2 1998 Stock Option Plan
5 Opinion of McLaughlin & Stern, LLP (To be filed by
amendment)
10.1 Letter regarding purchase of Wee Wees, Inc. dated
October 9, 1996.
10.2 Employment Agreement dated as of September 12,
1997 between Registrant and Michael Sheppard.
10.3 Employment Agreement dated as of September 12,
1997 between Registrant and Ben B. Stein.
10.4 Employment Agreement dated as of September 12,
1997 between Registrant and Maura Marx.
10.5 Amendment to Employment Agreement dated as of
December 15, 1998 between Registrant and Michael
Sheppard.
10.6 Amendment to Employment Agreement dated as of
December 15, 1998 between Registrant and Maura
Marx.
10.7 Consulting Agreement dated as of February 27, 1997
between Registrant and Michael Sheppard.
10.8 Promissory Note issued by Registrant to investor
on December 31, 1998 in connection with private
placement.
II-5
<PAGE>
10.9 Warrant issued by Registrant to investor on
December 31, 1998 in connection with private
placement.
10.10 Subscription agreement between Registrant and
investor in private placement on December 31,
1998.
10.11 Subscription agreement between Registrant and
investor in private placement on February 8, 1999.
10.12 Warrant issued by Registrant to investor on
February 8, 1999 in connection with private
placement.
10.13 Form of Warrant certificate issuable by Registrant
to investor upon subsequent installments due under
private placement.
10.14 Guaranty executed by Ben B. Stein on February 8,
1999 in connection with private placement.
10.15 Stock Pledge Agreement executed by Ben B. Stein on
February 8, 1999 in connection with private
placement.
10.16 Service Agreement between the Registrant and
Siemens dated December 30, 1998.
10.17 Warrant issued by Registrant to Cardinal Capital
Management on December 31, 1998 in connection with
private placement.
10.18 Warrant issued by Registrant to Josephberg Grosz &
Co. on December 31, 1998 in connection with
private placement.
10.19 Warrant issued by Registrant to Josephberg Grosz &
Co. on February 8, 1999 in connection with private
placement.
10.20 Warrant issued by Registrant to Cardinal Capital
Management on February 8, 1999 in connection with
private placement.
10.21 Convertible Promissory Note issued by Registrant
to investor on February 8, 1999.
10.22 Registration Rights Agreement executed by
Registrant on February 8, 1999.
10.23 Consulting Agreement with Barry Stein dated
February 27, 1997.
10.24 Registration Rights Agreement executed by
Registrant on December 31, 1998.
23.1 Consent of Reminick Aaron & Company, LLC.
23.2 Consent of McLaughlin & Stern, LLP (included in
Exhibit 5.1).
24 Power of Attorney (contained on signature page).
27 Financial Data Schedule.
Schedules other than those listed above have been omitted since they are either
not required, are not applicable or the required information is shown in the
financial statements or related notes.
II-6
<PAGE>
ITEM 28. Undertakings
The undersigned Registrant hereby undertakes to:
(a) (1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a) (3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. 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 a prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement;
(iii) Include any additional or changed material information on the
plan of distribution;
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement for the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering;
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering; and
(b) Provide to the underwriter at the closing specified in the underwriting
agreement certificates in such denominations and registered in such names as
required by the Underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the 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.
The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act of 1933, 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
as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the Town of Ardsley,
State of New York, on February 20, 1999.
Financial Intranet Inc.
By: /s/Michael Sheppard
Michael Sheppard, President
By: /s/Alan M. Ross
Alan M. Ross, Vice President - Finance
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Michael Sheppard and Maura Marx and each of them
his true and lawful attorney-in-fact and agent with power of substitution and
resubstitution, for him or her, and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post effective
amendments) to this Registration Statement on Form SB-2, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done to comply with the provisions of the
Securities Act and all requirements of the Commission, hereby ratifying and
confirming all that said attorneys-in-fact or either of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
By: /s/Michael Sheppard Director, President, February 20, 1999
Michael Sheppard Chief Operating Officer
By: /s/Steven S. Weller Director February 22, 1999
Steven S. Weller
By: /s/Joseph F. Engelberger Director February 20, 1999
Joseph F. Engelberger
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Description
------- -----------
3.1 Registrant's Restated Articles of Incorporation
dated December 22, 1998
3.2 Registrant's By-Laws
4.1 Form of Common Stock Certificate
4.2 1998 Stock Option Plan
5 Opinion of McLaughlin & Stern, LLP (To be filed by
amendment)
10.1 Letter regarding purchase of Wee Wees, Inc. dated
October 9, 1996.
10.2 Employment Agreement dated as of September 12,
1997 between Registrant and Michael Sheppard.
10.3 Employment Agreement dated as of September 12,
1997 between Registrant and Ben B. Stein.
10.4 Employment Agreement dated as of September 12,
1997 between Registrant and Maura Marx.
10.5 Amendment to Employment Agreement dated as of
December 15, 1998 between Registrant and Michael
Sheppard.
10.6 Amendment to Employment Agreement dated as of
December 15, 1998 between Registrant and Maura
Marx.
10.7 Consulting Agreement dated as of February 27, 1997
between Registrant and Michael Sheppard.
10.8 Promissory Note issued by Registrant to investor
on December 31, 1998 in connection with private
placement.
<PAGE>
Exhibit Description
------- -----------
10.9 Warrant issued by Registrant to investor on
December 31, 1998 in connection with private
placement.
10.10 Subscription agreement between Registrant and
investor in private placement on December 31,
1998.
10.11 Subscription agreement between Registrant and
investor in private placement on February 8, 1999.
10.12 Warrant issued by Registrant to investor on
February 8, 1999 in connection with private
placement.
10.13 Form of Warrant certificate issuable by Registrant
to investor upon subsequent installments due under
private placement.
10.14 Guaranty executed by Ben B. Stein on February 8,
1999 in connection with private placement.
10.15 Stock Pledge Agreement executed by Ben B. Stein on
February 8, 1999 in connection with private
placement.
10.16 Service Agreement between the Registrant and
Siemens dated December 30, 1998.
10.17 Warrant issued by Registrant to Cardinal Capital
Management on December 31, 1998 in connection with
private placement.
10.18 Warrant issued by Registrant to Josephberg Grosz &
Co. on December 31, 1998 in connection with
private placement.
10.19 Warrant issued by Registrant to Josephberg Grosz &
Co. on February 8, 1999 in connection with private
placement.
10.20 Warrant issued by Registrant to Cardinal Capital
Management on February 8, 1999 in connection with
private placement.
10.21 Convertible Promissory Note issued by Registrant
to investor on February 8, 1999.
10.22 Registration Rights Agreement executed by
Registrant on February 8, 1999.
10.23 Consulting Agreement with Barry Stein dated
February 27, 1997.
10.24 Registration Rights Agreement executed by
Registrant on December 31, 1998.
23.1 Consent of Reminick Aaron & Company, LLC.
23.2 Consent of McLaughlin & Stern, LLP (included in
Exhibit 5.1).
24 Power of Attorney (contained on signature page).
27 Financial Data Schedule.
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
FINANCIAL INTRANET, INC.,
a Nevada Corporation
Michael Sheppard and Maura Marx certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of the corporation named above.
2. The Articles of Incorporation of the corporation shall be amended and
restated to read in full as follows:
I
The name of the corporation shall be
Financial Intranet, Inc. and shall be governed by
Chapter 78 of the Nevada Revised Statute.
II
The resident agent is the Business Resource
Center, 4020 W. Schiff, Las Vegas, Nevada 89103.
III
The nature of the business of the proposed
corporation will be to engage in lawful activity,
permitted by the laws of the State of Nevada, and
desirable to support the continued existence of the
corporation.
IV
On the amendment of this Article IV to read as hereinafter set forth and
the restating of the Articles of Incorporation, the total authorized capital
stock of the corporation will be Fifty thousand dollars ($50,000.00). This will
consist of fifty million (50,000,000) shares of $.001 par value
1
<PAGE>
common stock. Such stock may be issued from time to time without any action
by the stockholders for such consideration as may be fixed from time to time by
the Board of Directors, and shares so issued, the full consideration for which
has been paid or delivered, shall be deemed the fully paid up stock, and the
holder of such shares shall not be liable for any further payment thereof. Each
share of stock shall have voting privileges and will be eligible for dividends.
V
The governing board of this corporation shall be known as directors, and
shall be styled directors, and the number of directors may from time to time be
increased or decreased in such manner as shall be provided by the bylaws of this
corporation, provided that the number of directors shall not be reduced to less
than one (1) director. The name and address of the first director is as follows:
Alexis B. Williams: 3072 Zane Circle
Las Vegas, Nevada 89121
VI
The name and address of the original
incorporator is:
Alexis B. Williams: 3072 Zane Circle
Las Vegas, Nevada 89121
VII
The corporation shall have perpetual
existence according to NRS 78.035.
The undersigned, in pursuance of the general
corporation law of the State of Nevada, and in
pursuance of the general corporation law of the State
of Nevada, does make and file this certificate,
hereby declaring and certifying that the facts
2
<PAGE>
hereinabove stated are true, and accordingly has
hereunto set his hand this 22nd day of December.
_/s/ Michael Sheppard
Michael Sheppard
3. The foregoing amendment of Article IV and this certificate have been
approved by the Board of Directors of the corporation.
4. The foregoing amendment of Article IV and the Restated Articles of
Incorporation was approved by the required vote of the shareholders of the
corporation in accordance with the Nevada Business Corporation Act; the total
number of outstanding shares entitled to vote with respect to the foregoing
amendment was 20,534,381 common shares; and the number of shares of voting in
favor of the foregoing amendment equaled or exceeded the vote required, such
required vote being a majority of the outstanding shares of Common Stock.
We further declare under penalty of perjury under the laws of the State of
Nevada that the matter set forth in this certificate are true and correct of our
knowledge.
Dated: December 22, 1998
/s/ Michael Sheppard
Michael Sheppard
President
/s/ Maura Marx
Maura Marx
Secretary
STATE OF NEW YORK )
) ss.:
COUNTY OF WESTCHESTER )
On this ____ day of December, 1998 personally appeared before me, a Notary
Public in and for said County and State, Michael Sheppard and Maura Marx, each
acknowledged that they executed the above instrument freely and voluntarily for
the uses and purposes therein mentioned.
SUBSCRIBED and SWORN to before me
this _____ day of December, 1998.
__________________________________
NOTARY PUBLIC, in and for said
County and State
3
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
FINANCIAL INTRANET, INC
ARTICLE I - OFFICES
The principal office of the Corporation is located at 410 Saw Mill River
Road, Suite B2040, Ardsley, NY 10502. The Corporation shall have such other
offices either within or without the State of Connecticut as the Board of
Directors may designate or as the business of the Corporation may, from time to
time, require.
ARTICLE II- MEETING OF SHAREHOLDERS
1. ANNUAL MEETING.
The annual meeting of the Shareholders shall be held on the First Monday in
May at 11:00 a.m., beginning in the year 1997 for the purpose of electing
Directors and transacting such other business as may properly come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday, such
meeting shall be held on the next succeeding business day.
2. SPECIAL MEETINGS.
Special meetings of the Shareholders may be called by the Board of
Directors, the President and Chairman of the Board of Directors, or the holders
of not less than one tenth (1/10) of all the shares entitled to vote at the
meeting.
3. PLACE OF MEETING.
The Directors may designate any place either within or without the State of
Connecticut unless otherwise prescribed by statute, as the place for holding
such meeting. If no designation is made, or if a special meeting is called, the
place of meeting shall be the principal office of the corporation.
4. NOTICE OF MEETING.
Written or printed notice stating the place, day and hour of the meeting
and, in case of a special meeting, the purpose or purposes for which the meeting
is called shall be given not less than ten (10) nor more than fifty (50) days
before the date of the meeting, either personally or by mail, by or at the
direction of the President, or the Secretary, or the officer or persons calling
the meeting, to each Shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, addressed to the Shareholder
<PAGE>
at his address as it appears on the stock transfer books of the
Corporation, with postage thereupon prepaid.
5. CLOSING OF TRANSFER BOOKS FOR FIXING OF RECORD DATE.
For the purpose of determining Shareholders entitled to notice of or to
vote at any meeting of Shareholders or any adjournment thereof, or Shareholders
entitled to receive payment of any dividend, or in order to make a determination
of Shareholders for any other proper purpose, the Directors of the Corporation
may provide that the stock transfor books shall be closed for a stated period,
but not to exceed, in any case, fifty (50) days. If the stock-transfer books
shall be closed for the purpose of determining Shareholders entitled to notice
of a meeting or to vote at a meeting of Shareholders, such books shall be closed
for at least ten (10) days immediately preceding such meeting. In lieu of
closing the stock transfer books the Board of Directors may fix in advance a
date as the record date for any such determination of Shareholders, such date in
any case to be not more than fifty (50) days and, in case of a meeting of
Shareholders, not less than ten (10) days prior to the date on which the
particular action, requiring such determination of Shareholders, is to be taken.
If the stock-transfer books are not closed and no record date is fixed for the
determination of Shareholders entitled to notice of a meeting or to vote at a
meeting of Shareholders, or Shareholders entitled to receive payment of a
dividend, the close of the business day on which notice of the meeting is mailed
or the close of the business day on which the resolution of the Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of Shareholders. When a determination of Shareholders
entitled to vote at any meeting of Shareholders has been made as provided in
this section, such shall apply to any adjournment thereof.
6. VOTING LISTS.
The Secretary of the Corporation, or the agent having charge of the
stock-transfer books for shares of the Corporation shall make, at least ten (10)
days before each meeting of Shareholders, a complete list of the Shareholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period often days prior to such meeting, shall be kept on file
at the principal office of the Corporation and shall be subject to inspection by
any Shareholder at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any Shareholder during the whole time of the meeting. The
original stock-transfer book shall be prima facie evidence as to who are the
Shareholders entitled to examine such list or transfer books or to vote at the
meeting of Shareholders.
7 QUORUM.
At any meeting of Shareholders a majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of Shareholders. If less than said number of
the outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. If
a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on the subject matter shall be
the act of the Shareholders, unless the vote of a greater number, or voting by
classes, is required by the statute or the Articles of
<PAGE>
Incorporation. The Shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough Shareholders to leave less than a quorum.
8. PROXIES.
At all meetings of Shareholders, a Shareholder may vote by proxy executed
in writing by the Shareholder or by his or her duly authorized attorney-in-fact.
Such proxy shall be filed with the Secretary of the Corporalion before or at the
time of the meeting. Unless a proxy provides otherwise, it is not valid more
than 11 months after its date.
9. VOTING.
Each Shareholder entitled to vote in accordance with the terms and
provisions of the Articles of Incorporation and these By-Laws shall be entitled
to one vote in person or by proxy, for each share of stock entitled to vote held
by such Shareholder. Upon demand of any Shareholder, the vote for Directors and
upon any question before the meeting shall be by ballot. All elections for
Directors shall be decided by plurality vote; all other questions shall be
decided by majority vote except as otherwise provided by the Articles of
Incorporation or the laws of the State of Nevada
10. ORDER OF BUSINESS.
The order of business at all meetings of the Shareholders, shall be as
follows:
1. Roll Call
2. Proof of notice of meeting or waiver of notice
3. Reading of minutes of preceding meeting
4. Reports of Officers
5. Reports of Committees
Election of Directors
7. Unfinished Business
8. New Business
11. INFORMAL ACTION BY SHAREHOLDERS.
Any action required or permitted to be taken at a meeting of Shareholders
may be taken
<PAGE>
without a meeting if the following are filed with the records of
Shareholders meeting:
1. A unanimous written consent which sets forth the action and is signed by
each Shareholder entitled to vote on the matter; and
2. A written waiver of any right to dissent signed by each Shareholder
entitled to notice of the meeting but not entitled to vote at it.
ARTICLE III - BOARD OF DIRECTORS
1. GENERAL POWERS.
The business and affairs of the Corporation shall be managed by its Board
of Directors. The Directors shall in all cases act as a Board, and they may
adopt such rules and regulations for the conduct of their meetings and the
management of the Corporation, as they may deem proper, not inconsistent with
these By-Laws and the laws of the State of Nevada.
2. NUMBER, TENURE AND QUALIFICATIONS.
The number of Directors of the Corporation shall be at least three (3)
unless the number of shareholders is less than three. Each Director shall hold
office until the next annual meeting of Shareholders or until his successor
shall have been duly elected or appointed and shall be qualified.
3. REGULAR MEETINGS.
A regular annual meeting of the Directors shall be held without other
notice than this By Law immediately after, and at the same place as, the annual
meeting of Shareholders. The Directors may provide, by a resolution, the time
and place for the holding of other regular meetings without other notice than
such resolution.
4. SPECIAL MEETINGS.
Special meetings of the Directors may be called by or at the request of the
President or any two Directors. The person or persons authorized to call special
meetings of the Directors may fix the place for holding any special meeting of
the Directors called by them.
5. NOTICE.
Notice of any special meeting shall be given at least seven (7) days
previously thereto by written notice delivered personally, or by telegram or
mailed to each Director at his or her business address. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph
<PAGE>
company. The attendance of a Director at a meeting shall constitute a
waiver of notice of such meeting, except where a Director attends a meeting tbr
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
6. QUORUM.
At any meeting of the Directors either three (3), or one-third (1/3) of the
entire Board of Directors, whichever number is greater, shall constitute a
quorum for the transaction of business. If less than said number is present at a
meeting, a majority of the Directors present may adjourn the meeting from
time-to-time without further notice.
7. MANNER OF ACTING.
The act of the majority of the Directors present at a meeting at which a
quorum is present shall be the act of the Directors.
8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
A majority of the entire Board of Directors may fill a vacancy which
results from an increase in the number of Directors. The Shareholders may elect
a successor to fill a vacancy on the Board of Directors which results from the
removal of a Director. A majority of the remaining Directors, whether or not
sufficient to constitute a quorum, may fill a vacancy on the Board of Directors
from any cause except an increase in the number of Directors. A Director elected
to fill a vacancy caused by resignation, death or removal shall be elected to
hold office for the unexpired term of his predecessor.
9. REMOVAL OF DIRECTORS.
Any or all of the Directors may be removed for cause by vote of the
Shareholders or by action of the Board. Directors may be removed without cause
only by vote of the Shareholders.
10. RESIGNATION.
A Director may resign at any time by giving written notice to the Board,
the President, or the Secretary of the Corporation. Unless otherwise specified
in the notice, the resignation shall take effect upon receipt thereof by the
Board or such officer, and the acceptance of such resignation shall not be
necessary to make it effective.
11. COMPENSATION
The Board of Directors for Resolution, may be paid for their services and
shall be reimbursed for expenses for actual attendance at each regular or
special meeting of the Board. Nothing herein contained shall be construed to
preclude any Director from serving the
<PAGE>
Corporation in any other capacity and receiving compensation therefor.
12. PRESUMPTION OF ASSENT.
A Director of the Corporation who is present at a meeting of the Directors
at which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless his or her dissent shall be entered in the
minutes of the meeting or unless she or she shall file his or her written
dissent to such action with the person acting as the Secretary of the meeting
before the adjournment thereof, or shall forward such dissent by registered mail
to the Secretary of the Corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a Director who voted in favor
of such action.
<PAGE>
13. EXECUTIVE AND OTHER COMMJ\ITTEES.
The Board by resolution, may designate from among its members an executive
committee and other committees, each consisting of two or more Directors. Each
such committee shall serve at the pleasure of the Board.
ARTICLE IV - OFFICERS
The Officers of the Corporation shall be a President, a Vice President, a
Secretary, and a Treasurer, each of whom shall be elected by the Directors. Such
other officers and assistant officers as may be deemed necessary may be elected
or appointed by the Directors.
2. ELECTION AND TERM OF OFFICE.
The Officers of the Corporation to be elected by the Director shall be
elected annually at the first meeting of the Directors held after each annual
meeting of the Shareholders. Each officer shall hold office until his or her
successor shall have been duly elected and shall have qualified or until his or
her death or until he or she shall resign or shall have been removed in the
manner hereinafter provided.
3. REMOVAL.
Any Officer or agent elected by the Directors may be removed by the
Directors whenever in their judgment, the best interests of the Corporation
would be served thereby, but such removal shall be without prejudice to the
contract rights if any, of the person so removed.
4. VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification, or otherwise, may be filled by the Directors for the unexpired
portion of the term.
5. PRESIDENT.
The President shall be the principal executive officer of the Corporation
and, subject to the control of the Directors, shall in general supervise and
control all of the business and affairs of the Corporation. He or she shall,
when present, preside at all meetings of the Shareholders and of the Directors.
He or she may sign, with the Secretary or any other proper officer of the
Corporation thereunto authorized by the Directors, certificates for shares of
the Corporation, any deeds, mortgages, bonds, contracts, or other instruments
which the Directors have authorized to be executed except in cases where the
signing and execution thereof shall be expressly delegated by the Directors or
by these By-laws to some other officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed, and in general shall perform
all duties
<PAGE>
incident to the office of the President and such other duties as may be
prescribed by the Directors from time to time.
6. VICE-PRESIDENT.
In the absence of the President or in the event of his death inability or
refusal to act, the Vice President shall perform 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. The Vice-President shall perform such other
duties as from time to time may be assigned to him or her by the President or by
the Directors.
7. SECRETARY.
The Secretary shall keep the Minutes of the Shareholders and the Directors;
meetings in one or more books provided for that purpose, see that all notices
are duly given in accordance with the provisions of these By-Laws or as
required, be custodian of the corporate records and of the seal of the
Corporation and keep a register of the post office address of each Shareholder
which shall be furnished to the Secretary by such Shareholder, have general
charge of the stock- transfer books of the Corporation and in general perform
all duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him or her by the President or by the Directors.
8. TREASURER.
If required by the Directors, the Treasurer shall give a bond for the
faithful discharge of his or her duties in such sum and with such surety or
sureties as the Directors shall determine. He or she shall have charge and
custody of and be responsible for all funds and securities of the Corporation;
receive and give receipts for monies due and payable to the Corporation from any
source whatsoever, and deposit all such monies in the name of the Corporation in
such banks, trust companies or other depositories as shall be selected in
accordance with these By-Laws and in general performance of the duties incident
to the office of Treasurer and such other duties as from time-to-time may be
assigned to him or her by the President or by the Directors.
9. SALARIES.
The salaries of the officers shall be fixed from time to time by the
Directors and no officer shall be prevented from receiving such salary by reason
of the fact that he or she is also a Director of the Corporation.
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS.
<PAGE>
The Directors may authorize any officer or officers, agent or agents to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the Corporation, and such authority may be general or confined to
specific instances.
2. LOANS
No loans shall be contracted on behalf of the Corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the Directors. Such authority may be general or confined to specific instances.
3 CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the Corporation, shall be signed
by such officer or as shall from time to time be determined by resolution of the
Directors.
4. DEPOSITS.
All finds of the Corporation not otherwise employed shall be deposited from
tiine to time to the credit of the Corporation in such banks, tnist companies or
other depositories as the Directors may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES
Certificates representing shares of the Corporation shall be in such form
as shall be determined by the Directors. Such certificates shall be signed by
the President and by the Secretary or by such other officers authorized by law
and by the Directors. All certificates for shares shall be consecutively
numbered or otherwise identified. Each stock certificate shall include on its
face: the name of the corporation, the name of the person to whom it is issued,
and the class of stock and numbers of shares it represents. The name and address
of the Shareholders, the number of shares and date of issue, shall be entered on
the stock transfer books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and canceled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and indemnity to
the Corporation as the Directors may prescribe.
2. TRANSFER OF SHARES.
(a) Upon surrender to the Corporation or the transfer agent of the
Corporation of a
<PAGE>
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, and
cancel the older certificate; every such transfer shall be entered on the
transfer book of the Corporation which shall be kept at its principal office.
(b) The corporation shall be entitled to treat the holder of record of any
shares as the holder in fact thereof, and, accordingly, shall not be bound to
recognize any equitable or other person whether or not it shall have express or
other notice thereof except as expressly provided by the laws of the State of
Nevada.
ARTICLE VII- FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of January
in each year.
ARTICLE VIII- DIVIDENDS
The Directors may from time to time declare and the corporation may pay
dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
ARTICLE IX - SEAL
The Directors shall provide a corporate seal which shall be circular in
form and shall have inscribed thereon the name of the corporation and the words
"Corporate Seal."
ARTICLE X - WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be
given to any Shareholder or Director of the Corporation under the provisions of
these By-Laws or under the provisions of the Articles of Incorporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice
whether before or after the time stated herei, shall be deemed equivalent to the
giving of such notice.
ARTICLE XI- AMENDMENTS
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by a vote of the Shareholders representing a majority of all the shares
issued and outstanding, at any annual Shareholders' meeting or at any Special
Sharebolders' meeting when the proposed amendment has been set out in the notice
of such meeting.
ARTICLE XII - INDEMNIFICATION
The Corporation shall indemnify, to the fullest extent permitted by the
laws of the State of Nevada, any person who was or is a party or is threatened
to be made a party to an action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was director, officer, employee or agent of the Corporation or serves or served
any other enterprise at the request of the Corporation.
Adopted February 6, 1997
<PAGE>
EXHIBIT 4.1
Number Shares
/---------/ /--------/
FINANCIAL INTRANET, INC.
AUTHORIZED COMMON STOCK: 50,000,000 SHARES
PAR VALUE: $.001
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
Shares of Financial Intranet, Inc. Common Stock
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
- -------------------------- -----------------------------
Secretary President
FINANCIAL INTRANET, INC.
CORPORATE
SEAL
NEVADA
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a
saving bank), or a trust company. 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:
TEN COM - as tenants in common unif gift min act - ......Custodian......
TEN ENT - as tenants by the entireties (Cust (Minor)
JF TEN - as joint tenants with right of under Uniform Gifts to
survivorship and not as Minors Act ..................
tenants in common (State)
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, including zip code of Assignee)
-------------------------------------------------------------------
-------------------------------------------------------------------
_____________________________________________________________Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
____________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated _______________________
-------------------------------------------------------------
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
<PAGE>
EXHIBIT 4.2
FINANCIAL INTRANET INC.
1998 STOCK OPTION PLAN
1. PURPOSE OF PLAN; ADMINISTRATION
1.1 Purpose.
The Financial Intranet Inc. 1998 Stock Option Plan (hereinafter, the
"Plan") is hereby established to grant to officers, directors and other
employees of Financial Intranet Inc. or of its parents or subsidiaries (as
defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code
of 1986, as amended (the "Code"), if any (individually and collectively, the
"Company"), and to non-employee consultants and advisors and other persons who
may perform significant services for on or behalf of the Company, a favorable
opportunity to acquire common stock ("Common Stock"), of the Company and,
thereby, to create an incentive for such persons to remain in the employ of or
provide services to the Company and to contribute to its success.
The Company may grant under the Plan both incentive stock options within
the meaning of Section 422 of the Code ("Incentive Stock Options") and stock
options that do not qualify for treatment as Incentive Stock Options
("Nonstatutory Options"). Unless expressly provided to the contrary herein, all
references herein to "options," shall include both incentive Stock Options and
Nonstatutory Options.
1.2 Administration.
The Plan shall be administered by members of the Board of Directors of the
Company (the "Board"), if each such member administering the Plan is a
"Non-Employee Director" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended ("Rule 16b-3"), or a committee (the
"Committee") of two or more directors, each of whom is a disinterested person.
Appointment of Committee members shall be effective upon acceptance of
appointment. Committee members may resign at any time by delivering written
notice to the Board. Vacancies in the Committee may be filled by the Board.
A majority of the members of the Committee shall constitute a quorum for
the purposes of the Plan. Provided a quorum is present, the Committee may take
action by affirmative role or consent of a majority of its members present at a
meeting. Meetings may be held telephonically as long as all members are able to
hear one another, and a member of the Committee shall be deemed to be present
for this purpose if he or she is in simultaneous communication by telephone with
the other members who are able to hear one another. In lieu of action at a
meeting, the Committee may act by written consent of a majority of its members.
1
<PAGE>
Subject to the express provisions of the Plan, the Committee shall have the
authority to construe and interpret the Plan and all Stock Option Agreements (as
defined in Section 3.4) entered into pursuant hereto and to define the terms
used therein, to prescribe, adopt, amend, and rescind rules and regulations
relating to the administration of the Plan and to make all other determinations
necessary or advisable for the administration of the Plan; provided, however,
that the Committee may delegate nondiscretionary administrative duties to such
employees of the Company as it deems proper; and provided, further, in its
absolute discretion, the Board may at any time and from time to time exercise
any and all rights and duties of the Committee under the Plan. Subject to the
express limitations of the Plan, the Committee shall designate the individuals
from among the class of persons eligible to participate as provided in Section
1.3 who shall receive options, whether an optionee will receive Incentive Stock
Options or Nonstatutory Options, or both, and the amount, price, restrictions
and all other terms and provisions of such options (which need not be
identical).
Members of the Committee shall receive such compensation for their services
as members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of this
Plan shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers or other
persons. The Committee, the Company and the Company's officers and directors
shall be entitled to rely upon the advise, opinions or valuations of any such
persons. No members of the Committee or Board shall be personally liable for any
action, determination or interpretation made in good faith with respect to the
Plan, and all members of the Committee shall be fully protected by the Company
in respect of any such action, determination or interpretation.
1.3 Participation.
Officers, Directors, employees of the Company and consultants shall be
eligible for selection to participate in the Plan upon approval by the
Committee; provided, however that only "employees" (within the meaning of
Section 3401(c) of the Code) of the Company shall be eligible for the grant of
Incentive Stock Options. An individual who has been granted an options may, if
otherwise eligible, be granted additional options if the Committee shall so
determine, provided that no recipient may be granted options to purchase more
than 20% of the shares of Common Stock initially reserved for issuance under the
Plan. No person is eligible to participate in the Plan by matter of right; only
those eligible persons who are selected by the Committee in its discretion shall
participate in the Plan.
1.4 Stock Subject to the Plan.
Subject to adjustment as provided in Section 3.5, the stock to be offered
under the Plan shall be shares of authorized but unissued Common Stock,
including any shares repurchased under the terms of the Plan or any Stock Option
Agreement entered into pursuant hereto. the cumulative aggregate number of
shares of Common Stock to be issued under the Plan shall not exceed 1,500,000,
subject to adjustment as set forth in Section 3.5.
2
<PAGE>
If any options granted hereunder shall expire or terminate for any reason
without having been fully exercised, the unpurchased shares subject thereto
shall again be available for the purposes of the Plan. For purposes of this
Section 1.4, where the exercise price of options is paid by means of the
grantee's surrender of previously owned shares of Common Stock, only the net
number of additional shares issued and which remain outstanding in connection
with such exercise shall be deemed "issued" for purposes of the Plan.
2. STOCK OPTIONS
2.1 Option Price.
The exercise price of each Incentive Stock option granted under the Plan
shall be determined by the Committee, but shall not be less than 100% of the
"Fair Market Value" (as defined below) of Common Stock on the date of grant. If
an Incentive Stock Option is granted to an employee who at the time such option
is granted owns (within the meaning of section 424(d) of the Code) more than 10%
of the total combined voting power of all classes of capital stock of the
Company, the option exercise price shall be at least 110% of the Fair Market
Value of Common Stock on the date of grant and the option by its terms shall not
be exercisable after the expiration of 5 years from the date such option is
granted. The exercise price of each Nonstatutory Option also shall be determined
by the committee, but shall not be less than 85% of the Fair Market Value of
Common Stock on the date of grant. The status of each option granted under the
Plan as either an Incentive Stock Option or a Nonstatutory Stock Option shall be
determined by the Committee at the time the Committee acts to grant the options,
and shall be clearly identified as such in the Stock Option Agreement relating
thereto.
"Fair Market Value" for purposes of the Plan shall mean: (i) the closing
price of a share of Common Stock on the principal exchange on which shares of
Common Stock are then trading, if any, on the day previous to such date, or, if
shares were not traded on the day previous to such date, then on the next
preceding trading day during which a sale occurred; or (ii) if Common Stock is
not traded on an exchange but is quoted on Nasdaq or a successor quotation
system, (1) the last sales price (if Common Stock is then listed on the Nasdaq
Stock Market) or (2) the mean between the closing representative bid and asked
price (in all other cases) for Common Stock on the day prior to such date as
reported by Nasdaq or such successor quotation system; or (iii) if there is no
listing or trading of Common Stock either on a national exchange or
over-the-counter, that price determined in good faith by the Committee to be the
fair value per share of Common Stock, based upon such evidence as it deems
necessary or advisable.
In the discretion of the Committee exercised at the time the option is
exercised, the exercise price of any options granted under the Plan shall be
paid in full in cash, by check or by the optionee's interest-bearing promissory
note (subject to any limitations of applicable state corporations law) delivered
at the time of exercise; provided, however, that subject to the timing
requirements of Section 2.7, in the discretion of the Committee and upon receipt
of all regulatory approvals, the person exercising the options may deliver as
payment in whole or in part of such
3
<PAGE>
exercise price certificates for Common Stock of the Company (duly endorsed
or with duly executed stock powers attached), which shall be valued at its Fair
Market Value on the day of exercise of the option, or other property deemed
appropriate by the Committee; and, provided further, that subject to Section 422
of the Code so-called cashless exercises as permitted under applicable rules and
regulations of the Securities and Exchange Commission and the Federal Reserve
Board shall be permitted in the discretion of the Committee or the Board..
Irrespective of the form of payment, the delivery of shares pursuant to the
exercise of an option shall be conditioned upon payment by the optionee to the
Company of amounts sufficient to enable the Company to pay all federal, state,
and local withholding taxes applicable, in the Company's judgment, to the
exercise. In the discretion of the Committee, such payment to the Company may be
effected through (i) the Company's withholding from the number of shares of
Common Stock that would otherwise be delivered to the optionee by the Company on
exercise of the option a number of shares of Common Stock equal in value (as
determined by the Fair Market Value of Common Stock on the date of exercise) to
the aggregate withholding taxes, (ii) withholding by the Company from other
amounts contemporaneously owned by the Company to the optionee, or (iv) any
combination of these three methods, as determined by the Committee in its
discretion.
2.2 Option Period.
(a) The Committee shall provide, in the terms of each Stock Option
Agreement, when the option subject to such agreement expires and becomes
unexercisable, but in no event will an Incentive Stock Option granted under the
Plan be exercisable after the expiration of ten years from the date it is
granted. Without limiting the generality of the foregoing, the Committee may
provide in the Stock Option Agreement that the option thereto expires 30 days
following a Termination of Employment for any reason other than the death or
disability or sic months following a Termination of Employment for disability or
following an optionee's death.
(b) Notwithstanding any provision of this Section 2.2, in no event shall
any option granted under the Plan be exercised after the expiration date of such
option set forth in the applicable Stock Option Agreement.
2.3 Exercise of Options.
Each option granted under the Plan shall become exercisable and the total
number of shares subject thereto be purchasable, in a lump sum or in such
installments, which need not be equal, as the Committee shall determine;
provided, however, that each option shall become exercisable in full no later
than ten years after such option is granted, and each option shall become
exercisable as to at least 10% of the shares of Common Stock covered thereby on
each anniversary of the date such option is granted; and provided, further, that
if the holder of an option shall not in any given installment period purchase
all of the shares which such holder is entitled to purchase in such installment
period, such holder's right to purchase any shares not
4
<PAGE>
purchased in such installment period shall continue until the expiration or
sooner termination of such holder's option. The Committee may, at any time after
grant of the option and from to time, increase the number of shares purchasable
in any installment, subject to the total number of shares subject to the option
and the limitations set forth in Section 2.5. At any time and from time to time
prior to the time when any exercisable option or exercisable portion thereof
becomes unexercisable under the Plan or the applicable Stock Option Agreement,
such option or portion thereof may be exercised in whole or in part; provided,
however, that the Committee may, by the terms of option, require any partial
exercise to be with respect to a specified minimum number of shares. No option
or installment thereof shall be exercisable except with respect to whole shares.
Fractional share interests shall be disregarded, except that they may be
accumulated as provided above and except that if such a fractional share
interest constitutes the total shares of Common Stock remaining available for
purchase under an option at the time of exercise, the optionee shall be entitled
to receive on exercise a certified or bank cashier's check in an amount equal to
the Fair Market Value of such fractional share of stock.
2.4 Transferability of Options.
Except as the Committee may determine as aforesaid, an option granted under
the Plan shall, by its terms, be nontransferable by the optionee other than by
will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order (as defined by the Code), and shall be exercisable
during the optionee's lifetime only by the optionee or by his or her guardian or
legal representative. More particularly, but without limiting the generality of
the immediately preceding sentence, an option may not be assigned, transferred
(except as provided in the preceding sentence), pledged or hypothecated (whether
by operation of law or otherwise), and shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of any option contrary to the provisions of
the Plan and the applicable Stock Option Agreement, and any levy of any
attachment or similar process upon an option, shall be null and void, and
otherwise without effect, and the Committee may, in its sole discretion, upon
the happening of any such event, terminate such option forthwith.
2.5 Limitation on Exercise of Incentive Stock Options.
To the extent that the aggregate Fair Market Value (determined on the date
of grant) of the Common Stock with respect to which Incentive Stock Options
granted hereunder (together with all other Incentive Stock Option plans of the
Company) are exercisable for the first time by an optionee in any calendar year
under the Plan exceeds $100,000, such options granted hereunder shall be treated
as Nonstatutory Options to the extent required by Section 422 of the Code. The
rule set forth in the preceding sentence shall be applied taking options into
account in the order in which they were granted.
5
<PAGE>
2.6 Disqualifying Dispositions of Incentive Stock Options.
If Common Stock acquired upon exercise of any Incentive Stock Option is
disposed of in a disposition that, under Section 422 of the Code, disqualifies
the option holder from the application of Section 421(a) of the code, the holder
of the Common Stock immediately before the disposition shall comply with any
requirements imposed by the Company in order to enable the Company to secure the
related income tax deduction to which it is entitled in such event.
2.7 Certain Timing Requirements.
At the discretion of the Committee, shares of Common Stock issuable to the
optionee upon exercise of an option may be used to satisfy the option exercise
price or the tax withholding consequences of such exercise, in the case of
persons subject to Section 6 of the Securities Exchange Act of 1934, as amended,
only (i) during the period beginning on the third business day following the
date of release of the quarterly or annual summary statement of sales and
earnings of the Company and ending on the twelfth business day following such
date or (ii) pursuant to an irrevocable written election by the optionee to use
shares of Common Stock issuable to the optionee upon exercise of the option to
pay all or part of the option price or the withholding taxes made at least six
months prior to the payment of such option price or withholding taxes.
2.8 No Affect on Employment.
Nothing in the Plan or in any Stock Option Agreement hereunder shall confer
upon any optionee any right to continue in the employ of the Company, any Parent
Corporation or any subsidiary or shall interfere with or restrict in any way the
rights of the Company, its Parent Corporation and its Subsidiaries, which are
hereby expressly reserved, to discharge any optionee at any time for any reason
whatsoever, with or without cause.
For purposes of the Plan, "Parent corporation" shall mean any corporation
in an unbroken chain of corporations ending with the Company if each of the
corporations other than the Company then owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain. For purposes of the Plan, "Subsidiary" shall mean
any corporation in an unbroken chain of corporations beginning with the Company
if each of the corporations other than the last corporation in the unbroken
chain then owns stock possessing 50% or more of the total combined voting power
of all classes of stock on one of the other corporations in such chain.
3. OTHER PROVISIONS
3.1 Sick Leave and Leaves of Absence.
Unless otherwise provided in the Stock Option Agreement, and to the extent
permitted by Section 422 of the Code, an optionee's employment shall not be
deemed to terminate by reason of
6
<PAGE>
sick leave, military leave or other leave of absence approved by the
Company if the period of any such leave does not exceed a period approved by the
Company, or, if longer, if the optionee's right to reemployment by the Company
is guaranteed either contractually or by statute. A Stock Option Agreement may
contain such additional or different provisions with respect to leave of absence
as the Committee may approve, either at the time of grant of an option or at a
later time.
3.2 Termination of Employment.
For purposes of the Plan "Termination of Employment," shall mean the time
when the employee-employer relationship between the optionee and the Company,
any Subsidiary or any Parent Corporation is terminated for any reason,
including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement; but excluding (i) terminations where
there is a simultaneous reemployment or continuing employment of an optionee by
the Company, any Subsidiary or any Parent corporation, (ii) at the discretion of
the Committee, terminations which result in a temporary severance of the
employee-employer relationship, and (iii) at the discretion of the Committee,
terminations which are followed by the simultaneous establishment of a
consulting relationship by the Company, a Subsidiary or any Parent Corporation
with the former employee. Subject to Section 3.1, the Committee, in its absolute
discretion, shall determine the affect of all matters and questions relating to
Termination of Employment; provided, however, that, with respect to Incentive
Stock Options, a leave of absence or other change in the employee-employer
relationship shall constitute a Termination of Employment if, and to the extent
that such leave of absence or other change interrupts employment for the
purposes of Section 422(a)(2) of the code and then-applicable regulations and
revenue rulings under said Section.
3.3 Issuance of Stock Certificates.
Upon exercise of an option, the Company shall deliver to the person
exercising such option a stock certificate evidencing the shares of Common Stock
acquired upon exercise. Notwithstanding the forgoing, the Committee in its
discretion may require the Company to retain possession of any certificate
evidencing stock acquired upon exercise of an option which remains subject to
repurchase under the provisions of the Stock Option Agreement or any other
agreement signed by the optionee in order to facilitate such repurchase
provisions.
3.4 Terms and Conditions of Options.
Each option granted under the Plan shall be evidenced by a written Stock
Option Agreement ("Stock Option Agreement") between the option holder and the
Company providing that the option is subject to the terms and conditions of the
Plan and to such other terms and conditions not inconsistent therewith as the
Committee may deem appropriate in each case.
3.5 Adjustments Upon Changes in Capitalization; Merger and Consolidation.
7
<PAGE>
If the outstanding shares of Common Stock are changed into, or exchange for
cash or a different number or kind of shares or securities of the Company or of
another corporation through reorganization, merger, recapitalization,
reclassification, stock split-up, reverse stock split, stock dividend, stock
consolidation, stock combination, stock reclassification or similar transaction,
an appropriate adjustment shall be made by the Committee in the number and kind
of shares as to which options and restricted stock may be granted. In the vent
of such a change or exchange, other than for shares or securities of another
corporation or by reason of reorganization, the Committee shall also make a
corresponding adjustment changing the number or kind of shares and the exercise
price per share allocated to unexercised options or portions thereof, which
shall have been granted prior to any such change, shall likewise be made. Any
such adjustment, however, shall be made without change in the total price
applicable to the unexercised portion of the option but with a corresponding
adjustment in the price for each share (except for any change in the aggregate
price resulting from rounding-off of share quantities or prices).
In the event of a "spin-off" or other substantial distribution of assets of
the Company which has a material diminutive effect upon the Fair Market Value of
the Common Stock, the Committee in its discretion shall make an appropriate and
equitable adjustment to the exercise prices of options then outstanding under
the Plan.
Where an adjustment under this Section 3.5 of the type described above is
made to an Incentive Stock Option, the adjustment will be made in a manner which
will not be considered a "modification" under the provisions of subsection
424(b)(3) of the Code.
In connection with the dissolution or liquidation of the Company or a
partial liquidation involving 50% or more of the assets of The Company, a
reorganization of The Company in which another entity is the survivor, a merger
or reorganization of The Company under which more than 50% of the Common Stock
outstanding prior to the merger or reorganization is converted into cash or into
another security, a sale of more than 50% of the Company's assets, or a similar
event that the Committee determines, in its discretion, would materially alter
the structure of The Company, or its ownership, the Committee, upon 30 days
prior written notice to the option holders, may, in its discretion, do one or
more of the following: (i) shorten the period during which options are
exercisable (provided they remain exercisable for at least 30 days after the
date the notice is given); (ii) accelerate any vesting schedule to which an
option is subject; (iii) arrange to have the surviving or successor entity grant
replacement options with appropriate adjustments in the number and kind of
securities to each option to the extent then exercisable (including any options
as to which the exercise has been accelerated as contemplated in clause (ii)
above), of any amount that is the equivalent of the Fair Market Value of the
Common Stock (at the effective time of the dissolution, liquidation, merger,
reorganization, sale or other event) or the fair market value of the option. In
the case of a change in corporate control, the Committee may, in considering the
advisability or the terms and conditions of any acceleration of the
exercisability of any option pursuant to this Section 3.5, take into account the
penalties that may result directly or indirectly from such acceleration to
either the Company or the option holder, or both, under
8
<PAGE>
Section 280G of the Code, and may decide to limit such acceleration to the
extent necessary to avoid or mitigate such penalties or their effects.
No fractional share of Common Stock shall be issued under the Plan on
account of any adjustment under this Section 3.5.
3.6 Rights of Participants and Beneficiaries.
The Company shall pay all amounts payable hereunder only to the option
holder or beneficiaries entitled thereto pursuant to the Plan. The Company shall
not be liable for the debts, contracts or engagements of any optionee or his or
her beneficiaries, and rights to cash payments under the Plan may not be taken
in execution by attachment or garnishment, or by any other legal or equitable
proceeding while in the hands of the Company.
3.7 Government Regulations.
The Plan, and the grant and exercise of options and the issuance and
delivery of shares of Common Stock under options granted hereunder, shall be
subject to compliance with all applicable federal and state laws, rules and
regulations including but not limited to state and federal securities law) and
federal margin requirements and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and options granted hereunder shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
3.8 Amendment and Termination.
The Board or the Committee may at any time suspend, amend or terminate the
Plan and may, with the consent of the option holder, make such modifications of
the terms and conditions of such option holder's option as it shall deem
advisable, provided, however, that, without approval of the Company's
stockholders given within twelve months before or after the action by the Board
or the Committee, no action of the Board or the Committee may, (A) materially
increase the benefits accruing to participants under the Plan; (B) materially
increase the number of securities which may be issued under the Plan; or (C)
materially modify the requirements as to eligibility for participation in the
Plan. No option may be granted during any suspension of the Plan or after such
termination. The amendment, suspension or termination of the Plan shall not,
without the consent of the option holder affected thereby, alter or impair any
rights or obligations under any option theretofore granted under the Plan. No
option may be granted during any period of suspension nor after termination of
the Plan, and in no event may any option be granted under the Plan after the
expiration of ten years from the date the Plan is adopted by the Board.
9
<PAGE>
3.9 Time of Grant and Exercise of Option.
An option shall be deemed to be exercised when the Secretary of the Company
receives written notice from an option holder of such exercised, payment of the
purchase price determined pursuant to Section 2.1 of the Plan and set forth in
the Stock Option Agreement, and all representations, indemnifications and
documents reasonably requested by the Committee.
3.10 Privileges of Stock Ownership; Non-Distributive Intent; Reports to
Option Holders.
A participant in the Plan shall be entitled to the privilege of stock
ownership as to any shares of Common Stock not actually issued to the optionee.
Upon exercise of an option at a time when there is not in effect under the
Securities Act of 1933, as amended, a Registration Statement relating to the
Common Stock issuable upon exercise or payment therefor and available for
delivery a Prospectus meeting the requirements of Section 10(a)(3) of said Act,
the optionee shall represent and warrant in writing to the Company that the
shares purchased are being acquired for investment and not with a view to the
distribution thereof.
The Company shall furnish to each optionee under the Plan the Company's
annual repot and such other periodic reports, if any, as are disseminated by the
Company in the ordinary course to its stockholders.
3.11 Legending Share Certificates.
In order to enforce any restrictions imposed upon Common Stock issued upon
exercise of an option granted under the Plan or to which such Common Stock may
be subject, the Committee may cause a legend or legends to be placed on any
share certificates representing such Common Stock, which legend or legends shall
make appropriate reference to such restrictions, including, but not limited to,
a restriction against all or such Common Stock for any period of time as may be
required by applicable laws or regulations. If any restriction with respect to
which a legend was placed on any certificate ceases to apply to Common Stock
represented by such certificate, the owner of the Common Stock represented by
such certificates may require the Company to cause the issuance of a new
certificate not bearing the legend.
Additionally, and not by way of limitation, the Committee may impose such
restrictions on any Common Stock issued pursuant to the Plan as it may deem
advisable, including, without limitation, restrictions under the requirements of
any stock exchange or market upon which Common Stock is then traded.
3.12 Use of Proceeds.
Proceeds realized pursuant to the exercise of options under the Plan shall
constitute general funds of the Company.
10
<PAGE>
3.13 Changes in Capital Structure; No Impediment to Corporate Transactions.
The existence of outstanding options under the Plan shall not affect the
Company's right to effect adjustment, recapitalization, reorganizations or other
changes in its or any other corporation's capital structure or business, any
merger or consolidation, any issuance of bonds, debentures, preferred or prior
preference stock ahead of or affecting Common Stock, the dissolution or
liquidation of the Company's or any other corporations assets or business, or
any other corporate act, whether similar to the events described above or
otherwise.
3.14 Effective Date of the Plan.
The Plan shall be effective as of the date of its approval by the
stockholders of The Company within twelve months after the date of the Board's
initial adoption of the Plan. Options may be granted but not exercised prior to
stockholder approval of the Plan. If any options are so granted and stockholder
approval shall not have been obtained within twelve months of the date of
adoption of this Plan by the Board of Directors, such options shall terminate
retroactively as of the date they were granted.
3.15 Termination.
The Plan shall terminate automatically as of the close of business on the
day preceding the tenth anniversary date of its adoption by the Board or earlier
as provided in Section 3.8. Unless otherwise provided herein, the termination of
the Plan shall not affect the validity of any option agreement outstanding at
the date of such termination.
3.16 Effective Date of the Plan.
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company, any subsidiary or any Parent
Corporation. Nothing in the Plan shall be construed to limit the right of the
Company (i) to establish any other forms of incentives or compensation for
employees of the company, any Subsidiary or any Parent Corporation or (ii) to
grant or assume options or other rights otherwise than under the Plan in
connection with any proper corporation purpose including but not by way of
limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, firm or association.
11
<PAGE>
EXHIBIT 10.1
HOLLIS & ASSOCIATES, P.A.
Attorneys at Law
9300-B Liberty Road
Randallstown,MD 21133
MELDON S. HOLLIS, JR.
FEDERAL EXPRESS
October 9, 1996
Mr. Barry B. Stein
Financial Intranet Resource Services
and Technology, Inc.
2600 Wild Berry Cover
Longwood, FL 32779
Dear Barry:
It was good to meet with you, Billy Bolles, Jacob Haynes
and James Washington, in our offices, on Thursday, October 3,
1996. At that meeting, we discussed proposals for the joint
funding and promotion of Financial Intranet Resource Services and
Technology, Inc. ("FIRST"). We explored the use of Wees, Inc.
("Wee Wees") as a vehicle for bringing FIRST to a public status.
We reached a settlement in general terms and I agreed to restate
the terms of the agreements in a letter. Those agreements are set
forth below.
We discussed the sale of Wee Wees to you. Wee Wees is a
Nevada company, incorporated in December of 1993. It is a public
company which has not yet been cleared for trading on public
markets. The application for trading has been made via the
submission of the 15c 2 11 information statement to NASD. The
original application was submitted by J. Alexander Securities, and
returned with four (4) comments. We have provided you with copies
of the comment letter and the revised application. In response to
the comment letter, a clarification letter and a revised
application have been produced. A copy of the clarification letter
is enclosed. The 15c2- 11 application must be resubmitted to NASD
to clear the company for trading.
We agreed that we (myself; Jim, Jake, and Billy),
(hereinafter "the Wee Wees Groups") would deliver to you, a
company which has fifty million (50,000,000) shares of stock
authorized, and 3.7 Million (3,700,000) shares of stock issued,
and whose shares are tradeable on public markets, subject to Rule
144. Of those 3.7 million shares, you will purchase all except two
hundred thousand (200,000) shares of the stock at a price to be
determined. Thereafter, you will file such application and notices
as are necessary to change the name of Wee Wees to FIRST.
<PAGE>
Mr. Barry Stein
October 9, 1996
Page 2 of 2
We discussed the desirability of various members of our group
participating in the activities of FIRST, after it begins
operation, but decided to leave those discussions until further
developments would provide a clearer basis for consideration.
This letter is to inform you that on behalf of the Wee
Wees Group, we accept the offer to purchase Wee Wees, as
presented. In consideration of this offer and our acceptance, the
Wee Wees Group will terminate ongoing conversations with other
prospective partners. We will undertake, at our own expense, all
steps: necessary to deliver Wee Wees, to you, as a company
cleared for trading, including the monitoring of the 15c 2 11
application, once it has been resubmitted.
At this point, what is needed is the resubmission of the
application.. The only issue of substance raised in the comment
letter was the issue raised in comment number two (2), regarding
the tradeability of the shares. That matter is clarified in the
revised opinion letter of Douglas Nicholson, who served as
general counsel to Wee Wees. We are confident that the matter is
satisfactorily resolved from the legal standpoint. We had made
arrangements for the resubmission of the application through
Grady and Hatch. Per our agreement, with you, we will submit the
re application through a broker of your choosing. We will cancel
be shares which were issued to Grady and Hatch as compensation
for their sponsorship of the application. I have requested copies
of all submission letters, and all other copies of correspondence
between J. Alexander and NASD, on the Wee Wees matter, I should
receive those documents by fax and overnight mail tomorrow. I
will forward them to you and others, as you direct, upon their
receipt.
I believe that I have accurately set forth the
agreements reached in conversations. We understand that time is
of the essence. If there are any steps that we can take to
facilitate this agreement, please do not hesitate to give me a
call.
Sincerely,
/s/Mel
Meldon S. Hollis, Jr.
<PAGE>
EXHIBIT 10.2
E M P L O Y M E N T A G R E E M E N T
Employment Agreement, dated as of September 12, 1997 between Financial
Intranet, Inc., a Nevada company (the "Company"), and Michael Sheppard residing
at 50 Broad Street, New York, NY 10004 (the "Executive").
WITNESSETH
WHEREAS, the Company is engaged in the business of operating a financial
information service firm (the Business"); and
WHEREAS, the Company desires to retain the services of the Executive in the
capacities of Managing Director and Secretary and the Executive desires to
provide such services in such capacities to the Company, on the terms and
subject to the conditions set forth in this Employment Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and obligations hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. Employment and Term. The Company hereby employs the Executive, and the
Executive hereby accepts employment by the Company, in the capacities and on the
terms and subject to the conditions set forth herein. Subject to the provisions
for termination as hereinafter provided, the term of this Employment Agreement
shall commence on the date hereof (the "Commencement Date") and
end on December 31, 2002 (herein the "Original Term of Employment"). The term of
this Employment Agreement may be extended by the Company for an additional
period, commencing on January 1, 2003, and ending on December 31, 2005 provided
(a) the Company expressly informs Executive in writing six (6) months before the
third anniversary of the Original Term Of Employment, that it intends to extend
the term of this Employment Agreement on terms equal to, or better than, the
terms of the Original Term Of Employment. The additional period, if any,
together with the initial term hereinafter collectively referred to as ("Term of
Employment"); and (b) the Executive accepts the extension and terms of this
Employment Agreement for such additional period. If the Company does not so
inform the Executive of the extension of this Employment Agreement, Executive
shall assume that this Employment Agreement will expire on December 31, 2002,
unless terminated earlier as provided herein.
2. Duties. During the Term of Employment, the Executive shall continue to
serve as the Company's Managing Director and Secretary. In his capacity as
Secretary, the Executive shall have
<PAGE>
-2-
such powers, perform such duties and shall have such responsibilities with
respect to the Business of the Company usually pertaining and attributed by law,
custom or otherwise to the office of the Secretary, except as may be expressly
limited by the Board of Directors of the Company. In his capacity as Managing
Director the Executive will be involved in corporate planning and development,
capital raising, regional sales, marketing of corporate products and services,
and approving corporate documents for signature.
The Executive shall not without the prior written consent of the Company's
Board of Directors, during the term of this Employment Agreement, other than in
the performance of duties naturally inherent in the business of the Company as
applicable, and in furtherance thereof, render services of a business,
professional or commercial nature to any other person or firm, whether for
compensation or otherwise; provided, however, that so long as it does not
interfere with his employment hereunder, the Executive may: (a) attend to
outside investments and serve as a director of a corporation which does not
compete with the Company; (b) serve as a director, trustee or officer of or
otherwise participate in educational, welfare, social, religious and civic
organizations; (c) serve as a director, officer or employee of any other entity
if and to the extent consented to in writing by the Board of Directors of the
Company.
The Executive shall arrange his affairs and lifestyle so that he can
perform his duties from the Company's offices currently located at 1 Dag
Hammarskjold Plaza, New York, NY 10017 or at an office facility in Orlando,
Florida or at such other locations approved by the Executive. The Executive
shall travel as reasonably required in connection with the performance of his
duties hereunder. If elected, the Executive may agree to serve any part of the
Term of Employment as any other officer of the Company or as an officer or
director of any of the Company's subsidiaries without any additional
compensation other than as specified in this Employment Agreement, provided no
other liabilities or obligations are imposed on Executive outside the scope of
this Employment Agreement. So long as this Employment Agreement is in effect,
the Executive shall be nominated as a member of the Board of Directors of the
Company.
3. Compensation and Benefits. As compensation to the Executive for his
execution and delivery of this Employment Agreement and performance of services
required hereunder, the Company shall pay, grant or provide the Executive, and
the Executive agrees to accept, the following salary and other compensations and
benefits (all such amounts calculated in U.S. dollars):
(a) a base salary, payable in accordance with the Company s standard
payroll practices for senior executive officers, of $150,000.00 per annum ("Base
Salary").
(b) as an inducement to the Executive to agree to the Executive s future
employment with the Company under certain terms and conditions, the Company
agreed to issue an initial 1,500,000 shares of common stock, par value $.001, of
the Company (the "Common Stock") in accordance with the terms of a compensatory
agreement for the Executive's prior services to the Company during the period
commencing October 2, 1996 and ending at the time that the Executive and Company
execute a contemplated Employment Agreement. These shares were granted at par
<PAGE>
-3-
value, which were issued in reliance of Rule 701 and are "restricted
securities" as defined in Rule 144, as amended through the operation of Rule
701, promulgated under the Securities Act of 1933, as amended ("The Act").
Such Common Stock were granted January 1, 1997 and required certificates
representing the granted shares of Common Stock to be issued in the name of the
Executive contemporarily with the signing of the Employment Agreement.
(c) In addition, The Executive, upon the signing of this Employment
Agreement is hereby granted an option to purchase the Company's Common Stock at
a price per share equal to eighty percent (80%) of the per share bid price
averaged over five working days prior to the date of this Agreement (the "Grant
Date").
The option shall permit the Executive to purchase, at any time while the
Executive is employed by the Company, the number of shares of the Company's
Common Stock par value $0.001 equal to thirteen and one-half percent (13.5%) of
the Company's issued and outstanding shares of Common Stock less; (i) 1,500,000
shares previously issued by the Company to the Executive hereinabove; (ii) and
less any shares previously issued to the Executive as a result of the exercise
of the option granted to the Executive; and (iii) any shares issued to the
Executive in lieu of cash expenses advanced by the Executive or accepted as
previously earned consulting fees paid to the Executive in lieu of cash.
The number of the Company's issued and outstanding Common Stock, for the
purpose for calculating the total number of shares which may be purchased by the
Executive in exercising the option granted hereunder on the exercise date (the
"Exercise Date") shall be; (i) the number of shares issued on a fully diluted
basis on the later date of the Exercise Date; or (ii) any date between January
31, 1997 and prior to December 31, 1998; providing that (iii) the total number
of shares issued on a fully diluted basis utilized in the calculation of the
shares available for purchase under the Option shall not exceed the number of
shares issued and outstanding at December 31, 1998 as recorded on the Company's
stock ledger as reported by the Companys Transfer Agent.
Such options shall expire upon the last date of the Original Employment
Term or any extension thereof whether exercised in whole of in part. The option
is personal to the Executive and shall not be encumbered or otherwise disposed
of, except that in the event of the death of Executive, his estate shall have
right, within six (6) months after his death, to exercise the options available
to Executive at the time of his death. The option shall be exercised by written
notice as called for in this Employment Agreement.
Delivery of the certificates representing the shares called for under the
within option shall be made promptly after receipt of such notice of exercise,
against the payment of the purchase price by certified check or cashier's check.
The shares issued pursuant to the grant of the Option in accordance with
the terms of this
<PAGE>
-4-
paragraph shall be restricted shares and may not be sold, exchanged,
transferred, pledged, hypothecated, or otherwise disposed of except as provided
for under Rule 144 of the Act.
(i) Said Common Stock must be held indefinitely unless (1) distribution of
said Common Stock has been made registered under The Act, (2) a sale of said
Common Stock is made in conformity with the provisions of Rule 144 of The Act,
or (3) in the opinion of counsel acceptable to the Company, some other exemption
from registration is available;
(ii) The Executive will not make any sale, transfer or other disposition of
said Common Stock except in compliance with The Act and Rules and Regulations
thereunder;
(iii) The Executive is familiar with all of the provisions of Rule 144
including (without limitation) the holding period thereunder;
(iv) The Company is under no obligation to register the sale, transfer or
other disposition of said Common Stock by the Executive or on his behalf or to
take any other action necessary in order to make compliance with an exemption
from registration available;
(v) there will be a restrictive legend placed on the certificates for said
Common Stock stating in substance
"The shares represented by this certificate have not been registered under
the Securities Act of 1933 and may not be sold, pledged, or otherwise
transferred except pursuant to an effective registration statement under said
Act, SEC Rule 144 or an opinion of counsel acceptable to the Company that some
other exemption from registration is available."
(d) appointment as a Director of the Company;
(e) the right to participate in any savings and stock option plans or
programs and in any medical, hospitalization, dental, disability, retirement,
insurance, savings, vacation, holiday or other plans as in effect from time to
time for the benefit of the Company's senior executive officers; provided that
any medical, hospitalization and dental plans shall include coverage for
Executive's wife and children, if any, with the understanding that premiums paid
by the Company relating to family coverage shall be reported as income to the
Executive.
(f) an automobile through a vehicle lease program, commensurate with the
vehicle policies and procedures of the Company as in effect from time to time
for senior executive officers, and which vehicle lease shall not exceed payments
of $600.00 per month; provided that the Company shall be responsible for
five-sevenths (5/7ths) of the monthly gasoline, insurance, and maintenance
payments and the Executive shall be responsible for two-sevenths (2/7ths) of the
monthly gasoline, insurance and maintenance payments;
<PAGE>
-5-
(g) a Company credit card, in accordance with the credit card policies and
procedures of the Company as in effect from time to time for senior executive
officers; provided that the Executive use such credit card solely for reasonable
business-related purposes and expenses incurred by the Executive;
(h) prompt reimbursement for all reasonable business-related expenses
incurred by the Executive in accordance with the policies and procedures of the
Company as in effect from time to time for senior executive officers including
50% of monthly dues plus any reasonable business expenses incurred at the Brae
Burn Country Club, together with prompt reimbursement of all travel and related
expenses incurred by Executive prior to the Commencement Date in preparation for
Executive's employment hereunder and any and all attorney's fees and expenses
incurred by Executive in connection with the negotiation and execution of this
Employment Agreement;
(i) paid vacation, in accordance with the policies and procedures of the
Company as in effect from time to time for senior executive officers, which
shall initially be three (3) weeks per annum ("Paid Vacation Time") during the
Term of Employment. Any Paid Vacation Time unused in any calendar year during
the Term of Employment may not be accrued to the following calendar year;
(j) such periods of paid sick leave which shall not be less than nine (9)
months.
4. Indemnification. For service as a director or officer of the Company and
of any subsidiary of the Company, the Executive shall be entitled to: (i) the
protection of the applicable indemnification provisions of the charter and
by-laws of the Company and any such subsidiary; and (ii) the benefits of any
other indemnification provisions as may be separate and apart from the charter
and by laws of the Company and any subsidiary of the Company (as for example
provisions provided by separate agreement). Insofar as any other officer of the
Company or its subsidiaries has any separate written indemnification protection
of the type referenced in the preceding sentence, the Executive shall be
entitled to avail himself of such provisions to the extent he so elects (just as
if such provisions were set forth herein in full). Such indemnification shall be
guaranteed through a policy of insurance to be provided by the Company for the
benefit of the Executive.
5. Key Man Term Life insurance, Life Insurance and Disability Insurance. If
requested by the Company, the executive shall submit to such physical
examinations and otherwise take such actions and execute and deliver such
documents as may be reasonably necessary to enable the Company, at its expense
and for its own benefit to obtain policies of key man term life insurance, life
insurance and/or disability insurance on the life of the Executive. At all times
during the Term of Employment, the Company may maintain key man term life
insurance, life insurance and/or disability insurance on respectively, the
health and life of the Executive, with the Company as beneficiary, in an amount
which is not less than the amounts payable under subsection 6(a) hereof. For
purposes of this Section 5 only, the Executive's estate shall be deemed a third
party beneficiary hereof.
6. Termination.
<PAGE>
-6-
(a) Death or Permanent Disability. In the event of the Executive s death or
permanent disability (as hereinafter defined) during the Term of Employment, the
Executive or his estate, as the case may be, shall be entitled to receive an
amount equal to three (3) times the Executive s then effective annual rate of
salary, as determined under Section 3 of this Employment Agreement (the "Salary
Benefit") in addition to the following payments: any unpaid portions of the
Signing Bonus, Incentive Awards, rights of Stock Options, accrued but unpaid
vacation and sick days, and any other payments owed to the Executive under this
Employment Agreement (all such additional payments hereinafter referred to as
"Additional Benefits"). In the Company's sole discretion, the Salary Benefit and
the Additional Benefits to be paid pursuant to this Section 6 shall be paid to,
as applicable, the Executive, his legal representative or his designated
beneficiary, either on the date of such death or permanent disability, as the
case may be, in one (1) lump sum paid within ninety (90) days after the date of
such death or permanent disability. For purposes of this paragraph, "permanent
disability" means: (a) any disability as defined under the Company's applicable
disability insurance policy and (b) any physical or mental disability or
incapacity which renders the Executive incapable of performing the services
required of him in accordance with his obligations under Section 2 for a period
of two hundred seventy (270) days. In the event the Executive, after receipt of
notice from the Company, shall dispute that his permanent disability shall have
occurred, he shall promptly submit to an examination to be conducted or
supervised by the Chief of Medicine of a major accredited hospital in the
metropolitan area of Executive e choice and, unless such physician shall issue
his written statement to the effect that in his opinion, based on his diagnosis,
the Executive is capable of resuming his employment and devoting his full time
and energy to discharging his duties within ten (10) days after the date of such
statement, such permanent disability shall be deemed to have occurred without
further dispute by the Executive or the Company. Until the Executive is
determined to be permanently disabled hereunder and his employment is terminated
therefor, Executive shall continue to receive his Base Salary, payable in
bi-weekly, monthly or other increments as is the policy of the Company for its
employees under Section 3(a) hereof, which amount shall not be offset against
any other amounts payable to the Executive hereunder. If the Executive's
employment is terminated due to a permanent disability, the Company shall
continue to provide the Executive, at the Company's expense and in addition to
any other amounts due hereunder, medical, dental, disability and life insurance
benefits provided by the Company to its employees notwithstanding the existence
of COBRA, and the Company shall pay all insurance premiums with respect thereto,
including COBRA. Any such expenses of the Company shall not be offset against
any other amounts payable to the Executive under this Section 6(a).
(b) The Company shall have the right, upon written notice to the Executive
to terminate the Executive's employment under this Employment Agreement for the
following reasons, effective upon the giving of such notice (or such later date
as shall be specified in such notice), and the Company shall no further
obligations hereunder, except to pay the Executive any amounts or provide the
Executive any benefits to which the Executive may otherwise have been entitled
prorated to the effective date of termination.
(i) By mutual agreement of the Parties to this Agreement, in writing;
<PAGE>
-7-
(ii) Upon the death of the Executive
(iii) Upon the Executive's inability or continued refusal to perform his
duties as provided for hereinabove, for any reason whatsoever, for a period of
three (3) consecutive months.
(iv) For Cause. For purposes of this Employment Agreement, "Cause" means
conviction of (and such conviction is sustained on appeal) or the entry of a
plea of guilty by the Executive to a felony involving fraud, conversion,
embezzlement, theft, or a type of similar felony involving the Company's
property.
7. Confidentiality, Ownership.
(a) During the Term of Employment and for a period of twelve (12) months
thereafter, so long as the Company is in business, the Executive shall not
disclose, divulge, discuss, copy or otherwise use or suffer to be used in any
manner, in competition with or contrary to the interests of, the Company, or any
of its subsidiaries, the customer lists, market research or other trade secrets
of the Company or any of its subsidiaries, it being acknowledged by the
Executive that all such information regarding the business of the Company and
its subsidiaries complied or obtained by or furnished to Executive while
Executive shall have been employed by or associated with the Company is
confidential information and the Company's exclusive property; provided,
however, this restriction shall not apply to: (a) any information that is
considered by law, custom or otherwise to be generic to the industry or trade of
the Company; (b) any information developed by Executive either individually or
jointly with others prior to his employment with the Company shall not be deemed
confidential or proprietary information of the Company, (c) information which is
now in or hereafter enters the public domain without any violation of this
Agreement; and (d) information disclosed in good faith to the Executive by a
third party legally entitled to disclose the same. Notwithstanding anything to
the contrary contained in this Section 7, the Executive may disclose any
confidential or proprietary information to the extent required by court order or
decree or by the rules and regulations of a governmental agency or as otherwise
required by law provided that the Executive shall provide the Company with
prompt notice of such required disclosure in advance thereof so that the Company
may seek an appropriate protective order in respect of such required disclosure.
8. Omitted.
9. Deduction and Withholding: Expenses. The Executive agrees that the
Company or its subsidiaries and affiliates, as applicable shall withhold from
any and all compensation paid to and required to be paid to the Executive
pursuant to this Employment Agreement, other than the amounts paid to the
Executive pursuant to Section 3(d), all Federal, state, local and/or other taxes
which the Company determines are required to be withheld in accordance with
applicable statutes or regulations from time to time in effect and all amounts
required to be deducted in respect of the Executive's coverage under applicable
benefit plans. for such purposes of this Employment Agreement and calculations
hereunder, all such deductions and withholdings shall be deemed to have been
paid to and received by the Executive.
<PAGE>
-8-
10. Entire Agreement. This Employment Agreement embodies the entire
agreement of the parties with respect to the Executive's employment and
superseded and other prior oral or written agreements, arrangements or
understandings between the Executive and the Company. This Employment Agreement
may not be changed or terminated orally but only by an agreement in writing
signed by the parties hereto.
11. Waiver. The waiver by the Company of a breach of any provision of this
Employment Agreement by the Executive shall not operate or be construed as a
waiver of any subsequent breach by him. The waiver by the Executive of a breach
of any provision of this Employment Agreement by the Company shall not operate
or be construed as a waiver of any subsequent breach by the Company.
12. Arbitration. All claims, disputes and other matters in question between
the parties to this Employment Agreement or the breach thereof, shall be decided
by Arbitration in accordance with the commercial rules of the American
Arbitration Association then in effect unless the parties mutually agree in
writing otherwise. Notice of the demand for Arbitration shall be filed in
writing with the other party to this Employment Agreement and the American
Arbitration Association. Any Arbitration shall take place in New York, New York.
13. Assignability. The obligations of the Executive may not be delegated
and, except with respect to the designation of beneficiaries in connection with
any of the benefits payable to the Executive hereunder, the Executive may not,
without the Company's written consent thereto, assign, transfer, convey, pledge,
encumber, hypothecate or otherwise dispose of this Employment Agreement or any
interest therein. Any such attempted delegation or disposition shall be null,
and void without effect. The Company and the Executive agree that this
Employment Agreement and all of the Company's rights and obligations hereunder
may be assigned or transferred by the Company to and shall be assumed by and
binding upon any successor to the Company. The term "successor" means, with
respect to the Company or any of its subsidiaries, any corporation or other
business entity which, by merger consolidation, purchase of the assets or
otherwise, including after a Change in Control, acquires all or a material part
of the assets of the Company.
14. Severability. If any provision of this Employment Agreement or any part
thereof, including, without limitation, Section 7, as applied to either party or
to any circumstances which shall be adjudged by a court of competent
jurisdiction to void or unenforceable, the same shall in no way affect any other
provision of this Employment Agreement or remaining part thereof, which shall be
given full effect without regard to the invalidity or unenforceability part
thereof, or the validity or enforceability to this Employment Agreement.
If any court construes any of the provisions of Section 7 or any part
thereof, to be unreasonable because of the duration of such provision or the
geographic scope thereof such court may reduce the duration or restrict or
redefine the geographic scope of such provision and enforce such provision as so
reduced, restricted or redefined.
<PAGE>
-9-
15. Notices. All notices to the Company or the Executive permitted to be
required hereunder shall be in writing and shall be delivered personally, by
telecopier or by courier service providing for next-day delivery or sent by
registered or certified mail return receipt requested to the following address:
The Company: Financial Intranet Inc.
1 Dag Hammarskjold Plaza
New York, NY 10017
Tel: (212) 702-4870
The Executive: Michael Sheppard
50 Broad Street
New York, NY 10004
Either party may change the address to which notices shall be sent by
sending written notice of such change of address to the other party. Any such
notice shall be deemed given if delivered personally upon receipt; if
telecopies, when telecopied; if sent by courier service; and if sent by
certified or registered mail, three (3) days after deposit (postage prepaid)
with the U.S. Postal Service.
16. No Conflicts. The Executive hereby represents and warrants to the
Company that his execution, delivery and performance of this Employment
Agreement and any other agreement to be delivered pursuant to this Employment
Agreement will not (i) require the consent, approval or action of any other
person or (ii) violate conflict with or result in breach of any of the terms of
, or constitute (or with notice of lapse of time or both constitute) a default
under, any agreement, arrangement or understanding with respect to the
Executive's employment to which the Executive is a party or by which the
Executive is bound or subject. The Executive hereby agrees to indemnify and hold
harmless the Company, its directors, officers, employees, agents,
representatives and affiliates (and such affiliates, directors, officers,
employees, agents and representatives) from and against any and all losses,
liabilities or claims (including interest, penalties and reasonable attorneys
fees, disbursements, and related charges) based upon or arising out of the
Executive s breach of any of the foregoing representations and warranties.
17. Effective Date. This Employment Agreement shall be effective as of the
date first written above.
18. Paragraph Heading. The paragraph headings contained in this Employment
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Employment Agreement.
19. Representations and Warranties of the Company.
(a) The Company is a corporation duly organized, validly existing and in
good
<PAGE>
-10-
standing under the laws of Nevada and has all requisite corporation power
and authority to enter into execute and deliver this Employment Agreement,
fulfill its obligations hereunder and consummate the transactions contemplated
hereby.
(b) The execution and delivery of, performance of obligations under and
consummation of the transaction contemplated by this Employment Agreement has
been duly authorized and approved by all requisite corporation action.
20. Counterparts. This Employment Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Employment
Agreement as of the date first above written.
EXECUTIVE:
/s/Michael Sheppard
Michael Sheppard
FINANCIAL INTRANET, INC.
/s/Barry Stein
By: Barry Stein
<PAGE>
-11-
FINANCIAL INTRANET, Inc.
1 Dag Hammarskjold Plaza
New York, NY 10017
January ,1998
Mr. Michael Sheppard
50 Broad Street
New York, NY 10004
Dear Michael,
This letter constitutes a Termination Benefits ("Benefits") Agreement
(hereinafter "Agreement") between you and the Company. It has been prepared with
the expectation that you will make a major contribution to the profitability,
growth and financial strength of the Company. Your continued services to the
Company and its shareholders are in their best interests and we wish to assure
your continued services on behalf of the Company without distraction in the
event of an attempt to obtain control of the Company. You have indicated that
you are willing to remain in the employ of the Company upon the understanding
that the Company will provide income security upon the terms and conditions
contained below if your employment is terminated voluntarily for good reason or
involuntarily by us without good reason.
1. Undertaking. The Company agrees to pay you the Benefits specified below
if (a) control of the Company is acquired (as defined in par. 3(a) hereof) and
(b) within three (3) years after the acquisition of control occurs (i) the
Company terminates your employment for any reason other than cause (as defined
in par. 3(b) hereof), death, your attaining the age of 65 or total and permanent
disability, or (ii)you voluntarily terminate employment for good reason (as
defined in par. 3(c) hereof).
2. Benefits. If you are entitled to Benefits pursuant to par. 1 above, the
Company agrees to pay same in a lump-sum payment within thirty (30) days of the
termination of your employment. Said payment shall be computed by multiplying
(i) your average annual compensation payable by the Company which was included
in your gross income for the most recent two (2) calendar years ending
coincident with or immediately before the date on which control of the Company
is acquired (or such portion of such period during which you were an employee of
the Company by (ii) two hundred percent (200%) 2x Stock & Cash.
3. Definitions. For purposes of the Agreement:
a. "acquisition of control" means (i) attaining twenty-five (25%) or more
of the voting stock of the Company by any person or group (not including you or
those affiliated with you), or (ii) the occurrence of a "change of control"
pursuant to the proxy disclosure rule of the Securities and Exchange Commission.
<PAGE>
-12-
b. "cause" means an act(s) of dishonesty constituting a felony under
applicable law and resulting or intending to result in your enrichment at the
Company's expense. Notwithstanding the above, termination for cause shall
require a resolution adopted by our Board of Directors that in their good faith
opinion you were guilty of conduct described herein and specifying the
particular details thereof.
c. "good reason" means (i) change in your status, position,
responsibilities which, in your reasonable judgment does not represent a
promotion from existing status, position and responsibilities as in effect
immediately prior to the change in control; the assignment of any duties or
responsibilities which in your reasonable judgment are not consistent with such
status, position or responsibilities; any removal from or failure to reappoint
or reelect you to any of such positions other than for good reason or total and
permanent disability; (ii) a reduction in your salary after a change in control;
(iii) the relocation of the Company outside the Borough of Manhattan, counties
of Westchester or Fairfield after a change in control; (iv) any action which
terminates or materially reduces your participation in any Company incentive,
bonus or other compensation plan (including but not limited to stock option
plans) in connection with the change in control; (v) failure to continue to
provide you with benefits substantially similar to those enjoyed or entitled
under any of the Company's compensation or health benefits plans (or deprive you
of any material fringe benefits) at the time of a change in control; (vi)
failure of the Company to obtain an agreement from any successor or assign of
the Company to perform this Agreement; (vii) any purported termination of your
employment which is not effected pursuant to par. 4(c) hereof (and, if
applicable, par. 3(b) hereof); and for purposes of this Agreement, no such
purported termination shall be effective; or (viii) any request by the Company
that you participate in an unlawful act (or commission of such act by another
officer or director for which you might be held liable) or take any action
constituting a breach of professional standards of conduct. Notwithstanding
anything in this par. 3(c) to the contrary, your right to terminate employment
pursuant to this par. 3(c) shall not be affected by incapacity due to physical
or mental illness.
4. Enforcement of Agreement. The Company is aware that upon the occurrence
of a change in control, actions may be undertaken to deny you the benefits of
this Agreement. It is the intent of the Company that you should not be required
to incur the expenses associated with enforcing your rights under this Agreement
because such expenses would detract from the benefits intended to be extended
hereunder. Accordingly, if following a change in control it should appear that
the Company has failed to comply with any of its obligations under this
Agreement, the Company irrevocably authorizes you to from time to time to retain
counsel of your choice, at the expense of the Company to represent you in
connection with the initiation or defense of any litigation or other legal
action, whether such action is by or against the Company or any Director,
officer, shareholder, or other person affiliated with the Company, in any
jurisdiction. The reasonable fees and expenses of counsel selected from time to
tome by you as hereinabove provided shall be paid or reimbursed to you by the
Company on a periodic basis upon presentation by a of a statement(s) prepared by
such counsel up to a maximum aggregate amount of $250,000. The Company shall not
take any action to seek reimbursement for its expense in connection with any
disputes relating to the enforceability of this Agreement.
<PAGE>
-13-
5. Severance Pay; No Duty to Mitigate. Payments to you under this Agreement
shall not be treated as damages but as severance compensation to which you are
entitled by reason of termination of employment. The Company shall not be
entitled to set off against the amounts payable to you of any amounts earned by
you in other employment after termination of employment by the Company, or any
amounts which might have been earned by you in other employment had other such
employment been sought.
6. Notice of Termination. Any purported termination by the Company or you
of this agreement shall require a notice which indicates the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of you employment under the provision so indicated.
7. Assignment. This Agreement shall be binding upon the parties hereto and
their respective personal representatives, heirs successors and assigns, but
neither this Agreement nor any right hereunder may be assigned or transferred by
either party. Notwithstanding the foregoing, the Company will assign this
Agreement to any corporation or other business entity succeeding to
substantially all of the business and assets of the Company by merger,
consolidation, sale of assets, or otherwise and shall obtain the assumption of
this Agreement by such successor.
8. Entire Agreement. This letter contains the entire agreement of the
parties. It may not be changed orally, but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, amendment, extension or discharge is sought.
9. Governing Law. This Agreement shall be governed by and subject to the
laws of the State of New York.
10. Severability. The invalidity or enforceability of any particular
provisions of this Agreement shall not affect the other provisions, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provision has not been contained herein.
11. Notices. Notices hereunder shall be in writing and shall be deemed to
have been duly given if delivered in person or sent by certified mail, return
receipt requested, postage prepaid, addressed as set forth above, or to such
other address as shall be furnished in writing by any party to the other.
Please signify your agreement with the above by signing and returning to us
the enclosed copy of this letter.
Cordially,
FINANCIAL INTRANET, INC.
/s/Barry Stein
by: Barry Stein
<PAGE>
-14-
Accepted and Agreed:
/s/Michael Sheppard
<PAGE>
-15-
Mr. Michael Sheppard
% Financial Intranet Inc.
50 Broad Street
New York, NY 10004
Dear Michael:
Preamble of this Letter::
As you are aware, at least one major telecom group has opened conservations
with Financial Intranet Inc. ("FNTN") regarding a merger/acquisition
transaction. Needless to say, if FNTN becomes a merger candidate for a major
private/public corporation, your current employment agreement between FNTN may
need to be revised and/or terminated. Since you have expended a great deal of
your expertise and time in developing the business of FNTN, which in turn may
make FNTN an attractive merger candidate, a plan must be approved by FNTN s
Board of Directors to properly compensate you in the event that any merger
negatively affects your employment benefits currently in place.
1. Intent of this Letter of Agreement. FNTN is aware that upon any
occurrence that creates a change of control of FNTN, actions may be undertaken
that may result in denying you the benefits of your current employment
agreement, or deny you the full benefits of any options you may enjoy to
purchase additional shares of FNTN in the future, or the benefits provided by
this Letter of Agreement. The above preamble, therefore is hereby included into,
and made a part of, this Letter of Agreement to act to clearly represent the
intent of this Letter of Agreement (Agreement).
2. Benefits to be made available. This Agreement, subject to the approval
of FNTN's Board of Directors will constitute an agreement to the provision of
the benefits hereinbelow and made available to you by FNTN which shall become
automatically effective, (the "Effective Date") on the date that:
(a) Control of the business activities of FNTN is acquired by any person or
group ( not including you or those affiliated with you) through the issue of
additional voting shares, or the exchange of previously issued FNTN's voting
shares to third parties under a single control; and
(b) Not less than twenty five (25%) of the issued and outstanding voting
shares of FNTN is sold and/or exchanged with any person or group (not including
you or those affiliated with you) in one or multiple transactions during any
concurrent 12 month period; or
(c) The occurrence of a "change of control" pursuant to the proxy
disclosure rule of the Securities and Exchange Commission ("SEC").
<PAGE>
-16-
(d) Change of the terms of and/or termination of your Current Employment
Agreement on or subsequent to the Effective Date providing that:
(i) You had continued to be employed by FNTN under the terms of your
Employment Agreement, which terms remained in full operation from its initial
execution date of January 1, 1998 and up to and including the Effective Date of
this Agreement.
(ii) Upon the Effective Date there is a proposed or actual change of your
employment status with FNTN; or
(iii) Any term of your employment agreement with FNTN is changed in any
way; or
(e) You are not provided the opportunity to renew the term of your
employment agreement with FNTN as provided for in the current Employment
Agreement or you are not reelected to the Board of Directors of FNTN or to the
Board of Directors of the surviving entity in the event of a merger or
acquisition of FNTN with any person or group acquiring control as provided for
hereinabove.
4. Benefits provided. If you are automatically entitled to the Benefits in
accordance with, and pursuant to, paragraphs 1, 2, 3 hereinabove, FNTN or the
surviving entity resulting from the change of control of FNTN upon the Effective
Date agrees to pay to you, and extend the following Benefits as the case may be:
(a) A Lump Sum amount equal to your annual employment compensation
pro-rated for the period remaining of your current employment agreement,
providing that the employment agreement had not been previously terminated for
cause by the FNTN prior to the Effective Date; plus
(b) A lump sum of two (2) times or your annual compensation averaged over
the most recent two (2) year calendar years ending coincident with or
immediately before the Effective Date
(c) Any Options granted to you as compensation under the terms of paragraph
3 (c) of your current employment agreement shall be automatically amended to
provide the following amendments of the option terms and conditions:
(i) the options granted will expire upon the one thousand eight hundred and
twenty fifth (1,825) day following the grant date: and
(ii) the options may be encumbered, sold, transferred or other wise be
disposed of without any restrictions whatsoever and shall not be considered
being issued to you as solely for your personal exercise.
<PAGE>
-17-
5. Enforcement of the terms of this Agreement. It is the further the intent
of FNTN that you should not be required to incur the expenses associated with
enforcing your rights under this Agreement because such expenses would detract
from the benefits intended to be extended hereunder. Accordingly, if following
the Effective Date, it should appear that FNTN has not, or will attempt not to,
comply with any of its obligations under this Agreement, FNTN irrevocably
authorizes you to, from time to time, retain counsel of your choice, at the
expense of FNTN to represent you in connection with the defense of any
litigation or other legal action, whether such action is by, or against, FNTN,
any director, officer, shareholder or other person affiliated with FNTN and in
any jurisdiction. The reasonable fees and expenses of counsel selected from time
to time by you as hereinabove provided shall be paid directly by, or reimbursed
to you, by FNTN on a periodic basis upon presentation to FNTN of a statement(s)
prepared by such counsel up to a maximum in the aggregate of two hundred and
fifty thousand ($250,000) dollars.
(a) FNTN shall not take any action to seek reimbursement for its expenses
in connection with any disputes relating to the enforceability of this
Agreement.
6. Severance Pay: Any payments made to you, or required to be paid to you,
under this Agreement shall not be treated as damages but rather as severance
compensation to which you are entitled to by reason of your termination of your
current employment or change in the status of your current employment terms.
(a) FNTN shall not be entitled to set off against the amounts payable to
you under the terms of this Agreement of any amounts earned by you, or any
amounts earned by you in other employment after termination of your employment
with FNTN, or any amounts which might have been earned by you in other
employment had other such employment been sought by you.
7. Assignment. This Agreement shall be binding upon the parties hereto and
their respective personal representatives, heirs, successors and assigns but
neither this Agreement nor any right hereunder may be assigned or transferred to
either party. Notwithstanding the foregoing:
(a) FNTN is obligated to assign this Agreement to any corporation or other
business entity succeeding to control FNTN and/or succeeding to substantially
all of the FNTN's business and assets by merger, consolidation, sale of assets,
or otherwise and FNTN is obligated to obtain the assumption of this Agreement by
such successor; and
(b) You may assign, transfer or other dispose of, or encumber, any Options
granted to you prior to the Effective Date as provided for in paragraph of this
Agreement.
8. Entire Agreement. This Letter Agreement contains the entire agreement
between the parties. This Agreement may be changed only through a writing signed
by both party seeking any waiver, change modification, amendment, and/or
extension of this Agreement.
<PAGE>
-18-
9. Governing Law: This Agreement shall be governed by, and subject to, the
laws of the State of New York.
10. Severability. The invalidity or enforceability of any particular
provision of this Agreement shall not affect any other provision(s) and this
Agreement and shall be construed in all respects as if such invalid or
unenforceable provision had not been contained herein.
11. Notices. Notices hereunder shall be in writing and shall be deemed to
have been duly given if delivered in person or sent by certified mail, return
receipt requested, postage prepaid, addressed as set forth above, or at such
address as shall be furnished in writing by any party to the other.
Please signify your agreement with the above terms of this Agreement by
signing and returning to FNTN the enclosed copy of this Agreement
Cordially
Financial Intranet Inc.
/s/Barry Stein
By Barry Stein (title) Managing Director
Accepted and Agreed
/s/Michael Sheppard
Michael Sheppard
<PAGE>
EXHIBIT 10.3
E M P L O Y M E N T A G R E E M E N T
Employment Agreement, dated as of September 12, 1997 between Financial
Intranet, Inc., a Nevada company (the "Company"), and Barry Stein residing at
2115 Grand Brook Circle Orlando, FL 32810(the "Executive").
WITNESSETH
WHEREAS, the Company is engaged in the business of operating a financial
information service firm (the Business"); and
WHEREAS, the Company desires to retain the services of the Executive in the
capacities of Managing Director and Secretary and the Executive desires to
provide such services in such capacities to the Company, on the terms and
subject to the conditions set forth in this Employment Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and obligations hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. Employment and Term. The Company hereby employs the Executive, and the
Executive hereby accepts employment by the Company, in the capacities and on the
terms and subject to the conditions set forth herein. Subject to the provisions
for termination as hereinafter provided, the term of this Employment Agreement
shall commence on the date hereof (the "Commencement Date") and
end on December 31, 2002 (herein the "Original Term of Employment"). The term of
this Employment Agreement may be extended by the Company for an additional
period, commencing on January 1, 2003, and ending on December 31, 2005 provided
(a) the Company expressly informs Executive in writing six (6) months before the
third anniversary of the Original Term Of Employment, that it intends to extend
the term of this Employment Agreement on terms equal to, or better than, the
terms of the Original Term Of Employment. The additional period, if any,
together with the initial term hereinafter collectively referred to as ("Term of
Employment"); and (b) the Executive accepts the extension and terms of this
Employment Agreement for such additional period. If the Company does not so
inform the Executive of the extension of this Employment Agreement, Executive
shall assume that this Employment Agreement will expire on December 31, 2002,
unless terminated earlier as provided herein.
2. Duties. During the Term of Employment, the Executive shall continue to
serve as the Company's Managing Director and Secretary. In his capacity as
Secretary, the Executive shall have
<PAGE>
-2-
such powers, perform such duties and shall have such responsibilities with
respect to the Business of the Company usually pertaining and attributed by law,
custom or otherwise to the office of the Secretary, except as may be expressly
limited by the Board of Directors of the Company. In his capacity as Managing
Director the Executive will be involved in corporate planning and development,
capital raising, regional sales, marketing of corporate products and services,
and approving corporate documents for signature.
The Executive shall not without the prior written consent of the Company's
Board of Directors, during the term of this Employment Agreement, other than in
the performance of duties naturally inherent in the business of the Company as
applicable, and in furtherance thereof, render services of a business,
professional or commercial nature to any other person or firm, whether for
compensation or otherwise; provided, however, that so long as it does not
interfere with his employment hereunder, the Executive may: (a) attend to
outside investments and serve as a director of a corporation which does not
compete with the Company; (b) serve as a director, trustee or officer of or
otherwise participate in educational, welfare, social, religious and civic
organizations; (c) serve as a director, officer or employee of any other entity
if and to the extent consented to in writing by the Board of Directors of the
Company.
The Executive shall arrange his affairs and lifestyle so that he can
perform his duties from the Company's offices currently located at 1 Dag
Hammarskjold Plaza, New York, NY 10017 or at an office facility in Orlando,
Florida or at such other locations approved by the Executive. The Executive
shall travel as reasonably required in connection with the performance of his
duties hereunder. If elected, the Executive may agree to serve any part of the
Term of Employment as any other officer of the Company or as an officer or
director of any of the Company's subsidiaries without any additional
compensation other than as specified in this Employment Agreement, provided no
other liabilities or obligations are imposed on Executive outside the scope of
this Employment Agreement. So long as this Employment Agreement is in effect,
the Executive shall be nominated as a member of the Board of Directors of the
Company.
3. Compensation and Benefits. As compensation to the Executive for his
execution and delivery of this Employment Agreement and performance of services
required hereunder, the Company shall pay, grant or provide the Executive, and
the Executive agrees to accept, the following salary and other compensations and
benefits (all such amounts calculated in U.S. dollars):
(a) a base salary, payable in accordance with the Company s standard
payroll practices for senior executive officers, of $150,000.00 per annum ("Base
Salary").
(b) as an inducement to the Executive to agree to the Executive s future
employment with the Company under certain terms and conditions, the Company
agreed to issue an initial 1,500,000 shares of common stock, par value $.001, of
the Company (the "Common Stock") in accordance with the terms of a compensatory
agreement for the Executive's prior services to the Company during the period
commencing October 2, 1996 and ending at the time that the Executive and Company
execute a contemplated Employment Agreement. These shares were granted at par
<PAGE>
-3-
value, which were issued in reliance of Rule 701 and are "restricted
securities" as defined in Rule 144, as amended through the operation of Rule
701, promulgated under the Securities Act of 1933, as amended ("The Act").
Such Common Stock were granted January 1, 1997 and required certificates
representing the granted shares of Common Stock to be issued in the name of the
Executive contemporarily with the signing of the Employment Agreement.
(c) In addition, The Executive, upon the signing of this Employment
Agreement is hereby granted an option to purchase the Company's Common Stock at
a price per share equal to eighty percent (80%) of the per share bid price
averaged over five working days prior to the date of this Agreement (the "Grant
Date").
The option shall permit the Executive to purchase, at any time while the
Executive is employed by the Company, the number of shares of the Company's
Common Stock par value $0.001 equal to twenty seven percent (27%) of the
Company's issued and outstanding shares of Common Stock less; (i) 1,500,000
shares previously issued by the Company to the Executive hereinabove; (ii) and
less any shares previously issued to the Executive as a result of the exercise
of the option granted to the Executive; and (iii) any shares issued to the
Executive in lieu of cash expenses advanced by the Executive or accepted as
previously earned consulting fees paid to the Executive in lieu of cash.
The number of the Company's issued and outstanding Common Stock, for the
purpose for calculating the total number of shares which may be purchased by the
Executive in exercising the option granted hereunder on the exercise date (the
"Exercise Date") shall be; (i) the number of shares issued on a fully diluted
basis on the later date of the Exercise Date; or (ii) any date between January
31, 1997 and prior to December 31, 1998; providing that (iii) the total number
of shares issued on a fully diluted basis utilized in the calculation of the
shares available for purchase under the Option shall not exceed the number of
shares issued and outstanding at December 31, 1998 as recorded on the Company's
stock ledger as reported by the Companys Transfer Agent.
Such options shall expire upon the last date of the Original Employment
Term or any extension thereof whether exercised in whole of in part. The option
is personal to the Executive and shall not be encumbered or otherwise disposed
of, except that in the event of the death of Executive, his estate shall have
right, within six (6) months after his death, to exercise the options available
to Executive at the time of his death. The option shall be exercised by written
notice as called for in this Employment Agreement.
Delivery of the certificates representing the shares called for under the
within option shall be made promptly after receipt of such notice of exercise,
against the payment of the purchase price by certified check or cashier's check.
The shares issued pursuant to the grant of the Option in accordance with
the terms of this
<PAGE>
-4-
paragraph shall be restricted shares and may not be sold, exchanged,
transferred, pledged, hypothecated, or otherwise disposed of except as provided
for under Rule 144 of the Act.
(i) Said Common Stock must be held indefinitely unless (1) distribution of
said Common Stock has been made registered under The Act, (2) a sale of said
Common Stock is made in conformity with the provisions of Rule 144 of The Act,
or (3) in the opinion of counsel acceptable to the Company, some other exemption
from registration is available;
(ii) The Executive will not make any sale, transfer or other disposition of
said Common Stock except in compliance with The Act and Rules and Regulations
thereunder;
(iii) The Executive is familiar with all of the provisions of Rule 144
including (without limitation) the holding period thereunder;
(iv) The Company is under no obligation to register the sale, transfer or
other disposition of said Common Stock by the Executive or on his behalf or to
take any other action necessary in order to make compliance with an exemption
from registration available;
(v) there will be a restrictive legend placed on the certificates for said
Common Stock stating in substance
"The shares represented by this certificate have not been registered under
the Securities Act of 1933 and may not be sold, pledged, or otherwise
transferred except pursuant to an effective registration statement under said
Act, SEC Rule 144 or an opinion of counsel acceptable to the Company that some
other exemption from registration is available."
(d) appointment as a Director of the Company;
(e) the right to participate in any savings and stock option plans or
programs and in any medical, hospitalization, dental, disability, retirement,
insurance, savings, vacation, holiday or other plans as in effect from time to
time for the benefit of the Company's senior executive officers; provided that
any medical, hospitalization and dental plans shall include coverage for
Executive's wife and children, if any, with the understanding that premiums paid
by the Company relating to family coverage shall be reported as income to the
Executive.
(f) an automobile through a vehicle lease program, commensurate with the
vehicle policies and procedures of the Company as in effect from time to time
for senior executive officers, and which vehicle lease shall not exceed payments
of $600.00 per month; provided that the Company shall be responsible for
five-sevenths (5/7ths) of the monthly gasoline, insurance, and maintenance
payments and the Executive shall be responsible for two-sevenths (2/7ths) of the
monthly gasoline, insurance and maintenance payments;
<PAGE>
-5-
(g) a Company credit card, in accordance with the credit card policies and
procedures of the Company as in effect from time to time for senior executive
officers; provided that the Executive use such credit card solely for reasonable
business-related purposes and expenses incurred by the Executive;
(h) prompt reimbursement for all reasonable business-related expenses
incurred by the Executive in accordance with the policies and procedures of the
Company as in effect from time to time for senior executive officers including
50% of monthly dues plus any reasonable business expenses incurred at the Brae
Burn Country Club, together with prompt reimbursement of all travel and related
expenses incurred by Executive prior to the Commencement Date in preparation for
Executive's employment hereunder and any and all attorney's fees and expenses
incurred by Executive in connection with the negotiation and execution of this
Employment Agreement;
(i) paid vacation, in accordance with the policies and procedures of the
Company as in effect from time to time for senior executive officers, which
shall initially be three (3) weeks per annum ("Paid Vacation Time") during the
Term of Employment. Any Paid Vacation Time unused in any calendar year during
the Term of Employment may not be accrued to the following calendar year;
(j) such periods of paid sick leave which shall not be less than nine (9)
months.
4. Indemnification. For service as a director or officer of the Company and
of any subsidiary of the Company, the Executive shall be entitled to: (i) the
protection of the applicable indemnification provisions of the charter and
by-laws of the Company and any such subsidiary; and (ii) the benefits of any
other indemnification provisions as may be separate and apart from the charter
and by laws of the Company and any subsidiary of the Company (as for example
provisions provided by separate agreement). Insofar as any other officer of the
Company or its subsidiaries has any separate written indemnification protection
of the type referenced in the preceding sentence, the Executive shall be
entitled to avail himself of such provisions to the extent he so elects (just as
if such provisions were set forth herein in full). Such indemnification shall be
guaranteed through a policy of insurance to be provided by the Company for the
benefit of the Executive.
5. Key Man Term Life insurance, Life Insurance and Disability Insurance. If
requested by the Company, the executive shall submit to such physical
examinations and otherwise take such actions and execute and deliver such
documents as may be reasonably necessary to enable the Company, at its expense
and for its own benefit to obtain policies of key man term life insurance, life
insurance and/or disability insurance on the life of the Executive. At all times
during the Term of Employment, the Company may maintain key man term life
insurance, life insurance and/or disability insurance on respectively, the
health and life of the Executive, with the Company as beneficiary, in an amount
which is not less than the amounts payable under subsection 6(a) hereof. For
purposes of this Section 5 only, the Executive's estate shall be deemed a third
party beneficiary hereof.
6. Termination.
<PAGE>
-6-
(a) Death or Permanent Disability. In the event of the Executive s death or
permanent disability (as hereinafter defined) during the Term of Employment, the
Executive or his estate, as the case may be, shall be entitled to receive an
amount equal to three (3) times the Executive s then effective annual rate of
salary, as determined under Section 3 of this Employment Agreement (the "Salary
Benefit") in addition to the following payments: any unpaid portions of the
Signing Bonus, Incentive Awards, rights of Stock Options, accrued but unpaid
vacation and sick days, and any other payments owed to the Executive under this
Employment Agreement (all such additional payments hereinafter referred to as
"Additional Benefits"). In the Company's sole discretion, the Salary Benefit and
the Additional Benefits to be paid pursuant to this Section 6 shall be paid to,
as applicable, the Executive, his legal representative or his designated
beneficiary, either on the date of such death or permanent disability, as the
case may be, in one (1) lump sum paid within ninety (90) days after the date of
such death or permanent disability. For purposes of this paragraph, "permanent
disability" means: (a) any disability as defined under the Company's applicable
disability insurance policy and (b) any physical or mental disability or
incapacity which renders the Executive incapable of performing the services
required of him in accordance with his obligations under Section 2 for a period
of two hundred seventy (270) days. In the event the Executive, after receipt of
notice from the Company, shall dispute that his permanent disability shall have
occurred, he shall promptly submit to an examination to be conducted or
supervised by the Chief of Medicine of a major accredited hospital in the
metropolitan area of Executive e choice and, unless such physician shall issue
his written statement to the effect that in his opinion, based on his diagnosis,
the Executive is capable of resuming his employment and devoting his full time
and energy to discharging his duties within ten (10) days after the date of such
statement, such permanent disability shall be deemed to have occurred without
further dispute by the Executive or the Company. Until the Executive is
determined to be permanently disabled hereunder and his employment is terminated
therefor, Executive shall continue to receive his Base Salary, payable in
bi-weekly, monthly or other increments as is the policy of the Company for its
employees under Section 3(a) hereof, which amount shall not be offset against
any other amounts payable to the Executive hereunder. If the Executive's
employment is terminated due to a permanent disability, the Company shall
continue to provide the Executive, at the Company's expense and in addition to
any other amounts due hereunder, medical, dental, disability and life insurance
benefits provided by the Company to its employees notwithstanding the existence
of COBRA, and the Company shall pay all insurance premiums with respect thereto,
including COBRA. Any such expenses of the Company shall not be offset against
any other amounts payable to the Executive under this Section 6(a).
(b) The Company shall have the right, upon written notice to the Executive
to terminate the Executive's employment under this Employment Agreement for the
following reasons, effective upon the giving of such notice (or such later date
as shall be specified in such notice), and the Company shall no further
obligations hereunder, except to pay the Executive any amounts or provide the
Executive any benefits to which the Executive may otherwise have been entitled
prorated to the effective date of termination.
(i) By mutual agreement of the Parties to this Agreement, in writing;
<PAGE>
-7-
(ii) Upon the death of the Executive
(iii) Upon the Executive's inability or continued refusal to perform his
duties as provided for hereinabove, for any reason whatsoever, for a period of
three (3) consecutive months.
(iv) For Cause. For purposes of this Employment Agreement, "Cause" means
conviction of (and such conviction is sustained on appeal) or the entry of a
plea of guilty by the Executive to a felony involving fraud, conversion,
embezzlement, theft, or a type of similar felony involving the Company's
property.
7. Confidentiality, Ownership.
(a) During the Term of Employment and for a period of twelve (12) months
thereafter, so long as the Company is in business, the Executive shall not
disclose, divulge, discuss, copy or otherwise use or suffer to be used in any
manner, in competition with or contrary to the interests of, the Company, or any
of its subsidiaries, the customer lists, market research or other trade secrets
of the Company or any of its subsidiaries, it being acknowledged by the
Executive that all such information regarding the business of the Company and
its subsidiaries complied or obtained by or furnished to Executive while
Executive shall have been employed by or associated with the Company is
confidential information and the Company's exclusive property; provided,
however, this restriction shall not apply to: (a) any information that is
considered by law, custom or otherwise to be generic to the industry or trade of
the Company; (b) any information developed by Executive either individually or
jointly with others prior to his employment with the Company shall not be deemed
confidential or proprietary information of the Company, (c) information which is
now in or hereafter enters the public domain without any violation of this
Agreement; and (d) information disclosed in good faith to the Executive by a
third party legally entitled to disclose the same. Notwithstanding anything to
the contrary contained in this Section 7, the Executive may disclose any
confidential or proprietary information to the extent required by court order or
decree or by the rules and regulations of a governmental agency or as otherwise
required by law provided that the Executive shall provide the Company with
prompt notice of such required disclosure in advance thereof so that the Company
may seek an appropriate protective order in respect of such required disclosure.
8. Omitted.
9. Deduction and Withholding: Expenses. The Executive agrees that the
Company or its subsidiaries and affiliates, as applicable shall withhold from
any and all compensation paid to and required to be paid to the Executive
pursuant to this Employment Agreement, other than the amounts paid to the
Executive pursuant to Section 3(d), all Federal, state, local and/or other taxes
which the Company determines are required to be withheld in accordance with
applicable statutes or regulations from time to time in effect and all amounts
required to be deducted in respect of the Executive's coverage under applicable
benefit plans. for such purposes of this Employment Agreement and calculations
hereunder, all such deductions and withholdings shall be deemed to have been
paid to and received by the Executive.
<PAGE>
-8-
10. Entire Agreement. This Employment Agreement embodies the entire
agreement of the parties with respect to the Executive's employment and
superseded and other prior oral or written agreements, arrangements or
understandings between the Executive and the Company. This Employment Agreement
may not be changed or terminated orally but only by an agreement in writing
signed by the parties hereto.
11. Waiver. The waiver by the Company of a breach of any provision of this
Employment Agreement by the Executive shall not operate or be construed as a
waiver of any subsequent breach by him. The waiver by the Executive of a breach
of any provision of this Employment Agreement by the Company shall not operate
or be construed as a waiver of any subsequent breach by the Company.
12. Arbitration. All claims, disputes and other matters in question between
the parties to this Employment Agreement or the breach thereof, shall be decided
by Arbitration in accordance with the commercial rules of the American
Arbitration Association then in effect unless the parties mutually agree in
writing otherwise. Notice of the demand for Arbitration shall be filed in
writing with the other party to this Employment Agreement and the American
Arbitration Association. Any Arbitration shall take place in New York, New York.
13. Assignability. The obligations of the Executive may not be delegated
and, except with respect to the designation of beneficiaries in connection with
any of the benefits payable to the Executive hereunder, the Executive may not,
without the Company's written consent thereto, assign, transfer, convey, pledge,
encumber, hypothecate or otherwise dispose of this Employment Agreement or any
interest therein. Any such attempted delegation or disposition shall be null,
and void without effect. The Company and the Executive agree that this
Employment Agreement and all of the Company's rights and obligations hereunder
may be assigned or transferred by the Company to and shall be assumed by and
binding upon any successor to the Company. The term "successor" means, with
respect to the Company or any of its subsidiaries, any corporation or other
business entity which, by merger consolidation, purchase of the assets or
otherwise, including after a Change in Control, acquires all or a material part
of the assets of the Company.
14. Severability. If any provision of this Employment Agreement or any part
thereof, including, without limitation, Section 7, as applied to either party or
to any circumstances which shall be adjudged by a court of competent
jurisdiction to void or unenforceable, the same shall in no way affect any other
provision of this Employment Agreement or remaining part thereof, which shall be
given full effect without regard to the invalidity or unenforceability part
thereof, or the validity or enforceability to this Employment Agreement.
If any court construes any of the provisions of Section 7 or any part
thereof, to be unreasonable because of the duration of such provision or the
geographic scope thereof such court may reduce the duration or restrict or
redefine the geographic scope of such provision and enforce such provision as so
reduced, restricted or redefined.
<PAGE>
-9-
15. Notices. All notices to the Company or the Executive permitted to be
required hereunder shall be in writing and shall be delivered personally, by
telecopier or by courier service providing for next-day delivery or sent by
registered or certified mail return receipt requested to the following address:
The Company: Financial Intranet Inc.
1 Dag Hammarskjold Plaza
New York, NY 10017
Tel: (212) 702-4870
The Executive: Barry Stein
2115 Grand Brook Circle
Orlando, FL 32810
Either party may change the address to which notices shall be sent by
sending written notice of such change of address to the other party. Any such
notice shall be deemed given if delivered personally upon receipt; if
telecopies, when telecopied; if sent by courier service; and if sent by
certified or registered mail, three (3) days after deposit (postage prepaid)
with the U.S. Postal Service.
16. No Conflicts. The Executive hereby represents and warrants to the
Company that his execution, delivery and performance of this Employment
Agreement and any other agreement to be delivered pursuant to this Employment
Agreement will not (i) require the consent, approval or action of any other
person or (ii) violate conflict with or result in breach of any of the terms of
, or constitute (or with notice of lapse of time or both constitute) a default
under, any agreement, arrangement or understanding with respect to the
Executive's employment to which the Executive is a party or by which the
Executive is bound or subject. The Executive hereby agrees to indemnify and hold
harmless the Company, its directors, officers, employees, agents,
representatives and affiliates (and such affiliates, directors, officers,
employees, agents and representatives) from and against any and all losses,
liabilities or claims (including interest, penalties and reasonable attorneys
fees, disbursements, and related charges) based upon or arising out of the
Executive s breach of any of the foregoing representations and warranties.
17. Effective Date. This Employment Agreement shall be effective as of the
date first written above.
18. Paragraph Heading. The paragraph headings contained in this Employment
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Employment Agreement.
19. Representations and Warranties of the Company.
(a) The Company is a corporation duly organized, validly existing and in
good
<PAGE>
-10-
standing under the laws of Nevada and has all requisite corporation power
and authority to enter into execute and deliver this Employment Agreement,
fulfill its obligations hereunder and consummate the transactions contemplated
hereby.
(b) The execution and delivery of, performance of obligations under and
consummation of the transaction contemplated by this Employment Agreement has
been duly authorized and approved by all requisite corporation action.
20. Counterparts. This Employment Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Employment
Agreement as of the date first above written.
EXECUTIVE:
/s/Barry Stein
Barry Stein
FINANCIAL INTRANET, INC.
/s/Michael Sheppard
By: Michael Sheppard
<PAGE>
-11-
FINANCIAL INTRANET, Inc.
1 Dag Hammarskjold Plaza
New York, NY 10017
January ,1998
Mr. Barry Stein
Orlando, Florida
Dear Barry,
This letter constitutes a Termination Benefits ("Benefits") Agreement
(hereinafter "Agreement") between you and the Company. It has been prepared with
the expectation that you will make a major contribution to the profitability,
growth and financial strength of the Company. Your continued services to the
Company and its shareholders are in their best interests and we wish to assure
your continued services on behalf of the Company without distraction in the
event of an attempt to obtain control of the Company. You have indicated that
you are willing to remain in the employ of the Company upon the understanding
that the Company will provide income security upon the terms and conditions
contained below if your employment is terminated voluntarily for good reason or
involuntarily by us without good reason.
1. Undertaking. The Company agrees to pay you the Benefits specified below
if (a) control of the Company is acquired (as defined in par. 3(a) hereof) and
(b) within three (3) years after the acquisition of control occurs (i) the
Company terminates your employment for any reason other than cause (as defined
in par. 3(b) hereof), death, your attaining the age of 65 or total and permanent
disability, or (ii)you voluntarily terminate employment for good reason (as
defined in par. 3(c) hereof).
2. Benefits. If you are entitled to Benefits pursuant to par. 1 above, the
Company agrees to pay same in a lump-sum payment within thirty (30) days of the
termination of your employment. Said payment shall be computed by multiplying
(i) your average annual compensation payable by the Company which was included
in your gross income for the most recent two (2) calendar years ending
coincident with or immediately before the date on which control of the Company
is acquired (or such portion of such period during which you were an employee of
the Company by (ii) two hundred percent (200%) 2x Stock & Cash.
3. Definitions. For purposes of the Agreement:
a. "acquisition of control" means (i) attaining twenty-five (25%) or more
of the voting stock of the Company by any person or group (not including you or
those affiliated with you), or (ii) the occurrence of a "change of control"
pursuant to the proxy disclosure rule of the Securities and Exchange Commission.
<PAGE>
-12-
b. "cause" means an act(s) of dishonesty constituting a felony under
applicable law and resulting or intending to result in your enrichment at the
Company's expense. Notwithstanding the above, termination for cause shall
require a resolution adopted by our Board of Directors that in their good faith
opinion you were guilty of conduct described herein and specifying the
particular details thereof.
c. "good reason" means (i) change in your status, position,
responsibilities which, in your reasonable judgment does not represent a
promotion from existing status, position and responsibilities as in effect
immediately prior to the change in control; the assignment of any duties or
responsibilities which in your reasonable judgment are not consistent with such
status, position or responsibilities; any removal from or failure to reappoint
or reelect you to any of such positions other than for good reason or total and
permanent disability; (ii) a reduction in your salary after a change in control;
(iii) the relocation of the Company outside the Borough of Manhattan, counties
of Westchester or Fairfield after a change in control; (iv) any action which
terminates or materially reduces your participation in any Company incentive,
bonus or other compensation plan (including but not limited to stock option
plans) in connection with the change in control; (v) failure to continue to
provide you with benefits substantially similar to those enjoyed or entitled
under any of the Company's compensation or health benefits plans (or deprive you
of any material fringe benefits) at the time of a change in control; (vi)
failure of the Company to obtain an agreement from any successor or assign of
the Company to perform this Agreement; (vii) any purported termination of your
employment which is not effected pursuant to par. 4(c) hereof (and, if
applicable, par. 3(b) hereof); and for purposes of this Agreement, no such
purported termination shall be effective; or (viii) any request by the Company
that you participate in an unlawful act (or commission of such act by another
officer or director for which you might be held liable) or take any action
constituting a breach of professional standards of conduct. Notwithstanding
anything in this par. 3(c) to the contrary, your right to terminate employment
pursuant to this par. 3(c) shall not be affected by incapacity due to physical
or mental illness.
4. Enforcement of Agreement. The Company is aware that upon the occurrence
of a change in control, actions may be undertaken to deny you the benefits of
this Agreement. It is the intent of the Company that you should not be required
to incur the expenses associated with enforcing your rights under this Agreement
because such expenses would detract from the benefits intended to be extended
hereunder. Accordingly, if following a change in control it should appear that
the Company has failed to comply with any of its obligations under this
Agreement, the Company irrevocably authorizes you to from time to time to retain
counsel of your choice, at the expense of the Company to represent you in
connection with the initiation or defense of any litigation or other legal
action, whether such action is by or against the Company or any Director,
officer, shareholder, or other person affiliated with the Company, in any
jurisdiction. The reasonable fees and expenses of counsel selected from time to
tome by you as hereinabove provided shall be paid or reimbursed to you by the
Company on a periodic basis upon presentation by a of a statement(s) prepared by
such counsel up to a maximum aggregate amount of $250,000. The Company shall not
take any action to seek reimbursement for its expense in connection with any
disputes relating to the enforceability of this Agreement.
<PAGE>
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5. Severance Pay; No Duty to Mitigate. Payments to you under this Agreement
shall not be treated as damages but as severance compensation to which you are
entitled by reason of termination of employment. The Company shall not be
entitled to set off against the amounts payable to you of any amounts earned by
you in other employment after termination of employment by the Company, or any
amounts which might have been earned by you in other employment had other such
employment been sought.
6. Notice of Termination. Any purported termination by the Company or you
of this agreement shall require a notice which indicates the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of you employment under the provision so indicated.
7. Assignment. This Agreement shall be binding upon the parties hereto and
their respective personal representatives, heirs successors and assigns, but
neither this Agreement nor any right hereunder may be assigned or transferred by
either party. Notwithstanding the foregoing, the Company will assign this
Agreement to any corporation or other business entity succeeding to
substantially all of the business and assets of the Company by merger,
consolidation, sale of assets, or otherwise and shall obtain the assumption of
this Agreement by such successor.
8. Entire Agreement. This letter contains the entire agreement of the
parties. It may not be changed orally, but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, amendment, extension or discharge is sought.
9. Governing Law. This Agreement shall be governed by and subject to the
laws of the State of New York.
10. Severability. The invalidity or enforceability of any particular
provisions of this Agreement shall not affect the other provisions, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provision has not been contained herein.
11. Notices. Notices hereunder shall be in writing and shall be deemed to
have been duly given if delivered in person or sent by certified mail, return
receipt requested, postage prepaid, addressed as set forth above, or to such
other address as shall be furnished in writing by any party to the other.
Please signify your agreement with the above by signing and returning to us
the enclosed copy of this letter.
Cordially,
FINANCIAL INTRANET, INC.
/s/Michael Sheppard
by: Michael Sheppard
<PAGE>
-14-
Accepted and Agreed:
/s/Barry Stein
<PAGE>
-15-
Mr. Barry Stein
% Financial Intranet Inc.
2115 Grand Brook Circle
Apt, 132 B
Orlando, FL 32810
Dear Barry:
Preamble of this Letter::
As you are aware, at least one major telecom group has opened conservations
with Financial Intranet Inc. ("FNTN") regarding a merger/acquisition
transaction. Needless to say, if FNTN becomes a merger candidate for a major
private/public corporation, your current employment agreement between FNTN may
need to be revised and/or terminated. Since you have expended a great deal of
your expertise and time in developing the business of FNTN, which in turn may
make FNTN an attractive merger candidate, a plan must be approved by FNTN s
Board of Directors to properly compensate you in the event that any merger
negatively affects your employment benefits currently in place.
1. Intent of this Letter of Agreement. FNTN is aware that upon any
occurrence that creates a change of control of FNTN, actions may be undertaken
that may result in denying you the benefits of your current employment
agreement, or deny you the full benefits of any options you may enjoy to
purchase additional shares of FNTN in the future, or the benefits provided by
this Letter of Agreement. The above preamble, therefore is hereby included into,
and made a part of, this Letter of Agreement to act to clearly represent the
intent of this Letter of Agreement (Agreement).
2. Benefits to be made available. This Agreement, subject to the approval
of FNTN's Board of Directors will constitute an agreement to the provision of
the benefits hereinbelow and made available to you by FNTN which shall become
automatically effective, (the "Effective Date") on the date that:
(a) Control of the business activities of FNTN is acquired by any person or
group ( not including you or those affiliated with you) through the issue of
additional voting shares, or the exchange of previously issued FNTN's voting
shares to third parties under a single control; and
(b) Not less than twenty five (25%) of the issued and outstanding voting
shares of FNTN is sold and/or exchanged with any person or group (not including
you or those affiliated with you) in one or multiple transactions during any
concurrent 12 month period; or
(c) The occurrence of a "change of control" pursuant to the proxy
disclosure rule of the Securities and Exchange Commission ("SEC").
<PAGE>
-16-
(d) Change of the terms of and/or termination of your Current Employment
Agreement on or subsequent to the Effective Date providing that:
(i) You had continued to be employed by FNTN under the terms of your
Employment Agreement, which terms remained in full operation from its initial
execution date of January 1, 1998 and up to and including the Effective Date of
this Agreement.
(ii) Upon the Effective Date there is a proposed or actual change of your
employment status with FNTN; or
(iii) Any term of your employment agreement with FNTN is changed in any
way; or
(e) You are not provided the opportunity to renew the term of your
employment agreement with FNTN as provided for in the current Employment
Agreement or you are not reelected to the Board of Directors of FNTN or to the
Board of Directors of the surviving entity in the event of a merger or
acquisition of FNTN with any person or group acquiring control as provided for
hereinabove.
4. Benefits provided. If you are automatically entitled to the Benefits in
accordance with, and pursuant to, paragraphs 1, 2, 3 hereinabove, FNTN or the
surviving entity resulting from the change of control of FNTN upon the Effective
Date agrees to pay to you, and extend the following Benefits as the case may be:
(a) A Lump Sum amount equal to your annual employment compensation
pro-rated for the period remaining of your current employment agreement,
providing that the employment agreement had not been previously terminated for
cause by the FNTN prior to the Effective Date; plus
(b) A lump sum of two (2) times or your annual compensation averaged over
the most recent two (2) year calendar years ending coincident with or
immediately before the Effective Date
(c) Any Options granted to you as compensation under the terms of paragraph
3 (c) of your current employment agreement shall be automatically amended to
provide the following amendments of the option terms and conditions:
(i) the options granted will expire upon the one thousand eight hundred and
twenty fifth (1,825) day following the grant date: and
(ii) the options may be encumbered, sold, transferred or other wise be
disposed of without any restrictions whatsoever and shall not be considered
being issued to you as solely for your personal exercise.
<PAGE>
-17-
5. Enforcement of the terms of this Agreement. It is the further the intent
of FNTN that you should not be required to incur the expenses associated with
enforcing your rights under this Agreement because such expenses would detract
from the benefits intended to be extended hereunder. Accordingly, if following
the Effective Date, it should appear that FNTN has not, or will attempt not to,
comply with any of its obligations under this Agreement, FNTN irrevocably
authorizes you to, from time to time, retain counsel of your choice, at the
expense of FNTN to represent you in connection with the defense of any
litigation or other legal action, whether such action is by, or against, FNTN,
any director, officer, shareholder or other person affiliated with FNTN and in
any jurisdiction. The reasonable fees and expenses of counsel selected from time
to time by you as hereinabove provided shall be paid directly by, or reimbursed
to you, by FNTN on a periodic basis upon presentation to FNTN of a statement(s)
prepared by such counsel up to a maximum in the aggregate of two hundred and
fifty thousand ($250,000) dollars.
(a) FNTN shall not take any action to seek reimbursement for its expenses
in connection with any disputes relating to the enforceability of this
Agreement.
6. Severance Pay: Any payments made to you, or required to be paid to you,
under this Agreement shall not be treated as damages but rather as severance
compensation to which you are entitled to by reason of your termination of your
current employment or change in the status of your current employment terms.
(a) FNTN shall not be entitled to set off against the amounts payable to
you under the terms of this Agreement of any amounts earned by you, or any
amounts earned by you in other employment after termination of your employment
with FNTN, or any amounts which might have been earned by you in other
employment had other such employment been sought by you.
7. Assignment. This Agreement shall be binding upon the parties hereto and
their respective personal representatives, heirs, successors and assigns but
neither this Agreement nor any right hereunder may be assigned or transferred to
either party. Notwithstanding the foregoing:
(a) FNTN is obligated to assign this Agreement to any corporation or other
business entity succeeding to control FNTN and/or succeeding to substantially
all of the FNTN's business and assets by merger, consolidation, sale of assets,
or otherwise and FNTN is obligated to obtain the assumption of this Agreement by
such successor; and
(b) You may assign, transfer or other dispose of, or encumber, any Options
granted to you prior to the Effective Date as provided for in paragraph of this
Agreement.
8. Entire Agreement. This Letter Agreement contains the entire agreement
between the parties. This Agreement may be changed only through a writing signed
by both party seeking any waiver, change modification, amendment, and/or
extension of this Agreement.
<PAGE>
-18-
9. Governing Law: This Agreement shall be governed by, and subject to, the
laws of the State of New York.
10. Severability. The invalidity or enforceability of any particular
provision of this Agreement shall not affect any other provision(s) and this
Agreement and shall be construed in all respects as if such invalid or
unenforceable provision had not been contained herein.
11. Notices. Notices hereunder shall be in writing and shall be deemed to
have been duly given if delivered in person or sent by certified mail, return
receipt requested, postage prepaid, addressed as set forth above, or at such
address as shall be furnished in writing by any party to the other.
Please signify your agreement with the above terms of this Agreement by
signing and returning to FNTN the enclosed copy of this Agreement
Cordially
Financial Intranet Inc.
/s/Michael Sheppard
By Michael Sheppard (title) President
Accepted and Agreed
/s/Barry Stein
Barry Stein
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
Employment Agreement, dated as of September 12, 1997 between
Financial Intranet, Inc., a Nevada company (the "Company"), and Maura
Marx residing at 141 East 56 Street New York, NY 10022 (the
"Executive").
WITNESSETH
WHEREAS, the Company is engaged in the business of operating a financial
information service firm (the "Business") ; and
WHEREAS, the Company desires to retain the services of the Executive in the
capacities of Senior Vice President - Sales & Marketing and the Executive
desires to provide such services in such capacities to the Company, on the terms
and subject to the conditions set forth in this Employment Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and obligations hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. Employment and Term. The Company hereby employs the Executive, and the
Executive hereby accepts employment by the Company, in the capacities and on the
terms and subject to the conditions set forth herein. Subject to the provisions
for termination as hereinafter provided, the term of this Employment Agreement
shall commence on the date hereof (the "Commencement Date") and end on December
31, 2000 (herein the "Original Term of Employment"). The term of this Employment
Agreement may be extended by the Company for an additional period, commencing on
January 1 2001, and ending on December 31, 2003 provided (a) the Company
expressly informs Executive in writing six (6) months before the third
anniversary of the Original Term Of Employment, that it intends to extend the
term of this Employment Agreement on terms equal to, or better than, the terms
of the Original Term Of Employment. The additional period, if any, together with
the initial term hereinafter collectively referred to as "Term of Employment) ;
and (b) the Executive accepts the extension and terms of this Employment
Agreement for such additional period. If the Company does not so inform the
Executive of the extension of this Employment Agreement, Executive shall assume
that this Employment Agreement will expire on December 31, 2000 unless
terminated earlier as provided herein.
<PAGE>
2. Duties. During the Term of Employment, the Executive shall continue to
serve as the Company's Senior Vice President - Sales & Marketing. In her
capacity as Senior Vice President - Sales & Marketing, the Executive shall have
such powers, perform such duties and shall have such responsibilities with
respect to the Business of the Company usually pertaining and attributed by law,
custom or otherwise to the office, except as may be expressly limited by the
Board of Directors of the Company.
The Executive's duties shall include design, set-up, implementation of a
full sales and marketing plan, summarizing monthly written reports and
projections and actual regional activities and shall also assume other
responsibilities delegated by the Chief Operating Officer of the Company.
The Executive shall arrange her affairs and lifestyle so that she can
perform her duties from the Company's offices currently located at 1 Dag
Hammarskjold Plaza, New York, NY 10017 or at an office facility in at such other
locations approved by the Executive. The Executive shall travel as reasonably
required in connection with the performance of her duties hereunder. If elected,
the Executive may agree to serve any part of the Term of Employment as any other
officer of the Company or as an officer or director of any of the Company's
subsidiaries without any additional compensation other than as specified in this
Employment Agreement, provided no other liabilities or obligations are imposed
on Executive outside the scope of this Employment Agreement.
3. Compensation and Benefits. As compensation to the Executive for her
execution and delivery of this Employment Agreement and performance of services
required hereunder, the Company shall pay, grant or provide the Executive, and
the Executive agrees to accept, the following salary and other compensations and
benefits (all such amounts calculated in U.S. dollars):
(a) a base salary, payable in accordance with the Company's standard
payroll practices for senior executive officers, of $100,000.00 per annum ("Base
Salary").
(b) as an inducement to the Executive to agree to the
Executive's future employment with the Company under certain terms and
conditions, the Company agreed to issue an initial 500,000 shares of
common stock, par value $.00l, of the Company (the "Common Stock") in
accordance with the terms of a compensatory agreement for the
Executive's prior services to the Company during the period commencing
<PAGE>
April 1997 and ending at the time that the Executive and Company execute a
contemplated Employment Agreement. These shares were granted at par value, which
were issued in reliance of Rule 701 and are "restricted securities" as defined
in Rule 144, as amended through the operation of Rule 701, promulgated under the
Securities Act of 1933, as amended ("The Act").
Such Common Stock were granted February 28, 1997 an required
certificates representing the granted shares of Common Stock to be
issued in the name of the Executive contemporarily with the signing of
the Employment Agreement.
(c) In addition, The Executive, upon the signing of this
Employment Agreement is hereby granted an option to purchase the
Company's Common Stock at a price per share equal to eighty percent
(80%) of the per share bid price averaged over five working days prior
to the date of this Agreement (the "Grant Date").
The option shall permit the Executive to purchase, at any time
while the Executive is employed by the Company, the number of shares of
the Company's Common Stock par value $0.00l equal to eight percent (8%)
of the Company's issued and outstanding shares of Common Stock less; (i)
500,000 shares previously issued by the Company to the Executive
hereinabove; (ii) and less any shares previously issued to the Executive
as a result of the exercise of the option granted to the Executive; and
(iii) any shares issued to the Executive in lieu of cash expenses
advanced by the Executive or accepted as previously earned consulting
fees paid to the Executive in lieu of cash.
The number of the Company's issued and outstanding Common
Stock, for the purpose for calculating the total number of shares which
may be purchased by the Executive in exercising the option granted
hereunder on the exercise date the "Exercise Date") shall be; (i) the
number of shares issued on a fully diluted basis on the later date of
the Exercise Date; or (ii) any date prior to December 31, 1998;
providing that (iii) the total number of shares issued on a fully
diluted basis utilized in the calculation of the shares available for
purchase under the Option shall not exceed the number of shares issued
and outstanding at December 31, 1998 as recorded on the Company's stock
ledger as reported by the Company's Transfer Agent.
Such options shall expire upon the last date of the Original
Employment Term or any extension thereof whether exercised in whole or
in part. The option is personal to the Executive and shall not be
encumbered or otherwise disposed of, except that in the event of the
<PAGE>
death of Executive, her estate shall have right, within six (6) months
after her death, to exercise the options available to Executive at the
time of her death. The option shall be exercised by written notice as
called for in this Employment Agreement.
Delivery of the certificates representing the shares called for
under the within option shall be made promptly after receipt of such
notice of exercise, against the payment of the purchase price by
certified check or cashier's check.
The shares issued pursuant to the grant of the Option in
accordance with the terms of this paragraph shall be restricted shares
and may not be sold, exchanged, transferred, pledged, hypothecated, or
otherwise disposed of except as provided for under Rule 144 of the Act.
(i) Said Common Stock must be held indefinitely
unless; (i) distribution of said Common Stock has been made registered
under The Act; and (ii) a sale of said Common Stock is made in
conformity with the provisions of Rule 144 of The Act; or (iii) in the
opinion of counsel acceptable to the Company, some other exemption from
registration is available;
(ii) The Executive will not make any sale, transfer or other disposition of
said Common Stock except in compliance with The Act and Rules and Regulations
thereunder;
(iii) The Executive is familiar with all of the provisions of Rule 144
including (without limitation) the holding period thereunder;
(iv) The Company is under no obligation to register the sale, transfer or
other disposition of said Common Stock by the Executive or on her behalf or to
take any other action necessary in order to make compliance with an exemption
from registration available;
(v) there will be a restrictive legend placed on the certificates for said
Common Stock stating in substance:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be
sold, pledged, or otherwise transferred except pursuant to an
effective registration statement under said Act, SEC Rule 144
or an opinion of counsel acceptable to the Company that some
other exemption from registration is available."
<PAGE>
(d) the right to participate in any savings and stock
option plans or programs and in any medical, hospitalization, dental,
disability, retirement, insurance, savings, vacation, holiday or other
plans as in effect from time to time for the benefit of the Company's
senior executive officers; provided that any medical, hospitalization
and dental plans provided that the Executive shall be responsible for
all fees, payments and expenses associated with any said plans for the
participation of any family member of the Executive in such plan;
(e) prompt reimbursement for all reasonable business- related expenses
incurred by the Executive in accordance with the policies and procedures of the
Company as in effect from time to time for senior executive officers. The
Executive will be furnished with a company credit card, laptop computer and
peripheral equipment and cell phone and beeper for business use purposes solely;
(f) paid vacation, in accordance with the policies and procedures of the
Company as in effect from time to time for senior executive officers, which
shall initially be three (3) weeks per annum ("Paid Vacation Time") during the
Term of Employment. Any Paid Vacation Time unused in any calendar year during
the Term of Employment may not be accrued to the following calendar year.
4. Indemnification. For service as a director or officer of the
Company and of any subsidiary of the Company, the Executive shall be
entitled to: (i) the protection of the applicable indemnification
provisions of the charter and by laws of the Company and any such
subsidiary; and (ii) the benefits of any other indemnification
provisions as may be separate and apart from the charter and by laws of
the Company and any subsidiary of the Company (as for example provisions
provided by separate agreement) Insofar as any other officer of the
Company or its subsidiaries has any separate written indemnification
protection of the type referenced in the preceding sentence, the
Executive shall be entitled to avail himself of such provisions to the
extent he so elects (just as if such provisions were set forth herein in
full). Such indemnification shall be guaranteed through a policy of
insurance to be provided by the Company for the benefit of the
Executive.
5. Key Man Term Life Insurance. Life Insurance and Disability
Insurance. If requested by the Company, the Executive shall submit to
such physical examinations and otherwise take such actions and execute
and deliver such documents as may be reasonably necessary to enable the
Company, at its expense and for its own benefit to obtain policies of
key man term life insurance, life insurance and/or disability insurance
<PAGE>
on the life of the Executive. At all times during the Term of
Employment, the Company may maintain key man term life insurance, life
insurance and/or disability insurance on respectively, the health and
life of the Executive, with the Company as beneficiary, in an amount
which is not less than the amounts payable under subsection 6(a) hereof.
For purposes of this Section 5 only, the Executive's estate shall be
deemed a third party beneficiary hereof.
6. Termination.
a. Cause. The Company shall have the right, upon written notice to the
Executive to terminate the Executive's employment under this Employment
Agreement, and the Company shall have no further obligations hereunder, except
to pay the Executive any amounts or provide the Executive any benefits to which
the Executive may otherwise have been entitled prorated to the effective date of
termination, upon the occurrence of any of the following:
a. By Mutual agreement of the Parties to this Agreement, in writing;
b. Upon the death of the Executive;
c. Upon the Executive's inability or continued refusal to perform her
duties as provided for hereinabove for any reason whatsoever, for a
period of 3 consecutive months;
d. For Cause. For the purpose of this Employment Agreement, "Cause"
shall mean conviction of (and such conviction is sustained on appeal) or
the entry of a plea of guilty by the Executive to a felony involving
fraud, conversion, embezzlement, theft, or a type of similar felony
involving the Company's property.
7. Confidentiality. Ownership.
(a) During the Term of Employment and for a period of
twelve (12) months thereafter, so long as the Company is in business,
the Executive shall not disclose, divulge, discuss, copy or otherwise
use or suffer to be used in any manner, in competition with or contrary
to the interests of, the Company, or any of its subsidiaries, the
customer lists, market research or other trade secrets of the Company or
any of its subsidiaries, it being acknowledged by the Executive that all
such information regarding the business of the Company and its
subsidiaries complied or obtained by or furnished to Executive while
Executive shall have been employed by or associated with the Company is
confidential information and the Company's exclusive property; provided,
<PAGE>
however, this restriction shall not apply to: (a) any information that
is considered by law, custom or otherwise to be generic to the industry
or trade of the Company; (b) any information developed by Executive
either individually or jointly with others prior to her employment with
the Company shall not be deemed confidential or proprietary information
of the Company, (c) information which is now in or hereafter enters the
public domain without any violation of this Agreement; and (d)
information disclosed in good faith to the Executive by a third party
legally entitled to disclose the same. Notwithstanding anything to the
contrary contained in this Section 7, the Executive may disclose any
confidential or proprietary information to the extent required by court
order or decree or by the rules and regulations of a governmental agency
or as otherwise required by law; provided that the Executive shall
provide the Company with prompt notice of such required disclosure in
advance thereof so that the Company may seek an appropriate protective
order in respect of such required disclosure.
9. Deduction and Withholding: Expenses. The Executive agrees
that the Company or its subsidiaries and affiliates, as applicable shall
withhold from any and all compensation paid to and required to be paid
to the Executive pursuant to this Employment Agreement, other than the
amounts paid to the Executive pursuant to Section 3 (d), all Federal,
state, local and/or other taxes which the Company determines are
required to be withheld in accordance with applicable statutes or
regulations from time to time in effect and all amounts required to be
deducted in respect of the Executive's coverage under applicable benefit
plans. for such purposes of this Employment Agreement and calculations
hereunder, all such deductions and withholdings shall be deemed to have
been paid to and received by the Executive.
10. Entire Agreement. This Employment Agreement embodies the
entire agreement of the parties with respect to the Executive's
employment and superseded and other prior oral or written agreements,
arrangements or understandings between the Executive and the Company.
This Employment Agreement may not be changed or terminated orally but
only by an agreement in writing signed by the parties hereto.
11. Waiver. The waiver by the Company of a breach of any
provision of this Employment Agreement by the Executive shall not
operate or be construed as a waiver of any subsequent breach by him. The
waiver by the Executive of a breach of any provision of this Employment
Agreement by the Company shall not operate or be construed as a waiver
of any subsequent breach by the Company.
12. Arbitration. All claims, disputes and other matters in
<PAGE>
question between the parties to this Employment Agreement or the breach
thereof, shall be decided by Arbitration in accordance with the
commercial rules of the American Arbitration Association then in effect
unless the parties mutually agree in writing otherwise. Notice of the
demand for Arbitration shall be filed in writing with the other party to
this Employment Agreement and the American Arbitration Association. Any
Arbitration shall take place in New York, New York.
13. Assignability. The obligations of the Executive may not be
delegated and, except with respect to the designation of beneficiaries
in connection with any of the benefits payable to the Executive
hereunder, the Executive may not, without the Company's written consent
thereto, assign, transfer, convey, pledge, encumber, hypothecate or
otherwise dispose of this Employment Agreement or any interest therein.
Any such attempted delegation or disposition shall be null and void
without effect. The Company and the Executive agree that this Employment
Agreement and all of the Company's rights and obligations hereunder may
be assigned or transferred by the Company to and shall be assumed by and
binding upon any successor to the Company. The term "successor" means,
with respect to the Company or any of its subsidiaries, any corporation
or other business entity which, by merger consolidation, purchase of the
assets or otherwise, including after a Change in Control, acquires all
or a material part of the assets of the Company.
14. Severability. If any provision of this Employment Agreement
or any part thereof, including, without limitation, Section 7, as
applied to either party or to any circumstances which shall be adjudged
by a court of competent jurisdiction to void or unenforceable, the same
shall in no way affect any other provision of this Employment Agreement
or remaining part thereof, which shall be given full effect without
regard to the invalidity or unenforceability part thereof, or the
validity or enforceability to this Employment Agreement.
If any court construes any of the provisions of Section 7
or any part thereof, to be unreasonable because of the duration of such
provision or the geographic scope thereof such court may reduce the
duration or restrict or redefine the geographic scope of such provision
and enforce such provision as so reduced, restricted or redefined.
15. Notices. All notices to the Company or the Executive
permitted to be required hereunder shall be in writing and shall be
delivered personally, by telecopier or by courier service providing for
next-day delivery or sent by registered or certified mail return receipt
requested, to the following address:
<PAGE>
The Company: Financial Intranet Inc.
1 Dag Hammarskjold Plaza
New York, NY 10017
Tel: (212) 702-4870
The Executive: Ms. Maura Marx
141 East 56 Street
New York, NY 10022
Tel: (212)702 4872
Either party may change the address to which notices shall be sent by
sending written notice of such change of address to the other party. Any
such notice shall be deemed given if delivered personally upon receipt;
if telecopies, when telecopied; if sent by courier service; and if sent
by certified or registered mail, three (3) days after deposit (postage
prepaid) with the U.S. Postal Service.
16. No Conflicts. The Company and Executive to this Employment
Agreement hereby represent and warrant to each other that the execution,
delivery and performance of this Employment Agreement and any other
agreement to be delivered pursuant to this Employment Agreement will not
(i) require the consent, approval or action of any other person or (ii)
violate conflict with or result in breach of any of the terms of, or
constitute (or with notice of lapse of time or both constitute) a
default under, any agreement, arrangement or understanding with respect
to either the Company or the Executive are a party of or by which either
party is bound or subject. The Company and the Executive mutually agrees
to indemnify and hold harmless the other party, including the Company's
directors, officers, employees, agents representatives and affiliates
(and such affiliates, directors, officers, employees, agents and
representatives) from and against any and all losses, liabilities or
claims (including interest, penalties and reasonable attorneys' fees,
disbursements and related charges) based upon or arising out of the
Executive's of the Company's breach of any of the foregoing
representations and warranties.
17. Effective Date. This Employment Agreement shall be
effective as of the date first written above.
18. Paragraph Heading. The paragraph headings contained in this
Employment Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Employment
Agreement.
19. Representations and Warranties of the Company.
<PAGE>
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of Nevada and has all requisite corporation power
and authority to enter into execute and deliver this Employment Agreement,
fulfill its obligations hereunder and consummate the transactions contemplated
hereby.
(b) The execution and delivery of, performance of
obligations under and consummation of the transaction contemplated by
this Employment Agreement has been duly authorized and approved by the
Company's Board of Directors and all other requisite corporation action.
20. Counterparts. This Employment Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Employment
Agreement as of the date first above written.
EXECUTIVE:
/a/Maura Marx
Ms. Maura Marx
FINANCIAL INTRANET, INC.
By: /s/Michael Sheppard, President
(Name/Title)
<PAGE>
FinanciaI
Intranet
Ms. Maura Marx
% Financial Intranet Inc.
1 Dag Hammarskjold Plaza
New York, NY 10017
Dear Maura:
Preamble of this Letter::
As you are aware, at least one major telecom group has opened
conservations with Financial Intranet Inc. ("FNTN") regarding a
merger/acquisition transaction. Needless to say, if FNTN becomes a
merger candidate for a major private/public corporation, your
current employment agreement between FNTN may need to be revised
and/or terminated. Since you have expended a great deal of your
expertise and time in developing the business of FNTN, which in
turn may make FNTN an attractive merger candidate, a plan must be
approved by FNTN's Board of Directors to properly compensate you
in the event that any merger negatively affects your employment
benefits currently in place.
l. Intent of this Letter of Agreement. FNTN is aware that upon
any occurrence that creates a change of control of FNTN, actions
may be undertaken that may result in denying you the benefits of
your current employment agreement, or deny you the full benefits
of any options you may enjoy to purchase additional shares of FNTN
in the future, or the benefits provided by this Letter of
Agreement. The above preamble, therefore is hereby included into,
and made a part off, this Letter of Agreement to act to clearly
represent the intent of this Letter of Agreement (Agreement)
2. Benefits to be made available. This Agreement, subject to the
approval of FNTN's Board of Directors will constitute an agreement
to the provision of the benefits hereinbelow and made available to
you by FNTN which shall become automatically effective, (the
"Effective Date") on the date that:
(a) Control of the business activities of FNTN is
acquired by any person or group (not including you or those
affiliated with you) through the issue of additional voting
shares, or the exchange of previously issued FNTN's voting
shares to third parties under a single control; and
<PAGE>
(b) Not less than twenty five (25%) of the issued and
outstanding voting shares of FNTN is sold and/or exchanged
with any person or group (not including you or those
affiliated with you) in one or multiple transactions during
any concurrent 12 month period; or
(c) The occurrence of a "change of control" pursuant
to the proxy disclosure rule of the Securities and Exchange
Commission ("SEC").
(d) Change of the terms of and/or termination of your
Current Employment Agreement on or subsequent to the
Effective Date providing that:
(i) You had continued to be employed by FNTN under the terms of your
Employment Agreement, which terms remained in full operation from its initial
execution date of January 1, 1998 and up to and including the Effective Date of
this Agreement.
(ii) Upon the Effective Date there is a proposed or actual change of your
employment status with FNTN; or
(iii) Any term of your employment agreement with FNTN
is changed in any way; or
(e) You are not provided the opportunity to renew the term
of your employment agreement with FNTN as provided for in the
current Employment Agreement,
4.Benefits provided. If you are automatically entitled to the
Benefits in accordance with, and pursuant to, paragraphs 1, 2, 3
hereinabove, FNTN or the surviving entity resulting from the change
of control of FNTN upon the Effective Date agrees to pay to you,
and extend the following Benefits as the case may be:
(a) A Lump Sum amount equal to your annual employment
compensation pro-rated for the period remaining of your
current employment agreement, providing that the employment
agreement had not been previously terminated for cause by the
FNTN prior to the Effective Date; plus
(b) A lump sum of two (2) times of your annual compensation
averaged over the most recent two (2) year calendar years
ending coincident with or immediately before the Effective
<PAGE>
Date
(c) Any Options granted to you as compensation under the
terms of paragraph 3 (c) of your current employment agreement
shall be automatically amended to provide the following
amendments of the option terms and conditions:
(i) the options granted will expire upon the one
thousand eight hundred and twenty fifth (1,825) day
following the grant date: and
(ii) the options may be encumbered, sold, transferred or other wise be
disposed of without any restrictions whatsoever and shall not be considered
being issued to you as solely for your personal exercise.
5. Enforcement of the terms of this Agreement. It is the further
the intent of FNTN that you should not be required to incur the
expenses associated with enforcing your rights under this
Agreement because such expenses would detract from the benefits
intended to be extended hereunder. Accordingly, if following the
Effective Date, it should appear that FNTN has not, or will
attempt not to, comply with any of its obligations under this
Agreement, FNTN irrevocably authorizes you to, from time to time,
retain counsel of your choice, at the expense of FNTN to represent
you in connection with the defense of any litigation or other
legal action, whether such action is by, or against, FNTN, any
director, officer, shareholder or other person affiliated with
FNTN and in any jurisdiction. The reasonable fees and expenses of
counsel selected from time to time by you as hereinabove provided
shall be paid directly by, or reimbursed to you, by FNTN on a
periodic basis upon presentation to FNTN of a statement(s)
prepared by such counsel up to a maximum in the aggregate of two
hundred and fifty thousand ($250,000) dollars.
(a) FNTN shall not take any action to seek
reimbursement for its expenses in connection with any
disputes relating to the enforceability of this
Agreement.
6. Severance Pay: Any payments made to you, or required to
be paid to you, under this Agreement shall not be treated as
damages but rather as severance compensation to which you
are entitled to by reason of your termination of your
current employment or change in the status of your current
employment terms.
(a) FNTN shall not be entitled to set off against the
<PAGE>
amounts payable to you under the terms of this
Agreement of any amounts earned by you, or any amounts
earned by you in other employment after termination of your
employment with FNTN, or any amounts which might have been
earned by you in other employment had other such employment
been sought by you.
7. Assignment. This Agreement shall be binding upon the parties
hereto and their respective personal representatives, heirs,
successors and assigns but neither this Agreement nor any right
hereunder may be assigned or transferred to either party.
Notwithstanding the foregoing:
(a) FNTN is obligated to assign this Agreement to any
corporation or other business entity succeeding to control
FNTN and/or succeeding to substantially all of the FNTN's
business and assets by merger, consolidation, sale of assets,
or otherwise and FNTN is obligated to obtain the assumption
of this Agreement by such successor; and
(b) You may assign, transfer or other dispose of, or
encumber, any Options granted to you prior to the Effective
Date as provided for in paragraph of this Agreement.
8. Entire Agreement. This Letter Agreement contains the entire
agreement between the parties. This Agreement may be changed only
through a writing signed by both party seeking any waiver, change
modification, amendment, and/or extension of this Agreement.
9. Governing Law: This Agreement shall be governed by, and
subject to, the laws of the State of New York.
10. Severability. The invalidity or enforceability of any
particular provision of this Agreement shall not affect any other
provision(s) and this Agreement and shall be construed in all
respects as if such invalid or unenforceable provision had not been
contained herein.
11. Notices. Notices hereunder shall be in writing and shall be
deemed to have been duly given if delivered in person or
sent by certified mail, return receipt requested, postage prepaid,
addressed as set forth above, or at such address as shall be
furnished in writing by any party to the other.
Please signify your agreement with the above terms of this
Agreement by signing and returning to FNTN the enclosed copy
of this Agreement.
Cordially,
Financial Intranet Inc.
By /s/Michael Sheppard (title) President)
<PAGE>
Accepted and Agreed
/s/Maura Marx
Ms. Maura Marx
<PAGE>
Financial Intranet
Ben B. Stein
Director
Financial Intranet, Inc.
4 June 1998
MEMO
This memo shall serve to confirm that Michael Sheppard, President and COO,
and Barry Stein, Director, of Financial Intranet, Inc., have agreed to amend
Maura Marx's employment agreement with Financial Intranet, Inc. Since the
Company has moved its corporate offices from New York City to the Ardsley, NY,
Financial Intranet, Inc. will increase Ms. Marx' monthly allowance for the
balance of her agreement to $500.00 towards the lease/payment/insurance of a
service car.
Agreed to this 4th day of June, 1998
By:
/s/by Michael Sheppard, President /s/B. B. Stein, Secy.
Michael Sheppard Barry Stein
<PAGE>
EXHIBIT 10.5
AMENDMENT TO EMPLOYMENT AGREEMENT
This amendment agreement is hereby made and entered into this 15th day of
December, 1998, by and between Financial Intranet, Inc., a Nevada corporation
(the "Company") and Michael Sheppard, with an office at 410 Saw Mill River Road,
Suite B2040, Ardsley, NY 10502 (the "Executive").
WITNESSETH
WHEREAS, the Company and the Executive entered into an Employment
Agreement, dated September 12, 1997 (the "Agreement"), and now desire to amend
the Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and promises hereinafter set forth and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, it is
agreed as follows:
1. Subparagraph (c) of paragraph 3 of the Agreement is hereby deleted
and the following is hereby substituted in its place:
(C) (I) (1) The Executive is hereby granted an option to purchase a
number of shares of the Company's Common Stock equal to (A)14.5% of the shares
issued by the Company through December 31, 1998 minus (B) 750,000 shares of
Common Stock previously issued to the Executive and further reduced in
accordance subsection (c)(ii). The exercise price shall be $.19 per share.
The number of the Company's issued and outstanding Common Stock, for the
purpose of calculating the total number of shares which may be purchased by the
Executive in exercising the option shall be determined as of December 31, 1997
and 1998 and the option shall be deemed granted as of such dates based on the
number of shares issued and outstanding as recorded on the Company's stock
ledger as reported by the Company's Transfer Agent.
(2) The Executive is hereby granted an option to purchase a number of
shares of the Company's Common Stock equal to 14.5% of the additional shares
issued by the Company beginning January 1, 1999 through December 31, 2002, at a
price per share equal to the market price of the Common Stock on the date such
shares are issued. The market price per share of Common Stock shall be the
closing bid price per share of Common Stock on the date such additional shares
are issued as quoted on the OTC Bulletin Board or the NASDAQ Small Cap Market or
whichever national securities exchange the Company's Common Stock is listed
upon. The options under this section shall be deemed granted as of the date of
issuance by the
1
<PAGE>
Company of such additional shares.
(ii) The options granted by the Company under Section (c)(I)
shall be further reduced by (b) any shares issued upon exercise of the option
and (c) any shares issued in lieu of cash expenses advanced by Executive or
accepted as previously earned consulting fees in lieu of cash. The option shall
not apply to any shares of Common Stock issued or issuable by the Company to the
Executive, Ben Stein or Maura Marx pursuant to their employment agreements dated
as of September 12, 1997, as amended (the "Employment Agreements").
(iii) All options granted under this Employment Agreement
expire on December 31, 2002, subject to termination on such other date as
provided as follows (the "Option Period"). Upon termination, the Executive shall
not be entitled to any additional options. If the Executive dies, the
Executive's estate shall have the right to exercise any options granted
hereunder for one year after the date of death. In the event the Executive
voluntarily leaves the employ of the Company , any option then held by the
Executive shall terminate immediately. In the event that the Executive's
employment is terminated for any reason by the Company, any option then held by
the Executive shall terminate 90 days following such termination, provided
that any options shall terminate immediately upon termination for cause.
(iv) Any option granted to the Executive is personal to the
Executive and is not assignable by the Executive. All options shall be exercised
by written notice as called for in this Employment Agreement. Delivery of the
certificates representing the shares called for under the within option shall be
made promptly after receipt of such notice of exercise, against the payment of
the purchase price by certified check or cashier's check.
(v) Shares issued pursuant to the grant of the options in
accordance with the terms of this agreement may not be sold, exchanged,
transferred, pledged, hypothecated, or otherwise disposed of except as provided
for under Rule 144 of the Securities and Exchange Act of 1933 (the "Act"). The
following shall apply:
(A) Said Common Stock must be held indefinitely unless (1) distribution of
said Common Stock has been made registered under the Act, (2) as sale of said
Common Stock is made in conformity with the provisions of Rule 144 of the Act,
or (3) in the opinion of counsel acceptable to the Company, some other exemption
from registration is available;
(B) The Executive will not make any sale, transfer or other disposition of
said Common Stock except in compliance with the Act and Rules and Regulations
thereunder;
(C) The Executive is familiar with all of the provisions of Rule 144
including (without limitation) the holding period thereunder;
(vi) The Company is under no obligation to register the sale,
transfer or other disposition of said Common Stock by the Executive or on his
behalf or to take any other action
2
<PAGE>
necessary I order to make compliance with an exemption from registration
available;
(vii) There will be a restrictive legend placed on the
certificates for said Common Stock stating in substance:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and may not be sold, pledged, or
otherwise transferred except pursuant to an effective registration
statement under said Act, SEC Rule 144 or an opinion of counsel
acceptable to the company that some other exemption from registration
is available."
(viii) The number of Shares subject to this Option during the
Option Period shall be cumulative as to all prior dates of calculation and shall
be adjusted for any stock dividend, subdivision, split-up or combination of
common stock.
(ix) The exercise price shall be subject to adjustment from time to time as
follows:
(1) If, at any time during the Option Period, the number of shares of
common stock outstanding is increased by a stock dividend payable in shares of
common stock, then, immediately following the record date fixed for the
determination of holders of shares of common stock entitled to receive such
stock dividend, subdivision or split-up, the exercise price shall be
appropriately decreased so that the number of Shares included in the Shares
issuable upon the exercise hereof shall be increased in proportion to such
increase in outstanding shares.
(2) If, at any time during the Option Period, the number of shares of
common stock outstanding is decreased by a combination of outstanding shares of
common stock, then, immediately following the record date for such combination,
the exercise price shall be appropriately increased so that the number of Shares
issuable upon the exercise hereof shall be decreased in outstanding shares.
2. Except as herein provided, the Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have caused the due execution
hereof the day and year first above written.
Financial Intranet
/s/Maura Marx
By: Maura Marx
/s/Michael Sheppard
Michael Sheppard
3
<PAGE>
EXHIBIT 10.6
AMENDMENT TO EMPLOYMENT AGREEMENT
This amendment agreement is hereby made and entered into this 15th day of
December, 1998, by and between Financial Intranet, Inc., a Nevada corporation
(the "Company") and Maura Marx, with an office at 410 Saw Mill River Road, Suite
B2040, Ardsley, NY 10502 (the "Executive").
WITNESSETH
WHEREAS, the Company and the Executive entered into an Employment
Agreement, dated September 12, 1997 (the "Agreement"), and now desire to amend
the Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and promises hereinafter set forth and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, it is
agreed as follows:
1. Subparagraph (c) of paragraph 3 of the Agreement is hereby deleted
and the following is hereby substituted in its place:
(C) (I) (1) The Executive is hereby granted an option to purchase a
number of shares of the Company's Common Stock equal to (A)nine percent of the
shares issued by the Company through December 31, 1998 minus (B) 500,000 shares
of Common Stock previously issued to the Executive and further reduced in
accordance subsection (c)(ii). The exercise price shall be $.19 per share.
The number of the Company's issued and outstanding Common Stock, for the
purpose of calculating the total number of shares which may be purchased by the
Executive in exercising the option shall be determined as of December 31, 1997
and 1998 and the option shall be deemed granted as of such dates based on the
number of shares issued and outstanding as recorded on the Company's stock
ledger as reported by the Company's Transfer Agent.
(2) The Executive is hereby granted an option to purchase a number of
shares of the Company's Common Stock equal to nine percent of the additional
shares issued by the Company beginning January 1, 1999 through December 31,
2002, at a price per share equal to the market price of the Common Stock on the
date such shares are issued. The market price per share of Common Stock shall be
the closing bid price per share of Common Stock on the date such additional
shares are issued as quoted on the OTC Bulletin Board or the NASDAQ Small Cap
Market or whichever national securities exchange the Company's Common Stock is
listed upon. The options under this section shall be deemed granted as of the
date of issuance by the Company of such additional shares.
1
<PAGE>
(ii) The options granted by the Company under Section (c)(I) shall be
further reduced by (b) any shares issued upon exercise of the option and (c) any
shares issued in lieu of cash expenses advanced by Executive or accepted as
previously earned consulting fees in lieu of cash. The option shall not apply to
any shares of Common Stock issued or issuable by the Company to the Executive,
Ben Stein or Michael Sheppard pursuant to their employment agreements dated as
of September 12, 1997, as amended (the "Employment Agreements").
(iii) All options granted under this Employment Agreement
expire on December 31, 2002, subject to termination on such other date as
provided as follows (the "Option Period"). Upon termination, the Executive shall
not be entitled to any additional options. If the Executive dies, the
Executive's estate shall have the right to exercise any options granted
hereunder for one year after the date of death. In the event the Executive
voluntarily leaves the employ of the Company , any option then held by the
Executive shall terminate immediately. In the event that the Executive's
employment is terminated for any reason by the Company, any option then held by
the Executive shall terminate 90 days following such termination, provided
that any options shall terminate immediately upon termination for cause.
(iv) Any option granted to the Executive is personal to the
Executive and is not assignable by the Executive. All options shall be exercised
by written notice as called for in this Employment Agreement. Delivery of the
certificates representing the shares called for under the within option shall be
made promptly after receipt of such notice of exercise, against the payment of
the purchase price by certified check or cashier's check.
(v) Shares issued pursuant to the grant of the options in
accordance with the terms of this agreement may not be sold, exchanged,
transferred, pledged, hypothecated, or otherwise disposed of except as provided
for under Rule 144 of the Securities and Exchange Act of 1933 (the "Act"). The
following shall apply:
(A) Said Common Stock must be held indefinitely unless (1) distribution of
said Common Stock has been made registered under the Act, (2) as sale of said
Common Stock is made in conformity with the provisions of Rule 144 of the Act,
or (3) in the opinion of counsel acceptable to the Company, some other exemption
from registration is available;
(B) The Executive will not make any sale, transfer or other disposition of
said Common Stock except in compliance with the Act and Rules and Regulations
thereunder;
(C) The Executive is familiar with all of the provisions of Rule 144
including (without limitation) the holding period thereunder;
(vi) The Company is under no obligation to register the sale,
transfer or other disposition of said Common Stock by the Executive or on his
behalf or to take any other action necessary I order to make compliance with an
exemption from registration available;
2
<PAGE>
(vii) There will be a restrictive legend placed on the
certificates for said Common Stock stating in substance:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 and may not be sold, pledged, or
otherwise transferred except pursuant to an effective registration
statement under said Act, SEC Rule 144 or an opinion of counsel
acceptable to the company that some other exemption from registration
is available."
(viii) The number of Shares subject to this Option during the
Option Period shall be cumulative as to all prior dates of calculation and shall
be adjusted for any stock dividend, subdivision, split-up or combination of
common stock.
(ix) The exercise price shall be subject to adjustment from time to time as
follows:
(1) If, at any time during the Option Period, the number of shares of
common stock outstanding is increased by a stock dividend payable in shares of
common stock, then, immediately following the record date fixed for the
determination of holders of shares of common stock entitled to receive such
stock dividend, subdivision or split-up, the exercise price shall be
appropriately decreased so that the number of Shares included in the Shares
issuable upon the exercise hereof shall be increased in proportion to such
increase in outstanding shares.
(2) If, at any time during the Option Period, the number of shares of
common stock outstanding is decreased by a combination of outstanding shares of
common stock, then, immediately following the record date for such combination,
the exercise price shall be appropriately increased so that the number of Shares
issuable upon the exercise hereof shall be decreased in outstanding shares.
2. Except as herein provided, the Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have caused the due execution
hereof the day and year first above written.
Financial Intranet
/s/Michael Sheppard
By: Michael Sheppard
/s/Maura Marx
Maura Marx
3
<PAGE>
Exhibit 10.7
CONSULTING AGREEMENT
This Consulting agreement ("Agreement") is entered into this 27th day
of February 1997 by and between Financial Intranet Inc., formerly Wee Wees Inc.,
(hereinafter referred to as "FNTN"), with principal offices at 50 Broad Street
New York, NY, Suite 314 and Michael Sheppard (hereinafter referred to as
"Sheppard") with principal residence at 2 Kathy Lane Scarsdale NY 10583
Whereas FNTN wishes to retain Sheppard as a consultant to
FNTN during its development stages; and
Whereas FNTN contemplates entering into a long term employment with
Sheppard as one of the considerations offered to Sheppard to undertake the
consultancy activities with FNTN; and
Whereas Sheppard wishes to aid FNTN as a consultant during
its development stages; and
Whereas Sheppard intends to accept, when and if offered by FNTN, an
acceptable long term employment agreement;
Now Therefore it is agreed as follows;
1. The above preamble to this Agreement, representing the intent of
Sheppard and FNTN to one and other is hereby incorporated and made part of this
Agreement,
2. FNTN, being unable, at this time, to offer and support a long term
employment agreement with Sheppard, agrees to retain Sheppard as a paid
consultant to aid FNTN to expand and implement its initial business plan,
funding and marketing activities as more fully described in the original
business plan attached hereto for reference purposes.
3. FNTN agrees to pay to Sheppard a consulting fee, payable from funds
when and if available on a priority basis, a monthly stipend of $12,500, (the
"Consulting Fee") during the period commencing with the date of this Agreement
and terminating upon the date that FNTN and Sheppard execute and enter into a
mutually acceptable Employment Agreement,
4. In the event FNTN does not pay the Consulting Fee to Sheppard for
three (3) consecutive months, then in that event, Sheppard may, at his sole
option, agree to defer any Consulting Fees or terminate this Agreement upon
advising FNTN in writing of his intention to terminate his activities as a
consultant.
(A) Upon termination as provided for hereinabove, neither FNTN nor
Sheppard shall have any further liability to each other with the
exception that FNTN shall remain liable to pay to Sheppard any
Consulting Fees due but not paid to
<PAGE>
Sheppard as well as any out of pocket expenses incurred or advanced by
Sheppard for the account of FNTN in his furtherance of his consulting
activities for FNTN under the terms of this Agreement.
expenses incurred or advanced by Sheppard in performing his duties under the
Agreement for the benefit of FNTN.
(A) Any single expense in excess of two hundred and fifty dollars
($250) shall require the approval of the Board of Directors of FNTN
prior to Sheppard expending or incurring funds equal to or greater than
any single expense of $250.
6. It is the intent of this Agreement to establish a long term
employment agreement between FNTN and Sheppard, at the earliest time, during
which FNTN can implement the terms of the long term employment agreement
provided that:
(B) This Agreement shall still be in effective at the time that
employment agreement is offered by FNTN, accepted by Sheppard and
executed by FNTN and Sheppard and approved by the Board of Directors of
FNTN; and
(B) The term of the long term employment agreement shall be for a term
not less than five years with acceptable renewal clauses.; and
(C) During the term of this Agreement as well as during the terms of
the long term employment agreement, Sheppard shall act as FNTN's
Temporary Secretary, and be elected to the Board of Directors, during
the effective term of this Agreement and serve as the Secretary of FNTN
and remain as a Board member as provided by the terms of the long term
employment agreement.
7. As an inducement for Sheppard to enter into this Agreement, FNTN
agrees to provide to Sheppard a total of 750,000 shares of $0.001 par value of
FNTN's common stock, to be considered as being issued to Sheppard for a value of
$750.00 and as an additional payment applied to the consulting activities to be
provided by Sheppard to FNTN;
<PAGE>
(A) The shares issued hereunder are being provided from FNTN's treasury
shares and at a value equal to the par value of the shares since their
is currently no market for the shares issued to Sheppard hereinabove).
(B) The shares to be issued hereunder shall be made available as soon
as practical and shall be effectively issued the effective date of this
Agreement as first written above.
8. This Agreement may be terminated unilaterally by FNTN in the event
Sheppard and FNTN have not negotiated, agreed to and executed a long term
employment by and between FNTN and Sheppard by January 28, 1998.
(A) Upon termination as provided for hereinabove, neither FNTN or
Sheppard shall have any further liability to each other with the
exception that FNTN shall remain liable to pay to Sheppard any
Consulting Fees due but not paid to Sheppard as well as any out of
pocket expenses incurred or not paid to Sheppard as well as any out of
pocket expenses incurred or advanced by Sheppard for the account of
FNTN in his furtherance of his consulting activities for FNTN under the
terms of this Agreement.
9. The terms of this Agreement have been unanimously approved by FNTN's
Board of Directors as evidenced by the Minutes of the Board Directors dated
February 27, 1997.
10. This Agreement shall be construed and interpreted under the laws of
the state of New York.
11. The terms of this Agreement have been negotiated between Sheppard
and FNTN in New York City, New York State and represents the full understandings
between the parties and may not be amended except by a writing signed by both
parties.
Read and Agreed,
/s/Michael Sheppard
Michael Sheppard
Financial Intranet Inc.
/s/Barry Stein
By: (Title)
<PAGE>
EXHIBIT 10.8
This Note and the securities issuable upon conversion of the Note have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or under the provisions of any applicable state securities laws, but has
been and will be acquired by the registered holder hereof for purposes of
investment and in reliance on statutory exemptions under the Securities Act, and
under any applicable state securities laws. This Note and such securities may
not be sold, pledged, transferred or assigned except in a transaction which is
exempt under provisions of the Securities Act and any applicable state
securities laws or pursuant to an effective registration statement; and in the
case of an exemption, only if the Company has received an opinion of counsel
satisfactory to the Company that such transaction does not require registration.
FINANCIAL INTRANET, INC.
US$500,000
7% CONVERTIBLE PROMISSORY NOTE
DUE _______________
FINANCIAL INTRANET, INC., a Nevada corporation (the "Company"), for value
received, hereby promises to pay to __________________ or registered assigns
(the "Holder") three years from the closing date hereof (the "Maturity Date"),
at the principal offices of the Company, the principal sum of FIVE HUNDRED
THOUSAND ($500,000) Dollars and to pay interest on the outstanding principal sum
hereof at 7% (SEVEN PERCENT) per annum from the date hereof until the Company's
obligation with respect to the payment of such principal sum shall be discharged
as herein provided. Interest hereunder shall accrue commencing the date hereof
and shall be payable by the Company to the Holder on the Conversion Date, upon
Prepayment (as set forth below), or if not converted or prepaid then on the
Maturity Date. The calculation of interest shall be based on the actual number
of days that elapse during any period in a year of 360 days.
In the event this Note has not been converted or prepaid, on the Maturity
Date, the Company shall convert any and all remaining outstanding principal and
any accrued and unpaid interest into the Company's common stock, par value $.001
per share (the "Common Stock") based on the Conversion Price (as hereinafter
defined), with the Maturity Date being deemed a Conversion Date and all other
conversion procedures set forth below shall apply. Upon the conversion of all or
any part of the principal amount of the Promissory Note at the option of the
Holder prior to the Maturity Date, all accrued and unpaid interest on that
portion of the Promissory Note so converted shall be payable upon conversion.
The interest payable on the Maturity Date or upon the earlier conversion of all
or a portion of the principal amount of the Promissory Note will be paid in cash
or
<PAGE>
Common Stock registered under the Securities Act, at the option of the
Company, to the Holder of the Promissory Note.
In the event that for any reason whatsoever any interest or other
consideration payable with respect to this Promissory Note shall be deemed to be
usurious by a court of competent jurisdiction under the laws of the State of New
York or the laws of any other state governing the repayment hereof, then so much
of such interest or other consideration as shall be deemed to be usurious shall
be held by the holder as security for the repayment of the principal amount
hereof and shall otherwise be waived.
1. Transfers of Promissory Note and Securities Issuable Upon Conversion to
Comply with the Securities Act
The rights of the Holder to require the Company to enable the shares of
Common Stock issuable upon conversion of the Promissory Note to be sold pursuant
to the Securities Act and the Holder's other rights with respect to the
registration of such shares of Common Stock under the Securities Act are set
forth in a Registration Rights Agreement dated as of the date hereof. The holder
agrees that this Promissory Note and any securities issuable upon conversion
pursuant to Section 4 hereof may not be sold, transferred, pledged, hypothecated
or otherwise disposed of except as follows: (i) to a person to whom this
Promissory Note and such securities may legally be transferred without
registration pursuant to the Securities Act or otherwise and without the
delivery of a current prospectus under the Securities Act with respect thereto
or (ii) to any person upon delivery of a prospectus then meeting the
requirements of the Securities Act relating to such securities and the offering
thereof for such sale or disposition, and thereafter to all successive
assignees.
2. Events of Default
a. This Promissory Note shall become due and payable upon written demand
made by the Holder hereof if one or more of the following events, herein called
"events of default", shall happen and be continuing:
(i) Default in the payment of the principal and accrued interest on this
Promissory Note, when and as the same shall become due and payable, whether by
acceleration or otherwise;
(ii) Default in the due observance or performance of any covenant, term,
provision, condition or agreement on the part of the Company to be observed or
performed pursuant to the terms hereof, or the terms of the Subscription
Agreement, and/or Registration Rights Agreement, if such default shall continue
uncured for 15 business days after written notice, specifying such default,
shall have been given to the Company by the Holder; provided, however, that the
grace period specified in this Section 3(a)(ii) shall not apply to any other
Event of Default specified in this Section 3.
(iii) Entry of a judicial order for the appointment of a receiver, trustee
or liquidator for the Company or its property or business which order shall not
have been
<PAGE>
vacated or set aside or otherwise terminated within 90 days or upon the
Company consenting to the entry of such an order;
(iv) Admission in writing of the Company's inability to pay its debts as
they mature;
(v) General assignment by the Company for the benefit of creditors;
(vi) Bankruptcy reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Company and, if instituted
against the Company, Company shall by any action or answer approve of, consent
to or acquiesce in any such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding or such proceedings
shall not be dismissed within sixty (60) days thereafter; or
(vii) Any of the representations or warranties made by the Company herein,
or in the Subscription Agreement or the Registration Rights Agreement shall have
been incorrect when made in any material respect; or
(viii) Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the Company and
shall not be dismissed within thirty (30) calendar days thereafter; or
(ix) The Common Stock is delisted from trading on the OTC Bulletin Board,
or the Company has received notice of final action concerning delisting from the
OTC Bulletin Board and the Common Stock has not been relisted within ten (10)
days thereafter;
(x) The effectiveness of the Registration Statement including the shares of
Common Stock underlying the Promissory Note has been suspended for a period of
five (5) business days (unless such suspension is caused by the Holder) and
suspension of the effectiveness of the Registration Statement has not been
terminated within thirty (30) days thereafter;
(xi) The Company shall have failed to deliver shares of Common Stock
issuable upon conversion of the Promissory Note and/or exercise of the Warrants
issued by the Company pursuant to the Agreement within ten (10) days of the date
due for delivery under this Promissory Note or the Warrants; or
<PAGE>
(xii) The Registration Statement including the shares of Common Stock
underlying the Promissory Note has not been declared effective on or before
April 30, 1999 (other than by reason of any act or failure to act in a timely
manner by the Holder or its counsel)
The Company agrees that notice of the occurrence of any event of default
will be promptly given to the Holder at his or her registered address by
certified mail within five days of such event of default.
c. In case any one or more of the events of default specified above shall
happen or be continuing, the Holder may consider this Promissory Note
immediately due and payable in cash and may proceed to enforce the payment of
the outstanding principal amount and all accrued an unpaid interest and may
protect and enforce his or her right by suit for the specific performance of any
covenant or agreement contained in this Promissory Note or in aid of the
exercise of any power granted in this Promissory Note or may proceed to enforce
any other legal or equitable rights of such Holder. It is agreed that in the
event of such action, the Holder shall be entitled to receive all reasonable
fees, costs and expenses incurred, including without limitation such reasonable
fees and expenses of attorneys.
3 Conversion
a. The Holder is entitled, at its option, at any time after the date
hereof, to convert this Promissory Note, in whole or in part, in accordance with
the following terms and conditions:
(i) The Holder may exercise its right to convert the Promissory Note by
telecopying an executed and completed notice of conversion (the "Notice of
Conversion") to the Company (between the hours of 9:00 a.m. and 5:30 p.m.
Eastern Time) and delivering the original Notice of Conversion (in the form
attached hereto as Exhibit A) and the original Promissory Note to the Company by
express courier. Each business date on which a Notice of Conversion is
telecopied to and received by the Company in accordance with the provisions
hereof shall be deemed a "Conversion Date". The Company will transmit the
certificates representing shares of Common Stock issuable upon conversion of the
Promissory Note (together with the certificates representing the Promissory Note
not so converted) to the Holder via express courier, by electronic transfer (if
applicable) or otherwise within three business days after the Conversion Date if
the address for delivery is within the New York City metropolitan area (or
within four business days after the Conversion Date if the address for delivery
is within the continental United States) provided the Company has received the
original Notice of Conversion and Promissory Note being so converted no later
than the date before the delivery date. The Notice of Conversion and Promissory
Note representing the portion of the Promissory Note converted shall be
delivered to the office of the Company as set forth in the Subscription
Agreement. In the event that the Holder fails to deliver the original Notice of
Conversion and Promissory Note to the Company no later that the date prior to
<PAGE>
the delivery date, then the Conversion Date shall be deemed to be the date
of delivery of such documents.
In addition to any other remedies which may be available to the Holder, in
the event that the Company fails to effect delivery of such shares of Common
Stock within such three or four business day period, as the case may be, the
Holder will be entitled to revoke the Notice of Conversion by delivering a
notice to such effect to the Company whereupon the Company and the Holder shall
each be restored to their respective positions immediately prior to delivery of
the Notice of Conversion.
(ii) In the event that the Common Stock issuable upon conversion of this
Promissory Note is not delivered, within three (3) business days of receipt by
the Company or a valid Notice of Conversion and the Promissory Note to be
converted to any address in the New York metropolitan area designated by the
Holder (or within four (4) business days to any other address in the continental
United States designated by the Holder), the Company shall pay to the Holder, in
immediately available funds, upon demand, as liquidated damages for such failure
and not as a penalty, for each $100,000 principal amount of Promissory Note
sought to be converted, $500 for each of the first ten (10) days and $1,000 per
day thereafter that the shares of Common Stock are not delivered, which
liquidated damages shall run from the fourth business day after the Conversion
Date (or the fifth business day following the Conversion Date as the case may
be) up until the time that either the Conversion Notice is revoked or the Common
Stock is delivered, at which time such liquidated damages shall cease. Any and
all payments required pursuant to this paragraph shall be payable only in cash
immediately. Any and all payments required to be made, and/or made pursuant to
this Section shall be deemed to be a waiver of the Company's obligation to
deliver the shares of Common Stock due upon conversion of this Promissory Note.
(iii) The Holder may, at its sole option convert this Promissory Note into
that number of shares of fully paid and nonassessable shares of Common Stock
which is to be derived from dividing the Conversion Amount by the Conversion
Price. The "Conversion Amount" shall mean the principal dollar amount of the
Promissory Note being converted. The "Conversion Price" shall be the lessor of :
(i) 75% of the average of the five lowest closing bid prices of the Common Stock
during the 30 trading days ending on the trading day immediately preceding the
Conversion Date, or (ii) $.40 per share. The closing bid price shall be deemed
to be the reported last bid price regular way as reported by Bloomberg LP or if
unavailable, 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 closing bid price
as reported by NASDAQ or such other system then in use, or, if the Common Stock
is not quoted by any such organization, the closing bid price in the
over-the-counter market as furnished by the principal national securities
exchange on which the Common Stock is traded.
(iv) Notwithstanding anything else herein to the contrary, each
<PAGE>
holder of the Promissory Note may not convert any Promissory Note to the
extent that after such conversion, the sum of (1) the number of shares of Common
Stock beneficially owned by the Purchaser and its affiliates (other than shares
of Common Stock which may be deemed beneficially owned through the ownership of
the unconverted portion of the Promissory Notes and any unexercised warrants
issued as of the date hereof for the purchase of 1,250,000 shares of Common
Stock (the "Warrants") and (2) the number of shares of Common Stock issuable
upon the conversion of the Promissory Note or exercise of the Warrants with
respect of which the determination of this proviso is being made, would result
in beneficial ownership by the Purchaser and its affiliates of 4.99% or more of
the Company's issued and outstanding shares of Common Stock following such
conversion. This restriction shall be binding upon any transferee of the
Promissory Note from any Holder. The preceding paragraph shall not interfere
with the Holder's right to convert this Note over time which in the aggregate
totals more than 4.99% of the then outstanding shares of Common Stock so long as
such Holder and its affiliates do not beneficially own more than 4.99% of the
then outstanding Common Stock at any given time.
c. Adjustment of Conversion Price
(i) Adjustments for Stock Splits and Combinations. If the Company shall at
any time or from time to time after the Issuance Date, effect a stock split of
the outstanding Common Stock, the applicable Conversion Price in effect
immediately prior to the stock split shall be proportionately decreased. If the
Company shall at any time or from time to time after the Issuance Date, combine
the outstanding shares of Common Stock, the applicable Conversion Price, in
effect immediately prior to the combination shall be proportionately increased.
Any adjustments under this Section 4(c)(i) shall be effective at the close of
business on the date the stock split or combination occurs.
(ii) Adjustment for Dividends and Distributions. If the Company shall at
any time or from time to time after the Issuance Date, make or issue or set a
record date for the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in other than shares of Common Stock,
then, and in each event, an appropriate revision to the Conversion Price shall
be made and provision shall be made (by adjustments of the Conversion Price or
otherwise) so that the holders of the Promissory Note will receive upon
conversions thereof, in addition to the number of shares of Common Stock
receivable thereon, the number of securities of the Company which they would
have received had their Promissory Note been converted into Common Stock on the
date of such event and had thereafter, during the period from the date of such
event to and including the Conversion Date, retained such securities (together
with any distributions payable thereon during such period), giving application
to all adjustments called for during such period under this Section 4(c)(iii)
with respect to the rights of the holders of the Promissory Note.
(iii) Adjustments for Reclassification, Exchange or Substitution. If the
Common Stock issuable upon conversion of the Promissory Note at any time or from
time to
<PAGE>
time after the Issuance Date shall be changed into the same or different
number of shares of any class or classes of stock, whether by reclassification,
exchange, substitution or otherwise (other than by way of a stock split or
combination of shares or stock dividends provided for in Sections 4(c)(i), (ii)
and (iii), or a reorganization, merger, consolidation, or sale of assets
provided for in Section 4(c)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall by made and provisions shall be made (by
adjustments of the Conversion Price of otherwise) so that the holder of the
Promissory Note shall have the right thereafter to convert such Promissory Note
into the kind and amount of shares of stock and other securities receivable upon
reclassification, exchange, substitution or other change, by holders of the
number of shares of Common Stock into which such Promissory Note might have been
converted immediately prior to such reclassification, exchange, substitution or
other change, all subject to further adjustment as provided herein.
(iv) Adjustments for Reorganization, Merger, Consolidation or Sales of
Assets. If at any time or from time to time after the Issuance Date there shall
be a capital reorganization of the Company (other than by way of a stock split
or combination of shares or stock dividends or distributions provided for in
Section 4(c)(i), (ii) and (iii), or a reclassification, exchange or substitution
of shares provided for in Section 4(c)(iv)), or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's properties or assets to any other person, then as a part of
such reorganization, merger, consolidation, or sale, an appropriate revision to
the Conversion Price provision shall be made so that the holder of each
Promissory Note shall have the right thereafter to convert such Promissory Note
into the kind and amount of shares of stock and other securities or property of
the Company or any successor corporation resulting from such reorganization,
merger, consolidation, or sale, to which a holder of Common Stock deliverable
upon conversion of such shares would have been entitled upon such
reorganization, merger, consolidation, or sale, to which a holder of Common
Stock deliverable upon conversion of such shares would have been entitled upon
such reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4(c)(v) with respect to the rights of the holders of the Promissory
Note after the reorganization, merger, consolidation, or sale to the end that
the provisions of this Section 4(c)(v) (including any adjustment in the
applicable Conversion Price then in effect and the number of shares of stock or
other securities deliverable upon conversion of the Promissory Note) shall be
applied after that event in as nearly an equivalent manner as may be
practicable.
(v) Other Adjustment Events and Provisions. For the purposes of this
Section 4, the following shall also be applicable.
(A) Consideration for Stock. In case any shares of Common Stock or
convertible securities or any rights or warrants or options to purchase any such
Common Stock or convertible securities shall be issued or sold:
(1) for cash, the consideration received therefor shall
<PAGE>
be deemed to be the amount received by the Company therefor, without
deduction therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection therewith;
(2) for a consideration other than cash, the amount of the consideration
other than cash received by the Company shall be deemed to be the fair value of
such consideration as determined by the Board of Directors of the Company in
good faith and in the exercise of reasonable business judgment, without
deduction of any expense incurred or any underwriting commissions or concessions
paid or allowed by the Company in connection therewith, which determination
shall be sent in writing by the Board of Directors to the registered holders of
the Promissory Note;
(3) in connection with any merger or consolidation in which the Company is
the surviving corporation (other than any consolidation or merger in which the
previously outstanding shares of Common Stock of the Company shall be changed
into or exchanged for the stock or other securities of another corporation), the
amount of consideration therefor shall be deemed to be the fair value, as
determined reasonably and in good faith by the Board of Directors of the
Company, of such portion of the assets and business of the non-surviving
corporation as such Board may determine to be attributable to such shares of
Common Stock, convertible securities, rights or warrants or options, as the case
may be; or
(4) in the event of any consolidation or merger of the Company in which the
Company is not the surviving corporation or in which the previously outstanding
shares of Common Stock of the Company shall be changed into or exchanged for the
stock or other securities of another corporation or in the event of any sale of
all or substantially all of the assets of the Company for stock or other
securities of any corporation, the Company shall be deemed to have issued a
number of shares of its Common Stock for stock or securities or other property
of the other corporation computed on the basis of the actual exchange ratio on
which the transaction was predicated, and for a consideration equal to the fair
market value on the date of such transaction of all such stock or securities or
other property of the other corporation. If any such calculation results in
adjustment of the applicable Conversion Price, or the number of shares of Common
Stock issuable upon conversion of the Promissory Note, the determination of the
applicable Conversion Price, or the number of shares of Common Stock issuable
upon conversion of the Promissory Note immediately prior to such merger,
consolidation or sale, shall be made after giving effect to such adjustment of
the number of shares of Common Stock issuable upon conversion of the Promissory
Note.
(B) No Impairment. The Company shall not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed
<PAGE>
hereunder by the Company, but will at all times in good faith, assist in
the carrying out of all the provisions of this Section 4 and in the taking of
all such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Promissory Notes against impairment.
(C) Certificate as to Adjustments. Upon occurrence of each adjustment or
readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of the Promissory Note pursuant to this Section 4, the
Company at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish notice to each holder of such
Promissory Note, a certificate setting forth such adjustment and readjustment,
showing in detail the facts upon which such adjustment or readjustment is based.
The Company shall, upon written request of the holder of such affected
Promissory Note, at any time, furnish or cause to be furnished to such holder a
like certificate setting forth such adjustments and readjustments, the
applicable Conversion Price in effect at the time, and the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon the conversion of a share of such Promissory
Note. Notwithstanding the foregoing, the Company shall not be obligated to
deliver a certificate unless such certificate would reflect an increase or
decrease of at least one percent of such adjusted amount.
(D) Issue Taxes. The Company shall pay any and all issue and other taxes,
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of the
Promissory Note pursuant hereto; provided, however, that the Company shall not
be obligated to pay any transfer taxes resulting from any transfer requested by
any holder in connection with any such conversion.
(E) Fractional Shares. No fractional shares of Common Stock shall be issued
upon conversion of the Promissory Note. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Company shall round the
fraction to the nearest whole number of shares such that the Company will round
up if the fraction is one-half or more, and round down if the fraction is less
than one-half.
(F) Reservation of Common Stock. The Company shall at all times reserve and
keep available, out of its authorized but unissued shares of Common Stock not
previously reserved, solely for the purpose of effecting the conversion of the
Promissory Note, the full number of shares deliverable upon conversion of the
Promissory Note from time to time outstanding. The Company shall, from time to
time in accordance with the Nevada General Business Corporations Law, as
amended, take all necessary measures to increase the authorized number of shares
of Common Stock if at any time the unissued number of authorized shares shall
<PAGE>
not be sufficient to permit the conversion of the Promissory Note at the
time outstanding.
(G) Retirement of the Promissory Note. Conversion of the Promissory Note
shall be deemed to have been effected on the applicable Conversion Date, and
such date is referred to herein as the "Conversion Date". The converting holder
shall be deemed to have become a stockholder of record of the Common Stock on
the applicable Conversion Date. Upon conversion of only a portion of the
Promissory Note represented by a certificate surrendered for conversion, the
Company shall issue and deliver to such holder at the expense of the Company, a
new Promissory Note representing the unconverted portion of the certificate so
surrendered.
4. No Preemptive Rights. Except as provided in Section 4 hereof, no holder
of the Promissory Note shall be entitled as of right to subscribe for, purchase
or receive any part of any new or additional shares of any class, whether now or
hereinafter authorized, or of bonds or Promissory Notes, or other evidences of
indebtedness convertible into or exchangeable for shares of any class, but all
such new or additional shares of any class or bond or Promissory Notes, or other
evidences of indebtedness convertible into or exchangeable for shares may be
issued and disposed of by the Board of Directors on such terms and for such
consideration (to the extent permitted by law), and to such person or persons as
the Board of Directors in their absolute discretion may deem advisable.
5. Miscellaneous
a. This Promissory Note has been issued by the Company pursuant to
authorization of the Board of Directors of the Company.
b. The Company may consider and treat the person in whose name this
Promissory Note shall be registered as the absolute owner hereof for all
purposes whatsoever (whether or not this Promissory Note shall be overdue) and
the Company shall not be affected by any notice to the contrary. Subject to the
limitations herein stated, the registered owner of this Promissory Note shall
have the right to transfer this Promissory Note by assignment, and the
transferee thereof shall, upon his registration as owner of this Promissory
Note, become vested with all the powers and rights of the transferor.
Registration of any new owner shall take place upon presentation of this
Promissory Note to the Company at its principal offices, together with a duly
authenticated assignment. In case of transfer by operation of law, the
transferee agrees to notify the Company of such transfer and of his address, and
to submit appropriate evidence regarding the transfer so that this Promissory
Note may be registered in the name of the transferee. This Promissory Note is
transferable only on the books of the Company by the Holder hereof, in person or
by attorney, on the surrender hereof, duly endorsed. Communications sent to any
registered owner
<PAGE>
shall be effective as against all Holders or transferees of the Promissory
Note not registered at the time of sending the communication.
c. Payments of interest shall be made as specified above to the registered
owner of this Promissory Note. Payment of principal shall be made to the
registered owner of this Promissory Note upon presentation on or after maturity.
No interest shall be due on this Promissory Note for such period of time that
may elapse between the maturity of this Promissory Note and its presentation for
payment, only in the event the Promissory Note is paid in a timely fashion.
d. Presentment, notice of dishonor, protest and notice of protest are
hereby waived. In the event an action, suit or proceeding is brought to enforce
this Promissory Note or to protest the same, the Holder hereof shall be entitled
to all costs and disbursements, including reasonable attorney's fees and costs
of collection, incurred in connection with such action, suit or proceeding.
e. Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Promissory Note, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Promissory Note, if mutilated, the
Company shall execute and deliver a new Promissory Note of like tenor and date.
Any such new Promissory Note executed and delivered shall constitute an
additional contractual obligation on the part of the Company, whether or not
this Promissory Note so lost, stolen, destroyed or mutilated shall be at any
time enforceable by anyone.
f. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, with respect to contracts executed and performed
in the State of New York.
g. Any litigation based thereon, or arising out of, under, or in connection
with, this agreement or any course of conduct, course of dealing, statements
(whether oral or written) or actions of the Company or Holder shall be brought
and maintained exclusively in the court of the state of New York without
reference to its conflicts of laws rules or principles. The Company and the
Holder hereby expressly and irrevocably submits to the jurisdiction of the
federal Courts of the state of New York for the purpose of any such litigation
as set forth above and irrevocably agrees to be bound by any final judgment
rendered thereby in connection with such litigation. The Holder further
irrevocably consents to the service of process by registered mail, postage
prepaid, or by personal service within or without the State of New York. To the
extent that the Holder has or hereafter may acquire any immunity from
jurisdiction of any court or from any legal process (whether through service or
notice, attachment prior to judgment, attachment in aid of execution or
otherwise) with respect to itself or its property. The Holder hereby irrevocably
waives such immunity in respect of its obligations under this agreement and the
other documents.
<PAGE>
IN WITNESS WHEREOF, Financial Intranet, Inc. has caused this Promissory
Note to be signed in its name by its President on the ____ day of December,
1998.
FINANCIAL INTRANET, INC.
By: /S/Michael Sheppard
Michael Sheppard, President
<PAGE>
EXHIBIT A TO PROMISSORY NOTE
CONVERSION NOTICE
Date:
FINANCIAL INTRANET, INC.
410 Saw Mill River Road
Ardsley, NY 10502
Attn: President
Ladies and Gentlemen:
The undersigned hereby elects to convert $____________ of the principal
amount of the promissory note issued to it by FINANCIAL INTRANET, INC. (the
"Company") dated as of December___, 1998 and to convert such promissory note
into ____________________ (_________) shares of the Common Stock of the Company
at a conversion price of _________________ ($_________) per Share (the
"Conversion Price").
In the event that the Conversion Price elected by the undersigned
represents 75% of the average of the five lowest closing bid prices of the
Common Stock during the 30 trading days ending on the trading day immediately
preceding the date this notice is delivered to the Company, a calculation of the
Conversion Price is set forth below or on a page attached hereto.
The undersigned represents that as of the date hereof, the undersigned and
its affiliates are the beneficial owners of ___________ shares of Common Stock
of the Company.
Very truly yours,
______________________________
By:____________________________
Title: __________________________
<PAGE>
EXHIBIT 10.9
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE SECURITIES ACT OR UNLESS AN EXEMPTION
THEREFROM IS AVAILABLE.
WARRANT TO PURCHASE
COMMON STOCK OF FINANCIAL INTRANET, INC.
This certifies that Ahood F. Sharbatly (the "Holder"), for value received,
is entitled to purchase from FINANCIAL INTRANET, INC., a Nevada corporation (the
"Company") One Million Two Hundred and Fifty Thousand (1,250,000) shares of the
Company's Common Stock (the "Common Stock") for a per share exercise price equal
to sixty cents ($.60)(the "Per Share Exercise Price"). This right may be
exercised at any time from the date hereof, up to and including 5:00 p.m. (New
York City time) on the fifth anniversary of the date hereof (the "Expiration
Date"), upon surrender to the Company at its principal office (or at such other
location as the Company may advise the Holder in writing) of this warrant,
properly endorsed, with the Subscription Form attached hereto as Exhibit A duly
filled in and signed in, and if applicable, the investment representations
attached hereto as Exhibit B, upon payment in cash or by check of the aggregate
Per Share Exercise Price for the number of shares for which this warrant is
being exercised determined in accordance with the provisions hereof.
1. ISSUANCE OF CERTIFICATES.
Certificates for the shares of Common Stock acquired upon exercise of this
warrant, together with any other securities or property to which the Holder is
entitled upon such exercise, will be delivered to the Holder by the Company at
the Company's expense within five business days after this warrant has been so
exercised.
Each Common Stock certificate so delivered will be in such denominations of
Common Stock as may be requested by the Holder and will be registered in the
name of the Holder. In case of a purchase of less than all the shares that may
be purchased under this warrant, the Company will cancel this warrant and
execute and deliver a new warrant or warrants of like tenor for the balance of
the shares purchasable under this warrant to the Holder within a reasonable time
after surrender of this warrant.
2. SHARES FULLY-PAID, NONASSESSABLE, ETC.
All shares of Common Stock issued upon exercise of this warrant will, upon
issuance, be duly authorized, validly issued, fully-paid and nonassessable and
free from all preemptive rights of any shareholder and free of all taxes, liens
and charges with respect to the issue thereof. The Company will at all times
reserve and keep available out of its authorized but unissued shares of
<PAGE>
Common Stock, solely for the purpose of effecting the exercise of this
warrant, such number of its shares of Common Stock as from time to time are
sufficient to effect the full exercise of this warrant. If at any time the
number of authorized but unissued shares of Common Stock is not sufficient to
effect the full exercise of this warrant, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as is
sufficient for such purpose. The Company will take all such action as may be
necessary to assure that such securities may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements of
any domestic securities exchange upon which the Common Stock may be listed;
provided, however, that the Company will not be required to effect a
registration under Federal or state securities laws with respect to such
exercise, except as may be set forth in Section 3 below and in the Registration
Rights Agreement between the Company and the Holder.
3. ADJUSTMENTS.
3.1 Adjustment for Stock Splits and Combinations. If the Company at any
time or from time to time during the term of this warrant effects a subdivision
of the outstanding Common Stock, the Per Share Exercise Price in effect
immediately before that subdivision will be proportionately decreased.
Conversely, if the Company at any time or from time to time during the term of
this warrant combines the outstanding shares of Common Stock into a smaller
number of shares, the Per Share Exercise Price in effect immediately before the
combination will be proportionately increased. Any adjustment under this Section
3.1 will become effective at the close of business on the date the subdivision
or combination becomes effective.
3.2 Adjustment for Common Stock Dividends and Distributions. If the Company
at any time or from time to time during the term of this warrant makes, or
fixes, a record date for the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock, in each such event the Per Share Exercise Price that is then in
effect will be decreased as of the time of such issuance or, in the event such
record date is fixed, as of the close of business on such record date, by
multiplying the Per Share Exercise Price then in effect by a fraction (a) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance on the close of
business on such record date, and (b) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance on the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed thereof, the Per Share Exercise Price will be recomputed accordingly as of
the close of business on such record date and thereafter the Per Share Exercise
Price will be adjusted pursuant to this Section 3.2 to reflect the actual
payment of such dividend or distribution.
- 2 -
<PAGE>
3.3 Adjustments for Other Dividends and Distributions. If the Company at
any time or from time to time during the term of this warrant makes, or fixes a
record date for the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in securities of the Company other than
shares of Common Stock, in each such event provision will be made so that the
Holder will receive upon exercise of this warrant, in addition to the number of
shares of Common Stock receivable thereupon, the amount of other securities of
the Company that it would have received had this warrant been exercised on the
date of such event and had it thereafter, during the period from the date of
such event to and including the exercise date, retained such securities
receivable by them as aforesaid, subject to all other adjustments called for
during such period under this Section 3 with respect to the rights of the Holder
hereunder or with respect to such other securities by their terms.
3.4 Adjustment for Reclassification, Exchange and Substitution. If at any
time or from time to time during the term of this warrant the Common Stock
issuable upon the exercise of this warrant is changed into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a recapitalization,
subdivision, combination, reclassification or exchange provided for elsewhere in
this Section 3), the Holder will have the right thereafter to exercise this
warrant for the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change into
which the shares of Common Stock issuable upon exercise of this warrant
immediately prior to such recapitalization, reclassification or change could
have been converted, all subject to further adjustment as provided herein or
with respect to such other securities or property by the terms thereof.
3.5 Reorganizations. If at any time or from time to time during the term of
this warrant there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification or exchange
provided for elsewhere in this Section 3), as a part of such capital
reorganization, provision will be made so that the Holder will thereafter be
entitled to receive upon exercise of this warrant the number of shares of stock
or other securities or property of the Company to which a holder of the number
of shares of Common Stock deliverable upon exercise of this warrant would have
been entitled on such capitalization reorganization, subject to adjustment in
respect of such stock or securities by the terms thereof.
3.6 Certificate of Adjustment. In each case of an adjustment or
readjustment of the number of shares issuable upon exercise of this warrant or
the Per Share Exercise Price, the Company, at its expense, will compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and will mail such
certificate, by first class mail, postage prepaid, to the Holder at the Holder's
address as shown in the Company's books. The certificate will set forth such
adjustment or readjustment,
- 3 -
<PAGE>
showing in detail the facts upon which such adjustment or readjustment is
based, including a statement of (a) the Per Share Exercise Price at the time in
effect, and (b) the type and amount, if any, of other property that at the time
would be received upon exercise of this warrant.
3.7 Notices of Record Date. Upon (a) any taking by the Company of a record
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any sale of all or
substantially all of the assets of the Company or any voluntary or involuntary
dissolution, liquidation or winding up of the Company or (c) a proposed sale of
substantially all of the assets of the Company or a proposed merger in which the
Company will not be the surviving entity, the Company will mail to the Holder at
least twenty (20) days prior to the record date specified therein a notice
specifying (1) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such reorganization, reclassification,
recapitalization, asset sale, dissolution, liquidation or winding up is
expecting to become effective, and (3) the date, if any, that is to be fixed as
to when the holders of record of Common Stock (or other securities) will be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, asset sale, dissolution, liquidation or
winding up.
4. LIMIT ON SHARES SUBJECT TO ISSUANCE
Notwithstanding anything else herein to the contrary, each holder of the
warrants may not receive shares of Common Stock upon exercise of the warrant,
and the warrant shall not be deemed exercisable, to the extent that after such
conversion, the sum of (1) the number of shares of Common Stock owned by the
Holder and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unexercised potion of the
warrants or the unconverted portion of the promissory note of even date herewith
in the original principal amount of $500,000 (the "Note")) and (2) the number of
shares of Common Stock issuable upon the exercise of the warrants and the
conversion of the Note with respect of which the determination of this proviso
is being made, would result in ownership by the Holder and its affiliates of
4.99% or more of the Company's issued and outstanding shares of Common Stock
following such conversion. This restriction shall be binding upon any transferee
of the warrants. The preceding shall not interfere with the Holder's right to
exercise this warrant over time which in the aggregate totals more than 4.99% of
the then outstanding shares of Common Stock so long as the Holder and its
affiliates do not own more than 4.99% of the then outstanding Common Stock at
any given time. The Holder shall make a representation regarding the number of
shares of Common Stock owned by the Holder and its affiliates on the
Subscription Form attached hereto as Exhibit A which shall be submitted with
this warrant and payment of the aggregate Per Share Exercise Price upon exercise
of this warrant.
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5. REDEMPTION The Company shall have the right to redeem the warrants for
$.001 per share upon twenty days notice if the closing bid price per share of
Common Stock as quoted on the OTC Bulletin Board or NASDAQ is a minimum of $4.00
per share for thirty consecutive trading days prior to the date of the notice of
redemption. The Holder will have the right to exercise the warrant at any time
following such and notice and prior to redemption.
6. TAXES.
The Company will pay all taxes (other than taxes based upon income) and
other governmental charges that may be imposed with respect to the issue or
delivery of shares of Common Stock upon exercise of this warrant, excluding any
tax or other charge imposed in connection with any transfer involved in the
issue and delivery of shares of Common Stock in a name other that in which this
warrant was registered.
7. CLOSING OF BOOKS.
The Company will at no time close its transfer books against the transfer
of any warrant or of any shares of Common Stock issued or issuable upon the
exercise of any warrant in any manner that interferes with the timely exercise
of this warrant.
8. NO VOTING OR DIVIDEND RIGHTS.
Nothing contained in this warrant will be construed as conferring upon the
Holder the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest will be payable or accrued in respect of
this warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this warrant has been exercised.
9. WARRANTS TRANSFERABLE.
Subject to compliance with applicable Federal and state securities laws and
the restrictions imposed by any other written agreement between the Holder and
the Company, this warrant and all rights hereunder are transferable, in whole or
in part, without charge to the Holder (except for transfer taxes), upon
surrender of this warrant properly endorsed and in compliance with the
provisions of this warrant.
10. MODIFICATION AND WAIVER.
This warrant and any provision hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of the same is
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sought.
11. NOTICES. Any notice required by the provisions of this warrant will be
in writing and will be deemed effectively given: (a) upon personal delivery to
the party to be notified; (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day; (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All notices will be addressed to the Holder at
the address of the Holder appearing on the books of the Company.
12. LOST WARRANTS. The Company represents and warrants to the Holder that
upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction, or mutilation of this warrant and, in the case of any such
loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such warrant, the Company, at its expense, will make and deliver
a new warrant, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated warrant.
13. FRACTIONAL SHARES. No fractional shares of Common Stock will be issued
upon exercise of this warrant. If the exercise would result in the issuance of
any fractional share, the Company will, in lieu of issuing any fractional share,
pay cash equal to the product of such fraction multiplied by the closing bid
price of the Company's Common Stock on the date of conversion.
14. GOVERNING LAW.
14.1 This warrant will be construed and enforced in accordance with, and
the rights of the parties will be governed by, the laws of the State of New York
without regard to conflict of laws principles.
14.2 Any litigation based thereon, or arising out of, under, or in
connection with, this agreement or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Company or Holder shall
be brought and maintained exclusively in the court of the state of New York
without reference to its conflicts of laws rules or principles. The Company and
the Holder hereby expressly and irrevocably submits to the jurisdiction of the
federal Courts of the state of New York for the purpose of any such litigation
as set forth above and irrevocably agrees to be bound by any final judgment
rendered thereby in connection with such litigation. The Holder further
irrevocably consents to the service of process by registered mail, postage
prepaid, or by personal service within or without the State of New York. The
Holder hereby expressly and irrevocably waives, to the fullest extent permitted
by law, any objection which it may have or
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hereafter may have to the laying of venue of any such litigation brought in
any such court referred to above and any claim that any such litigation has been
brought in any inconvenient forum.
The Company has executed this warrant as of this ____ day of ________,
1998.
FINANCIAL INTRANET, INC.
By: /s/Michael Sheppard
Name: Michael Sheppard
Title: President
By: _________________________________
Name:
Title:
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<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
Date:
FINANCIAL INTRANET, INC.
410 Saw Mill River Road
Ardsley, NY 10502
Attn: President
Ladies and Gentlemen:
The undersigned hereby elects to exercise the warrant issued to it by
FINANCIAL INTRANET, INC. (the "Company") dated as of ___________________ and to
purchase thereunder ____________________ (_________) shares of the Common Stock
of the Company at a purchase price of sixty cents ($0.60) per Share, for an
aggregate purchase price of _____________________ ($___________) (the "Purchase
Price").
Pursuant to the terms of the warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
The undersigned represents that as of the date hereof, the undersigned and
its affiliates are the owners of ___________ shares of Common Stock of the
Company.
The undersigned also makes the representations set forth on the attached
Exhibit B of the warrant if applicable.
Very truly yours,
______________________________
By:____________________________
Title: __________________________
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<PAGE>
EXHIBIT B TO WARRANT
INVESTMENT REPRESENTATIONS
THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO FINANCIAL
INTRANET, INC. ALONG WITH THE SUBSCRIPTION FORM BEFORE THE COMMON
STOCK ISSUABLE UPON EXERCISE OF THE WARRANT WILL BE ISSUED UNLESS THE
COMMON STOCK IS SUBJECT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933..
_____________________, 199__
FINANCIAL INTRANET, INC.
410 Saw Mill River Road
Ardsley, New York 10502
Attn: President
The undersigned, _________________ ("Purchaser"), intends to acquire up to
______ shares of the Common Stock (the "Stock") of FINANCIAL INTRANET, INC. (the
"Company") from the Company pursuant to the exercise of certain warrants to
purchase Stock held by Purchaser. The Stock will be issued to Purchaser in a
transaction not involving a public offering and pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the "1933 Act"), and
applicable state securities laws. In connection with such purchase and in order
to comply with the exemptions from registration relied upon by the Company,
Purchaser represents, warrants and agrees as follows:
The Purchaser is acquiring the Stock for its own account, to hold for
investment, and Purchaser will not make any sale, transfer or other disposition
of the Stock in violation of the 1933 Act or the General Rules and Regulations
promulgated thereunder by the Securities and Exchange Commission (the "SEC") or
in violation of any applicable state securities law. Purchaser is an "accredited
investor" as defined in Rule 501 promulgated under Regulation D.
Purchaser has been informed that under the 1933 Act, the Stock must be held
indefinitely unless it is subsequently registered under the 1933 Act or unless
an exemption from such registration (such as Rule 144) is available with respect
to any proposed transfer or disposition by Purchaser of the Stock. Purchaser
further agrees that the Company may refuse to permit Purchaser to sell, transfer
or dispose of the Stock (except as permitted under Rule 144) unless
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<PAGE>
there is in effect a registration statement under the 1933 Act and any
applicable state securities laws covering such transfer, or unless Purchaser
furnishes an opinion of counsel reasonably satisfactory to counsel for the
Company, to the effect that such registration is not required.
Purchaser also understands and agrees that there will be placed on the
certificate(s) for the Stock, or any substitution thereof, legends stating in
substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS."
Purchaser has carefully read this letter and has discussed its requirements
and other applicable limitations upon Purchaser's resale of the Stock with
Purchaser's counsel.
Very truly yours,
By: ________________________________
Title: ______________________________
<PAGE>
EXHIBIT 10.10
SUBSCRIPTION AGREEMENT
FINANCIAL INTRANET, INC.
Re: Private Placement of up to $500,000 consisting of a 7% Convertible
Promissory Note in the principal amount of $500,000 and Warrants to purchase
1,250,000 shares of Common Stock.
Dear Subscriber::
Financial Intranet Inc. (the "Company") is offering 7% convertible
promissory note in the principal amount of $500,000 (the "Promissory Note") and
warrants to purchase an aggregate of 1,250,000 shares of Common Stock, par value
$.001 per share (the "Warrants") for an aggregate of $500,000 (the "Offering").
The undersigned ("Investor") has indicated its desire to participate in
this private offering and to subscribe to and agree to purchase the Promissory
Note and the Warrants as set forth on the signature page of this Agreement,
receipt of which the Company acknowledges. The Company shall have the right to
reject this subscription in whole or in part and to accept the subscription of a
lesser amount.
ARTICLE I
Purchase and Sale of the Promissory Note and Warrants
Section 1.1 Closing. The Company will sell, and the Investor will buy, on
the date indicated on the signature page of this Subscription Agreement
("Closing Date"), the Promissory Note (attached as Exhibit B) and Warrants
(attached as Exhibit C) to purchase an aggregate of 1,250,000 shares of Common
Stock, par value $.001 per share for the purchase price of FIVE HUNDRED THOUSAND
($500,000) Dollars ("Purchase Price"), provided each of the conditions set forth
in Section 1.4 below have been satisfied or waived in writing.
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Section 1.2 Form of Payment. The Investor shall pay the Purchase Price by
delivering good funds in United States Dollars by wire transfer to the Escrow
Agent, against delivery of the original 7% Convertible Promissory Note and
Warrants. The parties have entered into an Escrow Agreement annexed hereto as
Exhibit D.
Section 1.3 Wire Instructions. Wire instructions for the Escrow Agent are
as follows:
Chase Manhattan Bank, N.A.
ABA No. 021000021
For the Account of:
United States Trust Company of New York
Account No. 920-1-073195
In favor of:
The Goldstein Law Group, P.C. Attorney Escrow Account
Account No. 59-01405
Section 1.4 Promissory Note and Warrants. The right of the Company to
receive the Purchase Price from the Investor, and the right of the Investor to
receive the Promissory Note and Warrants is subject to the satisfaction (or
written waiver) on the Closing Date, of each of the following conditions:
(i) acceptance by the Company, and the Investor, of this Agreement
(including execution of the Statement of Accredited Investor Status attached
hereto) and all duly executed Exhibits thereto by an authorized officer of the
Company;
(ii) delivery into escrow by the Investor of clear funds for the Purchase
Price (as more fully set forth in the Escrow Agreement attached hereto as
Exhibit D);
(iii) all representations and warranties of the Investor and of the Company
contained herein shall remain true and correct in all material respects as of
the Closing Date;
(iv) the Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the Promissory Note and the
Warrants, or shall have the availability of exemptions therefrom;
(v) the sale and issuance of the Promissory Note and Warrants, and the
proposed issuance of the underlying shares of Common Stock (the "Underlying
Shares") and Warrant shares shall be legally permitted by all laws and
regulations to which the Investor and the Company are subject;
(vi) delivery of the original Promissory Note and Warrants as described
herein;
(vii) receipt by the Investor of an opinion of counsel of the Company as
set forth in Exhibit E attached hereto;
(viii) payment of all fees as set forth in Section 7.1 below, provided that
certificates representing the shares of Common Stock issuable to the placement
agents are not
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<PAGE>
required to be delivered by the Company as of the Closing Date but within
10 days of the Closing Date.
Section 1.5 The Promissory Note and Warrants have not been registered under
the registration provisions of the Securities Act of 1933, as amended (the
"Securities Act"), or the laws of any state, and are being offered and sold by
the Company in reliance upon an exemption from registration under Sections 4(2)
of the Securities Act. Absent an exemption from registration contained in the
federal or state securities laws, the issuance and sale of the Promissory Note
and Warrants would require registration, and the reliance upon such exemption is
based upon the Investor 's representations, warranties, and agreements contained
in this Agreement.
ARTICLE II
Description of Securities Contained in Promissory Note and Warrants
The following summary of the Securities contained in the Promissory Note
and Warrants and the registration rights with respect to the Common Stock
issuable upon conversion or exercise of the Securities is qualified in its
entirety by the form of Promissory Note, Warrant and Registration Rights
Agreement (Exhibit F) attached to this agreement.
Section 2.1 Promissory Note. The Company will issue a 7% Convertible
Promissory Note which will be convertible into Common Stock of the Company in
the principal amount of $500,000.
Section 2.2 Interest: The holders of the Promissory Note shall be entitled
to receive interest, payable at the option of the Company in cash or registered
Common Stock, at the rate of seven percent on the outstanding principal amount,
per annum based upon a 365 day year commencing on the date the Promissory Note
is issued, payable upon the conversion of the Promissory Note into shares of
Common Stock. Such interest shall be cumulative and shall be compounded on a
yearly basis.
Section 2.3 Conversion: The Promissory Note may be converted, in whole or
in part, at any time. Notwithstanding anything else herein to the contrary, the
holder of the Promissory Note may not convert any Promissory Note to the extent
that after such conversion, the sum of (1) the number of shares of Common Stock
beneficially owned by the Purchaser and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of
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<PAGE>
the unconverted portion of the Promissory Note) and (2) the aggregate
number of shares of Common Stock issuable upon the conversion of the Promissory
Note and exercise of the Warrants with respect of which the determination of
this provision is being made, would result in ownership by the Investor and its
affiliates of 4.99% or more of the Company's issued and outstanding shares of
Common Stock following such exercise or conversion. This restriction shall be
binding upon any transferee of the Promissory Note or Warrants from the
purchaser of such shares from the Company.
Section 2.4 Automatic Conversion: Three years from the Closing Date the
Company shall be required to automatically convert any and all remaining
outstanding principal amount and accrued interest of the Promissory Note at the
Conversion Price into the Company's Common Stock (the "Automatic Conversion").
The 4.99% limitations set forth in Section 2.3 and in the Promissory Note and
Warrants shall not apply to the Automatic Conversion provision contained herein.
Section 2.5 Conversion Price: The "Conversion Price" shall be the lessor of
: (i) 75% of the average of the five lowest closing bid prices of the Common
Stock during the 30 trading days ending on the trading day immediately preceding
the Conversion Date, or (ii) $.40 per share. The closing bid price shall be
deemed to be the reported last bid price regular way as reported by Bloomberg LP
or if unavailable, 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 closing
bid price as reported by NASDAQ or such other system then in use, or, if the
Common Stock is not quoted by any such organization, the closing bid price in
the over-the-counter market as furnished by the principal national securities
exchange on which the Common Stock is traded.
Section 2.6 Warrants: The Warrants will entitle the holder to purchase one
share of Common Stock at an exercise price per share of Common Stock (the
"Warrant Shares") of $.60. The Warrants may be exercised for the period
commencing upon the Closing Date and ending five years from the Closing Date.
Section 2.7 Registration Rights: The Company and the Investors have
executed the Registration Rights Agreement annexed hereto as Exhibit "F". The
Company is required to file a registration statement (the "Registration
Statement") under the Securities Act with respect to the shares of Common Stock
issuable upon conversion of the Promissory Note (the "Underlying Shares") and
exercise of the Warrants (the "Warrant Shares", the Warrant Shares and the
Underlying Shares are collectively referred to as the "Registrable Shares").
ARTICLE III
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Investor's Representations
Section 3.1 The Investor represents and warrants to the Company as follows:
(a) The Investor has carefully read this Agreement, including certain risk
factors and the Company's audited financial statements for the year ended
December 31, 1997 (attached hereto as Exhibit A) and the forms of Registration
Rights Agreement, Warrant, and Promissory Note (collectively, the "Disclosure
Materials"), all of which the Investor acknowledges have been provided to the
Investor. The Investor has been given the opportunity to ask questions, and
receive answers, concerning the terms and conditions of the sale of the
Promissory Note and Warrants and the Disclosure Materials and to obtain such
additional written information, to the extent the Company possesses such
information or can acquire it without unreasonable effort or expense, necessary
to verify the accuracy of same as the Investor desires in order to evaluate the
investment. The Investor further acknowledges that he or she fully understands
the Disclosure Materials. The Investor acknowledges that the Investor has
received no representations or warranties from the Company or its employees or
agents in making this investment decision except as set forth in this Agreement.
The Investor has been informed of all facts pertaining to the Company as it may
have required or believed desirable in connection with its investment (including
access to the Certificate of Incorporation and By-Laws of the Company) and is
not relying on any information concerning them not contained in the Disclosure
Materials.
(b) The Investor is aware that the purchase of the Promissory Note and
Warrants is a speculative investment involving a high degree of risk and that
there is no guarantee that the Investor will realize any gain from this
investment, and that the Investor could lose the total amount of the
Investor's's investment and that the Investor can bear the economic risk of such
investment.
(c) The Investor understands that no federal or state agency has made any
finding or determination regarding the fairness of this Offering of the
Promissory Note and Warrants for investment, or any recommendation or
endorsement of this Offering of the Promissory Note and Warrants. Any
representation to the contrary is a criminal offense.
(d) The Investor is purchasing the Promissory Note and Warrants for the
Investor's own account, without limiting the Investor's right to transfer, sell
or assign the Promissory Note, Warrants and Underlying Shares and Warrant Shares
(provided such transfer, sale or assignment is in compliance with applicable
law), with the intention of holding the Promissory Note and Warrants, with no
present intention of dividing or allowing others to participate in this
investment or of reselling or otherwise participating, directly or indirectly,
in a distribution of the Promissory Note and Warrants. The Investor understands
that the Promissory Note and Warrants are unregistered and may be required to be
held until such time as they are registered under the
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Securities Act and any applicable state securities laws, or until such time
as an exemption from such registration is available. The Investor agrees that
(a) it will not offer, sell, pledge, hypothecate, or otherwise dispose of the
Promissory Note and Warrants unless such offer, sale, pledge, hypothecation or
other disposition is (i) registered under the Securities Act, or (ii) such
offer, sale, pledge, hypothecation or other disposition thereof does not violate
the Securities Act.
(e) The Investor agrees to the imprinting, so long as is required by this
Section, of the following legend (or such substantially similar legend as is
acceptable to the Investor and their counsel, the parties agreeing that any
unacceptable legended securities shall be replaced promptly by and at the
Company's cost) on the securities:
Legend
[FOR PROMISSORY NOTE AND WARRANTS] NEITHER THESE SECURITIES NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE]
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
[ONLY FOR UNDERLYING SHARES AND WARRANT SHARES TO THE EXTENT THE
RESALE THEREOF IS NOT COVERED BY AN EFFECTIVE REGISTRATION STATEMENT
AT THE TIME OF CONVERSION, ISSUANCE OR EXERCISE] THE SHARES REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS.
The Underlying Shares and/or Warrant Shares shall not contain the legend
set forth above or any other restrictive legend if the conversion of the
Promissory Note, exercise of Warrants or other issuances of Underlying Shares
and/or Warrant Shares, as the case may be, occurs at any time while a
Registration
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Statement is effective under the Securities Act in connection with the
resale of the shares of Common Stock or, in the event there is not an effective
Registration Statement at such time, if in the opinion of counsel to the Company
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Securities and Exchange Commission (the "Commission")). The Company agrees
that it will provide the Investor, upon request, with a certificate or
certificates representing Underlying Shares and/or Warrant Shares, free from
such legend at such time as such legend is no longer required hereunder. The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company which enlarge the restrictions of transfer set
forth in this Section.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit F hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investors to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and except as provided below, without consultation
by the transfer agent with the Company or its counsel and without the need for
any further advice or instruction or documentation to the transfer agent by or
from the Company or its counsel or the Investors:
(i) at any time after the effective date of the Registration Statement (the
"Effective Date"), upon surrender of one or more certificates evidencing the
Warrants, Promissory Note, Underlying Shares or Warrant Shares that bear the
aforementioned Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the aforementioned legend to replace those
surrendered; provided that (i) the Registration Statement shall then be
effective; (ii) the Investor confirms to the transfer agent in writing (with a
copy to the Company) that it has sold, pledged or otherwise transferred or
agreed to sell, pledge or otherwise transfer such Common Stock in a bona fide
transaction to a third party that is not an affiliate of the Company; (iii) the
Investor confirms to the transfer agent that the Investor has complied with the
prospectus delivery requirement and (iv) with respect to the issuance of the
Warrant Shares, the Investor has paid the Company the purchase price for such
shares.
(ii) at any time upon any surrender of one or more certificates evidencing
Registrable Securities, that bear the aforementioned legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of such
legend to replace those surrendered (and delivered a Form 144 if such form is
required) and containing representations that (a) the Investor is permitted to
dispose of such Registrable Securities, without limitation as to amount or
manner of sale pursuant to Rule 144(k) under the Securities Act or (b) the
Investor has sold, pledged or
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otherwise transferred or agreed to sell, pledge or otherwise transfer such
Registrable Securities, in a manner other than pursuant to an effective
registration statement, to a transferee who will upon such transfer be entitled
to freely tradeable securities. The Company shall have counsel provide any and
all opinions necessary for the sale under Rule 144.
Any of the notices referred to above in this Section may be sent by
facsimile to the Company's transfer agent, with a copy to the Company.
(f) No legend other than the one specified in this Article has been or
shall be placed on the share certificates representing the Common Stock, and no
instructions or "stop transfer orders," so called, "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto other than as expressly set forth
in this Article.
(g) Nothing in this Article shall affect in any way any of the Investor's
obligations under any agreement to comply with all applicable securities laws
upon resale of the Common Stock.
(h) Investor confirms that the Investor has the financial means to make the
proposed investment, that the Investor has sufficient knowledge and experience
in financial matters to evaluate the merits and risks of the transaction, and
that the Investor is relying on advisers (including such attorneys, accountants
and financial advisers as the Investor deem appropriate) to evaluate the merits
and risks of the transaction on the Investor's behalf. Investor has had access
to such professional advisors as the Investor deems necessary in connection with
the evaluation, execution and delivery of this Agreement.
(i) If the Investor is a partnership, corporation, trust or other entity,
(i) the Investor represents and warrants that it was not organized or
reorganized for the specific purpose of acquiring Promissory Note and Warrants,
and (ii) the Investor has the full power and authority to execute this Agreement
on behalf of such entity and to make the representations and warranties made
herein on its behalf, and (iv) this investment in the Company has been
affirmatively authorized, if required, by the governing board of such entity and
is not prohibited by the governing documents of the entity.
(j) The address shown under the Investor's signature at the end of this
Agreement is the Investor's Power of Attorney's principal residence if he or she
is an individual or its principal business address if a corporation or other
entity.
(k) The Investor agrees to hold in strict confidence the information
regarding the Company disclosed to Investor in the Disclosure Materials, shall
not use such information for any purpose other than the evaluation of the
Company's business, finances and operations, shall not reproduce such
information in whole or in part except as the Company expressly authorizes, and
hall not disclose,
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divulge, or otherwise furnish such information to anyone other than
Investor's accountants, legal counsel or consultants, who are involved in
evaluating or implementing the proposed transaction.
(l) The Investor is an "accredited investor" as defined in section 2(15) of
the Securities Act and Regulation D promulgated by the Securities and Exchange
Commission thereunder.
(m) The Investor has not as of the date hereof, and covenants that on
behalf of its affiliates and agents that neither the Investor nor any affiliate
or agent of Investor will at any time in which the Investor or any affiliate of
the Investor owns the Promissory Note which has not been converted into Common
Stock, engage, directly or indirectly, in any short sales of, or hedging or
arbitrage transactions with respect to , the Common Stock or any other
securities of the Company, or sell "put" options or similar instruments with
respect to the Common Stock or any other securities of the Company; provided,
however, that the undersigned may maintain a short position with respect to the
shares of Common Stock issuable upon conversion of the Promissory Note and
provided that such short position (i) is not commenced earlier than the date of
the delivery of a Conversion Notice (as defined in the Promissory Note) and (ii)
does not exceed the number of shares subject to such Conversion Notice.
ARTICLE IV
Company's Representations
The Company represents and warrants to the Investor as follows:
Section 4.1 The Company is a corporation duly organized and existing in
good standing under the laws of the jurisdictions in which it is incorporated,
and has the requisite corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. "Material Adverse Effect" shall mean any effect on the business,
operations, properties, prospects, or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and affiliates, taken
as a whole, and/or any condition, circumstance, or situation that would prohibit
or otherwise in any material respect interfere with the ability of the Company
to enter into and perform any of its obligations under this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Promissory Note or the
Warrants in any material respect.
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Section 4.2 The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Escrow Agreement, the Registration
Rights Agreement, to issue and sell the Promissory Note and the Warrants and to
issue the Registrable Shares in accordance with the terms of the Promissory Note
and the Warrants, (ii) the execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Promissory Note and the
Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by the Company's Board
of Directors and no further consent or authorization of the Company, its Board
of Directors, or its stockholders is required, (iii) this Agreement, the
Registration Rights Agreement, the Warrants and the Promissory Note have been
duly and validly authorized, executed and delivered by the Company, and (iv)
this Agreement, the Registration Rights Agreement, the Warrants and the
Promissory Note constitute the 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, reorganization, moratorium, liquidation or similar laws relating to,
or affecting, generally, the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
Section 4.3 The Registrable Shares are all duly authorized and reserved for
issuance, and in all cases upon issuance shall be validly issued, fully paid and
non-assessable, free from all taxes, liens and charges with respect to the issue
thereof, and will not be subject to preemptive rights or other similar rights of
stockholders of the Company.
Section 4.4 The execution, delivery and performance of this Agreement by
the Company and the consummation by the Company of the transactions contemplated
hereby will not (i) result in a violation of the Certificate of Incorporation or
Bylaws or (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any property or asset of the
Company is bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). The Company
is not in violation of its Certificate of Incorporation or other organizational
documents, and the Company is not in default (and no event has occurred which,
with notice or lapse of time or both, would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, except for possible defaults
or rights as would not, in the aggregate or individually, have a Material
Adverse Effect. The business of the Company and its subsidiaries is not being
conducted, and shall not be conducted so long as the Investor owns any of the
Securities, in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations which neither singly or in the aggregate
would have a Material Adverse Effect. Except as specifically
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contemplated by this Agreement and as required under the Securities Act and
any applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement, the Registration Rights Agreement, the
Promissory Note or the Warrants in accordance with the terms hereof and thereof.
Section 4.5 The shares of the Company's Common Stock are listed on the OTC
Bulletin Board. The Company has received no notice, either written or oral, with
respect to the continued eligibility of the Common Stock for such listing, and
the Company has maintained all applicable requirements for the continuation of
such listing, and the Company does not reasonably anticipate that the Common
Stock will be delisted from the OTC Bulletin Board for the foreseeable future.
The Company shall use its best efforts to continue to keep its stock listed on
the OTC Bulletin Board or become listed on NASDAQ or a national securities
comparable stock market or exchange.
Section 4.6 The authorized capital stock of the Company consists of
50,000,000 shares of Common Stock, $0.001 par value per share, of which
approximately 20,534,381 shares are issued and outstanding, and no shares of
Preferred Stock . All of the outstanding shares of Common Stock and Preferred
Stock of the Company have been duly and validly authorized and issued and are
fully paid and nonassessable. No shares of Common Stock are entitled to
preemptive or similar rights. Except as specifically disclosed herein by the
Company (including the exhibits attached hereto), there are no outstanding
options, warrants, rights to subscribe to, calls or commitments of any character
whatsoever giving any Person or entity any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any subsidiary is or may become bound to
issue additional shares of Common Stock or securities or rights convertible or
exchangeable into shares of Common Stock. To the knowledge of the Company and
except as disclosed herein or in the Disclosure Materials, no person or group of
persons beneficially owns (as determined pursuant to Rule 13d-3 promulgated
under the Exchange Act) or has the right to acquire by agreement with or by
obligation binding upon the Company beneficial ownership of in excess of five
percent of the Common Stock.
Section 4.7 The Company has delivered or made available to the Investor
true and complete copies of the Company's most recent audited financial
statements and the Company's interim financial statements for the current fiscal
year and its latest annual report (collectively referred to as "Financial
Statements"). The Financial Statements do not contain any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Financial
Statements of the Company comply as to form in all material respects with
applicable accounting requirements and all other applicable rules and
regulations with respect thereto. Such Financial Statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such Financial Statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may
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not include footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as of the
dates thereof and the results of operations and cash flows for the periods then
ended.
Section 4.8 When issued and payment has been made therefor, the Promissory
Note, Warrants, Underlying Shares and Warrant Shares, sold to the Investor will
be duly and validly issued, fully paid, and nonassessable. Neither the issuance
of the Promissory Note, Warrants, Underlying Shares and Warrant Shares, to the
Investor, pursuant to, nor the Company's performance of its obligations under
this Agreement, and all Exhibits annexed hereto will (i) result in the creation
or imposition by the Company of any liens, charges, claims or other encumbrances
upon Promissory Note, Warrants, Underlying Shares and Warrant Shares issued to
the Investor, or any of the assets of the Company, or (ii) except as set forth
in the Disclosure Materials, entitle the holders of outstanding capital stock to
preemptive or other rights to subscribe to or acquire the Common Stock or other
securities of the Company.
Section 4.9 Neither the Company nor any of its affiliates nor any
distributor or any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to any of the Promissory Note,
Warrants, Underlying Shares and Warrant Shares, or (ii) made any offers or sales
of any security or solicited any offers to buy any security under any
circumstances that would require registration of the Promissory Note, Warrants,
Underlying Shares and Warrant Shares under the Securities Act.
Section 4.10 The Company has furnished or made available to the Investor
true and correct copies of the Company's Articles of Incorporation, as amended
and in effect on the date hereof, and the Company's by-laws, as amended and in
effect on the date hereof (the By-Laws).
Section 4.11 To the Company's knowledge, neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement or pursuant to the
Company's existing employee benefit plan, under circumstances that would require
registration of the Common Stock under the Securities Act, or cause the offering
of the Promissory Note and Warrants pursuant to this Agreement to be integrated
with prior or future offerings by the Company for purposes of the Securities Act
or any applicable stockholder approval provisions, provided that the Company may
offer promissory notes and warrants for an aggregate consideration of up to
$1,700,000 which may be integrated with this offering.
Section 4.12 Except as set forth in the Financial Statements, there are no
lawsuits or proceedings pending or to the knowledge of the Company threatened,
against the Company, nor has the Company received any written or oral notice of
any such action, suit, proceeding or investigation, which would reasonably be
expected to have a Material Adverse Effect. Except as set forth in the Financial
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Statements, no judgment, order, writ, injunction or decree or award has
been issued by or, so far as is known by the Company, requested of any court,
arbitrator or governmental agency which would be reasonably expected to result
in a Material Adverse Effect.
Section 4.13. The Company is aware and acknowledges that issuance of Common
Stock upon the conversion of the Promissory Note and/or exercise of the
Warrants, may result in dilution of the outstanding shares of Common Stock,
which dilution may be substantial under certain market conditions. The Company
further acknowledges that its obligation to issue (i) the Underlying Shares in
accordance with the conversion rights in the Promissory Note, and (iii) the
Warrant Shares in accordance with the Warrants is unconditional and absolute
regardless of the effect of any such dilution.
Section 4.14 The Company is not involved in any labor dispute, nor, to the
knowledge of the Company, is any such dispute threatened which could reasonably
be expected to have a Material Adverse Effect. None of the Company's employees
is a member of a union and the Company believes that its relations with its
employees are good.
Section 4.15 The Company is (i) in compliance with any and all 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 and which the Company know is applicable to
them ("Environmental Laws"), (ii) has received all permits, licenses or other
approvals required under applicable Environmental Laws to conduct its business,
and (iii) is in compliance with all terms and conditions of any such permit,
license or approval.
Section 4.16 The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the businesses in which
the Company is engaged. The Company has no notice to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires,
or obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operation, of
the Company.
Section 4.17 The board of directors of the Company has concluded, in its
good faith business judgment, that the issuances of the securities of the
Company in connection with this Agreement are in the best interests of the
Company.
Section 4.18 The Company shall not and shall use its best efforts to ensure
that no affiliate shall sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security of the Company that would be
integrated with the offer or sale of the Promissory Note and Warrants in a
manner that would require the registration under the Securities Act of the
issue, offer or sale of the Promissory Note and Warrants to the Investor. The
Promissory Note and Warrants are being offered and sold pursuant to the terms
hereunder, are not being offered and sold as part of a previously commenced
private placement of securities.
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Section 4.19 The Company has, or has rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses, trade secrets and other intellectual property rights which
it currently uses in connection with its business for which the failure to so
have would have a Material Adverse Effect (collectively, the "Intellectual
Property Rights"). To the best knowledge of the Company, none of the
Intellectual Property Rights infringe on any rights of any other Person, and the
Company either owns or has duly licensed or otherwise acquired all necessary
rights with respect to the Intellectual Property Rights. The Company has not
received any notice from any third party of any claim of infringement by the
Company of any of the Intellectual Property Rights, and has no reason to believe
there is any basis for any such claim. To the best knowledge of the Company,
there is no existing infringement by another Person on any of the Intellectual
Property Rights.
Section 4.20 Subsidiaries. Except for Financial Intranet Telcom, Inc. and
as disclosed in the Financial Statements, the Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
partnership, association or other business entity.
ARTICLE V
Registration Rights
Section 5.1 The registration rights are more fully set forth in the
Registration Rights Agreement, attached hereto as Exhibit G.
ARTICLE VI
Covenants of the Company
Section 6.1 Use of Proceeds: The Company will use the proceeds from the
sale of the Promissory Note and Warrants for general business purposes and not
for the repayment of any judgment.
Section 6.2 NASDAQ Listing / 20% Rule Limitation: In the event that the
Company's Common Stock becomes listed on NASDAQ and shareholder consent is
required for the issuance of shares of Common Stock exceeding twenty percent
(20%), the Company shall call a meeting of its shareholders, to be held no later
than 60 calendar days after the date of the Company's NASDAQ listing (the
"Listing Date"), seeking shareholder approval of the below market issuances of
shares of Common Stock (and securities convertible into and exercisable for
Common Stock) to the Investors of an aggregate of 20% or more of the number of
shares of Common Stock outstanding as of the Listing Date. In the event that the
aforementioned proposal is not so approved with such 60 calendar day period, the
Company shall seek a waiver from the
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NASDAQ (or such other Principal Market) for such below market issuances. In
the event the Company does not receive such waiver within the earlier of ten
calendar days after the aforementioned shareholders meeting, or 70 calendar days
after the Listing Date, the Company shall either delist the Common Stock from
the NASDAQ and immediately (within two Trading Days thereafter) list the Common
Stock on the OTC Bulletin Board or with respect to the aggregate shares of
Common Stock issuable upon conversion of the Promissory Note and exercise of the
Warrants which exceed 20% of the Company's issued and outstanding shares of
Common Stock as of the Closing Date (the "Excess Shares"), (assuming that the
70th calendar day after the Listing Date is the Conversion Date), pay the
Investor a sum equal to (i) the number of Excess Shares multiplied by the
closing bid price per share of Common Stock as quoted on NASDAQ on such
Conversion Date minus (ii) the number of Excess Shares that are Warrant Shares
multiplied by the Exercise Price. Upon making the payment described in this
Section, the Promissory Note and Warrants shall be delivered by the Investor to
the Company and the Promissory Note shall be deemed converted and the Warrants
shall be deemed exercised with respect to the Excess Shares.
Section 6.3 Restrictions on Future Financings: For a period of one hundred
twenty (120) days following the date of the issuance of the Promissory Notes and
Warrants, the Company may not issue additional shares of Common Stock or
securities convertible into shares of Common Stock, unless such securities are
subject to a one year statutory or contractual hold period or, if not subject to
such a hold period, unless (i) the Investor has sold the shares of Common Stock
issuable upon conversion of the Promissory Note or (ii) the Investor has been
offered such securities for purchase for its own account on the same terms and
conditions as are being offered by the third party and the Investor has not
accepted such offer within five days of receipt of notice of such offer.
Notwithstanding the foregoing, the Company may enter into the following types of
transactions: (1) "permanent financing" transactions, which would include any
form of debt or equity financing (other than an underwritten offering); (2)
"project financing" transactions, which provide for the issuance of non-
recourse debt instruments in connection with the operation of the Company's
business as presently conducted or as proposed to be conducted; and (3) an
underwritten offering of the Company's Common Stock, provided that such offering
prices for the registration of the common stock to be received by the Investor
as a result of the exercise of the Warrants or conversion of the Promissory
Note. Notwithstanding the forgoing, the restriction on the issuance of
additional securities set forth in this paragraph shall not apply to the
issuance of promissory notes in the aggregate amount of a maximum of $1,700,000
and associated warrants to purchase shares of Common Stock.
Section 6.4 Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect so long as any Registrable
Securities remain outstanding and the Company shall comply in all material
respects with the terms thereof.
Section 6.5 Reservation of Common Stock. As of the date hereof, the Company
has authorized and reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue the
Underlying Shares and Warrant Shares; such amount of shares of Common Stock to
be reserved
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shall be calculated based upon the Conversion Price and the Exercise Price
therefor under the terms of this Agreement, the Promissory Note and Warrants.
The number of shares so reserved shall be increased or decreased to reflect
potential increases or decreases in the Common Stock that the Company may
thereafter be so obligated to issue by reason of adjustments to the Promissory
Note and the Warrants.
Section 6.6 Corporate Existence. The Company will take all steps necessary
to preserve and continue the corporate existence of the Company.
Section 6.7 Notice of Certain Events Affecting Registration. The Company
will immediately notify the Investor upon the occurrence of any of the following
events in respect of a registration statement or related prospectus in respect
of an offering of Registrable Securities: (i) receipt of any request for
additional information by the Commission or any other federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or related
prospectus; (ii) the issuance by the Commission or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) the happening of any event that makes any
statement made in the Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the case of
the Registration Statement, it will not 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, and that in the case
of the related prospectus, it will not 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, in the light of the circumstances
under which they were made, not misleading; and (v) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate. The Company will immediately make available to the
Investor any such supplement or amendment to the related prospectus.
Section 6.8 Consolidation; Merger. The Company shall not, at any time after
the date hereof, effect any merger or consolidation of the Company with or into,
or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investors are entitled to receive pursuant to this Agreement.
Section 6.9 Issuance of Underlying Shares and Warrant Shares. The issuance
of the Underlying Shares and the Warrant Shares pursuant to exercise of the
Warrants and the Underlying Shares pursuant to the conversion of the Promissory
Note, shall be made in accordance with the provisions and requirements of
Section 4(2) of the Securities Act, or Regulation D and any applicable state
securities law.
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Section 6.10 Legal Opinion. The Company's independent counsel shall deliver
to the Investor upon execution of this Agreement, an opinion in the form of
Exhibit E annexed hereto. The Company will obtain for the Investor, at the
Company's expense, any and all opinions of counsel which may be reasonably
required in order to convert the Promissory Note and/or exercise the Warrants,
including, but not limited to, obtaining for the Investor an opinion of counsel,
subject only to receipt of a notice of conversion (the "Notice of Conversion")
in the form of Exhibit G, and/or subject only to a receipt of a notice of
exercise in the form annexed to the Warrant, directing the Transfer Agent to
remove the legend from the certificate.
Section 6.11 Conversion of Promissory Note and Exercise of Warrants. The
Company will permit the Investor to exercise its right to convert the Promissory
Note, and/or exercise the Warrants, by telecopying an executed and completed
Notice of Conversion, and Notice of Exercise to the Company as is set forth in
the Promissory Note, and Warrant respectively in accordance with the terms of
the Promissory Note and Warrant.
Section 6.12 Increase in Authorized Shares. At such time as the Company
would be, if a Notice of Conversion and/or notice of exercise (as the case may
be) were to be delivered on such date, precluded from (a) converting in full all
of the shares of the Promissory Note that remain unconverted at such date (and
paying any accrued but unpaid dividends in respect thereof in shares of Common
Stock), or (b) honoring the exercise in full of the Warrants, due to the
unavailability of a sufficient number of shares of authorized but unissued or
re-acquired Common Stock, the Board of Directors of the Company shall promptly
(and in any case within 60 calendar days from such date) hold a shareholders
meeting in which the shareholders would vote for authorization to amend the
Company's certificate of incorporation to increase the number of shares of
Common Stock which the Company is authorized to issue to at least a number of
shares equal to the sum of (i) all shares of Common Stock then outstanding, (ii)
the number of shares of Common Stock issuable on account of all outstanding
warrants, options and convertible securities (other than the Promissory Note and
the Warrants) and on account of all shares reserved under any stock option,
stock purchase, warrant or similar plan, (iii) 200% of the number of Underlying
Shares as would then be issuable upon a conversion in full of the then
outstanding shares of Promissory Note and as payment of all future dividends
thereon in shares of Common Stock in accordance with the terms of this Agreement
and the Promissory Note, and (iv) such number of Warrant Shares as would then be
issuable upon the exercise in full of the Warrants. In connection therewith, the
Board of Directors shall promptly (x) adopt proper resolutions authorizing such
increase, (y) recommend to and otherwise use its best efforts to promptly and
duly obtain shareholder approval to carry out such resolutions and (z) within
three Business Days of obtaining such shareholder authorization, file an
appropriate amendment to the Company's certificate of incorporation to evidence
such increase. In no way shall the aforementioned be deemed a waiver of the
Company's obligations contained in Section 6.5 above.
Section 6.16 Notice of Breaches. Each of the Company on the one hand, and
the Investor on the other, shall give prompt written notice to the other of any
breach by it of any representation, covenant, warranty or other agreement
contained in this Agreement or any Exhibit annexed hereto, as well as any
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events or occurrences arising after the date hereof, which would reasonably
be likely to cause any representation, covenant, or warranty or other agreement
of such party, as the case may be, contained in this Agreement or any Exhibit
annexed hereto, to be incorrect or breached as of such date. However, no
disclosure by either party pursuant to this Section shall be deemed to cure any
breach of any representation, warranty or other agreement contained in this
Agreement or any Exhibit annexed hereto. Notwithstanding the generality of the
foregoing, the Company shall promptly notify the Investor of any notice or claim
(written or oral) that it receives from any lender of the Company to the effect
that the consummation of the transactions contemplated by this Agreement or any
Exhibit annexed hereto, violates or would violate any written agreement or
understanding between such lender and the Company, and the Company shall
promptly furnish by facsimile to Investor a copy of any written statement in
support of or relating to such claim or notice.
Section 6.17 Transfer of Intellectual Property Rights. Except in the
ordinary course of the Company's business consistent with past practice or in
connection with the sale of all or substantially all of the assets of the
Company, the Company shall not transfer, sell or otherwise dispose of, any
Intellectual Property Rights that are material to the Company's business, or
allow any such Intellectual Property Rights to become subject to any Liens, or
fail to renew such Intellectual Property Rights (if renewable and would
otherwise expire).
ARTICLE VII
Fees and Expenses
Section 7.1 Each of the parties 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 Agreement and the transactions
contemplated hereby, except that the Company agrees to pay on the Closing Date,
out of the Purchase Price, fees, in cash, to: (i) the Placement Agent Cardinal
Capital Management, Inc., the sum equal to four and one half (4.5%) percent of
the Purchase Price pursuant to this Agreement; and (ii) the Placement Agent
Josephberg, Groz & Co., the sum equal to three and one half (3.5%) percent of
the Purchase Price pursuant to this Agreement; and (iii) to The Goldstein Law
Group. P.C. the sum of $10,000 for the legal, administrative and escrow fees.
The Placement Agent Cardinal Capital Management, Inc., as part of its fee shall
also receive 12,500 shares of Common Stock and Warrants to purchase 160,000
shares of Common Stock at an exercise price equal to the closing bid price per
share of Common Stock as quoted on the OTC Bulletin Board on the Closing Date
and otherwise on terms set forth in the Common Stock Purchase Warrant included
herein as Exhibit "C"; and the Placement Agent Josephberg, Grosz & Co., as part
of its fee shall also receive 12,500 shares of Common Stock and warrants to
purchase 125,000 shares of Common Stock at an exercise price of $0.40 per share.
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ARTICLE VIII
Miscellaneous
Section 8.1 No party shall be deemed to have waived any of his or her or
its rights hereunder unless such waiver is in writing and signed by the party
waiving said right.
Section 8.2 The parties have not made any representations or warranties
with respect to the subject matter hereof not set forth herein, and this
Agreement, together with any instruments executed simultaneously herewith,
constitutes the entire agreement between them with respect to the subject matter
hereof. All understandings and agreements heretofore had between the parties
with respect to the subject matter hereof are merged in this Agreement and any
such instrument, which alone fully and completely expresses their agreement.
Section 8.3 This Agreement may not be changed, modified, extended,
terminated or discharged orally, but only by an agreement in writing, which is
signed by all of the parties to this Agreement.
Section 8.4 The parties agree to execute any and all such other and further
instruments and documents, and to take any and all such further actions
reasonably required to effectuate this Agreement and the intent and purposes
hereof.
Section 8.5 This Agreement will be construed and enforced exclusively in
accordance with and governed by the laws of the State of New York, except for
matters arising under the Securities Act, without reference to principles of
conflicts of law.
Section 8.6 Any litigation based thereon, or arising out of, under, or in
connection with, this agreement or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Company or Investor shall
be brought and maintained exclusively in the court of the state of New York
without reference to its conflicts of laws rules or principles. The Company and
the Investor hereby expressly and irrevocably submits to the jurisdiction of the
state and federal Courts of the state of New York for the purpose of any such
litigation as set forth above. The Investor further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal service
within or without the State of New York. To the extent that the Investor has or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process (whether through service or notice, attachment prior to judgment,
attachment in aid of execution or
19
<PAGE>
otherwise) with respect to itself or its property, The Investor hereby
irrevocably waives such immunity in respect of its obligations under this
agreement and the other documents.
ARTICLE IX
Indemnification
Section 9.1 The Company agrees to indemnify and hold harmless the Investor
and each officer, director of the Investor or person, if any, who controls the
Investor within the meaning of the Securities Act against any losses, claims,
damages or liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees), to which the Investor may become
subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon the breach, by the Company, of any term of this Agreement. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.
Section 9.2 The Investor agrees that it will indemnify and hold harmless
the Company, and each officer, director of the Company or person, if any, who
controls the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such officer,
director or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon the breach, by the Investor, of
any term of this Agreement. This indemnity agreement will be in addition to any
liability which the Investor or any subsequent assignee may otherwise have.
Section 9.3 Promptly after receipt by an indemnified party under this
Article of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Article, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this Article. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, assume the defense thereof, subject to the provisions herein
stated and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Article for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue
20
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the action to its final conclusion. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is one of the Investors, the fees
and expenses of such counsel shall be at the expense of the indemnifying party
if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Investors and the
indemnifying party and the Investors shall have been advised by such counsel
that there may be one or more legal defenses available to the indemnifying party
different from or in conflict with any legal defenses which may be available to
the Investor (in which case the indemnifying party shall not have the right to
assume the defense of such action on behalf of the Investor, it being
understood, however, that the indemnifying party shall, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable only for the reasonable fees and expenses of one separate firm of
attorneys for the Investor, which firm shall be designated in writing by the
Investor). No settlement of any action against an indemnified party shall be
made without the prior written consent of the indemnified party, which consent
shall not be unreasonably withheld.
21
<PAGE>
EXECUTION BY INVESTOR WHO IS A NATURAL PERSON
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on this 31st day of December, 1998.
Promissory Note and Warrants Subscribed for $500,000
Exact Name in Which Title is to be Held
/s/Ahood Sharbatly
(Signature)
Name (Please Print)
Residence: Number and Street
City State Country Postal Code
Social Security Number
Accepted this 31st day of December, 1998
FINANCIAL INTRANET, INC.
By:/s/Michael Sheppard
22
<PAGE>
EXECUTION BY INVESTOR WHICH IS A CORPORATION,
PARTNER, TRUST, ETC.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on this ____ day of ________, 1998.
(Promissory Note and Warrants Subscribed) for $500,000
Exact Name in Which Title is to be Held
(Signature)
Name (Please Print)
Title of Person Executing Agreement
Address: Number and Street
City State Zip Code
Tax Identification Number
Accepted this ___ day of , 1998.
FINANCIAL INTRANET, INC.
By:_____________________________
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<PAGE>
ACCREDITED INVESTOR STATUS
1. Please check whether one or more of the following definitions of
"accredited investor," if any, applies to you. If none of the following applies
to you, please leave a blank.
(a) A Bank as defined in Section 3(a)(2) of the Securities Act of 1933, as
amended (the "Securities Act"), or any savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities Act whether
acting in its individual or fiduciary capacity; any broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); an insurance company as defined in Section 2(13) of the
Securities Act; an investment company registered under the Investment Company
Act of 1940 or a business development company as defined in Section 2(a)(48) of
that act; a Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; any plan established and maintained by a state, or 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; any employee benefit plan within the meaning 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 advisor, 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.
(b) A Private Business Development Company as defined in Section 202(a)(22)
of the Investment Advisers Act of 1940.
(c) An organization described in Section 501(c)(3) of the Internal Revenue
Code or corporation, Massachusetts or similar business trust, or partnership,
not formed for the specific purpose of acquiring the securities offered, with
total assets in excess of $5,000,000.
(d) A natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of purchase exceeds $1,000,000.
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<PAGE>
(e) A natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year.
(f) Any trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the Promissory Note and Warrants, whose
purchase is directed by a sophisticated person as described in Rule
506(b)(2)(ii) of Regulation D.
(g) Any entity in which all of the equity owners are Accredited Investors.
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<PAGE>
EXHIBIT 10.11
SUBSCRIPTION AGREEMENT
FINANCIAL INTRANET, INC.
Re: Private Placement of up to $1,700,000 principal amount of 7%
Convertible Promissory Notes and Warrants to purchase up to 3,333,333 shares of
Common Stock in up to five separate tranches.
Dear Subscriber:
Financial Intranet Inc. (the "Company") is offering 7% convertible
promissory notes ("Promissory Notes", which include the Initial Notes and the
Tranche Notes), warrants to purchase shares of common stock at an exercise price
of $.40 per share (the "Initial Warrants") and warrants to purchase shares of
common stock at an exercise price of $.60 per share (the "Tranche Warrants", and
together with the Initial Warrants referred to as the "Warrants") for an
aggregate offering price of $1,700,000 (the "Offering"). The offer consists of
an initial purchase of a Promissory Note in the principal amount of $600,000
(the "Initial Note") and Initial Warrants to purchase 1,500,000 shares of Common
Stock for a purchase price of $600,000. The later purchases will consist of
separate tranches as follows: (i) a Promissory Note in the principal amount of
$200,000 (a "Tranche Note") and a Tranche Warrant to purchase 333,333 shares of
Common Stock for a purchase price of $200,000, (ii) a Promissory Note in the
principal amount of $300,000 (a "Tranche Note") and a Tranche Warrant to
purchase 500,000 shares of Common Stock, for a purchase price of $300,000, (iii)
a Promissory Note in the principal amount of $300,000 (a "Tranche Note") and a
Tranche Warrant to purchase 500,000 shares of Common Stock, for a purchase price
of $300,000, and (iv) a Promissory Note in the principal amount of $300,000 (a
"Tranche Note") and a Tranche Warrant to purchase 500,000 shares of Common
Stock, for a purchase price of $300,000. The Promissory Notes and Warrants are
being subscribed for on the terms and conditions set forth in this Agreement,
the Guaranty (as defined below), the Pledge and Security Agreement (as defined
below), and the Registration Rights Agreement.
The undersigned ("Investor") has indicated its desire to participate in
this private offering and to subscribe to and agree to purchase the Promissory
Notes and the Warrants as set forth on the
<PAGE>
signature page of this Agreement, receipt of which the Company
acknowledges. The Company shall have the right to reject this subscription in
whole or in part and to accept the subscription of a lesser amount.
ARTICLE I
Purchase and Sale of the Promissory Note and Warrants
Section 1.1 Initial Closing. The Company will sell, and the Investor will
buy, on the date indicated on the signature page of this Subscription Agreement
(the "Initial Closing Date"), the Initial Note (attached as Exhibit B) and
Initial Warrant (attached as Exhibit D) to purchase an aggregate of 1,500,000
shares of Common Stock, for the purchase price of SIX HUNDRED THOUSAND
($600,000) Dollars (the "Initial Purchase Price"), provided each of the
conditions set forth in Section 1.5 below have been satisfied or waived in
writing.
Section 1.2 Subsequent Closings - Purchase \ Demand Provisions.
(a) Upon the exercise of the Investor of one or more purchase options
(according to the procedures set forth below, each a "Purchase Option"), or the
exercise by the Company of one or more demand options (according to the
procedures set forth below, each a "Demand Option"), the Company will sell, and
the Investor will buy, on the closing dates for the tranches as set forth below
(each referred to as a Closing Date) associated with such notice (as set forth
below), a Tranche Note (attached as Exhibit C) and a Tranche Warrant (attached
as Exhibit E), for the applicable purchase price with respect to each tranche
provided each of the conditions set forth in this Section and Sections 1.5 and
1.6 below have been satisfied or waived in writing.
(b) The Purchase Options and the Demand Options with respect to the second,
third, fourth and fifth tranches may be exercised during the option periods set
forth in (i) through (iv) below (the "Option Periods") as follows:
(i) Second Tranche Option Period - Commencing on the effective date of the
Registration Statement being filed by the Company pursuant to the Registration
Rights Agreement (attached hereto as Exhibit I) (the "Effective Date") and
terminating on the 30th calendar day following the Effective Date the Company
may serve a Demand Notice or the Investor may serve a Purchase Notice, with
respect to the purchase of a Tranche Note in the principal amount of $200,000
and a
<PAGE>
Tranche Warrant for the purchase of 333,333 shares of Common Stock for an
aggregate purchase price of $200,000.
(ii) Third Tranche Option Period - Commencing on the Closing Date for the
second tranche and terminating on the 90th calendar day thereafter the Company
may serve a Demand Notice or the Investor may serve a Purchase Notice with
respect to the purchase of a Tranche Note in the principal amount of $300,000
and a Tranche Warrant for the purchase of 500,000 shares of Common Stock for an
aggregate Purchase Price of $300,000.
(iii) Fourth Tranche Option Period - Commencing on the Closing Date for the
third tranche and terminating on the 90th calendar day thereafter the Company
may serve a Demand Notice or the Investor may serve a Purchase Notice with
respect to the purchase of a Tranche Note in the principal amount of $300,000
and a Tranche Warrant for the purchase of 500,000 shares of Common Stock for an
aggregate purchase price of $300,000.
(iv) Fifth Tranche Option Period - Commencing on the Closing Date for the
fourth tranche and terminating on the 90th day thereafter the Company may serve
a Demand Notice or the Investor may serve a Purchase Notice with respect to the
purchase of a Tranche Note in the principal amount of $300,000 and a Tranche
Warrant for the purchase of 500,000 shares of Common Stock for an aggregate
purchase price of $300,000.
(c) Each Purchase Option may be exercised by the Investor by facsimile
delivery of a purchase notice (the "Purchase Notice") along with a certification
that the Investor has satisfied all conditions precedent for such tranche to the
Company and delivery of the applicable purchase price to Escrow Agent during the
Option Period. Within five business days of the facsimile receipt of the
Purchase Notice, (i) the Company shall deliver the original Tranche Note, the
original Tranche Warrant along with a certification that the Company has
satisfied all conditions precedent for such tranche, and (ii) the Investor shall
deliver the purchase price, with respect to such tranche to The Goldstein Law
Group, P.C. ("Escrow Agent").
(d) Each Demand Option may be exercised by the Company (subject to Section
6.2 below) by facsimile delivery of a demand notice (the "Demand Notice") along
with a certification that the Company has satisfied all conditions precedent for
such tranche to the Investor. Within five business days of facsimile receipt of
the Demand Notice, (i) the Investor shall deliver the purchase price, and (ii)
the Company shall deliver the original Tranche Note and the original Tranche
Warrant with respect to such tranche to Escrow Agent.
<PAGE>
(e) In the event that the Investor fails to deliver the applicable purchase
price within five business days after receipt of the Demand Notice and the
Company has satisfied all of the conditions precedent to a closing for such
tranche, the exercise price of the Initial Warrants shall increase to the
greater of (i) $2.00 per share or (ii) the average closing bid price per share
of Common Stock for the 10 trading days prior to the date of the Demand Notice
as set forth below. The closing bid price shall be deemed to be the reported
last bid price regular way as reported by Bloomberg LP or if unavailable, 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 closing bid price as reported by NASDAQ
or such other system then in use, or, if the Common Stock is not quoted by any
such organization, the closing bid price in the over-the-counter market as
furnished by the principal national securities exchange on which the Common
Stock is traded (the "Closing Bid Price").
The number of Initial Warrants subject to such increase in the exercise
price in the event of such default is as follows:
(i) Default with respect to Second Option Period - 350,000 Initial
Warrants.
(ii) Default with respect to Third Option Period - 287,000 Initial
Warrants.
(iii) Default with respect to Fourth Option Period - 192,500 Initial
Warrants.
(iv) Default with respect to Fifth Option Period - 94,500 Initial Warrants.
In the event that the Investor defaults with respect to only part of the
amount demanded in any Demand Notice, then the number of Initial Warrants
subject to the increased exercise price shall be decreased prorata. Initial
Warrants with such increased exercise price must be exercised prior to the
exercise of any other Warrants issued hereunder. Such remedies shall be in
addition to any other remedies that may be available to the Company.
(f) In the event that the Company fails to deliver the original Tranche
Notes and/or original Tranche Warrants within five business days after receipt
of a Purchase Notice and the Investor has satisfied all of the conditions
precedent to a closing for such tranche, the Company shall pay liquidated
damages to the Investor through the issuance of a maximum of 350,000 additional
Initial Warrants with an exercise price of the lower of (i) $.40 per share or
(ii) fifty percent of the average Closing Bid Price per share of Common Stock
for the 10 trading days prior to the date of the Purchase Notice as determined
under section (e). In the event that the Company defaults with respect to only
part of the
<PAGE>
amount demanded in any Demand Notice or any Option Period, then the number
of Initial Warrants which may be canceled shall be reduced prorata. Such
remedies shall be in addition to any other remedies that may be available to the
Investor.
(g) Each Demand Notice and Purchase Notice may only be served during an
Option Period provided each of the conditions set forth in Section 1.6 have been
satisfied or waived in writing, and shall be deemed to be served on the business
day it is received via facsimile between the hours of 9:00 a.m. and 5:00 p.m.
Eastern Time, or next such business day if after 5:00 p.m. Eastern Time.
(h) Each Demand Notice and Purchase Notice must contain the following
information: (i) applicable purchase price (based upon when exercised during the
Option Period), (ii) the date of such notice, and (iii) authorized signature of
the party making such notice. The Company, in each Demand Notice, must certify
that it has satisfied each of the conditions precedent to a tranche closing have
been satisfied.
(i) The Company may not exercise a Demand Notice at any time when it is in
default under this Agreement or any of the Exhibits attached hereto or the
Pledgor is in default under the Pledge and Security Agreement or the Guarantor
is in default under the Guaranty. The Investor may not exercise a Purchase
Notice at any time when it is in default under this Agreement or any of the
Exhibits attached hereto.
Section 1.3 Form of Payment. The Investor shall pay the applicable purchase
price by delivering good funds in United States Dollars by wire transfer to
Escrow Agent, against delivery of the original Promissory Notes and Warrants for
each Closing. The parties have entered into an Escrow Agreement annexed hereto
as Exhibit F.
Section 1.4 Wire Instructions. Wire instructions for Escrow Agent are as
follows:
Chase Manhattan Bank, N.A. ABA No. 021000021
For the Account of:
United States Trust Company of New York
Account No. 920-1-073195
In favor of:
The Goldstein Law Group, P.C. Attorney Escrow Account
Account No. 59-01405
<PAGE>
Section 1.5 Initial Notes and Initial Warrants - Initial Closing Date. The
right of the Company to receive the Initial Purchase Price from the Investor,
and the right of the Investor to receive the Initial Note in the principal
amount of $600,000 and Initial Warrants to purchase 1,500,000 shares of Common
Stock is subject to the satisfaction (or written waiver) on the Initial Closing
Date, of each of the following conditions:
(i) acceptance by the Company, and the Investor, of this Agreement
(including execution of the Statement of Accredited Investor Status attached
hereto) and all duly executed Exhibits thereto by an authorized officer of the
Company;
(ii) delivery into escrow by the Investor of clear funds for the Initial
Purchase Price (as more fully set forth in the Escrow Agreement attached hereto
as Exhibit F);
(iii) all representations, covenants, and warranties of the Investor and of
the Company contained herein and in all Exhibits annexed hereto shall remain
true and correct in all material respects as of the applicable Closing Date;
(iv) the Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the Promissory Notes and the
Warrants, or shall have the availability of exemptions therefrom;
(v) the sale and issuance of the Promissory Notes and Warrants, and the
proposed issuance of the shares of Common Stock underlying the Promissory Notes
(the "Underlying Shares") and the shares of Common Stock underlying the Warrants
(the "Warrant Shares") shall be legally permitted by all laws and regulations to
which the Investor and the Company are subject;
(vi) delivery of the original Promissory Notes and Warrants as described
herein;
(vii) receipt by the Investor of an opinion of counsel of the Company as
set forth in Exhibit J attached hereto, and instruction by the Company to the
transfer agent (as set forth in Exhibit K annexed hereto);
(viii) payment of all fees as set forth in Section 7.1 below provided that
certificates representing the shares of Common Stock issuable to the placement
agents are not required to be delivered by the Company as of the Closing Date
but within 10 days of the Closing Date;
(ix) the Pledgor (as defined in the Pledge Agreement) shall have deposited
with Escrow Agent 1,500,000 shares of Common Stock pursuant to the terms of the
executed Pledge and Security Agreement attached hereto as Exhibit G (the "Pledge
Agreement"); Such shares will be pledged as collateral to secure the obligations
of the Company under this Agreement pursuant to a Guaranty attached hereto as
Exhibit H (the "Guaranty");
(x) delivery in escrow of all of the Exhibits to this Agreement fully
executed by the
<PAGE>
parties thereto;
(xi) all representations, covenants, and warranties contained in all
Exhibits annexed hereto shall remain true and correct in all material respects
as of the applicable Closing Date; and
(xii) delivery into escrow of a fully executed stock power and power of
attorney (pursuant to the Pledge Agreement);
Section 1.6 Tranche Notes and Tranche Warrants - Subsequent Closing Dates.
The right of the Company to receive the purchase price from the Investor, and
the right of the Investor to receive the Tranche Notes and Tranche Warrants in
connection with the tranches is subject to the satisfaction (or written waiver)
as of each Closing Date for the tranches, of each of conditions (iii) through
(viii), (xi), and (xii) as set forth in Section 1.5 ( provided that the
representation regarding the number of shares of Common Stock issued and
outstanding shall be adjusted to account for the issuance of additional shares
of Common Stock in accordance with this Agreement); and the following additional
conditions:
(i) the Registration Statement described in Section 2.7 shall have been
declared effective by the Securities and Exchange Commission and remain
effective as of the Closing Date of each tranche;
(ii) the Common Stock shall be listed for trading on the OTC Bulletin
Board, NASDAQ or a national securities exchange, the Company shall be in full
compliance with all of the listing requirements of such market or exchange and a
delisting of the Common Stock shall not be pending which would result in the
Common Stock not being listed on the OTC Bulletin Board, the NASDAQ or a
national securities exchange, nor shall have the Company received notice
threatening delisting of the Common Stock;
(iii) the Company shall not have issued shares of
Common Stock of the Company constituting more than 50% of the then outstanding
share of Common Stock of the Company to any person or group of persons (as
defined in Section 13d of the Securities Exchange Act of 1934), unless such
shares of Common Stock have been issued to a Company whose shares of Common
Stock are listed on the OTC Bulletin Board, NASDAQ or a national securities
exchange or the Company consummates a merger or consolidation with another
entity and the Common Stock of the surviving entity is listed on the OTC
Bulletin Board, NASDAQ or a national securities exchange and such surviving
entity expressly assumes the Company's obligations under this Agreement and the
exhibits attached hereto;
<PAGE>
(iv) Michael Sheppard shall remain employed by the Company as President;
(v) delivery into escrow by the Investor of clear funds for the purchase
price of such tranche (as more fully set forth in the Escrow Agreement);
(vi) the Company shall have complied with the covenant regarding the Use of
Proceeds as set forth in Section 6.1; (vii) the average daily trading volume (as
reported by Bloomberg, LP) of the Common Stock for the ten consecutive trading
days immediately preceding the Closing Date for a tranche must exceed 90,000
shares, or the market cap of the Common Stock (based upon the closing bid price
as reported by Bloomberg, LP) for the ten consecutive trading days immediately
preceding the Closing Date for a tranche must exceed $60,000; and
(viii) No breach of this Agreement or any Exhibit hereto shall have
occurred as of the applicable Closing Date.
Section 1.7 No Registration of Securities. The Promissory Notes and
Warrants have not been registered under the registration provisions of the
Securities Act of 1933, as amended (the "Securities Act"), or the laws of any
state, and are being offered and sold by the Company in reliance upon an
exemption from registration under Sections 4(2) of the Securities Act. Absent an
exemption from registration contained in the federal or state securities laws,
the issuance and sale of the Promissory Notes and Warrants would require
registration, and the reliance upon such exemption is based upon the Investor 's
representations, warranties, and agreements contained in this Agreement.
ARTICLE II
Description of Securities Contained in Promissory Notes and Warrants
The following summary of the terms contained in the Promissory Notes and
Warrants and the registration rights with respect to the Common Stock issuable
upon conversion or exercise of the Securities is qualified in its entirety by
the forms of Promissory Notes, Warrants and Registration Rights Agreement
(Exhibit I)) attached to this agreement.
Section 2.1 Promissory Notes. At the Initial Closing, the Company will
issue an Initial Note substantially in the form of Exhibit B which will be
convertible into Common Stock of the Company in the principal amount of
$600,000, with $240,000 principal amount, and all accrued interest thereon,
payable upon conversion by the holder thereof commencing February 16, 1999, and
$360,000 principal amount, and all accrued interest thereon, payable upon
conversion by the holder
<PAGE>
thereof commencing 90 days after the Initial Closing Date. The Company's
obligations under the Initial Note shall be subject to a Guaranty in the form of
Exhibit F and secured by the Pledge Agreement of 1,500,000 shares of Common
Stock (with 600,000 shares of Common Stock as collateral for the Company's
obligation payable on February 16, 1999, and 900,000 shares as collateral for
the Company's obligation payable 90 days after the Initial Closing Date).
At the Closing Date for each tranche, the Company will issue a Tranche Note
substantially in the form of Exhibit C which will be convertible into Common
Stock of the Company in the principal amount of $200,000 for the second tranche,
and $300,000 for each of the third, fourth and fifth tranches.
Section 2.2 Interest. The holders of each Promissory Note shall be entitled
to receive interest, payable at the option of the Company in cash or registered
Common Stock, at the rate of seven percent on the outstanding principal amount,
per annum based upon a 365 day year commencing on the date such Promissory Note
is issued, payable upon the conversion of the Promissory Note. Such interest
shall be cumulative and shall be compounded on a yearly basis.
Section 2.3 Conversion. The Initial Note may be converted with respect to
$240,000 principal amount at any time on or after February 16, 1999 and the
balance of $360,000 principal amount may be converted at any time commencing 90
days after the Initial Closing Date. The Tranche Notes in the aggregate
principal amount of $1,100,000 may be converted, in whole or in part, at any
time after issuance at the option of the holder. Notwithstanding anything else
herein to the contrary, the holder of the Promissory Notes may not convert any
Promissory Note to the extent that after such conversion, the number of shares
of Common Stock beneficially owned by the holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Promissory Notes and unexercised
portion of the Warrants issued to the holder and its affiliates as of the date
of such conversion), would result in ownership by the Investor and its
affiliates of 4.99% or more of the Company's issued and outstanding shares of
Common Stock following such exercise or conversion. The foregoing restriction
shall not be deemed to prohibit the holder of the Promissory Notes and Warrants
from converting and/or exercising the Promissory Notes and/or Warrants such that
the aggregate total number of shares of Common Stock issuable upon conversion
and/or exercise over time is more than 4.99% of the then outstanding shares of
Common Stock over time. This restriction shall be binding upon any transferee of
the Promissory Notes or Warrants from the Investor.
Section 2.4 Automatic Conversion. Three years from each Closing Date the
Company shall be required to automatically convert any and all remaining
outstanding principal amount and accrued
<PAGE>
interest of the Promissory Note issued on such Closing Date at the
Conversion Price on such date into the Company's Common Stock (the "Automatic
Conversion"). The 4.99% limitations set forth in Section 2.3 and in the
Promissory Notes and Warrants shall not apply to the Automatic Conversion
provision contained herein.
Section 2.5 Conversion Price. The "Conversion Price" shall be the lessor of
: (i) 75% of the average of the five lowest closing bid prices of the Common
Stock during the 30 trading days ending on the trading day immediately preceding
the Conversion Date, or (ii)(A) $.40 per share with respect to the Initial Note,
(B) $.50 per share with respect to the Tranche Note for Subsequent Closing in
the principal amount of $200,000 and (C) $.60 per share with respect to the
Tranche Notes for the Subsequent Closings in the principal amounts of $300,000.
The closing bid price shall be deemed to be the reported last bid price regular
way as reported by Bloomberg LP or if unavailable, 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 closing bid price as reported by NASDAQ or such other
system then in use, or, if the Common Stock is not quoted by any such
organization, the closing bid price in the over-the-counter market as furnished
by the principal national securities exchange on which the Common Stock is
traded.
Section 2.6 Warrants. The Warrants will entitle the holder to purchase
shares of Common Stock at an exercise price per share of Common Stock (the
"Warrant Shares") of $.40 for the Initial Warrants and $.60 for the Tranche
Warrants. The applicable exercise price per share shall be further reduced by
15% of the difference between $.80 and the average closing bid price per share
of Common Stock for the 10 trading days prior to the applicable Closing Date, if
the average closing bid price is lower. The Warrants may be exercised for the
period commencing upon the date the Warrants are issued, and ending five years
thereafter.
Section 2.7 Registration Rights. The Company and the Investor have executed
the Registration Rights Agreement annexed hereto as Exhibit "I". The Company is
required to file a registration statement (the "Registration Statement") under
the Securities Act with respect to the shares of Common Stock issuable upon
conversion of the Promissory Note (the "Underlying Shares") and exercise of the
Warrants (the "Warrant Shares", the Warrant Shares and the Underlying Shares are
collectively referred to as the "Registrable Shares").
ARTICLE III
Investor's Representations
<PAGE>
Section 3.1 The Investor represents and warrants to the Company as follows:
(a) The Investor has carefully read this Agreement, including certain risk
factors and the Company's audited financial statements for the year ended
December 31, 1997 (attached hereto as Exhibit A) and the forms of Registration
Rights Agreement, Warrants, Guaranty, Pledge Agreement, Escrow Agreement, and
Promissory Notes (collectively, the "Disclosure Materials"), all of which the
Investor acknowledges have been provided to the Investor. The Investor has been
given the opportunity to ask questions, and receive answers, concerning the
terms and conditions of the sale of the Promissory Notes and Warrants and the
Disclosure Materials and to obtain such additional written information, to the
extent the Company possesses such information or can acquire it without
unreasonable effort or expense, necessary to verify the accuracy of same as the
Investor desires in order to evaluate the investment. The Investor further
acknowledges that he or she fully understands the Disclosure Materials. The
Investor acknowledges that the Investor has received no representations or
warranties from the Company or its employees or agents in making this investment
decision except as set forth in this Agreement. The Investor has been informed
of all facts pertaining to the Company as it may have required or believed
desirable in connection with its investment (including access to the Certificate
of Incorporation and By-Laws of the Company) and is not relying on any
information concerning them not contained in the Disclosure Materials.
(b) The Investor is aware that the purchase of the Promissory Notes and
Warrants is a speculative investment involving a high degree of risk and that
there is no guarantee that the Investor will realize any gain from this
investment, and that the Investor could lose the total amount of the Investor's
investment and that the Investor can bear the economic risk of such investment.
(c) The Investor understands that no federal or state agency has made any
finding or determination regarding the fairness of this Offering of the
Promissory Notes and Warrants for investment, or any recommendation or
endorsement of this Offering of the Promissory Notes and Warrants. Any
representation to the contrary is a criminal offense.
(d) Without limiting the Investor's right to transfer, sell or assign the
Promissory Notes, Warrants and Underlying Shares and Warrant Shares (provided
such transfer, sale or assignment is in compliance with applicable law), the
Investor is purchasing the Promissory Notes and Warrants for the Investor's own
account, with the intention of holding the Promissory Notes and Warrants, with
no present intention of dividing or allowing others to participate in this
investment or of reselling or otherwise participating, directly or indirectly,
in a distribution of the Promissory Notes and Warrants. The Investor understands
that the Promissory Notes and Warrants are unregistered and may be required
<PAGE>
to be held until such time as they are registered under the Securities Act
and any applicable state securities laws, or until such time as an exemption
from such registration is available. The Investor agrees that (a) it will not
offer, sell, pledge, hypothecate, or otherwise dispose of the Promissory Notes
and Warrants unless such offer, sale, pledge, hypothecation or other disposition
is (i) registered under the Securities Act, or (ii) such offer, sale, pledge,
hypothecation or other disposition thereof does not violate the Securities Act.
(e) The Investor agrees to the imprinting, so long as is required by this
Section, of the following legend (or such substantially similar legend as is
acceptable to the Investor and their counsel, the parties agreeing that any
unacceptable legended securities shall be replaced promptly by and at the
Company's cost) on the securities:
Legend
[FOR PROMISSORY NOTES AND WARRANTS] NEITHER THESE SECURITIES NOR
THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE]
[EXERCISABLE] HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS.
[ONLY FOR UNDERLYING SHARES AND WARRANT SHARES TO THE EXTENT THE
RESALE THEREOF IS NOT COVERED BY AN EFFECTIVE REGISTRATION STATEMENT
AT THE TIME OF CONVERSION, ISSUANCE OR EXERCISE] THE SHARES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
<PAGE>
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
The Underlying Shares and/or Warrant Shares shall not contain the legend
set forth above or any other restrictive legend if the conversion of the
Promissory Notes, exercise of Warrants or other issuances of Underlying Shares
and/or Warrant Shares, as the case may be, occurs at any time while a
Registration Statement is effective under the Securities Act in connection with
the resale of the shares of Common Stock or, in the event there is not an
effective Registration Statement at such time, if in the opinion of counsel to
the Company such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the Securities and Exchange Commission (the "Commission")). The
Company agrees that it will provide the Investor, upon request, with a
certificate or certificates representing Underlying Shares and/or Warrant
Shares, free from such legend at such time as such legend is no longer required
hereunder. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company which enlarge the restrictions
of transfer set forth in this Section.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit K hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investors to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and except as provided below, without consultation
by the transfer agent with the Company or its counsel and without the need for
any further advice or instruction or documentation to the transfer agent by or
from the Company or its counsel or the Investors:
(i) at any time after the effective date of the Registration Statement (the
"Effective Date"), upon surrender of one or more certificates evidencing the
Warrants, Promissory Notes, Underlying Shares or Warrant Shares that bear the
aforementioned Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the aforementioned legend to replace those
surrendered; provided that: (i) the Registration Statement shall then be
effective; (ii) the Investor confirms to the transfer agent in writing (with a
copy to the Company) that it has sold, pledged or otherwise transferred or
agreed to sell, pledge or otherwise transfer such Common Stock in a bona fide
transaction to a third party that is not an affiliate of the Company; (iii) the
Investor confirms to the transfer agent that the
<PAGE>
Investor has complied with the prospectus delivery requirement and (iv)
with respect to the issuance of the Warrant Shares, the Investor has paid the
Company the purchase price for such shares.
(ii) at any time upon any surrender of one or more certificates evidencing
Registrable Securities, that bear the aforementioned legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of such
legend to replace those surrendered (and delivered a Form 144 if such form is
required) and containing representations that (a) the Investor is permitted to
dispose of such Registrable Securities, without limitation as to amount or
manner of sale pursuant to Rule 144(k) under the Securities Act or some other
exemption under the Securities Act, or (b) the Investor has sold, pledged or
otherwise transferred or agreed to sell, pledge or otherwise transfer such
Registrable Securities, in a manner other than pursuant to an effective
registration statement, to a transferee who will upon such transfer be entitled
to freely tradeable securities. The Company shall have counsel provide any and
all opinions necessary for the sale under Rule 144.
Any of the notices referred to above in this Section may be sent by
facsimile to the Company's transfer agent, with a copy to the Company.
(f) No legend other than the one specified in this Article has been or
shall be placed on the share certificates representing the Common Stock, and no
instructions or "stop transfer orders," so called, "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto other than as expressly set forth
in this Article.
(g) Nothing in this Article shall affect in any way any of the Investor's
obligations under any agreement to comply with all applicable securities laws
upon resale of the Common Stock.
(h) Investor confirms that the Investor has the financial means to make the
proposed investment, that the Investor has sufficient knowledge and experience
in financial matters to evaluate the merits and risks of the transaction, and
that the Investor is relying on advisers (including such attorneys, accountants
and financial advisers as the Investor deem appropriate) to evaluate the merits
and risks of the transaction on the Investor's behalf. Investor has had access
to such professional advisors as the Investor deems necessary in connection with
the evaluation, execution and delivery of this Agreement.
(i) If the Investor is a partnership, corporation, trust or other entity,
(i) the Investor represents and warrants that it was not organized or
reorganized for the specific purpose of
<PAGE>
acquiring Promissory Notes and Warrants, and (ii) the Investor has the full
power and authority to execute this Agreement on behalf of such entity and to
make the representations and warranties made herein on its behalf, and (iv) this
investment in the Company has been affirmatively authorized, if required, by the
governing board of such entity and is not prohibited by the governing documents
of the entity.
(j) The address shown under the Investor's signature at the end of this
Agreement is the Investor's principal residence if he or she is an individual or
its principal business address if a corporation or other entity.
(k) The Investor agrees to hold in strict confidence the information
regarding the Company disclosed to Investor in the Disclosure Materials, shall
not use such information for any purpose other than the evaluation of the
Company's business, finances and operations, shall not reproduce such
information in whole or in part except as the Company expressly authorizes, and
shall not disclose, divulge, or otherwise furnish such information to anyone
other than Investor's accountants, legal counsel or consultants, who are
involved in evaluating or implementing the proposed transaction.
(l) The Investor is an "accredited investor" as defined in section 2(15) of
the Securities Act and Regulation D promulgated by the Securities and Exchange
Commission thereunder and is not an "affiliate" of the Company as defined in
Rule 144 of the Securities Act.
(m) The Investor has not as of the date hereof, and covenants that on
behalf of its affiliates and agents that neither the Investor nor any affiliate
or agent of Investor will at any time in which the Investor or any affiliate of
the Investor owns a Promissory Note which has not been converted into Common
Stock or retains the right to exercise a Purchase Option, engage, directly or
indirectly, in any short sales of, or hedging or arbitrage transactions with
respect to the Common Stock or any other securities of the Company, or sell
"put" options or similar instruments with respect to the Common Stock or any
other securities of the Company; provided, however, that the undersigned may
maintain a short position with respect to the shares of Common Stock issuable
upon conversion of the Promissory Note and provided that such short position (i)
is not commenced earlier than the date of the delivery of a Conversion Notice
(as defined in the Promissory Note) and (ii) does not exceed the number of
shares subject to such Conversion Notice.
ARTICLE IV
<PAGE>
Company's Representations
The Company represents and warrants to the Investor as follows:
Section 4.1 Organization. The Company is a corporation duly organized and
existing in good standing under the laws of the jurisdictions in which it is
incorporated, and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. "Material Adverse Effect" shall mean any effect on the business,
operations, properties, prospects, or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and affiliates, taken
as a whole, and/or any condition, circumstance, or situation that would prohibit
or otherwise in any material respect interfere with the ability of the Company
to enter into and perform any of its obligations under this Agreement, the
Registration Rights Agreement, the Pledge Agreement, the Escrow Agreement, the
Promissory Notes or the Warrants in any material respect.
Section 4.2 Authorization. The Company has the requisite corporate power
and authority to enter into and perform this Agreement, the Pledge Agreement,
the Escrow Agreement, the Registration Rights Agreement, to issue and sell the
Promissory Notes and the Warrants and to issue the Registrable Shares in
accordance with the terms of the Promissory Notes and the Warrants, (ii) the
execution, delivery and performance of this Agreement, the Pledge Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Promissory Notes and
the Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by the Company's Board
of Directors and no further consent or authorization of the Company, its Board
of Directors, or its stockholders is required, (iii) this Agreement, the Pledge
Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Warrants, and the Promissory Notes have been duly and validly authorized,
executed and delivered by the Company, and (iv) this Agreement, the Pledge
Agreement, the Registration Rights Agreement, the Escrow Agreement, the Warrants
and the Promissory Notes constitute the 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, reorganization, moratorium, liquidation or similar laws relating to,
or affecting, generally, the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
Section 4.3 Issuance. The Registrable Shares are all duly authorized and
reserved for issuance, and in all cases upon issuance shall be validly issued,
fully paid and non-assessable, free
<PAGE>
from all taxes, liens and charges with respect to the issue thereof, and
will not be subject to preemptive rights or other similar rights of stockholders
of the Company.
Section 4.4 No Conflict / No Violation. The execution, delivery and
performance of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby will not (i) result in a violation of
the Certificate of Incorporation or Bylaws, or (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). The Company is not in violation of its Certificate of
Incorporation or other organizational documents, and the Company is not in
default (and no event has occurred which, with notice or lapse of time or both,
would put the Company or any of its subsidiaries in default) under, nor has
there occurred any event giving others (with notice or lapse of time or both)
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, except for possible defaults or rights as would not, in
the aggregate or individually, have a Material Adverse Effect. The business of
the Company and its subsidiaries is not being conducted, and shall not be
conducted so long as the Investor owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity, except for possible
violations which neither singly or in the aggregate would have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the Securities Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under this
Agreement, the Pledge Agreement, the Escrow Agreement, the Registration Rights
Agreement, the Promissory Notes or the Warrants in accordance with the terms
hereof and thereof.
Section 4.5 Listing. The shares of the Company's Common Stock are listed on
the OTC Bulletin Board. The Company has received no notice, either written or
oral, with respect to the continued eligibility of the Common Stock for such
listing, and the Company has maintained all applicable requirements for the
continuation of such listing, and the Company does not reasonably anticipate
that the Common Stock will be delisted from the OTC Bulletin Board for the
foreseeable future. The Company shall use its best efforts to continue to keep
its stock listed on the OTC Bulletin Board, and comply with all of its listing
requirements, or become listed on NASDAQ or a national securities comparable
stock market or exchange.
<PAGE>
Section 4.6 Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, $0.001 par value per share, of
which approximately 21,293,496 shares are issued and outstanding, and no shares
of Preferred Stock are outstanding. All of the outstanding shares of Common
Stock and Preferred Stock of the Company have been duly and validly authorized
and issued and are fully paid and nonassessable. No shares of Common Stock are
entitled to preemptive or similar rights. Except as specifically disclosed
herein by the Company (including the exhibits attached hereto), there are no
outstanding options, warrants, rights to subscribe to, calls or commitments of
any character whatsoever giving any person or entity any right to subscribe for
or acquire, any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any subsidiary is or may
become bound to issue additional shares of Common Stock or securities or rights
convertible or exchangeable into shares of Common Stock. To the knowledge of the
Company and except as disclosed herein or in the Disclosure Materials, no person
or group of persons beneficially owns (as determined pursuant to Rule 13d-3
promulgated under the Exchange Act) or has the right to acquire by agreement
with or by obligation binding upon the Company beneficial ownership of in excess
of five percent of the Common Stock.
Section 4.7 Financial Statements. The Company has delivered or made
available to the Investor true and complete copies of the Company's most recent
audited financial statements and the Company's interim financial statements for
the current fiscal year and its latest annual report (collectively referred to
as "Financial Statements"). The Financial Statements do not contain any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Financial
Statements of the Company comply as to form in all material respects with
applicable accounting requirements and all other applicable rules and
regulations with respect thereto. Such Financial Statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such Financial Statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates thereof and the
results of operations and cash flows for the periods then ended.
Section 4.8 Valid Issuance. When issued and payment has been made therefor,
the Promissory Notes, Warrants, Underlying Shares and Warrant Shares, sold to
the Investor will be duly and validly issued, fully paid, and nonassessable.
Neither the issuance of the Promissory Notes, Warrants, Underlying Shares and
Warrant Shares, to the Investor, pursuant to, nor the Company's performance of
its obligations under this Agreement, and all Exhibits annexed hereto will (i)
result in the creation or imposition by the Company of any liens, charges,
claims or other encumbrances upon Promissory Notes, Warrants, Underlying Shares
and Warrant Shares issued to the Investor, or any of
<PAGE>
the assets of the Company, or (ii) except as set forth in the Disclosure
Materials, entitle the holders of outstanding capital stock to preemptive or
other rights to subscribe to or acquire the Common Stock or other securities of
the Company.
Section 4.9 No Advertisements. Neither the Company nor any of its
affiliates nor any distributor or any person acting on its or their behalf (i)
has conducted or will conduct any general solicitation (as that term is used in
Rule 502(c) of Regulation D) or general advertising with respect to any of the
Promissory Notes, Warrants, Underlying Shares and Warrant Shares, or (ii) made
any offers or sales of any security or solicited any offers to buy any security
under any circumstances that would require registration of the Promissory Notes,
Warrants, Underlying Shares and Warrant Shares under the Securities Act.
Section 4.10 Articles of Incorporation and By Laws. The Company has
furnished or made available to the Investor true and correct copies of the
Company's Articles of Incorporation, as amended and in effect on the date
hereof, and the Company's by-laws, as amended and in effect on the date hereof
(the By-Laws).
Section 4.11 No Integration. To the Company's knowledge, neither the
Company, nor any of its affiliates, nor any person acting on its or their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, other than pursuant to this Agreement
or pursuant to the Company's existing employee benefit plan, under circumstances
that would require registration of the Common Stock under the Securities Act, or
cause the offering of the Promissory Notes and Warrants pursuant to this
Agreement to be integrated with prior or future offerings by the Company for
purposes of the Securities Act or any applicable stockholder approval
provisions, except that the Company makes no representation with respect to the
sale by the Company of a promissory note and warrants for a purchase price of
$500,000 in December 1998 or any public offering of the Company's Common Stock.
The Company shall not and shall use its best efforts to ensure that no
affiliate shall sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security of the Company that would be integrated
with the offer or sale of the Promissory Notes and Warrants in a manner that
would require the registration under the Securities Act of the issue, offer or
sale of the Promissory Notes and Warrants to the Investor. The Promissory Notes
and Warrants are being offered and sold pursuant to the terms hereunder, are not
being offered and sold as part of a previously commenced private placement of
securities, except that the Company makes no representation with respect to the
sale by the Company of a promissory note and warrants for a purchase price of
$500,000 in December 1998 or any public offering of the Company's Common Stock.
Section 4.12 No Litigation. Except as set forth in the Financial
Statements, there are no
<PAGE>
lawsuits or proceedings pending or to the knowledge of the Company
threatened, against the Company, nor has the Company received any written or
oral notice of any such action, suit, proceeding or investigation, which would
reasonably be expected to have a Material Adverse Effect. Except as set forth in
the Financial Statements, no judgment, order, writ, injunction or decree or
award has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which would be reasonably expected to
result in a Material Adverse Effect.
Section 4.13 Acknowledgment of Dilution. The Company is aware and
acknowledges that issuance of Common Stock upon the conversion of the Promissory
Note(s) and/or exercise of the Warrant(s), may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation
to issue (i) the Underlying Shares in accordance with the conversion rights in
the Promissory Note(s), and (iii) the Warrant Shares in accordance with exercise
rights in the Warrant(s) is unconditional and absolute regardless of the effect
of any such dilution.
Section 4.14 No Labor Disputes. The Company is not involved in any labor
dispute, nor, to the knowledge of the Company, is any such dispute threatened
which could reasonably be expected to have a Material Adverse Effect. None of
the Company's employees is a member of a union and the Company believes that its
relations with its employees are good.
Section 4.15 Environmental Laws. The Company is (i) in compliance with any
and all 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 and which the Company know is
applicable to them ("Environmental Laws"), (ii) has received all permits,
licenses or other approvals required under applicable Environmental Laws to
conduct its business, and (iii) is in compliance with all terms and conditions
of any such permit, license or approval.
Section 4.16 Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged. The Company has no notice to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires, or obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operation, of the Company.
Section 4.17 Board of Directors. The board of directors of the Company has
concluded, in its good faith business judgment, that the issuances of the
securities of the Company in connection with this Agreement are in the best
interests of the Company.
<PAGE>
Section 4.18 Intellectual Property. The Company has, or has rights to use,
all patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses, trade secrets and other intellectual
property rights which it currently uses in connection with its business for
which the failure to so have would have a Material Adverse Effect (collectively,
the "Intellectual Property Rights"). To the best knowledge of the Company, none
of the Intellectual Property Rights infringe on any rights of any other Person,
and the Company either owns or has duly licensed or otherwise acquired all
necessary rights with respect to the Intellectual Property Rights. The Company
has not received any notice from any third party of any claim of infringement by
the Company of any of the Intellectual Property Rights, and has no reason to
believe there is any basis for any such claim. To the best knowledge of the
Company, there is no existing infringement by another Person on any of the
Intellectual Property Rights.
Section 4.19 Subsidiaries. Except for Financial Intranet Telcom, Inc. and
as disclosed in the Financial Statements, the Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
partnership, association or other business entity.
ARTICLE V
Registration Rights
Section 5.1 Registration Rights Agreement. The registration rights are more
fully set forth in the Registration Rights Agreement, attached hereto as Exhibit
G.
ARTICLE VI
Covenants of the Company
Section 6.1 Use of Proceeds. The Company will use the proceeds from the
sale of the Promissory Notes and Warrants for general business purposes and not
for the repayment of any judgment or currently outstanding promissory note.
Section 6.2 NASDAQ Listing / 20% Rule Limitation. In the event shareholder
consent is required pursuant to the rules of the principal market or exchange
where the Common Stock is listed,
<PAGE>
for the below market issuance of shares of Common Stock exceeding twenty
percent (20%) of the outstanding shares of Common Stock, the Company shall call
a meeting of its shareholders, to be held no later than 60 calendar days after
the Company becomes subject to such a requirement (the "Listing Date"), seeking
shareholder approval of the below market issuances of shares of Common Stock
(and securities convertible into and exercisable for Common Stock) to the
Investor of an aggregate of 20% or more of the number of shares of Common Stock
outstanding as of the Closing Date. In the event that the aforementioned
proposal is not so approved with such 60 calendar day period, the Company shall
seek a waiver from the NASDAQ (or such other principal market or exchange) for
such below market issuances. In the event the Company does not receive such
waiver within the earlier of ten calendar days after the aforementioned
shareholders meeting, or 70 calendar days after the Listing Date, the Company
shall either delist the Common Stock from such principal market or exchange and
immediately (within two Trading Days thereafter) list the Common Stock on the
OTC Bulletin Board (however, if the OTC Bulletin Board is then the principal
market for the Common Stock the Company must make the payments as set forth
below) or with respect to the aggregate shares of Common Stock issuable upon
conversion of the Promissory Notes and exercise of the Warrants which exceed 20%
of the Company's issued and outstanding shares of Common Stock as of the Closing
Date (the "Excess Shares"), (assuming that the 70th calendar day after the
Listing Date is the Conversion Date), the Company shall pay the Investor a sum
equal to (i) the number of Excess Shares multiplied by the closing bid price per
share of Common Stock as quoted on such principal market or exchange on such
date minus (ii) the number of Excess Shares that are Warrant Shares multiplied
by the Exercise Price. Upon making the payment described in this Section, that
principal amount of the Promissory Notes and Warrants which are the subject of
the aforementioned payment shall be delivered by the Investor to the Company and
such portion of the Promissory Notes shall be deemed converted and such portion
of the Warrants shall be deemed exercised with respect to the Excess Shares. In
the event the Company does not obtain shareholder approval, or a waiver, as set
forth herein, the Company shall not be permitted to serve a Demand Notice.
Section 6.3 Restrictions on Future Financings. For a period of the later of
one hundred twenty (120) days following (i) the last Closing Date, or (ii) upon
the termination of the Company's right to exercise any additional Demand Options
under Section 1.2, the Company may not issue additional shares of Common Stock
or securities convertible into shares of Common Stock, unless such securities
are being issued pursuant to the terms of this Agreement, or are subject to a
one year statutory or contractual hold period or, if not subject to such a hold
period, unless (i) the Investor no longer holds any Promissory Notes, Warrants,
Underlying Shares, or Warrant Shares, and neither party has the right to serve a
Demand Notice or Purchase Notice, or (ii) the Investor has been offered such
securities (in writing via facsimile) for purchase for its own account on the
same terms and conditions as are being offered to the third party, and the
Investor has not accepted such offer within
<PAGE>
seven days of receipt of notice of such offer. Notwithstanding the
foregoing, the restrictions set forth above do not apply to the following types
of transactions by the Company: (1) "project financing" transactions, which
provide for the issuance of non-recourse debt instruments in connection with the
operation of the Company's business as presently conducted or as proposed to be
conducted; and (2) a registered public offering of the Common Stock, provided
that such offering provides for the registration of the Common Stock to be
received by the Investor as a result of the exercise of the Warrants and
conversion of the Promissory Notes or such shares of Common Stock are subject to
an effective registration statement. Any restriction on future financings shall
terminate upon the Investor's failure to deliver the applicable purchase price
under Section 1.2
Section 6.4 Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect so long as any Registrable
Securities remain outstanding and the Company shall comply in all material
respects with the terms thereof.
Section 6.5 Reservation of Common Stock. As of the date hereof, the Company
has authorized and reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to satisfy any obligation to issue the
Underlying Shares and Warrant Shares; such amount of shares of Common Stock to
be reserved shall be calculated based upon the Conversion Price and the Exercise
Price therefor under the terms of this Agreement, the Promissory Notes and
Warrants. The number of shares so reserved shall be increased or decreased to
reflect potential increases or decreases in the Common Stock that the Company
may thereafter be so obligated to issue by reason of adjustments to the
Promissory Notes and the Warrants.
Section 6.6 Corporate Existence. The Company will take all steps necessary
to preserve and continue the corporate existence of the Company.
Section 6.7 Notice of Certain Events Affecting Registration. The Company
will immediately notify the Investor upon the occurrence of any of the following
events in respect of a registration statement or related prospectus in respect
of an offering of Registrable Securities: (i) receipt of any request for
additional information by the Commission or any other federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or related
prospectus; (ii) the issuance by the Commission or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) the happening of any event that makes any
statement made in the
<PAGE>
Registration Statement or related prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in the Registration Statement,
related prospectus or documents so that, in the case of the Registration
Statement, it will not 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, and that in the case of the related
prospectus, it will not 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, in the light of the circumstances under which they were
made, not misleading; and (v) the Company's reasonable determination that a
post-effective amendment to the Registration Statement would be appropriate. The
Company will immediately make available to the Investor any such supplement or
amendment to the related prospectus.
Section 6.8 Consolidation; Merger. The Company shall not, at any time after
the date hereof, effect any merger or consolidation of the Company with or into,
or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligation to deliver to the Investor such shares of stock and/or securities as
the Investors are entitled to receive pursuant to this Agreement.
Section 6.9 Issuance of Underlying Shares and Warrant Shares. The issuance
of the Warrant Shares pursuant to exercise of the Warrants and the Underlying
Shares pursuant to the conversion of the Promissory Notes, shall be made in
accordance with the provisions and requirements of Section 4(2) of the
Securities Act, or Regulation D and any applicable state securities law.
Section 6.10 Legal Opinion. The Company's independent counsel shall deliver
to the Investor upon execution of this Agreement, and upon each Closing for a
tranche (dated as of the date of such closing), an opinion in the form of
Exhibit J annexed hereto. The Company will obtain for the Investor, at the
Company's expense, any and all opinions of counsel which may be reasonably
required in order to convert the Promissory Notes and/or exercise the Warrants,
including, but not limited to, obtaining for the Investor an opinion of counsel,
subject only to receipt of a notice of conversion (the "Notice of Conversion")
in the form attached to the Initial Notes or the Tranche Notes, and/or subject
only to a receipt of a notice of exercise in the form annexed to the Warrant,
directing the Transfer Agent to remove the legend from the certificate.
Section 6.11 Conversion of Promissory Notes and Exercise of Warrants. The
Company will permit the Investor to exercise its right to convert the Promissory
Notes, and/or exercise the Warrants, by telecopying an executed and completed
Notice of Conversion, and/or Notice of Exercise to the
<PAGE>
Company in accordance with the terms of the Promissory Notes and Warrant.
Section 6.12 Increase in Authorized Shares. At such time as the Company
would be, if a Notice of Conversion and/or notice of exercise (as the case may
be) were to be delivered on such date, precluded from (a) converting in full all
of the shares of the Promissory Note(s) that remain unconverted at such date
(and paying any accrued but unpaid dividends in respect thereof in shares of
Common Stock), or (b) honoring the exercise in full of the Warrants, due to the
unavailability of a sufficient number of shares of authorized but unissued or
re-acquired Common Stock, the Board of Directors of the Company shall promptly
(and in any case within 60 calendar days from such date) hold a shareholders
meeting in which the shareholders would vote for authorization to amend the
Company's certificate of incorporation to increase the number of shares of
Common Stock which the Company is authorized to issue to at least a number of
shares equal to the sum of (i) all shares of Common Stock then outstanding, (ii)
the number of shares of Common Stock issuable on account of all outstanding
warrants, options and convertible securities (other than the Promissory Notes
and the Warrants) and on account of all shares reserved under any stock option,
stock purchase, warrant or similar plan, (iii) 200% of the number of Underlying
Shares as would then be issuable upon a conversion in full of the then
outstanding shares of Promissory Notes and as payment of all future dividends
thereon in shares of Common Stock in accordance with the terms of this Agreement
and the Promissory Notes, and (iv) such number of Warrant Shares as would then
be issuable upon the exercise in full of the Warrants. In connection therewith,
the Board of Directors shall promptly (x) adopt proper resolutions authorizing
such increase, (y) recommend to and otherwise use its best efforts to promptly
and duly obtain shareholder approval to carry out such resolutions and (z)
within three Business Days of obtaining such shareholder authorization, file an
appropriate amendment to the Company's certificate of incorporation to evidence
such increase. In no way shall the aforementioned be deemed a waiver of the
Company's obligations contained in Section 6.5 above.
Section 6.16 Notice of Breaches. Each of the Company on the one hand, and
the Investor on the other, shall give prompt written notice to the other of any
breach by it of any representation, covenant, warranty or other agreement
contained in this Agreement or any Exhibit annexed hereto, as well as any events
or occurrences arising after the date hereof, which would reasonably be likely
to cause any representation, covenant, or warranty or other agreement of such
party, as the case may be, contained in this Agreement or any Exhibit annexed
hereto, to be incorrect or breached as of such date. However, no disclosure by
either party pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in this Agreement or any
Exhibit annexed hereto. Notwithstanding the generality of the foregoing, the
Company shall promptly notify the Investor of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by this Agreement or any Exhibit
<PAGE>
annexed hereto, violates or would violate any written agreement or
understanding between such lender and the Company, and the Company shall
promptly furnish by facsimile to Investor a copy of any written statement in
support of or relating to such claim or notice.
Section 6.17 Transfer of Intellectual Property Rights. Except in the
ordinary course of the Company's business consistent with past practice or in
connection with the sale of all or substantially all of the assets of the
Company, the Company shall not transfer, sell or otherwise dispose of, any
Intellectual Property Rights that are material to the Company's business, or
allow any such Intellectual Property Rights to become subject to any Liens, or
fail to renew such Intellectual Property Rights (if renewable and would
otherwise expire).
Section 6.18 Right of First Refusal. The Company shall grant the Investor a
right of first refusal in respect of issuance of the Company's Common Stock or
securities convertible into Common Stock at a price less than the then market
price of the Common Stock on the date of such proposed issuance. The Investor
must exercise such right of first refusal by providing notice to the Company
within seven (7) days of receipt of the Company's written notice of its
intention to sell Common Stock or securities convertible into Common Stock at a
price less than the then market price of the Common Stock on the date of such
proposed issuance (the "Company Notice"). The Investor's notice shall state its
interest to purchase such securities on the same terms and conditions as stated
in the Company Notice. The Company Notice shall also specify the terms of the
proposed transaction. The Investor's right of first refusal expires upon the
earlier to occur of (i) one hundred twenty (120) days after the last Closing
Date, or (ii) the termination of the Investor's Demand Option.
ARTICLE VII
Fees and Expenses
Section 7.1 Fees and Expenses. Each of the parties 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 Agreement and the
transactions contemplated hereby, except that the Company agrees to pay on each
Closing Date, out of the Purchase Price, fees, in cash payable out of escrow,
to: (i) the Placement Agent Cardinal Capital Management, Inc., the sum equal to
four and one half (4.5%) percent of the Purchase Price pursuant to this
Agreement; (ii) the Placement Agent Josephberg, Grosz & Co., the sum equal to
three and one half (3.5%) percent of the Purchase Price pursuant to this
Agreement. In addition, on the Initial Closing Date, the Company will pay The
Goldstein Law Group. P.C. the sum of $5,000 for the legal, administrative and
escrow fees. In addition, on each Closing Date with respect to the second,
third, fourth and fifth tranches, the Company will pay The
<PAGE>
Goldstein Law Group. P.C. the sum of $800 for the legal, administrative and
escrow fees. If the fees of The Goldstein Law Group P.C. in connection with the
closings of the second, third, fourth or fifth tranches or in connection with
any amendments to this Agreement or the Exhibits attached hereto or with respect
to any additional documents executed by the parties prior to the closings of the
second, third, fourth or fifth tranches exceed the $800 payable with respect to
a tranche, then the Company will pay The Goldstein Law Group P.C. the amount of
such additional fee on such Closing Date.
Placement Agent Cardinal Capital Management, Inc., as part of its fee shall
also receive, on the Initial Closing Date, 15,000 shares of Common Stock and
Tranche Warrants to purchase 75,000 shares of Common Stock at an exercise price
equal to $0.60 per share of Common Stock and otherwise on terms set forth in the
Common Stock Purchase Warrant included herein as Exhibit "C"; and the Placement
Agent Josephberg, Grosz & Co., as part of its fee shall also receive 15,000
shares of Common Stock and Tranche Warrants to purchase 75,000 shares of Common
Stock at an exercise price equal to $0.60 per share of Common Stock.
On each Closing Date for a tranche: (i) Placement Agent Cardinal Capital
Management, Inc., as part of its fee shall also receive, 1,727 shares of Common
Stock for each $100,000 funded to the Company by the Investor and Tranche
Warrants to purchase 10,000 shares of Common Stock on the Closing Date for each
$100,000 funded on the second tranche and Tranche Warrants to purchase 8,333
shares of Common Stock on each Closing Date for each $100,000 funded on the
third, fourth and fifth tranches; and (ii) Placement Agent Josephberg, Grosz &
Co., as part of its fee shall also receive 1,727 shares of Common Stock for each
$100,000 funded to the Company by the Investor and Tranche Warrants to purchase
10,000 shares of Common Stock on the Closing Date for each $100,000 funded on
the second tranche and Tranche Warrants to purchase 8,333 shares of Common Stock
on each Closing Date for each $100,000 funded on the third, fourth and fifth
tranches. The Tranche Warrants will have an exercise price of $0.60 per share.
ARTICLE VIII
Miscellaneous
Section 8.1 No Waiver. No party shall be deemed to have waived any of his
or her or its rights hereunder unless such waiver is in writing and signed by
the party waiving said right.
<PAGE>
Section 8.2 Entire Agreement. The parties have not made any representations
or warranties with respect to the subject matter hereof not set forth herein,
and this Agreement, together with any instruments executed simultaneously
herewith, constitutes the entire agreement between them with respect to the
subject matter hereof. All understandings and agreements heretofore had between
the parties with respect to the subject matter hereof are merged in this
Agreement and any such instrument, which alone fully and completely expresses
their agreement.
Section 8.3 No Alteration. This Agreement may not be changed, modified,
extended, terminated or discharged orally, but only by an agreement in writing,
which is signed by all of the parties to this Agreement.
Section 8.4 Execution. The parties agree to execute any and all such other
and further instruments and documents, and to take any and all such further
actions reasonably required to effectuate this Agreement and the intent and
purposes hereof.
Section 8.5 Choice of Laws. This Agreement will be construed and enforced
exclusively in accordance with and governed by the laws of the State of New
York, except for matters arising under the Securities Act, without reference to
principles of conflicts of law.
Section 8.6 Jurisdiction. Any litigation based thereon, or arising out of,
under, or in connection with, this agreement or any course of conduct, course of
dealing, statements (whether oral or written) or actions of the Company or
Investor shall be brought and maintained exclusively in the Federal Courts of
the state of New York without reference to its conflicts of laws rules or
principles. The Company and the Investor hereby expressly and irrevocably
submits to the exclusive jurisdiction of the Federal Court of the state of New
York sitting in the Southern District for the purpose of any such litigation as
set forth above. Each party further irrevocably consents to the service of
process by registered mail, postage prepaid, or by personal service within or
without the State of New York. To the extent that the Investor has or hereafter
may acquire any immunity from jurisdiction of any court or from any legal
process (whether through service or notice, attachment prior to judgment,
attachment in aid of execution or otherwise) with respect to itself or its
property, The Investor hereby irrevocably waives such immunity in respect of its
obligations under this agreement and the other documents.
Section 8.7 Notices. Any notice required by the provisions of this
Agreement will be in writing and will be deemed effectively given: (a) upon
personal delivery to the party to be notified; (b) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if not, then
on the next business day; (c) five (5) days after having been sent by registered
or certified mail, return receipt requested, postage prepaid; or (d) one (1) day
after deposit with a nationally
<PAGE>
recognized overnight courier, specifying next day delivery, with written
verification of receipt.
<PAGE>
i. If to the Company, at:
Financial Intranet, Inc.
410 Saw Mill River Road
Ardsley, New York 10502
Attn.: Michael Sheppard
Tel: (914) 693-5060
Facsimile: (914) 693-5059
with a copy to:
Steven Schuster, Esq.
McLaughlin & Stern, LLP
260 Madison Avenue
New York, New York 10016
Tel: (212) 448-1100
Facsimile: (212) 448-0066
Any delay in forwarding copy to Company counsel shall not be deemed a
waiver of any obligation or rights set forth herein.
ii. if to the Investor, to the address and facsimile as it appears on the
signature page hereto.
ARTICLE IX
Indemnification
Section 9.1 Company Indemnification. The Company agrees to indemnify and
hold harmless the Investor and each officer, director of the Investor or person,
if any, who controls the Investor within the meaning of the Securities Act
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), to which the
Investor may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the breach, by the Company, of any term of this
Agreement. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
<PAGE>
Section 9.2 Investor Indemnification. The Investor agrees that it will
indemnify and hold harmless the Company, and each officer, director of the
Company or person, if any, who controls the Company within the meaning of the
Securities Act, against any losses, claims, damages or liabilities (which shall,
for all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) to which the Company or any
such officer, director or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
breach, by the Investor, of any term of this Agreement. This indemnity agreement
will be in addition to any liability which the Investor or any subsequent
assignee may otherwise have.
Section 9.3 Procedure. Promptly after receipt by an indemnified party under
this Article of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Article, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this Article. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, assume the defense thereof, subject to the provisions herein
stated and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Article for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action to its final conclusion. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
one of the Investors, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both the
Investors and the indemnifying party and the Investors shall have been advised
by such counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the Investor (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of the Investor,
it being understood, however, that the indemnifying party shall, in connection
with any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same
<PAGE>
general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Investor, which firm
shall be designated in writing by the Investor). No settlement of any action
against an indemnified party shall be made without the prior written consent of
the indemnified party, which consent shall not be unreasonably withheld.
<PAGE>
EXECUTION BY INVESTOR WHO IS A NATURAL PERSON
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on this 8th day of February, 1999.
Promissory Notes and Warrants of up to $1,700,000
Exact Name in Which Title is to be Held
(Signature)
Zubair Kazi
Name (Please Print)
Residence: Number and Sreet
City State Country Postal Code
Social Security Number Telecopy Number
Accepted this 8th day of February, 1999
FINANCIAL INTRANET, INC.
By:/s/Michael Sheppard
<PAGE>
EXECUTION BY INVESTOR WHICH IS A CORPORATION,
PARTNER, TRUST, ETC.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on this ____ day of ________, 1999.
Promissory Notes and Warrants Subscribed for a maximum of $1,700,000
Exact Name in Which Title is to be Held
(Signature)
Name (Please Print)
Title of Person Executing Agreement
Address: Number and Street
City State Zip Code
_________________________________________________________________
Tax Identification Number Telecopy Number
Accepted this ___ day of , 1999.
FINANCIAL INTRANET, INC.
By:_____________________________
<PAGE>
ACCREDITED INVESTOR STATUS
1. Please check whether one or more of the following definitions of
"accredited investor," if any, applies to you. If none of the following applies
to you, please leave a blank.
(a) A Bank as defined in Section 3(a)(2) of the Securities Act of 1933, as
amended (the "Securities Act"), or any savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities Act whether
acting in its individual or fiduciary capacity; any broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); an insurance company as defined in Section 2(13) of the
Securities Act; an investment company registered under the Investment Company
Act of 1940 or a business development company as defined in Section 2(a)(48) of
that act; a Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; any plan established and maintained by a state, or 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; any employee benefit plan within the meaning 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 advisor, 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.
(b) A Private Business Development Company as defined in Section 202(a)(22)
of the Investment Advisers Act of 1940.
(c) An organization described in Section 501(c)(3) of the Internal Revenue
Code or corporation, Massachusetts or similar business trust, or partnership,
not formed for the specific purpose of acquiring the securities offered, with
total assets in excess of $5,000,000.
(d) A natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of purchase exceeds $1,000,000.
<PAGE>
(e) A natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year.
(f) Any trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the Promissory Notes and Warrants, whose
purchase is directed by a sophisticated person as described in Rule
506(b)(2)(ii) of Regulation D.
(g) Any entity in which all of the equity owners are Accredited Investors.
<PAGE>
EXHIBIT 10.12
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE SECURITIES ACT OR UNLESS AN EXEMPTION
THEREFROM IS AVAILABLE.
WARRANT TO PURCHASE
COMMON STOCK OF FINANCIAL INTRANET, INC.
This certifies that ZUBAIR KAZI (the "Holder"), for value received, is
entitled to purchase from FINANCIAL INTRANET, INC., a Nevada corporation (the
"Company") One Million Five Hundred Thousand (1,500,000) shares of the Company's
Common Stock (the "Common Stock") for a per share exercise price equal to forty
cents ($.40)(the "Per Share Exercise Price"). This right may be exercised at any
time from the date hereof, up to and including 5:00 p.m. (New York City time) on
the fifth anniversary of the date hereof (the "Expiration Date"), upon surrender
to the Company at its principal office (or at such other location as the Company
may advise the Holder in writing) of this Warrant, properly endorsed, with the
Subscription Form attached hereto as Exhibit A duly filled in and signed in, and
if applicable, the investment representations attached hereto as Exhibit B, upon
payment in cash or by check of the aggregate Per Share Exercise Price for the
number of shares for which this Warrant is being exercised determined in
accordance with the provisions hereof. All capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the subscription
agreement executed by the Holder and the Company as of the date hereof (the
"Subscription Agreement").
1. ISSUANCE OF CERTIFICATES.
Certificates for the shares of Common Stock acquired upon exercise of this
Warrant (the "Warrant Shares"), together with any other securities or property
to which the Holder is entitled upon such exercise, will be delivered to the
Holder by the Company at the Company's expense within five business days after
this Warrant has been so exercised.
Each Common Stock certificate so delivered will be in such denominations of
Common Stock as may be requested by the Holder and will be registered in the
name of the Holder. In case of a purchase of less than all the shares that may
be purchased under this Warrant, the Company will cancel this Warrant and
execute and deliver a new warrant or warrants of like tenor for the balance of
the shares purchasable under this Warrant to the Holder within a reasonable time
after surrender of this Warrant.
2. SHARES FULLY-PAID, NONASSESSABLE, ETC.
All shares of Common Stock issued upon exercise of this Warrant will, upon
issuance, be duly authorized, validly issued, fully-paid and nonassessable and
free from all preemptive rights of any shareholder and free of all taxes, liens
and charges with respect to the issue thereof. The
<PAGE>
Company will at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
exercise of this Warrant, such number of its shares of Common Stock as from time
to time are sufficient to effect the full exercise of this Warrant. If at any
time the number of authorized but unissued shares of Common Stock is not
sufficient to effect the full exercise of this Warrant, the Company will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as is sufficient for such purpose. The Company will take all such action
as may be necessary to assure that such securities may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of any domestic securities exchange upon which the Common Stock may
be listed; provided, however, that the Company will not be required to effect a
registration under Federal or state securities laws with respect to such
exercise, except as may be set forth in Section 3 below and in the Registration
Rights Agreement between the Company and the Holder.
3. ADJUSTMENTS.
3.1 Adjustment for Stock Splits and Combinations. If the Company at any
time or from time to time during the term of this Warrant effects a subdivision
of the outstanding Common Stock, the Per Share Exercise Price in effect
immediately before that subdivision will be proportionately decreased.
Conversely, if the Company at any time or from time to time during the term of
this Warrant combines the outstanding shares of Common Stock into a smaller
number of shares, the Per Share Exercise Price in effect immediately before the
combination will be proportionately increased. Any adjustment under this Section
3.1 will become effective at the close of business on the date the subdivision
or combination becomes effective.
3.2 Adjustment for Common Stock Dividends and Distributions. If the Company
at any time or from time to time during the term of this Warrant makes, or
fixes, a record date for the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock, in each such event the Per Share Exercise Price that is then in
effect will be decreased as of the time of such issuance or, in the event such
record date is fixed, as of the close of business on such record date, by
multiplying the Per Share Exercise Price then in effect by a fraction (a) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance on the close of
business on such record date, and (b) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance on the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed thereof, the Per Share Exercise Price will be recomputed accordingly as of
the close of business on such record date and thereafter the Per Share Exercise
Price will be adjusted pursuant to this
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<PAGE>
Section 3.2 to reflect the actual payment of such dividend or distribution.
3.3 Adjustments for Other Dividends and Distributions. If the Company at
any time or from time to time during the term of this Warrant makes, or fixes a
record date for the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in securities of the Company other than
shares of Common Stock, in each such event provision will be made so that the
Holder will receive upon exercise of this Warrant, in addition to the number of
shares of Common Stock receivable thereupon, the amount of other securities of
the Company that it would have received had this Warrant been exercised on the
date of such event and had it thereafter, during the period from the date of
such event to and including the exercise date, retained such securities
receivable by them as aforesaid, subject to all other adjustments called for
during such period under this Section 3 with respect to the rights of the Holder
hereunder or with respect to such other securities by their terms.
3.4 Adjustment for Reclassification, Exchange and Substitution. If at any
time or from time to time during the term of this Warrant the Common Stock
issuable upon the exercise of this Warrant is changed into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a recapitalization,
subdivision, combination, reclassification or exchange provided for elsewhere in
this Section 3), the Holder will have the right thereafter to exercise this
Warrant for the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change into
which the shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such recapitalization, reclassification or change could
have been converted, all subject to further adjustment as provided herein or
with respect to such other securities or property by the terms thereof.
3.5 Reorganizations. If at any time or from time to time during the term of
this Warrant there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification or exchange
provided for elsewhere in this Section 3), as a part of such capital
reorganization, provision will be made so that the Holder will thereafter be
entitled to receive upon exercise of this Warrant the number of shares of stock
or other securities or property of the Company to which a holder of the number
of shares of Common Stock deliverable upon exercise of this Warrant would have
been entitled on such capitalization reorganization, subject to adjustment in
respect of such stock or securities by the terms thereof.
3.6 Adjustment in Exercise Price. The applicable exercise price per share
shall be further reduced by 15% of the difference between $.80 and the average
closing bid price per share of Common Stock for the 10 trading days prior to the
date of issuance of this Warrant, if the average closing bid price is lower.
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<PAGE>
In the event that the Holder fails to deliver the applicable purchase price
within five business days after receipt of a Demand Notice, the Per Share
exercise price for that number of Warrant Shares set forth below shall increase
to the greater of (i) $2.00 per share or (ii) the average closing bid price of
the Common Stock on the 10 trading days ending on the trading day immediately
preceding the date of the Demand Notice. The closing bid price shall be deemed
to be the reported last bid price regular way as reported by Bloomberg LP or if
unavailable, 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 closing bid price
as reported by NASDAQ or such other system then in use, or, if the Common Stock
is not quoted by any such organization, the closing bid price in the over-the-
counter market as furnished by the principal national securities exchange on
which the Common Stock is traded. The number of Warrant Shares subject to such
increase in the exercise price in the event of such default is as follows:
(i) Default with respect to a Demand Notice received during the Second
Option Period - 350,000 Warrant Shares.
(ii) Default with respect to a Demand Notice received during the Third
Option Period - 287,000 Warrant Shares.
(iii) Default with respect to a Demand Notice received during the Fourth
Option Period - 192,500 Warrant Shares.
(iv) Default with respect to a Demand Notice received during the Fifth
Option Period - 94,500 Warrant Shares.
In the event that the Holder defaults with respect to only part of the
amount demanded in any Demand Notice, then the number of Warrant Shares subject
to the increased exercise price shall be increased pro rata. Warrants with such
increased exercise price must be exercised prior to the exercise of any other
Warrants issued to the Holder. In the event of any adjustment to the Per Share
Exercise Price (as set forth herein), the Company agrees to immediately
thereafter issue replacement Warrant(s) to reflect such change in the Per Share
Exercise Price.
3.7 Certificate of Adjustment. In each case of an adjustment or
readjustment of the number of Warrant Shares issuable upon exercise of this
Warrant or the Per Share Exercise Price, the Company, at its expense, will
compute such adjustment or readjustment in accordance with the provisions hereof
and prepare a certificate showing such adjustment or readjustment, and will mail
such certificate, by first class mail, postage prepaid, to the Holder at the
Holder's address as shown in the Company's books. The certificate will set forth
such adjustment or readjustment,
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<PAGE>
showing in detail the facts upon which such adjustment or readjustment is
based, including a statement of (a) the Per Share Exercise Price at the time in
effect, and (b) the type and amount, if any, of other property that at the time
would be received upon exercise of this Warrant. Except for adjustments of the
Per Share Exercise Price pursuant to Sections 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6,
the Per Share Exercise Price cannot be increased without the consent of the
Holder.
3.8 Notices of Record Date. Upon (a) any taking by the Company of a record
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any sale of all or
substantially all of the assets of the Company or any voluntary or involuntary
dissolution, liquidation or winding up of the Company or (c) a proposed sale of
substantially all of the assets of the Company or a proposed merger in which the
Company will not be the surviving entity, the Company will mail to the Holder at
least twenty (20) days prior to the record date specified therein a notice
specifying (1) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such reorganization, reclassification,
recapitalization, asset sale, dissolution, liquidation or winding up is
expecting to become effective, and (3) the date, if any, that is to be fixed as
to when the holders of record of Common Stock (or other securities) will be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, asset sale, dissolution, liquidation or
winding up.
4. LIMIT ON SHARES SUBJECT TO ISSUANCE
Notwithstanding anything else herein to the contrary, each holder of this
Warrant may not receive shares of Common Stock upon exercise of this Warrant,
and this Warrant shall not be deemed exercisable, to the extent that after such
exercise, the sum of (1) the number of shares of Common Stock owned by the
Holder and its affiliates (other than shares of Common Stock which may be deemed
owned through the ownership of the unexercised portion of the warrants or the
unconverted portion of the convertible promissory notes previously issued to the
Investor (the "Notes")) and (2) the number of shares of Common Stock issuable
upon the exercise of the warrants and the conversion of the Notes and any
previously issued warrants or Notes with respect of which the determination of
this proviso is being made, would result in ownership by the Holder and its
affiliates of 4.99% or more of the Company's issued and outstanding shares of
Common Stock following such conversion. This restriction shall be binding upon
any transferee of this Warrant. The preceding shall not interfere with the
Holder's right to exercise this Warrant over time which in the aggregate totals
more than 4.99% of the then outstanding shares of Common Stock so long as the
Holder and its affiliates do not own more than 4.99% of the then outstanding
Common Stock at any given time. The Holder shall make a representation regarding
the number
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<PAGE>
of shares of Common Stock owned by the Holder and its affiliates on the
Subscription Form attached hereto as Exhibit A which shall be submitted with
this Warrant and payment of the aggregate Per Share Exercise Price upon exercise
of this Warrant.
5. REDEMPTION The Company shall have the right to redeem the warrants for
$.001 per share upon 20 days notice if the closing bid price per share of Common
Stock as quoted on the OTC Bulletin Board or NASDAQ is a minimum of $4.00 per
share for 30 consecutive trading days prior to the provision of the redemption
notice pursuant to Section 11, provided that if such notice is sent via
facsimile to both the Holder and Cardinal Capital Management Inc. ("Cardinal"),
notice shall be deemed given upon receipt by either the Holder or Cardinal. The
Holder will have the right to exercise the warrant at any time following such
notice and prior to redemption. The Company shall not be entitled to redeem this
Warrant in the event it is in default of this Warrant or the Subscription
Agreement (including all exhibits annexed thereto), or there is a default by the
Pledgee (Guarantor) under the Pledge and Security Agreement or Guaranty.
6. TAXES. The Company will pay all taxes (other than taxes based upon
income) and other governmental charges that may be imposed with respect to the
issue or delivery of shares of Common Stock upon exercise of this Warrant,
excluding any tax or other charge imposed in connection with any transfer
involved in the issue and delivery of shares of Common Stock in a name other
that in which this Warrant was registered.
7. CLOSING OF BOOKS.
The Company will at no time close its transfer books against the transfer
of any warrant or of any shares of Common Stock issued or issuable upon the
exercise of any warrant in any manner that interferes with the timely exercise
of this Warrant.
8. NO VOTING OR DIVIDEND RIGHTS.
Nothing contained in this Warrant will be construed as conferring upon the
Holder the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest will be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant has been exercised.
9. WARRANTS TRANSFERABLE.
Subject to compliance with applicable Federal and state securities laws and
the restrictions imposed by any other written agreement between the Holder and
the Company, this Warrant and all rights hereunder are transferable, in whole or
in part, without charge to the Holder (except for
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<PAGE>
transfer taxes), upon surrender of this Warrant properly endorsed and in
compliance with the provisions of this Warrant.
10. MODIFICATION AND WAIVER.
This Warrant and any provision hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of the same is sought.
11. NOTICES. Any notice required by the provisions of this Warrant will be
in writing and will be deemed effectively given: (a) upon personal delivery to
the party to be notified; (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day; (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All notices will be addressed to the Holder at
the address of the Holder appearing on the books of the Company.
12. LOST WARRANTS. The Company represents and warrants to the Holder that
upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction, or mutilation of this Warrant and, in the case of any such
loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such warrant, the Company, at its expense, will make and deliver
a new warrant, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated warrant.
13. FRACTIONAL SHARES. No fractional shares of Common Stock will be issued
upon exercise of this Warrant. If the exercise would result in the issuance of
any fractional share, the Company will, in lieu of issuing any fractional share,
pay cash equal to the product of such fraction multiplied by the closing bid
price of the Company's Common Stock on the date of conversion.
14. GOVERNING LAW.
14.1 This Warrant will be construed and enforced in accordance with, and
the rights of the parties will be governed by, the laws of the State of New York
without regard to conflict of laws principles.
14.2 Any litigation based thereon, or arising out of, under, or in
connection with, this agreement or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Company or Holder shall
be brought and maintained exclusively in the court of the
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<PAGE>
state of New York without reference to its conflicts of laws rules or
principles. The Company and the Holder hereby expressly and irrevocably submits
to the exclusive jurisdiction of the federal Courts of the state of New York
sitting in the Southern District for the purpose of any such litigation as set
forth above and irrevocably agrees to be bound by any final judgment rendered
thereby in connection with such litigation. The Holder and the Company further
irrevocably consents to the service of process by registered mail, postage
prepaid, or by personal service within or without the State of New York. The
Holder and the Company hereby expressly and irrevocably waives, to the fullest
extent permitted by law, any objection which it may have or hereafter may have
to the laying of venue of any such litigation brought in any such court referred
to above and any claim that any such litigation has been brought in any
inconvenient forum.
THE REST OF THIS PAGE IS LEFT BLANK
- 8 -
<PAGE>
The Company has executed this Warrant as of this 8th day of February,
1999.
FINANCIAL INTRANET, INC.
By: /s/Michael Sheppard
Name:
Title:
By: /s/Maura Marx
Name:
Title:
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<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
Date:
FINANCIAL INTRANET, INC.
410 Saw Mill River Road
Ardsley, NY 10502
Attn: President
Ladies and Gentlemen:
The undersigned hereby elects to exercise the warrant issued to it by
FINANCIAL INTRANET, INC. (the "Company") dated as of ___________________ and to
purchase thereunder ____________________ (_________) shares of the Common Stock
of the Company at a purchase price of forty cents ($0.40) per Share, for an
aggregate purchase price of _____________________ ($___________) (the "Purchase
Price").
Pursuant to the terms of the warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
The undersigned represents that as of the date hereof, the undersigned and
its affiliates do not own more than ___________ shares of Common Stock of the
Company.
The undersigned also makes the representations set forth on the attached
Exhibit B of the warrant if applicable.
Very truly yours,
______________________________
By:____________________________
Title: __________________________
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<PAGE>
EXHIBIT B TO WARRANT
INVESTMENT REPRESENTATIONS
THIS CERTIFICATE MUST BE COMPLETED, SIGNED AND RETURNED TO FINANCIAL
INTRANET, INC. ALONG WITH THE SUBSCRIPTION FORM BEFORE THE COMMON
STOCK ISSUABLE UPON EXERCISE OF THE WARRANT WILL BE ISSUED UNLESS THE
COMMON STOCK IS SUBJECT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933.
_____________________, 199__
FINANCIAL INTRANET, INC.
410 Saw Mill River Road
Ardsley, New York 10502
Attn: President
The undersigned, _________________ ("Purchaser"), intends to acquire up to
______ shares of the Common Stock (the "Stock") of FINANCIAL INTRANET, INC. (the
"Company") from the Company pursuant to the exercise of certain warrants to
purchase Stock held by Purchaser. The Stock will be issued to Purchaser in a
transaction not involving a public offering and pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the "1933 Act"), and
applicable state securities laws. In connection with such purchase and in order
to comply with the exemptions from registration relied upon by the Company,
Purchaser represents, warrants and agrees as follows:
Without limiting the Purchaser's right to sell, transfer or otherwise
dispose of the Stock, the Purchaser is acquiring the Stock for its own account,
and Purchaser will not make any sale, transfer or other disposition of the Stock
in violation of the 1933 Act or the General Rules and Regulations promulgated
thereunder by the Securities and Exchange Commission (the "SEC") or in violation
of any applicable state securities law. Purchaser is an "accredited investor" as
defined in Rule 501 promulgated under Regulation D.
Purchaser has been informed that under the 1933 Act, the Stock must be held
indefinitely unless it is subsequently registered under the 1933 Act or unless
an exemption from such registration (such as Rule 144) is available with respect
to any proposed transfer or disposition by Purchaser of the Stock. Purchaser
further agrees that the Company may refuse to permit
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<PAGE>
Purchaser to sell, transfer or dispose of the Stock (except as permitted
under Rule 144) unless there is in effect a registration statement under the
1933 Act and any applicable state securities laws covering such transfer, or
unless Purchaser furnishes an opinion of counsel reasonably satisfactory to
counsel for the Company, to the effect that such registration is not required.
Purchaser also understands and agrees that there will be placed on the
certificate(s) for the Stock, or any substitution thereof, legends stating in
substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS."
Purchaser has carefully read this letter and has discussed its requirements
and other applicable limitations upon Purchaser's resale of the Stock with
Purchaser's counsel.
Very truly yours,
By: ________________________________
Title: ______________________________
<PAGE>
EXHIBIT 10.13
Form of Tranche Warrant
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE SECURITIES ACT OR UNLESS AN EXEMPTION
THEREFROM IS AVAILABLE.
WARRANT TO PURCHASE
COMMON STOCK OF FINANCIAL INTRANET, INC.
This certifies that _______________ (the "Holder"), for value received, is
entitled to purchase from FINANCIAL INTRANET, INC., a Nevada corporation (the
"Company") _______________shares of the Company's Common Stock (the "Common
Stock") for a per share exercise price equal to _____ cents ($.__)(the "Per
Share Exercise Price"). This right may be exercised at any time from the date
hereof, up to and including 5:00 p.m. (New York City time) on the fifth
anniversary of the date hereof (the "Expiration Date"), upon surrender to the
Company at its principal office (or at such other location as the Company may
advise the Holder in writing) of this Warrant, properly endorsed, with the
Subscription Form attached hereto as Exhibit A duly filled in and signed in, and
if applicable, the investment representations attached hereto as Exhibit B, upon
payment in cash or by check of the aggregate Per Share Exercise Price for the
number of shares for which this Warrant is being exercised determined in
accordance with the provisions hereof. The exercise of this Warrant is subject
to the exercise of any warrants whose exercise price has been increased in
accordance with the subscription agreement executed by Holder and the Company on
February 4, 1999 in the event of certain defaults by the Holder in the payments
of the purchase price to the Company subsequent to the date of the subscription
1. ISSUANCE OF CERTIFICATES.
Certificates for the shares of Common Stock acquired upon exercise of this
Warrant, together with any other securities or property to which the Holder is
entitled upon such exercise, will be delivered to the Holder by the Company at
the Company's expense within five business days after this Warrant has been so
exercised.
Each Common Stock certificate so delivered will be in such denominations of
Common Stock as may be requested by the Holder and will be registered in the
name of the Holder. In case of a purchase of less than all the shares that may
be purchased under this Warrant, the Company will cancel this Warrant and
execute and deliver a new warrant or warrants of like tenor for the balance of
the shares purchasable under this Warrant to the Holder within a reasonable time
after surrender of this Warrant.
2. SHARES FULLY-PAID, NONASSESSABLE, ETC.
<PAGE>
All shares of Common Stock issued upon exercise of this Warrant will, upon
issuance, be duly authorized, validly issued, fully-paid and nonassessable and
free from all preemptive rights of any shareholder and free of all taxes, liens
and charges with respect to the issue thereof. The Company will at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the exercise of this Warrant, such
number of its shares of Common Stock as from time to time are sufficient to
effect the full exercise of this Warrant. If at any time the number of
authorized but unissued shares of Common Stock is not sufficient to effect the
full exercise of this Warrant, the Company will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as is sufficient for
such purpose. The Company will take all such action as may be necessary to
assure that such securities may be issued as provided herein without violation
of any applicable law or regulation, or of any requirements of any domestic
securities exchange upon which the Common Stock may be listed; provided,
however, that the Company will not be required to effect a registration under
Federal or state securities laws with respect to such exercise, except as may be
set forth in Section 3 below and in the Registration Rights Agreement between
the Company and the Holder.
3. ADJUSTMENTS.
3.1 Adjustment for Stock Splits and Combinations. If the Company at any
time or from time to time during the term of this Warrant effects a subdivision
of the outstanding Common Stock, the Per Share Exercise Price in effect
immediately before that subdivision will be proportionately decreased.
Conversely, if the Company at any time or from time to time during the term of
this Warrant combines the outstanding shares of Common Stock into a smaller
number of shares, the Per Share Exercise Price in effect immediately before the
combination will be proportionately increased. Any adjustment under this Section
3.1 will become effective at the close of business on the date the subdivision
or combination becomes effective.
3.2 Adjustment for Common Stock Dividends and Distributions. If the Company
at any time or from time to time during the term of this Warrant makes, or
fixes, a record date for the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock, in each such event the Per Share Exercise Price that is then in
effect will be decreased as of the time of such issuance or, in the event such
record date is fixed, as of the close of business on such record date, by
multiplying the Per Share Exercise Price then in effect by a fraction (a) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance on the close of
business on such record date, and (b) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance on the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed thereof, the Per Share Exercise Price will be recomputed accordingly as of
the close of business on such record date and thereafter the Per Share Exercise
Price will be adjusted pursuant to this Section 3.2 to reflect the actual
payment of such dividend or distribution.
<PAGE>
3.3 Adjustments for Other Dividends and Distributions. If the Company at
any time or from time to time during the term of this Warrant makes, or fixes a
record date for the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in securities of the Company other than
shares of Common Stock, in each such event provision will be made so that the
Holder will receive upon exercise of this Warrant, in addition to the number of
shares of Common Stock receivable thereupon, the amount of other securities of
the Company that it would have received had this Warrant been exercised on the
date of such event and had it thereafter, during the period from the date of
such event to and including the exercise date, retained such securities
receivable by them as aforesaid, subject to all other adjustments called for
during such period under this Section 3 with respect to the rights of the Holder
hereunder or with respect to such other securities by their terms.
3.4 Adjustment for Reclassification, Exchange and Substitution. If at any
time or from time to time during the term of this Warrant the Common Stock
issuable upon the exercise of this Warrant is changed into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a recapitalization,
subdivision, combination, reclassification or exchange provided for elsewhere in
this Section 3), the Holder will have the right thereafter to exercise this
Warrant for the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change into
which the shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such recapitalization, reclassification or change could
have been converted, all subject to further adjustment as provided herein or
with respect to such other securities or property by the terms thereof.
3.5 Reorganizations. If at any time or from time to time during the term of
this Warrant there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification or exchange
provided for elsewhere in this Section 3), as a part of such capital
reorganization, provision will be made so that the Holder will thereafter be
entitled to receive upon exercise of this Warrant the number of shares of stock
or other securities or property of the Company to which a holder of the number
of shares of Common Stock deliverable upon exercise of this Warrant would have
been entitled on such capitalization reorganization, subject to adjustment in
respect of such stock or securities by the terms thereof.
3.6 Certificate of Adjustment. In each case of an adjustment or
readjustment of the number of Warrant Shares issuable upon exercise of this
Warrant or the Per Share Exercise Price, the Company, at its expense, will
compute such adjustment or readjustment in accordance with the provisions hereof
and prepare a certificate showing such adjustment or readjustment, and will mail
such certificate, by first class mail, postage prepaid, to the Holder at the
Holder's address as shown in the Company's books. The certificate will set forth
such adjustment or readjustment,
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<PAGE>
showing in detail the facts upon which such adjustment or readjustment is
based, including a statement of (a) the Per Share Exercise Price at the time in
effect, and (b) the type and amount, if any, of other property that at the time
would be received upon exercise of this Warrant. Except for adjustments of the
Per Share Exercise Price pursuant to Sections 3.1, 3.2, 3.3, 3.4 and 3.5, the
Per Share Exercise Price cannot be increased without the consent of the Holder.
3.7 Notices of Record Date. Upon (a) any taking by the Company of a record
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any sale of all or
substantially all of the assets of the Company or any voluntary or involuntary
dissolution, liquidation or winding up of the Company or (c) a proposed sale of
substantially all of the assets of the Company or a proposed merger in which the
Company will not be the surviving entity, the Company will mail to the Holder at
least twenty (20) days prior to the record date specified therein a notice
specifying (1) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such reorganization, reclassification,
recapitalization, asset sale, dissolution, liquidation or winding up is
expecting to become effective, and (3) the date, if any, that is to be fixed as
to when the holders of record of Common Stock (or other securities) will be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, asset sale, dissolution, liquidation or
winding up.
4. LIMIT ON SHARES SUBJECT TO ISSUANCE
Notwithstanding anything else herein to the contrary, each holder of this
Warrants may not receive shares of Common Stock upon exercise of this Warrant,
and this Warrant shall not be deemed exercisable, to the extent that after such
exercise, the sum of (1) the number of shares of Common Stock owned by the
Holder and its affiliates (other than shares of Common Stock which may be deemed
owned through the ownership of the unexercised portion of the warrants or the
unconverted portion of the convertible promissory notes previously issued to the
Investor (the "Notes")) and (2) the number of shares of Common Stock issuable
upon the exercise of the warrants and the conversion of the Notes and any
previously issued warrants or Notes with respect of which the determination of
this proviso is being made, would result in ownership by the Holder and its
affiliates of 4.99% or more of the Company's issued and outstanding shares of
Common Stock following such conversion. This restriction shall be binding upon
any transferee of this Warrant. The preceding shall not interfere with the
Holder's right to exercise this Warrant over time which in the aggregate totals
more than 4.99% of the then outstanding shares of Common Stock so long as the
Holder and its affiliates do not own more than 4.99% of the then outstanding
Common Stock at any given time. The Holder shall make a representation regarding
the number
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<PAGE>
of shares of Common Stock owned by the Holder and its affiliates on the
Subscription Form attached hereto as Exhibit A which shall be submitted with
this Warrant and payment of the aggregate Per Share Exercise Price upon exercise
of this Warrant.
5. REDEMPTION The Company shall have the right to redeem the warrants for
$.001 per share upon 20 days notice if the closing bid price per share of Common
Stock as quoted on the OTC Bulletin Board or NASDAQ is a minimum of $4.00 per
share for 30 consecutive trading days prior to the provision of the redemption
notice pursuant to Section 11, provided that if such notice is sent via
facsimile to both the Holder and Cardinal Capital Management Inc. ("Cardinal"),
notice shall be deemed given upon receipt by either the Holder or Cardinal. The
Holder will have the right to exercise the warrant at any time following such
notice and prior to redemption. The Company shall not be entitled to redeem this
Warrant in the event it is in default of this Warrant or the Subscription
Agreement (including all exhibits annexed thereto), or there is a default by the
Pledgee (Guarantor) under the Pledge and Security Agreement or Guaranty.
6. TAXES. The Company will pay all taxes (other than taxes based upon
income) and other governmental charges that may be imposed with respect to the
issue or delivery of shares of Common Stock upon exercise of this Warrant,
excluding any tax or other charge imposed in connection with any transfer
involved in the issue and delivery of shares of Common Stock in a name other
that in which this Warrant was registered.
7. CLOSING OF BOOKS.
The Company will at no time close its transfer books against the transfer
of any warrant or of any shares of Common Stock issued or issuable upon the
exercise of any warrant in any manner that interferes with the timely exercise
of this Warrant.
8. NO VOTING OR DIVIDEND RIGHTS.
Nothing contained in this Warrant will be construed as conferring upon the
Holder the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest will be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant has been exercised.
9. WARRANTS TRANSFERABLE.
Subject to compliance with applicable Federal and state securities laws and
the restrictions imposed by any other written agreement between the Holder and
the Company, this Warrant and all rights hereunder are transferable, in whole or
in part, without charge to the Holder (except for
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<PAGE>
transfer taxes), upon surrender of this Warrant properly endorsed and in
compliance with the provisions of this Warrant.
10. MODIFICATION AND WAIVER.
This Warrant and any provision hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of the same is sought.
11. NOTICES. Any notice required by the provisions of this Warrant will be
in writing and will be deemed effectively given: (a) upon personal delivery to
the party to be notified; (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day; (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All notices will be addressed to the Holder at
the address of the Holder appearing on the books of the Company.
12. LOST WARRANTS. The Company represents and warrants to the Holder that
upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction, or mutilation of this Warrant and, in the case of any such
loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such warrant, the Company, at its expense, will make and deliver
a new warrant, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated warrant.
13. FRACTIONAL SHARES. No fractional shares of Common Stock will be issued
upon exercise of this Warrant. If the exercise would result in the issuance of
any fractional share, the Company will, in lieu of issuing any fractional share,
pay cash equal to the product of such fraction multiplied by the closing bid
price of the Company's Common Stock on the date of conversion.
14. GOVERNING LAW.
14.1 This Warrant will be construed and enforced in accordance with, and
the rights of the parties will be governed by, the laws of the State of New York
without regard to conflict of laws principles.
14.2 Any litigation based thereon, or arising out of, under, or in
connection with, this agreement or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Company or Holder shall
be brought and maintained exclusively in the court of the
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<PAGE>
state of New York without reference to its conflicts of laws rules or
principles. The Company and the Holder hereby expressly and irrevocably submits
to the exclusive jurisdiction of the federal Courts of the state of New York
sitting in the Southern District for the purpose of any such litigation as set
forth above and irrevocably agrees to be bound by any final judgment rendered
thereby in connection with such litigation. The Holder and the Company further
irrevocably consents to the service of process by registered mail, postage
prepaid, or by personal service within or without the State of New York. The
Holder and the Company hereby expressly and irrevocably waives, to the fullest
extent permitted by law, any objection which it may have or hereafter may have
to the laying of venue of any such litigation brought in any such court referred
to above and any claim that any such litigation has been brought in any
inconvenient forum.
The Company has executed this Warrant as of this ____ day of ________,
1999.
FINANCIAL INTRANET, INC.
By: ________________________________
Name:
Title:
By: _________________________________
Name:
Title:
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<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
Date:
FINANCIAL INTRANET, INC.
410 Saw Mill River Road
Ardsley, NY 10502
Attn: President
Ladies and Gentlemen:
The undersigned hereby elects to exercise the warrant issued to it by
FINANCIAL INTRANET, INC. (the "Company") dated as of ___________________ and to
purchase thereunder ____________________ (_________) shares of the Common Stock
of the Company at a purchase price of _____ cents ($0.__) per Share, for an
aggregate purchase price of _____________________ ($___________) (the "Purchase
Price").
Pursuant to the terms of the warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
The undersigned represents that as of the date hereof, the undersigned and
its affiliates do not own more than ___________ shares of Common Stock of the
Company.
The undersigned also makes the representations set forth on the attached
Exhibit B of the warrant if applicable.
Very truly yours,
______________________________
By:____________________________
Title: __________________________
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<PAGE>
EXHIBIT B TO WARRANT
INVESTMENT REPRESENTATIONS
THIS CERTIFICATE MUST BE COMPLETED, SIGNED AND RETURNED TO FINANCIAL
INTRANET, INC. ALONG WITH THE SUBSCRIPTION FORM BEFORE THE COMMON
STOCK ISSUABLE UPON EXERCISE OF THE WARRANT WILL BE ISSUED UNLESS THE
COMMON STOCK IS SUBJECT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933.
_____________________, 199__
FINANCIAL INTRANET, INC.
410 Saw Mill River Road
Ardsley, New York 10502
Attn: President
The undersigned, _________________ ("Purchaser"), intends to acquire up to
______ shares of the Common Stock (the "Stock") of FINANCIAL INTRANET, INC. (the
"Company") from the Company pursuant to the exercise of certain warrants to
purchase Stock held by Purchaser. The Stock will be issued to Purchaser in a
transaction not involving a public offering and pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the "1933 Act"), and
applicable state securities laws. In connection with such purchase and in order
to comply with the exemptions from registration relied upon by the Company,
Purchaser represents, warrants and agrees as follows:
Without limiting the Purchaser's right to sell transfer or otherwise convey
the Stock, the Purchaser is acquiring the Stock for its own account, to hold for
investment, and Purchaser will not make any sale, transfer or other disposition
of the Stock in violation of the 1933 Act or the General Rules and Regulations
promulgated thereunder by the Securities and Exchange Commission (the "SEC") or
in violation of any applicable state securities law. Purchaser is an "accredited
investor" as defined in Rule 501 promulgated under Regulation D.
Purchaser has been has been informed that under the 1933 Act, the Stock
must be held indefinitely unless it is subsequently registered under the 1933
Act or unless an exemption from such registration (such as Rule 144) is
available with respect to any proposed transfer or disposition by Purchaser of
the Stock. Purchaser further agrees that the Company may refuse to permit
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<PAGE>
Purchaser to sell, transfer or dispose of the Stock (except as permitted
under Rule 144) unless there is in effect a registration statement under the
1933 Act and any applicable state securities laws covering such transfer, or
unless Purchaser furnishes an opinion of counsel reasonably satisfactory to
counsel for the Company, to the effect that such registration is not required.
Purchaser also understands and agrees that there will be placed on the
certificate(s) for the Stock, or any substitution thereof, legends stating in
substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS."
Purchaser has carefully read this letter and has discussed its requirements
and other applicable limitations upon Purchaser's resale of the Stock with
Purchaser's counsel.
Very truly yours,
By: ________________________________
Title: ______________________________
<PAGE>
EXHIBIT 10.14
GUARANTY
In consideration of Financial Intranet, Inc. (the "Debtor"), having
borrowed from Zubair Kazi (the "Obligee") the principal amount of $600,000.00,
bearing interest at the rate of 7% per annum, pursuant to a convertible
promissory note (the "Note") dated February 8, 1999, Ben Stein (the
"Guarantor"), for value received, hereby absolutely and unconditionally
guarantees to Obligee and his assigns the full and prompt payment, either in
cash or in shares of the Debtor's common stock which have been beneficially
owned by the Guarantor for a minimum of two years (the "Common Stock"), of the
obligations of Debtor under the Note. All capitalized terms used herein shall
have the meanings ascribed to them in the Note unless otherwise defined in this
Guaranty.
The obligations of Guarantor with respect to the guarantee of the principal
amount of the Note and all accrued interest thereon shall not be reduced until
Debtor has fully satisfied its obligations under the Note owed by Debtor to the
Obligee and its assigns. Any payment to Obligee on account of the Note shall be
deemed to be made on behalf of Guarantor and the amount of this Guaranty shall
be reduced by the amount of such payment.
This is a continuing, absolute and unconditional guarantee of payment
regardless of the validity, regularity or enforceability of the Note. The
Guarantor agrees that the Obligee may proceed directly against the Guarantor
under this Guaranty without first instituting legal or other proceedings against
Debtor, or any other person or persons.
In connection with the execution of this Guaranty, the Guarantor has
executed and delivered to the Obligee a Pledge and Security Agreement of even
date herewith. In the event that the Obligee seeks to enforce its rights under
this Guaranty, the Guarantor shall have the right to satisfy such obligations
with the shares of Common Stock pledged to the Obligee under the Pledge and
Security Agreement to the extent that the shares of Common Stock pledged as
collateral are sufficient to satisfy such obligations. In the event the
Guarantor attempts to satisfy his obligations under this Guaranty by payment in
Common Stock, the number of shares of Common Stock shall be determined by
dividing the Conversion Amount by the Conversion Price as set forth in the
Conversion Notice delivered by the Obligee to the Debtor and to the Guarantor
(as is set forth in the Note). This Guaranty shall terminate when the Debtor's
registration statement with respect to the shares of Common Stock issuable upon
conversion of the Note and issuable upon the exercise of the Warrants issued in
conjunction with the Note to the Obligee has remained effective without
suspension by the Securities and Exchange Commission for a period 30 days.
Guarantor consents that the Note or the liability of any other guarantor,
surety, indemnitor, indorser, or any other party for or upon the Note may, from
time to time, in whole or in part, be renewed, extended, modified, accelerated,
compromised, settled or released by the
<PAGE>
Obligee, all without any notice to, or further assent by, or any
reservation of rights against, Guarantor and without in any way effecting or
releasing the liability of Guarantor hereunder. The Obligee shall not be liable
for failure to collect or realize upon the Note, or any part thereof, for any
delay in so doing, nor shall Obligee be under any obligation to take any action
whatsoever with regard thereto.
Guarantor waives protest, demand for payment, notice of default or
nonpayment to or on Guarantor or Debtor. This Guaranty shall continue in full
force and effect notwithstanding the death, incapacity, or bankruptcy of
Guarantor, and shall be binding upon Guarantor and Guarantor's estate and the
personal representatives, heirs and successors of Guarantor who shall,
nevertheless, remain liable with respect to the portion of the Note guaranteed
hereunder and any renewals or extensions thereof or liabilities arising out of
same, and the Obligee shall have all the rights herein provided for as if no
such event had occurred.
No executory agreement and no course of dealing between Debtor and Obligee
or Guarantor shall be effective to terminate, change or modify this Guaranty in
whole or in part; nor shall any waiver of any rights or powers of the Obligee,
or consent by the Obligee, be valid or effective unless in writing and signed by
Obligee.
Guarantor agrees that, whenever an attorney is used to obtain payment under
or otherwise enforce this Guaranty or to enforce, declare or adjudicate any
rights or obligations under this Guaranty, whether by suit or by any other means
whatsoever, reasonable attorneys' fees shall be payable by the Guarantor against
whom this Guaranty or any obligation or right hereunder is sought to be
enforced. The Guarantor waives the right to interpose any defense based upon any
Statute of Limitations and any set-off or counterclaim of any nature or
description, and waives the performance of each and every condition precedent of
which the Guarantor might otherwise be entitled to law. This Guaranty shall be
governed by and construed in accordance with the laws of the State of New York,
without regard to conflicts of law principles applicable in the State of New
York. Any provision hereof which may prove unenforceable under any law shall not
effect the validity of any other provision hereof. Any litigation based hereon,
or arising out of, under, or in connection with, this Guaranty shall be brought
and maintained exclusively in the Federal Court of the state of New York without
reference to its conflicts of laws rules or principles. The parties hereby
expressly and irrevocably submit to the exclusive jurisdiction of the Federal
Courts of the state of New York sitting in the Southern District for the purpose
of any such litigation as set forth above and irrevocably agrees to be bound by
any final judgment rendered thereby in connection with such litigation. The
parties each hereby expressly and irrevocably waives, to the fullest extent
permitted by law, any objection which it may have or hereafter may have to the
laying of venue of any such litigation brought in any such court referred to
above and any claim that any such litigation has been brought in any
inconvenient forum.
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or by facsimile, or five days
following being mailed by certified or registered mail, postage prepaid,
return-receipt requested, addressed (1)
<PAGE>
to the Obligee at its address appearing on the books of the Company, (2) to
the Guarantor at 589 Lakeworth Circle, Lake Marcy, Florida 32746 with a copy to
Steven Schuster, Esq, McLaughlin & Stern LLP, 260 Madison Avenue, New York, New
York 10016 .
IN WITNESS WHEREOF, the undersigned has hereunder set his hand this 8th day
of February, 1999.
Ben Stein
<PAGE>
EXHIBIT 10.15
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT, dated as of February 8, 1999, between Ben
Stein, an individual, having an address at 589 Lakeworth Circle, Lake Mary,
Florida 32746 (referred to as the "Pledgor"), Zubair Kazi, an individual having
an address at Kazi Foods, Inc., 3671 Sunswept Drive, Studio City, CA (referred
to as the "Pledgee") and Financial Intranet Inc., 410 Saw Mill River Road,
Ardsley, New York 10502 (the "Corporation").
W I T N E S E T H:
WHEREAS, on February 8, 1999, the Corporation issued a 7% convertible note
to the Pledgee, a copy of which is attached, under which Corporation is required
to pay to Pledgee the principal amount of $600,000.00 (the "Note"). Pursuant to
the terms of the Note, $240,000.00 principal amount will be due and payable by
the Corporation to the Pledgee on demand (in the form of a Conversion Notice
pursuant to the terms of the Note) by the Pledgee, at any time or times on or
after February 16, 1999, while the remaining balance of $360,000 principal
amount will be due and payable by the Corporation to the Pledgee on demand (in
the form of a Conversion Notice pursuant to the terms of the Note) by the
Pledgee, at any time or times on or after 90 days from the date of the Note.
WHEREAS, in order to induce Pledgee to purchase the Note, Pledgor has
agreed to execute and deliver this Agreement and to pledge to Pledgee as
security for repayment of the Note, subject to the provisions of this Agreement,
one million five hundred thousand (1,500,000) shares
<PAGE>
of the Corporation's common stock (the "Common Stock") owned by the
Pledgor, par value $.001 per share, all of which is owned solely by Pledgor.
WHEREAS, Pledgor has executed a Guaranty whereby Pledgor has guaranteed to
Pledgee the full and prompt payment of the Corporation's obligations under the
Note.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the Pledgor and the Pledgee hereby agree as follows:
1. Pledge. Pledgor hereby pledges to Pledgee on behalf of and for the
benefit of Pledgee, up to 600,000 shares of Common Stock to secure the payment
of $240,000 principal amount due and payable by the Corporation on demand (in
the form of a Conversion Notice) by the Pledgee, at any time or times on or
after February 16, 1999 under the terms of the Note (the "February Pledged
Stock"), and up to 900,000 shares of Common Stock to secure the payment of
$360,000 principal amount due and payable by the Corporation on demand (in the
form of a Conversion Notice) by the Pledgee at any time or times on or after
ninety (90) days from the date of the Note (the "Ninety Day Pledged Stock", the
February Pledged Stock, the Ninety Day Pledged Stock and the Endorsed Stock
Power as per Section 2 herein is collectively referred to as the "Pledged
Stock"). Pledgor has pledged such Pledged Stock and all proceeds thereof as
collateral security for the prompt and complete payment when due and performance
and observance of all obligations of the Corporation under the Note. The Note
(including all representations, warranties, covenants or obligations provided
for herein), together with all replacements, amendments, extensions and renewals
thereof, if any from time to time are hereinafter collectively called the
"Obligations".
<PAGE>
2. Stock Certificates. Simultaneously with the execution of this Agreement,
Pledgor has delivered to Escrow Agent II (as defined below) certificates for the
Pledged Stock to be held by Escrow Agent II as collateral under this Agreement,
to secure complete and final payment by the Pledgor of the Obligations in
accordance with the terms and provisions of this Agreement. Simultaneously with
the execution of this Agreement, Pledgor has delivered to Escrow Agent II duly
endorsed stock powers (the "Endorsed Stock Powers") that permit Pledgee to
transfer the Pledged Stock to the Pledgee if an Event Default occurs, as set
forth in the Note or in Paragraph 12 hereof (a copy of each stock power is
attached hereto).
3. Stock Dividends, Distributions, etc. If, while this Agreement is in
effect, the Pledgor shall became entitled to receive or shall receive any stock
certificate (including, without limitation, any certificate representing a stock
dividend, stock split, conversion of a convertible security or a distribution in
connection with any reclassification or any increase or reduction of capital, or
issued in connection with any reorganization), option or right, whether as an
addition to, in substitution, of or in exchange for any of the Pledged Stock,
Pledgor agrees that such stock certificate, option or right shall be additional
collateral security for the Obligations, and shall be delivered to Escrow Agent
II to be held as Collateral (as defined below) pursuant to the terms of this
Agreement.
4. Collateral. All property at any time pledged to Pledgee under this
Agreement and all income therefrom and proceeds thereof, including, without
limitation, the Pledged Stock, are herein collectively sometimes called the
"Collateral".
5. Escrow Agent. Pledgor and Pledgee each hereby designate
<PAGE>
McLaughlin & Stern LLP, 260 Madison Avenue, New York NY 10016 as Escrow
Agent II ("Escrow Agent II") to hold the Pledged Stock in accordance with the
escrow agreement dated as of the date hereof.
6. Voting Rights. Unless an Event of Default, as defined herein or in the
Note, shall have occurred, Pledgor shall be entitled to vote the February
Pledged Stock and the Ninety Day Pledged Stock and to give consents, waiver and
ratification in respect of the February Pledged Stock and Ninety Day Pledged
Stock; provided, however, that no vote shall be cast, or consent, waiver or
ratification given or action taken, which would violate any provision of this
Agreement, the Note or the Guaranty.
7. Rights of Pledgee. Any of the Pledged Stock may, if an Event of Default
has occurred and is continuing (as defined below or in the Note), (a) be
registered in the name of Pledgee and its nominees (for which a power of
attorney coupled with an interest is hereby granted), which may thereafter
exercise all voting and other rights and exercise any and all rights of
conversion, exchange, subscription or any other rights, privileges or options
pertaining to any of the Pledged Stock as if it were the absolute owner thereof
or (b) to the extent permitted by law, be sold by Pledgee in the name of Pledgor
to any third party with all proceeds of such sale being paid to Pledgee (for
which a power of attorney coupled with an interest is hereby granted). In
addition, Pledgor grants to Pledgee a power of attorney coupled with an interest
to sign on behalf of Pledgor after an Event of Default (as defined herein or in
the Note), a statement renouncing or modifying Pledgor's right under section
9-505 of the Uniform Commercial Code of the State of New York.
<PAGE>
8. Remedies. In the event that any portion of the Obligations has been
declared, or becomes, due and payable, or an Event of Default (as defined herein
or in the Note) has occurred and is continuing, Pledgee, upon notice to the
Pledgor, may forthwith collect, receive and realize upon the Collateral, or any
part thereof, and shall have all applicable remedies set forth in the New York
Uniform Commercial Code.
9. Representations and Warranties of the Pledgor. Pledgor represents,
warrants and covenants to Pledgee that:
(a) Pledgor is, and as long as this Pledge Agreement shall be in effect
pursuant to its terms, shall be the sole, record, legal and beneficial owner of,
and has good and marketable title to, the Pledged Stock, subject to no lien,
pledge or encumbrance, except the lien on the Pledged Stock created by this
Agreement.
(b) Pledgor has duly executed and delivered this Agreement, which is a
legal, valid and binding obligation of Pledgor, enforceable in accordance with
its terms and not in violation of any other agreements, instruments, order or
judgment by which Pledgor is bound or subject. The execution, delivery and
performance of this Agreement by Pledgor does not require the consent or
approval of any other person, entity or governmental agency.
(c) Pledgor represents that he is an affiliate of the Corporation, as that
term is defined in Rule 144 of the Securities Act of 1933, and has been the
beneficial owner of the Pledged Stock for a period of at least two (2) years
from the date he acquired them from the Corporation.
(d) Pledgor represents that the pledge of the Pledged Stock represents a
bona
<PAGE>
fide pledge of the Obligation's under the Note and that the Pledgor will
remain liable for any deficiency in the event that the delivery of the Pledged
Stock to the Pledgee is insufficient to satisfy the Corporation's obligations
under the Note.
(e) Pledgor hereby represents and warrants to the Pledgee that from and
after the date hereof and so long as this Pledge Agreement shall be in effect
pursuant to its terms, the Pledgor agrees that it shall not take any action that
would cause the Pledgor to be in breach or default of any of the Obligations,
that all representations and warranties made by Pledgor shall survive this
Agreement and that as of the date hereof, the Pledgee shall be deemed to have a
priority lien on the Pledged Stock for the purposes and in accordance with the
terms and provisions hereof, and the Pledgor shall cooperate with the Pledgee
and take all action requested by the Pledgee to ensure the representations and
warranties shall survive this Pledge Agreement with respect thereto.
(f) Upon the Pledged Stock being delivered to the Pledgee as heretofore
provided, they shall become fully the property of the Pledgee. The Pledgor shall
take all action necessary, as the Pledgee shall request, to cause the
Corporation and/or the Corporation's transfer agent to have the Pledgee or its
nominee registered as the holder of record of such shares at no cost to the
Pledgee. In addition, in the event that the certificates representing the
Pledged Stock shall bear a restrictive legend, the Pledgor shall promptly take
all necessary action, (including obtaining an opinion of counsel satisfactory to
the foregoing transfer agent) at the direction of the Pledgee (at no cost to the
Pledgee, the Corporation, and/or the Corporation's transfer agent,) to transfer
the shares to Pledgee or its nominee for sale without restrictive legend
pursuant to Rule 144(k) in accordance with the Securities Act of 1933, as
amended. In addition, in the event that the
<PAGE>
certificates representing the Pledged Stock shall bear a legend restricting
the Pledgee's ability to freely transfer such shares, upon request of the
Pledgee the Pledgor shall promptly take all necessary action, at the direction
of the Pledgee, to convert the securities into Common Stock and to sell the
Common Stock pursuant to an effective registration statement in accordance with
the Securities Act of 1933, as amended, and the blue sky laws or such states as
the Pledgee may request.
10. Representations and Warranties of the Pledgee
(a) Pledgee has duly executed and delivered this Agreement, which is a
legal, valid and binding obligation of Pledgee, enforceable in accordance with
its terms and not in violation of any other agreements, instruments, order or
judgment by which Pledgee is bound or subject. The execution, delivery and
performance of this Agreement by Pledgee does not require the consent or
approval of any other person, entity or governmental agency.
(b) Pledgee represents that he is not an affiliate of the Corporation, as
that term is defined in Rule 144 of the Securities Act of 1933 (without limiting
Pledgee's right to sell, transfer, convey or assign the Pledged Stock), that he
will not be acquiring the Pledged Stock with a view towards distribution and
that, in the event of that Pledgee sells or transfers the Pledged Stock, such
sale or transfer will be in compliance with the applicable state and federal
securities laws, including Rule 144 of the Securities Act.
11. Representations and Warranties of the Corporation The Corporation
represents and warrants that it shall take all action necessary to have the
Pledged Stock transferred in the name of the Pledgee, including but not limited
to, instructing the transfer agent to transfer the
<PAGE>
Pledged Stock to Pledgee and providing an opinion of counsel if one is
requested by Pledgee.
12. Events of Default. If any one of the following events shall occur or
continue and shall not be waived in writing by Pledgee (an "Event of Default"):
(a) the Corporation shall default in the payment (including timely delivery of
shares due upon receipt of a Notice of Conversion), when due and payable, of any
amount due under the Note or shall be in default of any provision of the Note
which shall constitute an Event of Default thereunder or (b) the Pledgor shall
file, or there shall be filed against the Pledgor, a petition under any title,
section or chapter of the Federal Bankruptcy Code, then, at any time, the
outstanding principal amount of the Note shall be immediately due and payable,
and Pledgee shall be entitled to pursue all remedies provided for in this
Agreement or by law upon such acceleration upon Default. In the event the
Pledgor shall file, or there shall be filed against the Pledgor, a petition
under any title, section or chapter of the Federal Bankruptcy Code, then Pledgee
shall have a first priority security interest with respect to the Pledged Stock
13. Release of Collateral to Pledgee. The Pledged Stock shall be released
to the Pledgor (a) upon the satisfaction by the Corporation of all of its
Obligations, or (b) upon the delivery by the Corporation to Escrow Agent II of a
number of shares of Common Stock in the name of the Pledgee free of liens and/or
encumbrances, equal to the number of shares of Pledged Stock then held by Escrow
Agent II, provided that the certificates so delivered by the Corporation shall
be free of restrictive legend and subject to a Registration Statement which has
been effective without suspension by the Securities and Exchange Commission for
a minimum of 30 days. Upon the release of the Collateral to the Pledgor, this
Agreement and the Guaranty shall
<PAGE>
terminate.
14. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by facsimile or
five days following being mailed by certified or registered mail, postage
prepaid, return-receipt requested, addressed (1) to the Pledgee of record at its
address appearing on the books of the Company, (2) to the Pledgor at 589
Lakeworth Circle, Lake Mary, Florida 32746, facsimile number: (407) 333-2373
with a copy to Steven Schuster, Esq., McLaughlin & Stern, LLP, 260 Madison
Avenue, New York, NY 10016, facsimile number: (212)-448-0066.
15. Waivers, Amendments. None of the terms or provisions of this Agreement
may be waived, altered, modified or amended except by an instrument in writing,
duly executed by Pledgee and Pledgor. This Agreement and all obligations of the
Pledgor hereunder shall be binding upon the successors and assigns of the
Pledgor. This Agreement shall inure to the benefit or and be enforceable by
Pledgee and its successors and assigns.
16. Applicable Law. This Agreement shall be governed by the laws of the
State of New York without regard to conflict of law rules applied in the State
of New York and has been executed and delivered in the State of New York.
17. Jurisdiction. Any litigation based thereon, or arising out of, under,
or in connection with, this agreement or any course of conduct, course of
dealing, statements (whether oral or written) or actions of the Pledgor or
Pledgee shall be brought and maintained exclusively in the Federal Courts of the
state of New York without reference to its conflicts of laws rules or
principles. The Pledgor and the Pledgee hereby expressly and irrevocably submits
to the exclusive
<PAGE>
jurisdiction of the Federal Court of the state of New York sitting in the
Southern District for the purpose of any such litigation as set forth above.
Each party further irrevocably consents to the service of process by registered
mail, postage prepaid, or by personal service within or without the State of New
York. To the extent that the Pledgee or Pledgor has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution or otherwise) with respect to itself or its property, Pledgee and
Pledgor hereby irrevocably waives such immunity in respect of its obligations
under this agreement and the other documents.
18. Counterparts. This Pledge Agreement may be executed in counterparts,
each of which shall be an original, and such counterparts together shall
constitute one and the same instrument.
19. Entire Agreement. This Pledge Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and may not be changed or modified except by a written agreement signed by the
parties whose duties, obligations, rights or interest is affected thereby.
<PAGE>
IN WITNESS WHEREOF, the parties above executed and delivered this Agreement
on the day and year first above written.
PLEDGOR:
/s/Ben Stein
Ben Stein
PLEDGEE:
/s/Zubair Kazi
Zubair Kazi
FINANCIAL INTRANET, INC.
By:/s/Michael Sheppard
Michael Sheppard, President
<PAGE>
EXHIBIT 10.16
FINANCIAL INTRANET
Systems to be Monitored Include:
RM 600 Webserver/Netscape Enterprise Server
Networker/Oracle/Informix
RM 400 Video Pump Server
RM 400 Development Server
RM 400 Firewall/Raptor
Ascend Max 4002 Router
Siemens Tape Backup System
Servers Include:
"Pinging" of Website via Internet.
Configuration and monitoring of backups for all systems.
Monitoring of Unix filesystems, CPU's, Memory usage.
Database Administration for Oracle/Informix.
Firewall Administration.
Reports to be provided on bandwidth consumption, CPU, disk, and memory
usage, all system accesses, and system changes.
Regular dial-in or dedicated line system access for monitoring purposes (tbd)
Helpdesk Support: Service Hours 9am. To 5pm.
Outside of these hours, services will be billed on a time and materials
basis ($150-220/hr)
Helpdesk call allowance is 30 calls per month, $5/call thereafter.
Sincerely,
Alan Spar
Financial Intranet Incorporated
VP, Technology
Accepted by:__________________
Siemens Business Services
Date: December 30, 1998
<PAGE>
EXHIBIT 10.17
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE SECURITIES ACT OR UNLESS AN EXEMPTION
THEREFROM IS AVAILABLE.
WARRANT TO PURCHASE
COMMON STOCK OF FINANCIAL INTRANET, INC.
This certifies that Cardinal Capital Management Inc. (the "Holder"), for
value received, is entitled to purchase from FINANCIAL INTRANET, INC., a Nevada
corporation (the "Company") One Hundred Sixty Thousand (160,000) shares of the
Company's Common Stock (the "Common Stock") for a per share exercise price equal
to sixty-four cents ($.64)(the "Per Share Exercise Price"). This right may be
exercised at any time from the date hereof, up to and including 5:00 p.m. (New
York City time) on the fifth anniversary of the date hereof (the "Expiration
Date"), upon surrender to the Company at its principal office (or at such other
location as the Company may advise the Holder in writing) of this warrant,
properly endorsed, with the Subscription Form attached hereto as Exhibit A duly
filled in and signed in, and if applicable, the investment representations
attached hereto as Exhibit B, upon payment in cash or by check of the aggregate
Per Share Exercise Price for the number of shares for which this warrant is
being exercised determined in accordance with the provisions hereof.
1. ISSUANCE OF CERTIFICATES.
Certificates for the shares of Common Stock acquired upon exercise of this
warrant, together with any other securities or property to which the Holder is
entitled upon such exercise, will be delivered to the Holder by the Company at
the Company's expense within five business days after this warrant has been so
exercised.
Each Common Stock certificate so delivered will be in such denominations of
Common Stock as may be requested by the Holder and will be registered in the
name of the Holder. In case of a purchase of less than all the shares that may
be purchased under this warrant, the Company will cancel this warrant and
execute and deliver a new warrant or warrants of like tenor for the balance of
the shares purchasable under this warrant to the Holder within a reasonable time
after surrender of this warrant.
2. SHARES FULLY-PAID, NONASSESSABLE, ETC.
All shares of Common Stock issued upon exercise of this warrant will, upon
issuance, be duly authorized, validly issued, fully-paid and nonassessable and
free from all preemptive rights of any shareholder and free of all taxes, liens
and charges with respect to the issue thereof. The Company will at all times
reserve and keep available out of its authorized but unissued shares of
<PAGE>
Common Stock, solely for the purpose of effecting the exercise of this
warrant, such number of its shares of Common Stock as from time to time are
sufficient to effect the full exercise of this warrant. If at any time the
number of authorized but unissued shares of Common Stock is not sufficient to
effect the full exercise of this warrant, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as is
sufficient for such purpose. The Company will take all such action as may be
necessary to assure that such securities may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements of
any domestic securities exchange upon which the Common Stock may be listed;
provided, however, that the Company will not be required to effect a
registration under Federal or state securities laws with respect to such
exercise, except as may be set forth in Section 3 below and in the Registration
Rights Agreement between the Company and the Holder.
3. ADJUSTMENTS.
3.1 Adjustment for Stock Splits and Combinations. If the Company at any
time or from time to time during the term of this warrant effects a subdivision
of the outstanding Common Stock, the Per Share Exercise Price in effect
immediately before that subdivision will be proportionately decreased.
Conversely, if the Company at any time or from time to time during the term of
this warrant combines the outstanding shares of Common Stock into a smaller
number of shares, the Per Share Exercise Price in effect immediately before the
combination will be proportionately increased. Any adjustment under this Section
3.1 will become effective at the close of business on the date the subdivision
or combination becomes effective.
3.2 Adjustment for Common Stock Dividends and Distributions. If the Company
at any time or from time to time during the term of this warrant makes, or
fixes, a record date for the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock, in each such event the Per Share Exercise Price that is then in
effect will be decreased as of the time of such issuance or, in the event such
record date is fixed, as of the close of business on such record date, by
multiplying the Per Share Exercise Price then in effect by a fraction (a) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance on the close of
business on such record date, and (b) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance on the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed thereof, the Per Share Exercise Price will be recomputed accordingly as of
the close of business on such record date and thereafter the Per Share Exercise
Price will be adjusted pursuant to this Section 3.2 to reflect the actual
payment of such dividend or distribution.
3.3 Adjustments for Other Dividends and Distributions. If the Company at
any time
- 2 -
<PAGE>
or from time to time during the term of this warrant makes, or fixes a
record date for the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in securities of the Company other than
shares of Common Stock, in each such event provision will be made so that the
Holder will receive upon exercise of this warrant, in addition to the number of
shares of Common Stock receivable thereupon, the amount of other securities of
the Company that it would have received had this warrant been exercised on the
date of such event and had it thereafter, during the period from the date of
such event to and including the exercise date, retained such securities
receivable by them as aforesaid, subject to all other adjustments called for
during such period under this Section 3 with respect to the rights of the Holder
hereunder or with respect to such other securities by their terms.
3.4 Adjustment for Reclassification, Exchange and Substitution. If at any
time or from time to time during the term of this warrant the Common Stock
issuable upon the exercise of this warrant is changed into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a recapitalization,
subdivision, combination, reclassification or exchange provided for elsewhere in
this Section 3), the Holder will have the right thereafter to exercise this
warrant for the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change into
which the shares of Common Stock issuable upon exercise of this warrant
immediately prior to such recapitalization, reclassification or change could
have been converted, all subject to further adjustment as provided herein or
with respect to such other securities or property by the terms thereof.
3.5 Reorganizations. If at any time or from time to time during the term of
this warrant there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification or exchange
provided for elsewhere in this Section 3), as a part of such capital
reorganization, provision will be made so that the Holder will thereafter be
entitled to receive upon exercise of this warrant the number of shares of stock
or other securities or property of the Company to which a holder of the number
of shares of Common Stock deliverable upon exercise of this warrant would have
been entitled on such capitalization reorganization, subject to adjustment in
respect of such stock or securities by the terms thereof.
3.6 Certificate of Adjustment. In each case of an adjustment or
readjustment of the number of shares issuable upon exercise of this warrant or
the Per Share Exercise Price, the Company, at its expense, will compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and will mail such
certificate, by first class mail, postage prepaid, to the Holder at the Holder's
address as shown in the Company's books. The certificate will set forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the Per Share
Exercise Price at the time in effect, and (b) the type and amount,
- 3 -
<PAGE>
if any, of other property that at the time would be received upon exercise
of this warrant.
3.7 Notices of Record Date. Upon (a) any taking by the Company of a record
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any sale of all or
substantially all of the assets of the Company or any voluntary or involuntary
dissolution, liquidation or winding up of the Company or (c) a proposed sale of
substantially all of the assets of the Company or a proposed merger in which the
Company will not be the surviving entity, the Company will mail to the Holder at
least twenty (20) days prior to the record date specified therein a notice
specifying (1) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such reorganization, reclassification,
recapitalization, asset sale, dissolution, liquidation or winding up is
expecting to become effective, and (3) the date, if any, that is to be fixed as
to when the holders of record of Common Stock (or other securities) will be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, asset sale, dissolution, liquidation or
winding up.
4. REDEMPTION The Company shall have the right to redeem the warrants for
$.001 per share upon twenty days notice if the closing bid price per share of
Common Stock as quoted on the OTC Bulletin Board or NASDAQ is a minimum of $4.00
per share for thirty consecutive trading days prior to the date of the notice of
redemption. The Holder will have the right to exercise the warrant at any time
following such and notice and prior to redemption.
5. TAXES.
The Company will pay all taxes (other than taxes based upon income) and
other governmental charges that may be imposed with respect to the issue or
delivery of shares of Common Stock upon exercise of this warrant, excluding any
tax or other charge imposed in connection with any transfer involved in the
issue and delivery of shares of Common Stock in a name other that in which this
warrant was registered.
6. CLOSING OF BOOKS.
The Company will at no time close its transfer books against the transfer
of any warrant or of any shares of Common Stock issued or issuable upon the
exercise of any warrant in any manner that interferes with the timely exercise
of this warrant.
- 4 -
<PAGE>
7. NO VOTING OR DIVIDEND RIGHTS.
Nothing contained in this warrant will be construed as conferring upon the
Holder the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest will be payable or accrued in respect of
this warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this warrant has been exercised.
8. WARRANTS TRANSFERABLE.
Subject to compliance with applicable Federal and state securities laws and
the restrictions imposed by any other written agreement between the Holder and
the Company, this warrant and all rights hereunder are transferable, in whole or
in part, without charge to the Holder (except for transfer taxes), upon
surrender of this warrant properly endorsed and in compliance with the
provisions of this warrant.
9. MODIFICATION AND WAIVER.
This warrant and any provision hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of the same is sought.
10. NOTICES.
Any notice required by the provisions of this warrant will be in writing
and will be deemed effectively given: (a) upon personal delivery to the party to
be notified; (b) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient; if not, then on the next business day; (c) five
(5) days after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (d) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All notices will be addressed to the Holder at the
address of the Holder appearing on the books of the Company.
11. LOST WARRANTS.
The Company represents and warrants to the Holder that upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction,
or mutilation of this warrant and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such warrant, the Company, at its expense, will make and deliver a new
warrant, of like tenor,
- 5 -
<PAGE>
in lieu of the lost, stolen, destroyed or mutilated warrant.
12. FRACTIONAL SHARES.
No fractional shares of Common Stock will be issued upon exercise of this
warrant. If the exercise would result in the issuance of any fractional share,
the Company will, in lieu of issuing any fractional share, pay cash equal to the
product of such fraction multiplied by the closing bid price of the Company's
Common Stock on the date of conversion.
13. GOVERNING LAW.
13.1 This warrant will be construed and enforced in accordance with, and
the rights of the parties will be governed by, the laws of the State of New York
without regard to conflict of laws principles.
13.2 Any litigation based thereon, or arising out of, under, or in
connection with, this agreement or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Company or Holder shall
be brought and maintained exclusively in the court of the state of New York
without reference to its conflicts of laws rules or principles. The Company and
the Holder hereby expressly and irrevocably submits to the jurisdiction of the
federal Courts of the state of New York for the purpose of any such litigation
as set forth above and irrevocably agrees to be bound by any final judgment
rendered thereby in connection with such litigation. The Holder further
irrevocably consents to the service of process by registered mail, postage
prepaid, or by personal service within or without the State of New York. The
Holder hereby expressly and irrevocably waives, to the fullest extent permitted
by law, any objection which it may have or hereafter may have to the laying of
venue of any such litigation brought in any such court referred to above and any
claim that any such litigation has been brought in any inconvenient forum.
- 6 -
<PAGE>
The Company has executed this warrant as of this 31st day of December,
1998.
FINANCIAL INTRANET, INC.
By: /s/Michael Sheppard
Name:
Title:
By: /s/Maura Marx
Name:
Title:
- 7 -
<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
Date:
FINANCIAL INTRANET, INC.
410 Saw Mill River Road
Ardsley, NY 10502
Attn: President
Ladies and Gentlemen:
The undersigned hereby elects to exercise the warrant issued to it by
FINANCIAL INTRANET, INC. (the "Company") dated as of December 30, 1998 and to
purchase thereunder ____________________ (_________) shares of the Common Stock
of the Company at a purchase price of sixty-four cents ($0.64) per Share, for an
aggregate purchase price of _____________________ ($___________) (the "Purchase
Price").
Pursuant to the terms of the warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
The undersigned also makes the representations set forth on the attached
Exhibit B of the warrant if applicable.
Very truly yours,
______________________________
By:____________________________
Title: __________________________
- 8 -
<PAGE>
EXHIBIT B TO WARRANT
INVESTMENT REPRESENTATIONS
THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO FINANCIAL
INTRANET, INC. ALONG WITH THE SUBSCRIPTION FORM BEFORE THE COMMON
STOCK ISSUABLE UPON EXERCISE OF THE WARRANT WILL BE ISSUED UNLESS THE
COMMON STOCK IS SUBJECT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933..
_____________________, 199__
FINANCIAL INTRANET, INC.
410 Saw Mill River Road
Ardsley, New York 10502
Attn: President
The undersigned, _________________ ("Purchaser"), intends to acquire up to
______ shares of the Common Stock (the "Stock") of FINANCIAL INTRANET, INC. (the
"Company") from the Company pursuant to the exercise of certain warrants to
purchase Stock held by Purchaser. The Stock will be issued to Purchaser in a
transaction not involving a public offering and pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the "1933 Act"), and
applicable state securities laws. In connection with such purchase and in order
to comply with the exemptions from registration relied upon by the Company,
Purchaser represents, warrants and agrees as follows:
The Purchaser is acquiring the Stock for its own account, to hold for
investment, and Purchaser will not make any sale, transfer or other disposition
of the Stock in violation of the 1933 Act or the General Rules and Regulations
promulgated thereunder by the Securities and Exchange Commission (the "SEC") or
in violation of any applicable state securities law. Purchaser is an "accredited
investor" as defined in Rule 501 promulgated under Regulation D.
Purchaser has been informed that under the 1933 Act, the Stock must be held
indefinitely unless it is subsequently registered under the 1933 Act or unless
an exemption from such registration (such as Rule 144) is available with respect
to any proposed transfer or disposition by Purchaser of the Stock. Purchaser
further agrees that the Company may refuse to permit Purchaser to sell, transfer
or dispose of the Stock (except as permitted under Rule 144) unless
- 9 -
<PAGE>
there is in effect a registration statement under the 1933 Act and any
applicable state securities laws covering such transfer, or unless Purchaser
furnishes an opinion of counsel reasonably satisfactory to counsel for the
Company, to the effect that such registration is not required.
Purchaser also understands and agrees that there will be placed on the
certificate(s) for the Stock, or any substitution thereof, legends stating in
substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS."
Purchaser has carefully read this letter and has discussed its requirements
and other applicable limitations upon Purchaser's resale of the Stock with
Purchaser's counsel.
Very truly yours,
By: ________________________________
Title: ______________________________
<PAGE>
EXHIBT 10.18
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE SECURITIES ACT OR
UNLESS AN EXEMPTION THEREFROM IS AVAILABLE.
WARRANT TO PURCHASE
COMMON STOCK OF FINANCIAL INTRANET, INC.
This certifies that Josephberg Grosz & Co., Inc. (the "Holder"), for value
received, is entitled to purchase from FINANCIAL INTRANET, INC., a Nevada
corporation (the "Company") One Hundred and Twenty Five Thousand (125,000)
shares of the Company's Common Stock (the "Common Stock") for a per share
exercise price equal to forty cents ($.40)(the "Per Share Exercise Price"). This
right may be exercised at any time from the date hereof, up to and including
5:00 p.m. (New York City time) on the fifth anniversary of the date hereof (the
"Expiration Date"), upon surrender to the Company at its principal office (or at
such other location as the Company may advise the Holder in writing) of this
warrant, properly endorsed, with the Subscription Form attached hereto as
Exhibit A duly filled in and signed in, and if applicable, the investment
representations attached hereto as Exhibit B, upon payment in cash or by check
of the aggregate Per Share Exercise Price for the number of shares for which
this warrant is being exercised determined in accordance with the provisions
hereof.
1. ISSUANCE OF CERTIFICATES.
Certificates for the shares of Common Stock acquired upon exercise of this
warrant, together with any other securities or property to which the Holder is
entitled upon such exercise, will be delivered to the Holder by the Company at
the Company's expense within five business days after this warrant has been so
exercised.
Each Common Stock certificate so delivered will be in such denominations of
Common Stock as may be requested by the Holder and will be registered in the
name of the Holder. In case of a purchase of less than all the shares that may
be purchased under this warrant, the Company will cancel this warrant and
execute and deliver a new warrant or warrants of like tenor for the balance of
the shares purchasable under this warrant to the Holder within a reasonable time
after surrender of this warrant.
2. SHARES FULLY-PAID, NONASSESSABLE, ETC.
All shares of Common Stock issued upon exercise of this warrant will, upon
issuance, be duly authorized, validly issued, fully-paid and nonassessable and
free from all preemptive rights of any shareholder and free of all taxes, liens
and charges with respect to the issue thereof. The Company will at all times
reserve and keep available out of its authorized but unissued shares of
<PAGE>
Common Stock, solely for the purpose of effecting the exercise of this
warrant, such number of its shares of Common Stock as from time to time are
sufficient to effect the full exercise of this warrant. If at any time the
number of authorized but unissued shares of Common Stock is not sufficient to
effect the full exercise of this warrant, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as is
sufficient for such purpose. The Company will take all such action as may be
necessary to assure that such securities may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements of
any domestic securities exchange upon which the Common Stock may be listed;
provided, however, that the Company will not be required to effect a
registration under Federal or state securities laws with respect to such
exercise, except as may be set forth in Section 3 below and in the Registration
Rights Agreement between the Company and the Holder.
3. ADJUSTMENTS.
3.1 Adjustment for Stock Splits and Combinations. If the Company at any
time or from time to time during the term of this warrant effects a subdivision
of the outstanding Common Stock, the Per Share Exercise Price in effect
immediately before that subdivision will be proportionately decreased.
Conversely, if the Company at any time or from time to time during the term of
this warrant combines the outstanding shares of Common Stock into a smaller
number of shares, the Per Share Exercise Price in effect immediately before the
combination will be proportionately increased. Any adjustment under this Section
3.1 will become effective at the close of business on the date the subdivision
or combination becomes effective.
3.2 Adjustment for Common Stock Dividends and Distributions. If the Company
at any time or from time to time during the term of this warrant makes, or
fixes, a record date for the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock, in each such event the Per Share Exercise Price that is then in
effect will be decreased as of the time of such issuance or, in the event such
record date is fixed, as of the close of business on such record date, by
multiplying the Per Share Exercise Price then in effect by a fraction (a) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance on the close of
business on such record date, and (b) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance on the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed thereof, the Per Share Exercise Price will be recomputed accordingly as of
the close of business on such record date and thereafter the Per Share Exercise
Price will be adjusted pursuant to this Section 3.2 to reflect the actual
payment of such dividend or distribution.
3.3 Adjustments for Other Dividends and Distributions. If the Company at
any time or from time to time during the term of this warrant makes, or fixes a
record date for the
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determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in securities of the Company other than shares of
Common Stock, in each such event provision will be made so that the Holder will
receive upon exercise of this warrant, in addition to the number of shares of
Common Stock receivable thereupon, the amount of other securities of the Company
that it would have received had this warrant been exercised on the date of such
event and had it thereafter, during the period from the date of such event to
and including the exercise date, retained such securities receivable by them as
aforesaid, subject to all other adjustments called for during such period under
this Section 3 with respect to the rights of the Holder hereunder or with
respect to such other securities by their terms.
3.4 Adjustment for Reclassification, Exchange and Substitution. If at any
time or from time to time during the term of this warrant the Common Stock
issuable upon the exercise of this warrant is changed into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a recapitalization,
subdivision, combination, reclassification or exchange provided for elsewhere in
this Section 3), the Holder will have the right thereafter to exercise this
warrant for the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change into
which the shares of Common Stock issuable upon exercise of this warrant
immediately prior to such recapitalization, reclassification or change could
have been converted, all subject to further adjustment as provided herein or
with respect to such other securities or property by the terms thereof.
3.5 Reorganizations. If at any time or from time to time during the term of
this warrant there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification or exchange
provided for elsewhere in this Section 3), as a part of such capital
reorganization, provision will be made so that the Holder will thereafter be
entitled to receive upon exercise of this warrant the number of shares of stock
or other securities or property of the Company to which a holder of the number
of shares of Common Stock deliverable upon exercise of this warrant would have
been entitled on such capitalization reorganization, subject to adjustment in
respect of such stock or securities by the terms thereof.
3.6 Certificate of Adjustment. In each case of an adjustment or
readjustment of the number of shares issuable upon exercise of this warrant or
the Per Share Exercise Price, the Company, at its expense, will compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and will mail such
certificate, by first class mail, postage prepaid, to the Holder at the Holder's
address as shown in the Company's books. The certificate will set forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the Per Share
Exercise Price at the time in effect, and (b) the type and amount, if any, of
other property that at the time would be received upon exercise of this warrant.
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<PAGE>
3.7 Notices of Record Date. Upon (a) any taking by the Company of a record
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any sale of all or
substantially all of the assets of the Company or any voluntary or involuntary
dissolution, liquidation or winding up of the Company or (c) a proposed sale of
substantially all of the assets of the Company or a proposed merger in which the
Company will not be the surviving entity, the Company will mail to the Holder at
least twenty (20) days prior to the record date specified therein a notice
specifying (1) the date on which any such record is to be taken for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such reorganization, reclassification,
recapitalization, asset sale, dissolution, liquidation or winding up is
expecting to become effective, and (3) the date, if any, that is to be fixed as
to when the holders of record of Common Stock (or other securities) will be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, asset sale, dissolution, liquidation or
winding up.
4. NET ISSUE EXERCISE. If the Fair Market Value (as hereinafter defined) of
one share of the Company's Common Stock is greater than the Per Share Exercise
Price (at the date of exercise of the option), in lieu of exercising this option
for cash, the Holder may elect to receive shares equal to the value of this
option (or the portion thereof being canceled) by surrender of the option at the
principal office of the Company, together with the Subscription Form, in which
event the Company will issue to the Holder a number of shares of Common Stock
equal to (a) the portion of the option being canceled multiplied by the
difference between the Fair Market Value and the Per Share Exercise Price and
(b) divided by the Fair Market Value. The Fair Market Value of one share of
Common Stock will be the average of the closing bid and asked prices of the
Company's shares of Common Stock as quoted on the NASDAQ Small Cap Market for
the five trading days prior to the delivery of the Subscription Form, or , if
the Company's Common Stock is not quoted on the NASDAQ Small-Cap Market, then as
quoted on the OTC Bulletin Board, or such other national securities exchange as
the Corporation's Stock is listed upon.
5. REDEMPTION. The Company shall have the right to redeem the warrants for
$.001 per share upon twenty days notice if the closing bid price per share of
Common Stock as quoted on the OTC Bulletin Board or NASDAQ is a minimum of $4.00
per share for thirty consecutive trading days prior to the date of the notice of
redemption. The Holder will have the right to exercise the warrant at any time
following such and notice and prior to redemption.
6. TAXES.
The Company will pay all taxes (other than taxes based upon income) and
other
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governmental charges that may be imposed with respect to the issue or
delivery of shares of Common Stock upon exercise of this warrant, excluding any
tax or other charge imposed in connection with any transfer involved in the
issue and delivery of shares of Common Stock in a name other that in which this
warrant was registered.
7. CLOSING OF BOOKS.
The Company will at no time close its transfer books against the transfer
of any warrant or of any shares of Common Stock issued or issuable upon the
exercise of any warrant in any manner that interferes with the timely exercise
of this warrant.
8. NO VOTING OR DIVIDEND RIGHTS.
Nothing contained in this warrant will be construed as conferring upon the
Holder the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest will be payable or accrued in respect of
this warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this warrant has been exercised.
9. WARRANTS TRANSFERABLE.
Subject to compliance with applicable Federal and state securities laws and
the restrictions imposed by any other written agreement between the Holder and
the Company, this warrant and all rights hereunder are transferable, in whole or
in part, without charge to the Holder (except for transfer taxes), upon
surrender of this warrant properly endorsed and in compliance with the
provisions of this warrant.
10. MODIFICATION AND WAIVER.
This warrant and any provision hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of the same is sought.
11. NOTICES.
Any notice required by the provisions of this warrant will be in writing
and will be deemed effectively given: (a) upon personal delivery to the party to
be notified; (b) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient; if not, then on the next business day; (c) five
(5) days after having been sent by registered or certified
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<PAGE>
mail, return receipt requested, postage prepaid; or (d) one (1) day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All notices will be addressed to
the Holder at the address of the Holder appearing on the books of the Company.
12. LOST WARRANTS.
The Company represents and warrants to the Holder that upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction,
or mutilation of this warrant and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such warrant, the Company, at its expense, will make and deliver a new
warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
warrant.
13. FRACTIONAL SHARES.
No fractional shares of Common Stock will be issued upon exercise of this
warrant. If the exercise would result in the issuance of any fractional share,
the Company will, in lieu of issuing any fractional share, pay cash equal to the
product of such fraction multiplied by the closing bid price of the Company's
Common Stock on the date of conversion.
14. GOVERNING LAW.
14.1 This warrant will be construed and enforced in accordance with, and
the rights of the parties will be governed by, the laws of the State of New York
without regard to conflict of laws principles.
14.2 Any litigation based thereon, or arising out of, under, or in
connection with, this agreement or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Company or Holder shall
be brought and maintained exclusively in the court of the state of New York
without reference to its conflicts of laws rules or principles. The Company and
the Holder hereby expressly and irrevocably submits to the jurisdiction of the
federal Courts of the state of New York for the purpose of any such litigation
as set forth above and irrevocably agrees to be bound by any final judgment
rendered thereby in connection with such litigation. The Holder further
irrevocably consents to the service of process by registered mail, postage
prepaid, or by personal service within or without the State of New York. The
Holder hereby expressly and irrevocably waives, to the fullest extent permitted
by law, any objection which it may have or hereafter may have to the laying of
venue of any such litigation brought in any such court referred to above and any
claim that any such litigation has been brought in any inconvenient forum.
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<PAGE>
The Company has executed this warrant as of this 31st day of December,
1998.
FINANCIAL INTRANET, INC.
By: /s/Michael Sheppard
Name: Michael Sheppard
Title: President
By: /s/Maura Marx
Name:
Title:
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<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
Date:
FINANCIAL INTRANET, INC.
410 Saw Mill River Road
Ardsley, NY 10502
Attn: President
Ladies and Gentlemen:
The undersigned hereby elects to exercise the warrant issued to it by
FINANCIAL INTRANET, INC. (the "Company") dated as of December 30, 1998 and to
purchase thereunder ____________________ (_________) shares of the Common Stock
of the Company at a purchase price of _____ cents ($0.__) per Share, for an
aggregate purchase price of _____________________ ($___________) (the "Purchase
Price").
Pursuant to the terms of the warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
The undersigned also makes the representations set forth on the attached
Exhibit B of the warrant if applicable.
Very truly yours,
______________________________
By:____________________________
Title: __________________________
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<PAGE>
EXHIBIT B TO WARRANT
INVESTMENT REPRESENTATIONS
THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO FINANCIAL
INTRANET, INC. ALONG WITH THE SUBSCRIPTION FORM BEFORE THE COMMON
STOCK ISSUABLE UPON EXERCISE OF THE WARRANT WILL BE ISSUED UNLESS THE
COMMON STOCK IS SUBJECT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933..
_____________________, 199__
FINANCIAL INTRANET, INC.
410 Saw Mill River Road
Ardsley, New York 10502
Attn: President
The undersigned, _________________ ("Purchaser"), intends to acquire up to
______ shares of the Common Stock (the "Stock") of FINANCIAL INTRANET, INC. (the
"Company") from the Company pursuant to the exercise of certain warrants to
purchase Stock held by Purchaser. The Stock will be issued to Purchaser in a
transaction not involving a public offering and pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the "1933 Act"), and
applicable state securities laws. In connection with such purchase and in order
to comply with the exemptions from registration relied upon by the Company,
Purchaser represents, warrants and agrees as follows:
The Purchaser is acquiring the Stock for its own account, to hold for
investment, and Purchaser will not make any sale, transfer or other disposition
of the Stock in violation of the 1933 Act or the General Rules and Regulations
promulgated thereunder by the Securities and Exchange Commission (the "SEC") or
in violation of any applicable state securities law. Purchaser is an "accredited
investor" as defined in Rule 501 promulgated under Regulation D.
Purchaser has been informed that under the 1933 Act, the Stock must be held
indefinitely unless it is subsequently registered under the 1933 Act or unless
an exemption from such registration (such as Rule 144) is available with respect
to any proposed transfer or disposition by Purchaser of the Stock. Purchaser
further agrees that the Company may refuse to permit Purchaser to sell, transfer
or dispose of the Stock (except as permitted under Rule 144) unless
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<PAGE>
there is in effect a registration statement under the 1933 Act and any
applicable state securities laws covering such transfer, or unless Purchaser
furnishes an opinion of counsel reasonably satisfactory to counsel for the
Company, to the effect that such registration is not required.
Purchaser also understands and agrees that there will be placed on the
certificate(s) for the Stock, or any substitution thereof, legends stating in
substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS."
Purchaser has carefully read this letter and has discussed its requirements
and other applicable limitations upon Purchaser's resale of the Stock with
Purchaser's counsel.
Very truly yours,
By: ________________________________
Title: ______________________________
<PAGE>
EXHIBIT 10.19
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE SECURITIES ACT OR UNLESS AN EXEMPTION THEREFROM
IS AVAILABLE.
WARRANT TO PURCHASE
COMMON STOCK OF FINANCIAL INTRANET, INC.
This certifies that Josephberg, Grosz & Co. (the "Holder"), for value
received, is entitled to purchase from FINANCIAL INTRANET, INC., a Nevada
corporation (the "Company") 75,000 shares of the Company's Common Stock (the
"Common Stock") for a per share exercise price equal to forty cents ($.40)(the
"Per Share Exercise Price"). This right may be exercised at any time from the
date hereof, up to and including 5:00 p.m. (New York City time) on the fifth
anniversary of the date hereof (the "Expiration Date"), upon surrender to the
Company at its principal office (or at such other location as the Company may
advise the Holder in writing) of this Warrant, properly endorsed, with the
Subscription Form attached hereto as Exhibit A duly filled in and signed in, and
if applicable, the investment representations attached hereto as Exhibit B, upon
payment in cash or by check of the aggregate Per Share Exercise Price for the
number of shares for which this Warrant is being exercised determined in
accordance with the provisions hereof.
1. ISSUANCE OF CERTIFICATES.
Certificates for the shares of Common Stock acquired upon exercise of
this Warrant, together with any other securities or property to which the Holder
is entitled upon such exercise, will be delivered to the Holder by the Company
at the Company's expense within five business days after this Warrant has been
so exercised.
Each Common Stock certificate so delivered will be in such
denominations of Common Stock as may be requested by the Holder and will be
registered in the name of the Holder. In case of a purchase of less than all the
shares that may be purchased under this Warrant, the Company will cancel this
Warrant and execute and deliver a new warrant or warrants of like tenor for the
balance of the shares purchasable under this Warrant to the Holder within a
reasonable time after surrender of this Warrant.
2. SHARES FULLY-PAID, NONASSESSABLE, ETC.
All shares of Common Stock issued upon exercise of this Warrant will, upon
issuance, be duly authorized, validly issued, fully-paid and nonassessable and
free from all preemptive rights of any shareholder and free of all taxes, liens
and charges with respect to the issue thereof. The
<PAGE>
Company will at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
exercise of this Warrant, such number of its shares of Common Stock as from time
to time are sufficient to effect the full exercise of this Warrant. If at any
time the number of authorized but unissued shares of Common Stock is not
sufficient to effect the full exercise of this Warrant, the Company will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as is sufficient for such purpose. The Company will take all such action
as may be necessary to assure that such securities may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of any domestic securities exchange upon which the Common Stock may
be listed; provided, however, that the Company will not be required to effect a
registration under Federal or state securities laws with respect to such
exercise, except as may be set forth in Section 3 below and in the Registration
Rights Agreement between the Company and the Holder.
3. ADJUSTMENTS.
3.1 Adjustment for Stock Splits and Combinations. If the Company at any
time or from time to time during the term of this Warrant effects a subdivision
of the outstanding Common Stock, the Per Share Exercise Price in effect
immediately before that subdivision will be proportionately decreased.
Conversely, if the Company at any time or from time to time during the term of
this Warrant combines the outstanding shares of Common Stock into a smaller
number of shares, the Per Share Exercise Price in effect immediately before the
combination will be proportionately increased. Any adjustment under this Section
3.1 will become effective at the close of business on the date the subdivision
or combination becomes effective.
3.2 Adjustment for Common Stock Dividends and Distributions. If the
Company at any time or from time to time during the term of this Warrant makes,
or fixes, a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in additional
shares of Common Stock, in each such event the Per Share Exercise Price that is
then in effect will be decreased as of the time of such issuance or, in the
event such record date is fixed, as of the close of business on such record
date, by multiplying the Per Share Exercise Price then in effect by a fraction
(a) the numerator of which is the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance on the close of
business on such record date, and (b) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance on the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed thereof, the Per Share Exercise Price will be recomputed accordingly as of
the close of business on such record date and thereafter the Per Share Exercise
Price will be adjusted pursuant to this
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<PAGE>
Section 3.2 to reflect the actual payment of such dividend or distribution.
3.3 Adjustments for Other Dividends and Distributions. If the Company
at any time or from time to time during the term of this Warrant makes, or fixes
a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in securities of the Company
other than shares of Common Stock, in each such event provision will be made so
that the Holder will receive upon exercise of this Warrant, in addition to the
number of shares of Common Stock receivable thereupon, the amount of other
securities of the Company that it would have received had this Warrant been
exercised on the date of such event and had it thereafter, during the period
from the date of such event to and including the exercise date, retained such
securities receivable by them as aforesaid, subject to all other adjustments
called for during such period under this Section 3 with respect to the rights of
the Holder hereunder or with respect to such other securities by their terms.
3.4 Adjustment for Reclassification, Exchange and Substitution. If at
any time or from time to time during the term of this Warrant the Common Stock
issuable upon the exercise of this Warrant is changed into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a recapitalization,
subdivision, combination, reclassification or exchange provided for elsewhere in
this Section 3), the Holder will have the right thereafter to exercise this
Warrant for the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change into
which the shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such recapitalization, reclassification or change could
have been converted, all subject to further adjustment as provided herein or
with respect to such other securities or property by the terms thereof.
3.5 Reorganizations. If at any time or from time to time during the
term of this Warrant there is a capital reorganization of the Common Stock
(other than a recapitalization, subdivision, combination, reclassification or
exchange provided for elsewhere in this Section 3), as a part of such capital
reorganization, provision will be made so that the Holder will thereafter be
entitled to receive upon exercise of this Warrant the number of shares of stock
or other securities or property of the Company to which a holder of the number
of shares of Common Stock deliverable upon exercise of this Warrant would have
been entitled on such capitalization reorganization, subject to adjustment in
respect of such stock or securities by the terms thereof.
3.6 Certificate of Adjustment. In each case of an adjustment or
readjustment of the number of Warrant Shares issuable upon exercise of this
Warrant or the Per Share Exercise Price, the Company, at its expense, will
compute such adjustment or readjustment in accordance with the provisions hereof
and prepare a certificate showing such adjustment or readjustment, and will
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<PAGE>
mail such certificate, by first class mail, postage prepaid, to the Holder at
the Holder's address as shown in the Company's books. The certificate will set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (a) the Per
Share Exercise Price at the time in effect, and (b) the type and amount, if any,
of other property that at the time would be received upon exercise of this
Warrant. Except for adjustments of the Per Share Exercise Price pursuant to
Sections 3.1, 3.2, 3.3, 3.4 and 3.5, the Per Share Exercise Price cannot be
increased without the consent of the Holder.
3.7 Notices of Record Date. Upon (a) any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, (b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
sale of all or substantially all of the assets of the Company or any voluntary
or involuntary dissolution, liquidation or winding up of the Company or (c) a
proposed sale of substantially all of the assets of the Company or a proposed
merger in which the Company will not be the surviving entity, the Company will
mail to the Holder at least twenty (20) days prior to the record date specified
therein a notice specifying (1) the date on which any such record is to be taken
for the purpose of such dividend or distribution and a description of such
dividend or distribution, (2) the date on which any such reorganization,
reclassification, recapitalization, asset sale, dissolution, liquidation or
winding up is expecting to become effective, and (3) the date, if any, that is
to be fixed as to when the holders of record of Common Stock (or other
securities) will be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, asset sale, dissolution,
liquidation or winding up.
4. LIMIT ON SHARES SUBJECT TO ISSUANCE
Notwithstanding anything else herein to the contrary, each holder of
this Warrants may not receive shares of Common Stock upon exercise of this
Warrant, and this Warrant shall not be deemed exercisable, to the extent that
after such exercise, the sum of (1) the number of shares of Common Stock owned
by the Holder and its affiliates (other than shares of Common Stock which may be
deemed owned through the ownership of the unexercised portion of the warrants or
the unconverted portion of the convertible promissory notes previously issued to
the Investor (the "Notes")) and (2) the number of shares of Common Stock
issuable upon the exercise of the warrants and the conversion of the Notes and
any previously issued warrants or Notes with respect of which the determination
of this proviso is being made, would result in ownership by the Holder and its
affiliates of 4.99% or more of the Company's issued and outstanding shares of
Common Stock following such conversion. This restriction shall be binding upon
any transferee of this Warrant. The preceding shall not interfere with the
Holder's right to exercise this Warrant over time which in the aggregate totals
more than 4.99% of the then outstanding shares of Common
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<PAGE>
Stock so long as the Holder and its affiliates do not own more than 4.99% of the
then outstanding Common Stock at any given time. The Holder shall make a
representation regarding the number of shares of Common Stock owned by the
Holder and its affiliates on the Subscription Form attached hereto as Exhibit A
which shall be submitted with this Warrant and payment of the aggregate Per
Share Exercise Price upon exercise of this Warrant.
5. REDEMPTION The Company shall have the right to redeem the warrants for $.001
per share upon 20 days notice if the closing bid price per share of Common Stock
as quoted on the OTC Bulletin Board or NASDAQ is a minimum of $4.00 per share
for 30 consecutive trading days prior to the provision of the redemption notice
pursuant to Section 11, provided that if such notice is sent via facsimile to
both the Holder and Cardinal Capital Management Inc. ("Cardinal"), notice shall
be deemed given upon receipt by either the Holder or Cardinal. The Holder will
have the right to exercise the warrant at any time following such notice and
prior to redemption. The Company shall not be entitled to redeem this Warrant in
the event it is in default of this Warrant or the Subscription Agreement
(including all exhibits annexed thereto), or there is a default by the Pledgee
(Guarantor) under the Pledge and Security Agreement or Guaranty.
6. TAXES. The Company will pay all taxes (other than taxes based upon income)
and other governmental charges that may be imposed with respect to the issue or
delivery of shares of Common Stock upon exercise of this Warrant, excluding any
tax or other charge imposed in connection with any transfer involved in the
issue and delivery of shares of Common Stock in a name other that in which this
Warrant was registered.
7. CLOSING OF BOOKS.
The Company will at no time close its transfer books against the
transfer of any warrant or of any shares of Common Stock issued or issuable upon
the exercise of any warrant in any manner that interferes with the timely
exercise of this Warrant.
8. NO VOTING OR DIVIDEND RIGHTS.
Nothing contained in this Warrant will be construed as conferring upon
the Holder the right to vote or to consent or to receive notice as a shareholder
of the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest will be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant has been exercised.
9. WARRANTS TRANSFERABLE.
Subject to compliance with applicable Federal and state securities laws and
the restrictions
- 5 -
<PAGE>
imposed by any other written agreement between the Holder and the Company, this
Warrant and all rights hereunder are transferable, in whole or in part, without
charge to the Holder (except for transfer taxes), upon surrender of this Warrant
properly endorsed and in compliance with the provisions of this Warrant.
10. MODIFICATION AND WAIVER.
This Warrant and any provision hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of the same is sought.
11. NOTICES. Any notice required by the provisions of this Warrant will be in
writing and will be deemed effectively given: (a) upon personal delivery to the
party to be notified; (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day; (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All notices will be addressed to the Holder at
the address of the Holder appearing on the books of the Company.
12. LOST WARRANTS. The Company represents and warrants to the Holder that upon
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any such loss,
theft or destruction, upon receipt of an indemnity reasonably satisfactory to
the Company, or in the case of any such mutilation upon surrender and
cancellation of such warrant, the Company, at its expense, will make and deliver
a new warrant, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated warrant.
13. FRACTIONAL SHARES. No fractional shares of Common Stock will be issued upon
exercise of this Warrant. If the exercise would result in the issuance of any
fractional share, the Company will, in lieu of issuing any fractional share, pay
cash equal to the product of such fraction multiplied by the closing bid price
of the Company's Common Stock on the date of conversion.
14. GOVERNING LAW.
14.1 This Warrant will be construed and enforced in accordance with,
and the rights of the parties will be governed by, the laws of the State of New
York without regard to conflict of laws principles.
14.2 Any litigation based thereon, or arising out of, under, or in
connection with, this
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<PAGE>
agreement or any course of conduct, course of dealing, statements (whether oral
or written) or actions of the Company or Holder shall be brought and maintained
exclusively in the court of the state of New York without reference to its
conflicts of laws rules or principles. The Company and the Holder hereby
expressly and irrevocably submits to the exclusive jurisdiction of the federal
Courts of the state of New York sitting in the Southern District for the purpose
of any such litigation as set forth above and irrevocably agrees to be bound by
any final judgment rendered thereby in connection with such litigation. The
Holder and the Company further irrevocably consents to the service of process by
registered mail, postage prepaid, or by personal service within or without the
State of New York. The Holder and the Company hereby expressly and irrevocably
waives, to the fullest extent permitted by law, any objection which it may have
or hereafter may have to the laying of venue of any such litigation brought in
any such court referred to above and any claim that any such litigation has been
brought in any inconvenient forum.
THE REST OF THIS PAGE IS LEFT BLANK
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<PAGE>
The Company has executed this Warrant as of this 8th day of February,
1999.
FINANCIAL INTRANET, INC.
By: /s/Michael Sheppard
Name:
Title:
By: /s/Maura Marx
Name:
Title:
- 8 -
<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
Date:
FINANCIAL INTRANET, INC.
410 Saw Mill River Road
Ardsley, NY 10502
Attn: President
Ladies and Gentlemen:
The undersigned hereby elects to exercise the warrant issued to it by
FINANCIAL INTRANET, INC. (the "Company") dated as of ___________________ and to
purchase thereunder ____________________ (_________) shares of the Common Stock
of the Company at a purchase price of _____ cents ($0.__) per Share, for an
aggregate purchase price of _____________________ ($___________) (the "Purchase
Price").
Pursuant to the terms of the warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
The undersigned represents that as of the date hereof, the undersigned
and its affiliates do not own more than ___________ shares of Common Stock of
the Company.
The undersigned also makes the representations set forth on the
attached Exhibit B of the warrant if applicable.
Very truly yours,
------------------------------
By:____________________________
Title: __________________________
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<PAGE>
EXHIBIT B TO WARRANT
INVESTMENT REPRESENTATIONS
THIS CERTIFICATE MUST BE COMPLETED, SIGNED AND RETURNED TO FINANCIAL INTRANET,
INC. ALONG WITH THE SUBSCRIPTION FORM BEFORE THE COMMON STOCK ISSUABLE UPON
EXERCISE OF THE WARRANT WILL BE ISSUED UNLESS THE COMMON STOCK IS SUBJECT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933.
_____________________, 199__
FINANCIAL INTRANET, INC.
410 Saw Mill River Road
Ardsley, New York 10502
Attn: President
The undersigned, _________________ ("Purchaser"), intends to acquire up
to ______ shares of the Common Stock (the "Stock") of FINANCIAL INTRANET, INC.
(the "Company") from the Company pursuant to the exercise of certain warrants to
purchase Stock held by Purchaser. The Stock will be issued to Purchaser in a
transaction not involving a public offering and pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the "1933 Act"), and
applicable state securities laws. In connection with such purchase and in order
to comply with the exemptions from registration relied upon by the Company,
Purchaser represents, warrants and agrees as follows:
Without limiting the Purchaser's right to sell transfer or otherwise
convey the Stock, the Purchaser is acquiring the Stock for its own account, to
hold for investment, and Purchaser will not make any sale, transfer or other
disposition of the Stock in violation of the 1933 Act or the General Rules and
Regulations promulgated thereunder by the Securities and Exchange Commission
(the "SEC") or in violation of any applicable state securities law. Purchaser is
an "accredited investor" as defined in Rule 501 promulgated under Regulation D.
Purchaser has been has been informed that under the 1933 Act, the Stock must be
held indefinitely unless it is subsequently registered under the 1933 Act or
unless an exemption from such registration (such as Rule 144) is available with
respect to any proposed transfer or disposition by Purchaser of the Stock.
Purchaser further agrees that the Company may refuse to permit
- 10 -
<PAGE>
Purchaser to sell, transfer or dispose of the Stock (except as permitted under
Rule 144) unless there is in effect a registration statement under the 1933 Act
and any applicable state securities laws covering such transfer, or unless
Purchaser furnishes an opinion of counsel reasonably satisfactory to counsel for
the Company, to the effect that such registration is not required.
Purchaser also understands and agrees that there will be placed on the
certificate(s) for the Stock, or any substitution thereof, legends stating in
substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS."
Purchaser has carefully read this letter and has discussed its
requirements and other applicable limitations upon Purchaser's resale of the
Stock with Purchaser's counsel.
Very truly yours,
By: ________________________________
Title: ______________________________
<PAGE>
EXHIBIT 10.20
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE SECURITIES ACT OR UNLESS AN EXEMPTION THEREFROM
IS AVAILABLE.
WARRANT TO PURCHASE
COMMON STOCK OF FINANCIAL INTRANET, INC.
This certifies that Cardinal Capital Management Inc. (the "Holder"),
for value received, is entitled to purchase from FINANCIAL INTRANET, INC., a
Nevada corporation (the "Company") 75,000 shares of the Company's Common Stock
(the "Common Stock") for a per share exercise price equal to forty cents
($.40)(the "Per Share Exercise Price"). This right may be exercised at any time
from the date hereof, up to and including 5:00 p.m. (New York City time) on the
fifth anniversary of the date hereof (the "Expiration Date"), upon surrender to
the Company at its principal office (or at such other location as the Company
may advise the Holder in writing) of this Warrant, properly endorsed, with the
Subscription Form attached hereto as Exhibit A duly filled in and signed in, and
if applicable, the investment representations attached hereto as Exhibit B, upon
payment in cash or by check of the aggregate Per Share Exercise Price for the
number of shares for which this Warrant is being exercised determined in
accordance with the provisions hereof.
1. ISSUANCE OF CERTIFICATES.
Certificates for the shares of Common Stock acquired upon exercise of
this Warrant, together with any other securities or property to which the Holder
is entitled upon such exercise, will be delivered to the Holder by the Company
at the Company's expense within five business days after this Warrant has been
so exercised.
Each Common Stock certificate so delivered will be in such
denominations of Common Stock as may be requested by the Holder and will be
registered in the name of the Holder. In case of a purchase of less than all the
shares that may be purchased under this Warrant, the Company will cancel this
Warrant and execute and deliver a new warrant or warrants of like tenor for the
balance of the shares purchasable under this Warrant to the Holder within a
reasonable time after surrender of this Warrant.
2. SHARES FULLY-PAID, NONASSESSABLE, ETC.
All shares of Common Stock issued upon exercise of this Warrant will, upon
issuance, be duly authorized, validly issued, fully-paid and nonassessable and
free from all preemptive rights of any shareholder and free of all taxes, liens
and charges with respect to the issue thereof. The
<PAGE>
Company will at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
exercise of this Warrant, such number of its shares of Common Stock as from time
to time are sufficient to effect the full exercise of this Warrant. If at any
time the number of authorized but unissued shares of Common Stock is not
sufficient to effect the full exercise of this Warrant, the Company will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as is sufficient for such purpose. The Company will take all such action
as may be necessary to assure that such securities may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of any domestic securities exchange upon which the Common Stock may
be listed; provided, however, that the Company will not be required to effect a
registration under Federal or state securities laws with respect to such
exercise, except as may be set forth in Section 3 below and in the Registration
Rights Agreement between the Company and the Holder.
3. ADJUSTMENTS.
3.1 Adjustment for Stock Splits and Combinations. If the Company at any
time or from time to time during the term of this Warrant effects a subdivision
of the outstanding Common Stock, the Per Share Exercise Price in effect
immediately before that subdivision will be proportionately decreased.
Conversely, if the Company at any time or from time to time during the term of
this Warrant combines the outstanding shares of Common Stock into a smaller
number of shares, the Per Share Exercise Price in effect immediately before the
combination will be proportionately increased. Any adjustment under this Section
3.1 will become effective at the close of business on the date the subdivision
or combination becomes effective.
3.2 Adjustment for Common Stock Dividends and Distributions. If the
Company at any time or from time to time during the term of this Warrant makes,
or fixes, a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in additional
shares of Common Stock, in each such event the Per Share Exercise Price that is
then in effect will be decreased as of the time of such issuance or, in the
event such record date is fixed, as of the close of business on such record
date, by multiplying the Per Share Exercise Price then in effect by a fraction
(a) the numerator of which is the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance on the close of
business on such record date, and (b) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance on the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed thereof, the Per Share Exercise Price will be recomputed accordingly as of
the close of business on such record date and thereafter the Per Share Exercise
Price will be adjusted pursuant to this
- 2 -
<PAGE>
Section 3.2 to reflect the actual payment of such dividend or distribution.
3.3 Adjustments for Other Dividends and Distributions. If the Company
at any time or from time to time during the term of this Warrant makes, or fixes
a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in securities of the Company
other than shares of Common Stock, in each such event provision will be made so
that the Holder will receive upon exercise of this Warrant, in addition to the
number of shares of Common Stock receivable thereupon, the amount of other
securities of the Company that it would have received had this Warrant been
exercised on the date of such event and had it thereafter, during the period
from the date of such event to and including the exercise date, retained such
securities receivable by them as aforesaid, subject to all other adjustments
called for during such period under this Section 3 with respect to the rights of
the Holder hereunder or with respect to such other securities by their terms.
3.4 Adjustment for Reclassification, Exchange and Substitution. If at
any time or from time to time during the term of this Warrant the Common Stock
issuable upon the exercise of this Warrant is changed into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a recapitalization,
subdivision, combination, reclassification or exchange provided for elsewhere in
this Section 3), the Holder will have the right thereafter to exercise this
Warrant for the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change into
which the shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such recapitalization, reclassification or change could
have been converted, all subject to further adjustment as provided herein or
with respect to such other securities or property by the terms thereof.
3.5 Reorganizations. If at any time or from time to time during the
term of this Warrant there is a capital reorganization of the Common Stock
(other than a recapitalization, subdivision, combination, reclassification or
exchange provided for elsewhere in this Section 3), as a part of such capital
reorganization, provision will be made so that the Holder will thereafter be
entitled to receive upon exercise of this Warrant the number of shares of stock
or other securities or property of the Company to which a holder of the number
of shares of Common Stock deliverable upon exercise of this Warrant would have
been entitled on such capitalization reorganization, subject to adjustment in
respect of such stock or securities by the terms thereof.
3.6 Certificate of Adjustment. In each case of an adjustment or
readjustment of the number of Warrant Shares issuable upon exercise of this
Warrant or the Per Share Exercise Price, the Company, at its expense, will
compute such adjustment or readjustment in accordance with the provisions hereof
and prepare a certificate showing such adjustment or readjustment, and will
- 3 -
<PAGE>
mail such certificate, by first class mail, postage prepaid, to the Holder at
the Holder's address as shown in the Company's books. The certificate will set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (a) the Per
Share Exercise Price at the time in effect, and (b) the type and amount, if any,
of other property that at the time would be received upon exercise of this
Warrant. Except for adjustments of the Per Share Exercise Price pursuant to
Sections 3.1, 3.2, 3.3, 3.4 and 3.5, the Per Share Exercise Price cannot be
increased without the consent of the Holder.
3.7 Notices of Record Date. Upon (a) any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, (b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
sale of all or substantially all of the assets of the Company or any voluntary
or involuntary dissolution, liquidation or winding up of the Company or (c) a
proposed sale of substantially all of the assets of the Company or a proposed
merger in which the Company will not be the surviving entity, the Company will
mail to the Holder at least twenty (20) days prior to the record date specified
therein a notice specifying (1) the date on which any such record is to be taken
for the purpose of such dividend or distribution and a description of such
dividend or distribution, (2) the date on which any such reorganization,
reclassification, recapitalization, asset sale, dissolution, liquidation or
winding up is expecting to become effective, and (3) the date, if any, that is
to be fixed as to when the holders of record of Common Stock (or other
securities) will be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, asset sale, dissolution,
liquidation or winding up.
4. LIMIT ON SHARES SUBJECT TO ISSUANCE
Notwithstanding anything else herein to the contrary, each holder of
this Warrants may not receive shares of Common Stock upon exercise of this
Warrant, and this Warrant shall not be deemed exercisable, to the extent that
after such exercise, the sum of (1) the number of shares of Common Stock owned
by the Holder and its affiliates (other than shares of Common Stock which may be
deemed owned through the ownership of the unexercised portion of the warrants or
the unconverted portion of the convertible promissory notes previously issued to
the Investor (the "Notes")) and (2) the number of shares of Common Stock
issuable upon the exercise of the warrants and the conversion of the Notes and
any previously issued warrants or Notes with respect of which the determination
of this proviso is being made, would result in ownership by the Holder and its
affiliates of 4.99% or more of the Company's issued and outstanding shares of
Common Stock following such conversion. This restriction shall be binding upon
any transferee of this Warrant. The preceding shall not interfere with the
Holder's right to exercise this Warrant over time which in the aggregate totals
more than 4.99% of the then outstanding shares of Common
- 4 -
<PAGE>
Stock so long as the Holder and its affiliates do not own more than 4.99% of the
then outstanding Common Stock at any given time. The Holder shall make a
representation regarding the number of shares of Common Stock owned by the
Holder and its affiliates on the Subscription Form attached hereto as Exhibit A
which shall be submitted with this Warrant and payment of the aggregate Per
Share Exercise Price upon exercise of this Warrant.
5. REDEMPTION The Company shall have the right to redeem the warrants for $.001
per share upon 20 days notice if the closing bid price per share of Common Stock
as quoted on the OTC Bulletin Board or NASDAQ is a minimum of $4.00 per share
for 30 consecutive trading days prior to the provision of the redemption notice
pursuant to Section 11, provided that if such notice is sent via facsimile to
both the Holder and Cardinal Capital Management Inc. ("Cardinal"), notice shall
be deemed given upon receipt by either the Holder or Cardinal. The Holder will
have the right to exercise the warrant at any time following such notice and
prior to redemption. The Company shall not be entitled to redeem this Warrant in
the event it is in default of this Warrant or the Subscription Agreement
(including all exhibits annexed thereto), or there is a default by the Pledgee
(Guarantor) under the Pledge and Security Agreement or Guaranty.
6. TAXES. The Company will pay all taxes (other than taxes based upon income)
and other governmental charges that may be imposed with respect to the issue or
delivery of shares of Common Stock upon exercise of this Warrant, excluding any
tax or other charge imposed in connection with any transfer involved in the
issue and delivery of shares of Common Stock in a name other that in which this
Warrant was registered.
7. CLOSING OF BOOKS.
The Company will at no time close its transfer books against the
transfer of any warrant or of any shares of Common Stock issued or issuable upon
the exercise of any warrant in any manner that interferes with the timely
exercise of this Warrant.
8. NO VOTING OR DIVIDEND RIGHTS.
Nothing contained in this Warrant will be construed as conferring upon
the Holder the right to vote or to consent or to receive notice as a shareholder
of the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest will be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant has been exercised.
9. WARRANTS TRANSFERABLE.
Subject to compliance with applicable Federal and state securities laws and
the restrictions
- 5 -
<PAGE>
imposed by any other written agreement between the Holder and the Company, this
Warrant and all rights hereunder are transferable, in whole or in part, without
charge to the Holder (except for transfer taxes), upon surrender of this Warrant
properly endorsed and in compliance with the provisions of this Warrant.
10. MODIFICATION AND WAIVER.
This Warrant and any provision hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of the same is sought.
11. NOTICES. Any notice required by the provisions of this Warrant will be in
writing and will be deemed effectively given: (a) upon personal delivery to the
party to be notified; (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day; (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All notices will be addressed to the Holder at
the address of the Holder appearing on the books of the Company.
12. LOST WARRANTS. The Company represents and warrants to the Holder that upon
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any such loss,
theft or destruction, upon receipt of an indemnity reasonably satisfactory to
the Company, or in the case of any such mutilation upon surrender and
cancellation of such warrant, the Company, at its expense, will make and deliver
a new warrant, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated warrant.
13. FRACTIONAL SHARES. No fractional shares of Common Stock will be issued upon
exercise of this Warrant. If the exercise would result in the issuance of any
fractional share, the Company will, in lieu of issuing any fractional share, pay
cash equal to the product of such fraction multiplied by the closing bid price
of the Company's Common Stock on the date of conversion.
14. GOVERNING LAW.
14.1 This Warrant will be construed and enforced in accordance with,
and the rights of the parties will be governed by, the laws of the State of New
York without regard to conflict of laws principles.
14.2 Any litigation based thereon, or arising out of, under, or in
connection with, this
- 6 -
<PAGE>
agreement or any course of conduct, course of dealing, statements (whether oral
or written) or actions of the Company or Holder shall be brought and maintained
exclusively in the court of the state of New York without reference to its
conflicts of laws rules or principles. The Company and the Holder hereby
expressly and irrevocably submits to the exclusive jurisdiction of the federal
Courts of the state of New York sitting in the Southern District for the purpose
of any such litigation as set forth above and irrevocably agrees to be bound by
any final judgment rendered thereby in connection with such litigation. The
Holder and the Company further irrevocably consents to the service of process by
registered mail, postage prepaid, or by personal service within or without the
State of New York. The Holder and the Company hereby expressly and irrevocably
waives, to the fullest extent permitted by law, any objection which it may have
or hereafter may have to the laying of venue of any such litigation brought in
any such court referred to above and any claim that any such litigation has been
brought in any inconvenient forum.
THE REST OF THIS PAGE IS LEFT BLANK
- 7 -
<PAGE>
The Company has executed this Warrant as of this 8th day of February,
1999.
FINANCIAL INTRANET, INC.
By: /s/Michael Sheppard
Name:
Title:
By: /s/Maura Marx
Name:
Title:
- 8 -
<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
Date:
FINANCIAL INTRANET, INC.
410 Saw Mill River Road
Ardsley, NY 10502
Attn: President
Ladies and Gentlemen:
The undersigned hereby elects to exercise the warrant issued to it by
FINANCIAL INTRANET, INC. (the "Company") dated as of ___________________ and to
purchase thereunder ____________________ (_________) shares of the Common Stock
of the Company at a purchase price of _____ cents ($0.__) per Share, for an
aggregate purchase price of _____________________ ($___________) (the "Purchase
Price").
Pursuant to the terms of the warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
The undersigned represents that as of the date hereof, the undersigned
and its affiliates do not own more than ___________ shares of Common Stock of
the Company.
The undersigned also makes the representations set forth on the
attached Exhibit B of the warrant if applicable.
Very truly yours,
------------------------------
By:____________________________
Title: __________________________
- 9 -
<PAGE>
EXHIBIT B TO WARRANT
INVESTMENT REPRESENTATIONS
THIS CERTIFICATE MUST BE COMPLETED, SIGNED AND RETURNED TO FINANCIAL INTRANET,
INC. ALONG WITH THE SUBSCRIPTION FORM BEFORE THE COMMON STOCK ISSUABLE UPON
EXERCISE OF THE WARRANT WILL BE ISSUED UNLESS THE COMMON STOCK IS SUBJECT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933.
_____________________, 199__
FINANCIAL INTRANET, INC.
410 Saw Mill River Road
Ardsley, New York 10502
Attn: President
The undersigned, _________________ ("Purchaser"), intends to acquire up
to ______ shares of the Common Stock (the "Stock") of FINANCIAL INTRANET, INC.
(the "Company") from the Company pursuant to the exercise of certain warrants to
purchase Stock held by Purchaser. The Stock will be issued to Purchaser in a
transaction not involving a public offering and pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the "1933 Act"), and
applicable state securities laws. In connection with such purchase and in order
to comply with the exemptions from registration relied upon by the Company,
Purchaser represents, warrants and agrees as follows:
Without limiting the Purchaser's right to sell transfer or otherwise
convey the Stock, the Purchaser is acquiring the Stock for its own account, to
hold for investment, and Purchaser will not make any sale, transfer or other
disposition of the Stock in violation of the 1933 Act or the General Rules and
Regulations promulgated thereunder by the Securities and Exchange Commission
(the "SEC") or in violation of any applicable state securities law. Purchaser is
an "accredited investor" as defined in Rule 501 promulgated under Regulation D.
Purchaser has been has been informed that under the 1933 Act, the Stock must be
held indefinitely unless it is subsequently registered under the 1933 Act or
unless an exemption from such registration (such as Rule 144) is available with
respect to any proposed transfer or disposition by Purchaser of the Stock.
Purchaser further agrees that the Company may refuse to permit
- 10 -
<PAGE>
Purchaser to sell, transfer or dispose of the Stock (except as permitted under
Rule 144) unless there is in effect a registration statement under the 1933 Act
and any applicable state securities laws covering such transfer, or unless
Purchaser furnishes an opinion of counsel reasonably satisfactory to counsel for
the Company, to the effect that such registration is not required.
Purchaser also understands and agrees that there will be placed on the
certificate(s) for the Stock, or any substitution thereof, legends stating in
substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS."
Purchaser has carefully read this letter and has discussed its
requirements and other applicable limitations upon Purchaser's resale of the
Stock with Purchaser's counsel.
Very truly yours,
By: ________________________________
Title: ______________________________
<PAGE>
EXHIBIT 10.21
This Note and the securities issuable upon conversion of the Note have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or under the provisions of any applicable state securities laws, but has
been and will be acquired by the registered holder hereof in reliance on
statutory exemptions under the Securities Act, and under any applicable state
securities laws. This Note and such securities may not be sold, pledged,
transferred or assigned except in a transaction which is exempt under provisions
of the Securities Act and any applicable state securities laws or pursuant to an
effective registration statement; and in the case of an exemption, only if the
Company has received an opinion of counsel satisfactory to the Company that such
transaction does not require registration.
FINANCIAL INTRANET, INC.
US$600,000
7% CONVERTIBLE PROMISSORY NOTE
DUE FEBRUARY 8, 2002
FINANCIAL INTRANET, INC., a Nevada corporation (the "Company"), for value
received, hereby promises to pay to ZUBAIR KAZI or registered assigns (the
"Holder") on demand as set forth below, at the principal offices of the Company,
the principal sum of SIX HUNDRED THOUSAND ($600,000) Dollars, and to pay
interest on the outstanding principal sum hereof at 7% (SEVEN PERCENT) per annum
from the date hereof (the "Issuance Date") until the Company's obligation with
respect to the payment of such principal sum shall be discharged as herein
provided. The principal sum shall be payable upon demand by the Holder (in the
form of a Conversion Notice as set forth below) or upon maturity pursuant to the
following terms: the Company, upon demand by the Holder (in the form of a
Conversion Notice as set forth below) at any time or times on or after February
16, 1999 and up until maturity, shall pay to the Holder the sum of $240,000 in
shares of common stock of the Company (the "Common Stock") pursuant to the
conversion formula set forth below), and pay upon demand (in the form of a
Conversion Notice as set forth below) the remaining amount of $360,000 to the
Holder at any time or times on or after ninety (90) days following the date of
this Note. Interest hereunder shall accrue commencing the date hereof and shall
be payable by the Company to the Holder on the Conversion Date, or if not
converted or prepaid, then on the Anniversary Date (as defined below). The
calculation of interest shall be based on the actual number of days that elapse
during any period in a year of 360 days.
In the event that the Holder has not demanded payment of this Note (in the
form
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of a Conversion Notice as set forth below) prior to three years from the
issuance date hereof (the "Anniversary Date"), on the Anniversary Date, the
Company shall convert any and all remaining outstanding principal and any
accrued and unpaid interest into the Company's common stock, par value $.001 per
share (the "Common Stock") based on the Conversion Price (as hereinafter
defined), with the Anniversary Date being deemed a Conversion Date and all other
conversion procedures set forth below shall apply (and in such event the Holder
expressly waives the 4.99% restriction in Section 3a(iv) below). Upon the
conversion of all or any part of the principal amount of the Promissory Note at
the option of the Holder prior to, or on the Anniversary Date, all accrued and
unpaid interest on that portion of the Promissory Note so converted shall be
payable upon conversion. The interest payable on the Anniversary Date or upon
the earlier conversion of all or a portion of the principal amount of the
Promissory Note will be paid in cash or Common Stock registered under the
Securities Act, at the option of the Company, to the Holder of the Promissory
Note. If paid in registered shares of Common Stock, the number of shares due to
the Holder shall be equal to the dollar amount of interest due divided by the
closing bid prices of the Common Stock on the date such interest has become due.
In the event that for any reason whatsoever any interest or other
consideration payable with respect to this Promissory Note shall be deemed to be
usurious by a court of competent jurisdiction under the laws of the State of New
York or the laws of any other state governing the repayment hereof, then so much
of such interest or other consideration as shall be deemed to be usurious shall
be held by the Holder as security for the repayment of the principal amount
hereof and shall otherwise be waived.
This Promissory Note is the promissory note referred to in the Pledge and
Security Agreement (the "Pledge Agreement") and Guaranty (the "Guaranty")
executed by Benjamin Stein (the "Guarantor") on the date hereof.
1. Transfers of Promissory Note and Securities Issuable Upon Conversion to
Comply with the Securities Act
The rights of the Holder to require the Company to enable the shares of
Common Stock issuable upon conversion of the Promissory Note to be sold pursuant
to the Securities Act and the Holder's other rights with respect to the
registration of such shares of Common Stock under the Securities Act are set
forth in a Registration Rights Agreement dated as of the date hereof (the
"Registration Rights Agreement"). The Holder agrees that this Promissory Note
and any securities issuable upon conversion pursuant to Section 4 hereof may not
be sold, transferred, pledged, hypothecated or otherwise disposed of except as
follows: (i) to a person to whom this Promissory Note and such securities may
legally be transferred without registration pursuant to the Securities Act or
otherwise and without the delivery of a current prospectus under the
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Securities Act with respect thereto or (ii) to any person upon delivery of
a prospectus then meeting the requirements of the Securities Act relating to
such securities and the offering thereof for such sale or disposition, and
thereafter to all successive assignees.
2. Events of Default
a. This Promissory Note shall become due and payable upon written demand
made by the Holder hereof if one or more of the following events, herein called
"events of default", shall happen:
(i) Default in the payment of the principal (in the form of shares due upon
Conversion, or otherwise) and/or accrued interest on this Promissory Note, when
and as the same shall become due and payable, whether by acceleration or
otherwise; provided, however, that in the event of a default in the payment of
principal and accrued interest by the Company with respect to the payment due on
demand commencing February 16, 1999, the Holder shall not have the right to
demand payment of the $360,000 balance of the principal amount of the Note until
90 days from the date hereof unless the Guarantor is in default in his
obligations under the Guaranty, and\or the Pledge and Security Agreement.
(ii) Default in the due observance or performance of any covenant, term,
provision, condition or agreement on the part of the Company to be observed or
performed pursuant to the terms hereof, or the terms of the Subscription
Agreement dated as of the date hereof (the "Subscription Agreement"), and/or
Registration Rights Agreement, and\or Pledge Agreement, if such default shall
continue uncured for 15 business days after written notice, specifying such
default, shall have been given to the Company by the Holder; provided, however,
that the grace period specified in this Section 3(a)(ii) shall not apply to any
other Event of Default specified in this Section 3, and shall not relieve the
Company of its obligations to pay any liquidated damages.
(iii) Entry of a judicial order for the appointment of a receiver, trustee
or liquidator for the Company or its property or business which order shall not
have been vacated or set aside or otherwise terminated within 60 days or upon
the Company consenting to the entry of such an order;
(iv) Admission in writing of the Company's inability to pay its debts as
they mature;
(v) General assignment by the Company for the benefit of creditors;
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(vi) Bankruptcy reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Company and, if instituted
against the Company, Company shall by any action or answer approve of, consent
to or acquiesce in any such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding or such proceedings
shall not be dismissed within sixty (60) days thereafter; or
(vii) Any of the representations or warranties made by the Company herein,
or in the Subscription Agreement, Pledge Agreement, or the Registration Rights
Agreement shall have been incorrect when made in any material respect; or
(viii) Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the Company and
shall not be dismissed within thirty (30) calendar days thereafter; or
(ix) The Common Stock is delisted from trading on the OTC Bulletin Board,
or the Company has received notice of final action concerning delisting from the
OTC Bulletin Board and the Common Stock has not been relisted within ten (10)
days thereafter;
(x) The effectiveness of the Registration Statement including the shares of
Common Stock underlying the Promissory Note has been suspended for a period of
five (5) business days (unless such suspension is caused by the Holder) and
effectiveness of the Registration Statement has not been reinstated within
thirty (30) days thereafter;
(xi) The Company shall have failed to deliver shares of Common Stock
issuable upon conversion of the Promissory Note and/or exercise of the Warrants
issued by the Company pursuant to the Subscription Agreement within two (2)
business days of the date due for delivery under this Promissory Note and/or the
Warrants and the Pledged Stock shall not have been timely delivered in
accordance with the Pledge Agreement;
(xii) The Registration Statement including the shares of Common Stock
underlying the Promissory Note has not been declared effective on or before the
120th day after the date of this Promissory Note (other than by reason of any
act or failure to act in a timely manner by the Holder or its counsel);
(xiii) Default in the due observance or performance of any covenant, term,
provision, condition or agreement on the part of the Guarantor/Pledgor to be
observed or performed pursuant to the terms of the Pledge Agreement and/or
Guaranty, if such
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default shall continue uncured for five days after written notice,
specifying such default, shall have been given to the Guarantor by the Holder;
or
(xiv) The Company has not reserved and kept available sufficient shares of
Common Stock pursuant to Section 3(c)(v)(F).
The Company agrees that notice of the occurrence of any event of default
will be promptly given to the Holder at his or her registered address by
certified mail within five days of such event of default.
c. In case any one or more of the events of default specified above shall
happen or, the Holder may consider this Promissory Note immediately due and
payable in cash and may proceed to enforce the payment of the outstanding
principal amount and all accrued an unpaid interest and may protect and enforce
his or her right by suit for the specific performance of any covenant or
agreement contained in this Promissory Note or in aid of the exercise of any
power granted in this Promissory Note or may proceed to enforce any other legal
or equitable rights of such Holder. It is agreed that in the event of such
action, the Holder shall be entitled to receive all reasonable fees, costs and
expenses incurred, including without limitation such reasonable fees and
expenses of attorneys.
3 Conversion.
a. The Holder is entitled, at its option, at any time or times, after
February 16, 1999 to convert up to $240,000 principal amount of this Promissory
Note, and at any time or times after ninety (90) days after the date hereof to
convert the remaining unconverted portion of this Promissory Note, in accordance
with the following terms and conditions:
(i) The Holder may exercise its right to convert the Promissory Note by
telecopying an executed and completed notice of conversion (the "Notice of
Conversion") to the Company and to the Guarantor at 589 Lakeworth Circle, Lake
Mary, Florida 32746 (facsimile (407-333-2373) (between the hours of 9:00 a.m.
and 5:30 p.m. Eastern Time) and delivering the original Notice of Conversion (in
the form attached hereto as Exhibit A) and the original Promissory Note to the
Company by express courier. Each business date on which a Notice of Conversion
is telecopied to and received by the Company in accordance with the provisions
hereof shall be deemed a "Conversion Date". The Company will transmit the
certificates representing shares of Common Stock issuable upon conversion of the
Promissory Note (together with the certificates representing the Promissory Note
not so converted) to the Holder via express courier, by electronic transfer (if
applicable) or otherwise within two business
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days after the Conversion Date if the address for delivery is within the
New York City metropolitan area (or within three business days after the
Conversion Date if the address for delivery is outside the New York City
metropolitan area (but within the continental United States) provided the
Company has received the original Notice of Conversion and Promissory Note being
so converted no later than the date before the delivery date. The Notice of
Conversion and Promissory Note representing the portion of the Promissory Note
converted shall be delivered to the office of the Company as set forth in the
Subscription Agreement. In the event that the Holder fails to deliver the
original Notice of Conversion and Promissory Note to the Company later than the
date immediately prior to the delivery date, then the Conversion Date shall be
deemed to be the date of delivery of such documents.
In addition to any other remedies which may be available to the Holder, in
the event that the Company fails to effect delivery of such shares of Common
Stock within such three or two or three business day period, as the case may be,
the Holder will be entitled to revoke the Notice of Conversion by delivering a
notice to such effect to the Company whereupon the Company and the Holder shall
each be restored to their respective positions immediately prior to delivery of
the Notice of Conversion.
(ii) In the event that the Common Stock issuable upon conversion of this
Promissory Note is not delivered, within three (3) business days of receipt by
the Company of a valid Notice of Conversion (provided the Company has received
the original Promissory Note to be converted) to any address in the New York
metropolitan area designated by the Holder (or within four (4) business days to
any other address in the continental United States designated by the Holder),
the Company shall pay to the Holder, in immediately available funds, upon
demand, as liquidated damages for such failure and not as a penalty, for each
$100,000 principal amount of Promissory Note sought to be converted, $500 for
each of the first ten (10) days and $1,000 per day thereafter that the shares of
Common Stock are not delivered, which liquidated damages shall run from the
fourth business day after the Conversion Date (or the fifth business day
following the Conversion Date as the case may be) up until the time that either
the Conversion Notice is revoked or the Common Stock is delivered, at which time
such liquidated damages shall cease. In the event that shares of Common Stock
are released pursuant to the Pledge Agreement to satisfy the Company's
obligations hereunder, delivery shall not be deemed complete until delivery to
the Holder of certificates registered in the name of the Holder in accordance
with the terms of the Pledge Agreement, and the Company shall be responsible for
liquidated damages up to the date the shares are delivered to the Holder. Any
and all payments required pursuant to this paragraph shall be payable only in
cash immediately. Any and all payments required to be made, and/or made pursuant
to this Section shall not be deemed to be a waiver of the Company's obligation
to deliver the shares of Common Stock due upon conversion of this Promissory
Note.
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(iii) The Holder may, in accordance with the terms of this Section, at its
sole option convert this Promissory Note into that number of shares of fully
paid and nonassessable shares of Common Stock which is to be derived from
dividing the Conversion Amount by the Conversion Price. The "Conversion Amount"
shall mean the principal dollar amount of the Promissory Note being converted.
The "Conversion Price" shall be the lessor of : (i) 75% of the average of the
five lowest closing bid prices of the Common Stock during the 30 trading days
ending on the trading day immediately preceding the Conversion Date, or (ii)
$.40 per share. The closing bid price shall be deemed to be the reported last
bid price regular way as reported by Bloomberg LP or if unavailable, 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 closing bid price as reported by NASDAQ
or such other system then in use, or, if the Common Stock is not quoted by any
such organization, the closing bid price in the over-the-counter market as
furnished by the principal national securities exchange on which the Common
Stock is traded.
(iv) Notwithstanding anything else herein to the contrary, the Holder of
this Promissory Note may not convert any Promissory Note to the extent that
after such conversion, the number of shares of Common Stock owned by the Holder
and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Promissory Notes and any unexercised warrants issued to the Holder and its
affiliates as of such date (the "Warrants")), would result in ownership by the
Holder and its affiliates of 4.99% or more of the Company's issued and
outstanding shares of Common Stock following such conversion. This restriction
shall be binding upon any transferee of the Promissory Note from any Holder. The
preceding shall not interfere with the Holder's right to convert this Promissory
Note over time which in the aggregate totals more than 4.99% of the then
outstanding shares of Common Stock so long as such Holder and its affiliates
does not own more than 4.99% of the then outstanding Common Stock at any given
time.
c. Adjustment of Conversion Price
(i) Adjustments for Stock Splits and Combinations. If the Company shall at
any time or from time to time after the Issuance Date, effect a stock split of
the outstanding Common Stock, the applicable Conversion Price in effect
immediately prior to the stock split shall be proportionately decreased. If the
Company shall at any time or from time to time after the Issuance Date, combine
the outstanding shares of Common Stock, the applicable Conversion Price, in
effect immediately prior to the combination shall be proportionately increased.
Any adjustments under this Section 4(c)(i) shall be effective at the close of
business on the date the stock split or combination occurs.
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(ii) Adjustment for Dividends and Distributions. If the Company shall at
any time or from time to time after the Issuance Date, make or issue or set a
record date for the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in other than shares of Common Stock,
then, and in each event, an appropriate revision to the Conversion Price shall
be made at the option of the Holder, and provision shall be made (by adjustments
of the Conversion Price or otherwise) so that the Holder of this Promissory Note
will receive upon conversions thereof, in addition to the number of shares of
Common Stock receivable thereon, the number of securities of the Company which
they would have received had their Promissory Note been converted into Common
Stock on the date of such event and had thereafter, during the period from the
date of such event to and including the Conversion Date, retained such
securities (together with any distributions payable thereon during such period),
giving application to all adjustments called for during such period under this
Section 4(c)(iii) with respect to the rights of the Holder of this Promissory
Note.
(iii) Adjustments for Reclassification, Exchange or Substitution. If the
Common Stock issuable upon conversion of the Promissory Note at any time or from
time to time after the Issuance Date shall be changed into the same or different
number of shares of any class or classes of stock, whether by reclassification,
exchange, substitution or otherwise (other than by way of a stock split or
combination of shares or stock dividends provided for in Sections 4(c)(i), (ii)
and (iii), or a reorganization, merger, consolidation, or sale of assets
provided for in Section 4(c)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall by made and provisions shall be made (by
adjustments of the Conversion Price of otherwise) so that the Holder of this
Promissory Note shall have the right thereafter to convert such Promissory Note
into the kind and amount of shares of stock and other securities receivable upon
reclassification, exchange, substitution or other change, by holders of the
number of shares of Common Stock into which such Promissory Note might have been
converted immediately prior to such reclassification, exchange, substitution or
other change, all subject to further adjustment as provided herein.
(iv) Adjustments for Reorganization, Merger, Consolidation or Sales of
Assets. If at any time or from time to time after the Issuance Date there shall
be a capital reorganization of the Company (other than by way of a stock split
or combination of shares or stock dividends or distributions provided for in
Section 4(c)(i), (ii) and (iii), or a reclassification, exchange or substitution
of shares provided for in Section 4(c)(iv)), or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's properties or assets to any other person, then as a part of
such reorganization, merger, consolidation, or sale, an appropriate revision to
the Conversion Price provision shall be made so that the Holder of this
Promissory Note shall have the right thereafter to convert such Promissory Note
into the kind and amount of shares of stock and other securities or property of
the Company or any successor corporation resulting from such reorganization,
merger, consolidation, or sale,
<PAGE>
to which a holder of Common Stock deliverable upon conversion of such
shares would have been entitled upon such reorganization, merger, consolidation,
or sale, to which a holder of Common Stock deliverable upon conversion of such
shares would have been entitled upon such reorganization, merger, consolidation,
or sale. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4(c)(v) with respect to the rights
of the Holder of this Promissory Note after the reorganization, merger,
consolidation, or sale to the end that the provisions of this Section 4(c)(v)
(including any adjustment in the applicable Conversion Price then in effect and
the number of shares of stock or other securities deliverable upon conversion of
the Promissory Note) shall be applied after that event in as nearly an
equivalent manner as may be practicable.
(v) Other Adjustment Events and Provisions. For the purposes of this
Section 4, the following shall also be applicable.
(A) Consideration for Stock. In case any shares of Common Stock or
convertible securities or any rights or warrants or options to purchase any such
Common Stock or convertible securities shall be issued or sold:
(1) for cash, the consideration received therefor shall be deemed to be the
amount received by the Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or concessions paid or allowed
by the Company in connection therewith;
(2) for a consideration other than cash, the amount of the consideration
other than cash received by the Company shall be deemed to be the fair value of
such consideration as determined by the Board of Directors of the Company in
good faith and in the exercise of reasonable business judgment, without
deduction of any expense incurred or any underwriting commissions or concessions
paid or allowed by the Company in connection therewith, which determination
shall be sent in writing by the Board of Directors to the registered Holder of
this Promissory Note;
(3) in connection with any merger or consolidation in which the Company is
the surviving corporation (other than any consolidation or merger in which the
previously outstanding shares of Common Stock of the Company shall be changed
into or exchanged for the stock or other securities of another corporation), the
amount of consideration therefor shall be deemed to be the fair value, as
determined reasonably and in good faith by the Board of Directors of the
Company, of such portion of the assets and business of the non- surviving
corporation as such Board may determine to be attributable to such shares of
Common Stock, convertible securities, rights or warrants or options, as the case
may be; or
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(4) in the event of any consolidation or merger of the Company in which the
Company is not the surviving corporation or in which the previously outstanding
shares of Common Stock of the Company shall be changed into or exchanged for the
stock or other securities of another corporation or in the event of any sale of
all or substantially all of the assets of the Company for stock or other
securities of any corporation, the Company shall be deemed to have issued a
number of shares of its Common Stock for stock or securities or other property
of the other corporation computed on the basis of the actual exchange ratio on
which the transaction was predicated, and for a consideration equal to the fair
market value on the date of such transaction of all such stock or securities or
other property of the other corporation. If any such calculation results in
adjustment of the applicable Conversion Price, or the number of shares of Common
Stock issuable upon conversion of the Promissory Note, the determination of the
applicable Conversion Price, or the number of shares of Common Stock issuable
upon conversion of the Promissory Note immediately prior to such merger,
consolidation or sale, shall be made after giving effect to such adjustment of
the number of shares of Common Stock issuable upon conversion of the Promissory
Note.
(B) No Impairment. The Company shall not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the Holder of this
Promissory Notes against impairment.
(C) Certificate as to Adjustments. Upon occurrence of each adjustment or
readjustment of the Conversion Price or number of shares of Common Stock
issuable upon conversion of the Promissory Note pursuant to this Section 4, the
Company at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish notice to the Holder of such
Promissory Note, a certificate setting forth such adjustment and readjustment,
showing in detail the facts upon which such adjustment or readjustment is based.
The Company shall, upon written request of the Holder of such affected
Promissory Note, at any time, furnish or cause to be furnished to such Holder a
like certificate setting forth such adjustments and readjustments, the
applicable Conversion Price in effect at the time, and the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon the conversion of a share of such Promissory
Note. Notwithstanding the foregoing, the Company shall not be obligated to
deliver a certificate unless such certificate would reflect an increase or
decrease of at least one percent of such adjusted
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amount.
(D) Issue Taxes. The Company shall pay any and all issue and other taxes,
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of the
Promissory Note pursuant hereto; provided, however, that the Company shall not
be obligated to pay any transfer taxes resulting from any transfer requested by
any Holder in connection with any such conversion.
(E) Fractional Shares. No fractional shares of Common Stock shall be issued
upon conversion of the Promissory Note. In lieu of any fractional shares to
which the Holder would otherwise be entitled, the Company shall round the
fraction to the nearest whole number of shares such that the Company will round
up if the fraction is one-half or more, and round down if the fraction is less
than one-half.
(F) Reservation of Common Stock. The Company shall at all times reserve and
keep available, out of its authorized but unissued shares of Common Stock not
previously reserved, solely for the purpose of effecting the conversion of this
Promissory Note, the full number of shares deliverable upon conversion of the
Promissory Note from time to time outstanding. The Company shall, from time to
time in accordance with the Nevada General Business Corporations Law, as
amended, take all necessary measures to increase the authorized number of shares
of Common Stock if at any time the unissued number of authorized shares shall
not be sufficient to permit the conversion of the Promissory Note at the time
outstanding.
(G) Retirement of the Promissory Note. Conversion of the Promissory Note
shall be deemed to have been effected on the applicable Conversion Date, and
such date is referred to herein as the "Conversion Date". The converting Holder
shall be deemed to have become a stockholder of record of the Common Stock on
the applicable Conversion Date. Upon conversion of only a portion of the
Promissory Note represented by a certificate surrendered for conversion, the
Company shall issue and deliver to such Holder at the expense of the Company, a
new Promissory Note representing the unconverted portion of the certificate so
surrendered.
4. No Preemptive Rights. Except as provided in Section 4 hereof, no Holder
of this Promissory Note shall be entitled as of right to subscribe for, purchase
or receive any part of any new or additional shares of any class, whether now or
hereinafter authorized, or of bonds or Promissory Notes (except as set forth in
the Subscription Agreement), or other evidences of indebtedness convertible into
or exchangeable for shares of any class, but all such new or additional shares
of any class or bond or Promissory Notes, or other evidences of indebtedness
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convertible into or exchangeable for shares may be issued and disposed of
by the Board of Directors on such terms and for such consideration (to the
extent permitted by law), and to such person or persons as the Board of
Directors in their absolute discretion may deem advisable.
5. Miscellaneous
a. This Promissory Note has been issued by the Company pursuant to
authorization of the Board of Directors of the Company.
b. The Company may consider and treat the person in whose name this
Promissory Note shall be registered as the absolute owner hereof for all
purposes whatsoever (whether or not this Promissory Note shall be overdue) and
the Company shall not be affected by any notice to the contrary. Subject to the
limitations herein stated, the registered owner of this Promissory Note shall
have the right to transfer this Promissory Note by assignment, and the
transferee thereof shall, upon his registration as owner of this Promissory
Note, become vested with all the powers and rights of the transferor.
Registration of any new owner shall take place upon presentation of this
Promissory Note to the Company at its principal offices, together with a duly
authenticated assignment. In case of transfer by operation of law, the
transferee agrees to notify the Company of such transfer and of his address, and
to submit appropriate evidence regarding the transfer so that this Promissory
Note may be registered in the name of the transferee. This Promissory Note is
transferable only on the books of the Company by the Holder hereof, in person or
by attorney, on the surrender hereof, duly endorsed. Communications sent to any
registered owner shall be effective as against all Holders or transferees of the
Promissory Note not registered at the time of sending the communication.
c. Payments of interest shall be made as specified above to the registered
owner of this Promissory Note. Payment of principal shall be made to the
registered owner of this Promissory Note upon presentation on or after maturity.
No interest shall be due on this Promissory Note for such period of time that
may elapse between the maturity of this Promissory Note and its presentation for
payment.
d. Presentment, notice of dishonor, protest and notice of protest are
hereby waived. In the event an action, suit or proceeding is brought to enforce
this Promissory Note or to protest the same, the Holder hereof shall be entitled
to all costs and disbursements, including reasonable attorney's fees and costs
of collection, incurred in connection with such action, suit or proceeding.
e. Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Promissory Note, and (in the
case of loss,
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theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Promissory Note, if mutilated, the Company
shall execute and deliver a new Promissory Note of like tenor and date. Any such
new Promissory Note executed and delivered shall constitute an additional
contractual obligation on the part of the Company, whether or not this
Promissory Note so lost, stolen, destroyed or mutilated shall be at any time
enforceable by anyone.
f. This Promissory Note shall be governed by and construed in accordance
with the laws of the State of New York, with respect to contracts executed and
performed in the State of New York.
g. Any litigation based thereon, or arising out of, under, or in connection
with, this Promissory Note or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Company or Holder shall
be brought and maintained exclusively in the court of the state of New York
without reference to its conflicts of laws rules or principles. The Company and
the Holder hereby expressly and irrevocably submits to the exclusive
jurisdiction of the Federal Courts of the state of New York sitting in the
Southern District for the purpose of any such litigation as set forth above and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Holder and the Company each irrevocably
consents to the service of process by registered mail, postage prepaid, or by
personal service within or without the State of New York. To the extent that the
Holder has or hereafter may acquire any immunity from jurisdiction of any court
or from any legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution or otherwise) with respect to itself
or its property. The Holder hereby irrevocably waives such immunity in respect
of its obligations under this Promissory Note and the other documents.
h. All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or by facsimile or three days
following being mailed by certified or registered mail, postage prepaid,
return-receipt requested, addressed (1) to the Holder at its address appearing
on the books of the Company, (2) to the Company at Financial Intranet, Inc., 410
Saw Mill River Road, Ardsley, New York 10502, Attn.: Michael Sheppard (facsimile
914-693-5049); with a copy to Steven Schuster, Esq., McLaughlin & Stern LLP, 260
Madison Avenue, New York, New York 10016 (facsimile 212-448-0066).
IN WITNESS WHEREOF, Financial Intranet, Inc. has caused this Promissory
Note to be signed in its name by its President on the 8th day of February, 1999.
<PAGE>
FINANCIAL INTRANET, INC.
By: /s/Michael Sheppard
Michael Sheppard, President
<PAGE>
EXHIBIT A TO PROMISSORY NOTE
CONVERSION NOTICE
Date:
FINANCIAL INTRANET, INC.
410 Saw Mill River Road
Ardsley, NY 10502
Attn: President
Ladies and Gentlemen:
The undersigned hereby elects to convert $____________ of the principal
amount of the promissory note issued to it by FINANCIAL INTRANET, INC. (the
"Company") dated as of February ___, 1998 and to convert such promissory note
into ____________________ (_________) shares of the Common Stock of the Company
at a conversion price of _________________ ($_________) per Share (the
"Conversion Price").
In the event that the Conversion Price elected by the undersigned
represents 75% of the average of the five lowest closing bid prices of the
Common Stock during the 30 trading days ending on the trading day immediately
preceding the date this notice is delivered to the Company, a calculation of the
Conversion Price is set forth below or on a page attached hereto.
The undersigned represents that as of the date hereof, the undersigned and
its affiliates own not more than ___________ shares of Common Stock of the
Company.
Very truly yours,
______________________________
By:____________________________
Title: __________________________
<PAGE>
EXHIBIT 10.22
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 8, 1999 by and
between Financial Intranet, Inc., a Nevada corporation (the "Company"), and the
persons whose name appears on the signature page attached hereto (individually a
"Holder" and collectively, with any subsequent holders of the promissory note or
warrants issued in the Offering, the "Holders").
WHEREAS, the Company has offered (the "Offering") 7% promissory notes in
the principal amount of $1,700,000 (the "Notes") convertible into shares of the
Company's Common Stock (the "Notes Shares") and a warrant (the "Warrant") to
purchase additional shares of Common Stock (the "Warrant Shares," the "Warrant
Shares and the Notes Shares are hereinafter referred to as the Registrable
Securities");
WHEREAS, the Company is issuing shares of Common Stock and Warrants to
Cardinal Capital Management, Inc. and Josephberg Grosz & Co. (both included in
the definition of "Holders") as set forth in the Subscription Agreement (as
defined below);
WHEREAS, pursuant to the terms of and in order to induce the Holder to
enter into a certain subscription agreement dated the date hereof between the
Company and the Holder (the "Subscription Agreement") to purchase the Notes and
the Warrants, the Company and the Holder have agreed to enter into this
Agreement;
WHEREAS, any capitalized terms used herein and not otherwise defined shall
have that meaning as set forth in the Subscription Agreement;
WHEREAS, it is intended by the Company and the Holder that this Agreement
shall become effective immediately upon the acquisition by the Holder of the
Initial Notes and Initial Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and in the Subscription Agreement, the Company hereby agrees as
follows:
1. Registration Rights
Mandatory Registration. (i) The Company shall prepare, and file with the
Securities and Exchange Commission (the "Commission"), within 30 days after the
Initial Closing Date, a Registration Statement or Registration Statements (as
necessary) on Form SB-2 or S-1 covering the resale of all of the Registrable
Securities, which Registration Statement(s), to the extent allowable under the
Securities Act and the rules promulgated thereunder (including without
limitation Rule 416), shall state that such Registration Statement(s) also
covers such indeterminate number of additional shares (the "Indeterminate
Shares") of Common Stock as may become issuable upon conversion of the Notes to
prevent dilution resulting from stock splits, stock
<PAGE>
dividends or similar transactions. The Company agrees to register pursuant
to the Registration Statement a number of shares equal to the sum of (i) 150% of
the number of Note Shares which would be issuable upon conversion of the Notes
had all of the Notes been converted on the trading day immediately preceding the
date of filing of the Registration Statement and (ii) 3,830,007.
(ii) To the extent the Indeterminate Shares for any reason can not be
registered under the Registration Statement(s) required under Section 1(i)
above, then with respect to such Indeterminate Shares, the Company shall
prepare, and, on or before the date that is fifteen (15) days after the
Indeterminate Shares become determined, file with the Commission a Registration
Statement or Registration Statements (as necessary), covering the resale of all
of the Indeterminate Shares.
2. Registration Procedures. If and whenever the Company is required by any
of the provisions of this Agreement to effect the registration of any of the
Registrable Securities under the Securities Act, the Company shall (except as
otherwise provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the Commission a registration statement and shall
use its best efforts to cause such registration statement to be declared
effective and remain effective until all the Registrable Securities are sold or
become capable of being publicly sold without registration under the Securities
Act.
(b) prepare and file with the Commission such amendments and supplements to
such offering or registration statement and the prospectus used in connection
therewith as may be necessary to keep such statement effective and to comply
with the provisions of the Securities Act with respect to the sale or other
disposition of all securities covered by such registration statement whenever
the Holder or Holders of such securities shall desire to sell or otherwise
dispose of the same (including prospectus supplements with respect to the sales
of securities or the conversion and/or exercise of the Notes or Warrants from
time to time in connection with a registration statement pursuant to Rule 415 of
the Commission);
(c) furnish to each Holder such numbers of copies of a summary prospectus
or other prospectus, including a preliminary prospectus or any amendment or
supplement to any prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as such Holder may reasonably request
in order to facilitate the public sale or other disposition of the securities
owned by such Holder;
(d) use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or blue sky laws of such
jurisdictions as each Holder shall reasonably request, and do any and all other
acts and things which may be necessary or advisable to enable such Holder to
consummate the public sale or other disposition in such jurisdictions of the
securities owned by such Holder, except that the Company shall not for any such
purpose be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any general
consent to service of process;
<PAGE>
(e) list such securities on any securities exchange on which any securities
of the Company is then listed, if the listing of such securities is then
permitted under the rules of such exchange;
(f) enter into and perform its obligations under an underwriting agreement,
if the offering is an underwritten offering, in usual and customary form, with
the managing underwriter or underwriters of such underwritten offering;
(g) notify each Holder of Registrable Securities subject to such offering
statement or being registered by such registration statement, at any time when a
prospectus relating thereto covered by such registration statement is required
to be delivered under the Securities Act, of the happening of any event of which
it has knowledge as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing; and
(h) take such other actions as shall be reasonably requested by any Holder
to facilitate the registration and sale of the Registrable Securities.
(i) declare the Registration Statement effective within two Business Days
after being informed by the Commission that it may do so.
3. Expenses. All expenses incurred in any registration of the Holders'
Registrable Securities under this Agreement shall be paid by the Company,
including, without limitation, printing expenses, fees and disbursements of
counsel for the Company, expenses of any audits to which the Company shall agree
or which shall be necessary to comply with governmental requirements in
connection with any such registration, all registration and filing fees for the
Holders' Registrable Securities under federal and State securities laws, and
expenses of complying with the securities or blue sky laws of any jurisdictions
pursuant to Section 2(d); provided, however, the Company shall not be liable for
(a) any discounts or commissions to any underwriter; (b) any stock transfer
taxes incurred with respect to Registrable Securities sold in the Offering or
(c) the fees and expenses of counsel for any Holder, provided that the Company
will pay the costs and expenses of Company counsel when the Company's counsel is
representing any or all selling security holders.
4. Assignment of Registration Rights. The rights of the Holders under this
Agreement, including the rights to cause the Company to register Registrable
Securities may be assigned without the written prior consent of the Company,
provided that the assignee agrees in writing to be bound by the terms of this
Agreement and to provide the Company with such information as it may require in
order to register the Registrable Securities held by such assignee.
5. Indemnification. In the event any Registrable Securities are included in
a registration statement pursuant to this Agreement:
<PAGE>
(a) Company Indemnity. Without limitation of any other indemnity provided
to any Holder, either in connection with the Offering or otherwise, to the
extent permitted by law, the Company shall indemnify and hold harmless each
Holder, the affiliates, officers, directors and partners of each Holder, any
underwriter (as defined in the Securities Act) for such Holder, and each person,
if any, who controls such Holder or underwriter (within the meaning of the
Securities Act or the Securities Exchange Act of 1934 (the "Exchange Act"),
against any losses, claims, damages or liabilities (joint or several) to which
they may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statements including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law, and the Company shall reimburse
each such Holder, affiliate, officer or director or partner, underwriter or
controlling person for any legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
any Holder in any such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder or any
other officer, director or controlling person thereof or any Violation which
arises from a violation by a Holder of the Securities Act, the Exchange Act or
any state securities law.
(b) Holder Indemnity. The Holder shall indemnify and hold harmless the
Company, its affiliates, officers, directors, and authorized representatives,
any underwriter (as defined in the Securities Act) and each person, if any, who
controls the Company or the underwriter (within the meaning of the Securities
Act or the Exchange Act), against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the Securities Act,
the Exchange Act or any state securities law, and the Company shall reimburse
each such Holder, affiliate, officer or director or partner, underwriter or
controlling person for any legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; insofar as such losses, claims, damages or liabilities (or
actions and respect thereof) arise out of or are based upon any untrue
statements or untrue information provided by such Holder to the Company in
connection with the offer or sale of Registrable Securities.
(c) Notice; Right to Defend. Promptly after receipt by an indemnified party
under this Section 5 of notice of the commencement of any action (including any
governmental action), such indemnified party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section 5,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in and if the
<PAGE>
indemnifying party agrees in writing that it will be responsible for any
costs, expenses, judgments, damages and losses incurred by the indemnified party
with respect to such claim, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if the indemnified party reasonably believes that
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall relieve such indemnifying party of any liability to the indemnified
party under this Agreement only if and to the extent that such failure is
prejudicial to its ability to defend such action, and the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Agreement.
(d) Contribution. If the indemnification provided for in this Agreement is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage 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 such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other
hand in connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relevant fault of the indemnifying party and the indemnified
party shall be determined by a court of competent jurisdiction by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. Notwithstanding the foregoing, the amount any Holder
shall be obligated to contribute pursuant to the Agreement shall be limited to
an amount equal to the proceeds to such Holder of the Registrable Securities
sold pursuant to the registration statement which gives rise to such obligation
to contribute (less the aggregate amount of any damages which the Holder has
otherwise been required to pay in respect of such loss, claim, damage, liability
or action or any substantially similar loss, claim, damage, liability or action
arising from the sale of such Registrable Securities).
(e) Survival of Indemnity. The indemnification provided by this Agreement
shall be a continuing right to indemnification and shall survive the
registration and sale of any Registrable Securities by any person entitled to
indemnification hereunder and the expiration or termination of this Agreement.
6 Remedies.
(a) Time is of Essence. The Company agrees that time is of the essence of
each of the covenants contained herein and that, in the event of a dispute
hereunder, this Agreement is to
<PAGE>
be interpreted and construed in a manner that will enable the Holders to
sell their Registrable Securities as quickly as possible after such Holder have
indicated to the Company that it desires its Registrable Securities to be
registered.
(b) Remedies Upon Default or Delay. - Liquidated Damages. The Company shall
use its best efforts to obtain effectiveness of the Registration Statement as
soon as practicable. If the Registration Statement(s) covering the Registrable
Securities required to be filed by the Company pursuant to Section 1 hereof is
not filed with the Commission on or before the 30th day after the Initial
Closing Date, or declared effective by the Commission on or before the 90th day
after the Initial Closing Date (other than by reason of any act or failure to
act in a timely manner by the Holder or its counsel) (the "Registration
Deadline"), then (a "Delay") the Company will make payments to the Holder, as
liquidated damages and in such amounts and at such times as shall be determined
pursuant to this Section, an amount to be determined as follows. The Company
shall pay to the Holder, at the Holder's option, cash in an amount for the first
30 days of such Delay equal to $5,000, and $10,000 for each additional 30 day
period. Such amounts shall be for (i) the number of months (prorated for partial
months beginning 31 days from the Initial Closing Date) and ending on the date
that the Registration Statement is filed with the Commission; (ii) the number of
months prorated for partial months beginning 91 days from the Initial Closing
Date) and ending on the date the Registration Statement is declared effective by
the Commission, provided, however, that there shall be excluded from such period
any delays which are solely attributable to the failure of the Holder to conduct
its review of the registration statement in a reasonably prompt manner; (iii)
the number of months (prorated for partial months) that sales cannot be made
pursuant to the Registration Statement after the Registration Statement has been
declared effective; and (iv) the number of months (prorated for partial months)
that the Common Stock is not listed or included for quotation on the OTC
Bulletin Board or another United States national securities exchange after the
Registration Statement has been declared effective. The foregoing shall not
relieve the Company from its obligations to register the Registrable Securities
pursuant to this Agreement. If the Company does not remit the aforementioned to
the Holders as set forth above, the Company will pay the Holders' reasonable
costs of collection, including attorneys fees, in addition to the liquidated
damages. The registration of the Securities pursuant to this provision shall not
affect or limit Holder's other rights or remedies as set forth in this
Agreement.
7. Notices.
Any notice required by the provisions of this Agreement will be in writing
and will be deemed effectively given: (a) upon personal delivery to the party to
be notified; (b) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient; if not, then on the next business day; (c) five
(5) days after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (d) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt.
i. If to the Company, at:
<PAGE>
Financial Intranet, Inc.
410 Saw Mill River Road
Ardsley, New York 10502
Attn.: Michael Sheppard
with a copy to:
Steven Schuster, Esq.
McLaughlin & Stern, LLP
260 Madison Avenue
New York, New York 10016
ii. if to any Holder of any Registrable Securities, to the address of such
Holder as it appears on the signature page hereto or in the Subscription
Agreement.
or at such other address as it may have furnished in writing to the other
party to this Agreement
8. Successors and Assigns. Except as otherwise expressly provided herein,
this Agreement shall inure to the benefit of and be binding upon the successors
and permitted assigns of the Company and each of the Holders.
9. Amendment and Waiver. This Agreement may be amended, and the observance
of any term of this Agreement may be waived, but only with the written consent
of the Company and the Holders of Securities representing a majority of the
Registrable Securities; provided, however, that no such amendment or waiver
shall take away any registration right of any Holder of Registrable Securities
or reduce the amount of reimbursable costs to any Holder of Registrable
Securities in connection with any registration hereunder without the consent of
such Holder; further provided, however, that without the consent of any other
Holder of Registrable Securities, any Holder may from time to time enter into
one or more agreements amending, modifying or waiving the provisions of this
Agreement if such action does not adversely affect the rights or interest of any
other Holder of Registrable Securities. No delay on the part of any party in the
exercise of any right, power or remedy shall operate as a waiver thereof, nor
shall any single or partial exercise by any party of any right, power or remedy
preclude any other or further exercise thereof, or the exercise of any other
right, power or remedy.
10. Counterparts. One or more counterparts of this Agreement may be signed
by the parties, each of which shall be an original but all of which together
shall constitute one and same instrument.
11. Governing Law. This warrant will be construed and enforced in
accordance with, and the rights of the parties will be governed by, the laws of
the State of New York without regard to conflict of laws principles. Any
litigation based thereon, or arising out of, under, or in connection with, this
agreement or any course of conduct, course of dealing, statements (whether oral
or written) or actions of the Company or Holder shall be brought and maintained
exclusively in the court of the state of New York without reference to its
conflicts of laws rules or principles. The Company and the Holder hereby
expressly and irrevocably submits to the exclusive jurisdiction of the federal
Courts of the state of New York sitting in the Southern District for the
<PAGE>
purpose of any such litigation as set forth above and irrevocably agrees to
be bound by any final judgment rendered thereby in connection with such
litigation. The Holder and the Company each irrevocably consents to the service
of process by registered mail, postage prepaid, or by personal service within or
without the State of New York. The Holder hereby expressly and irrevocably
waives, to the fullest extent permitted by law, any objection which it may have
or hereafter may have to the laying of venue of any such litigation brought in
any such court referred to above and any claim that any such litigation has been
brought in any inconvenient forum.
12. Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not be
affected thereby.
13. Headings. The headings in this Agreement are for convenience of
reference only and shall not be deemed to alter or affect the meaning or
interpretation of any provisions hereof.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date first above written.
FINANCIAL INTRANET, INC.
By /s/Michael Sheppard
/s/Zubair Kazi
ZUBAIR KAZI
CARDINAL CAPITAL MANAGEMENT, INC.
By_____________________________
JOSEPHBERG GROSZ & CO.
By:/s/R. Josephberg
<PAGE>
Exhibit 10.23
CONSULTING AGREEMENT
This Consulting agreement ("Agreement") is entered into this
27th day of February 1997 by and between Financial Intranet Inc.,
formerly Wee Wees Inc., (hereinafter referred to as "FNTN"), with
principal offices at 50 Broad Street New York, NY, Suite 314 and
Ben B. Stein (hereinafter referred to as "Stein") with principal
residence at 1219 Tall Pine Drive, Apoka FL 32712
Whereas FNTN wishes to retain Stein as a consultant to FNTN
during its development stages; and
Whereas FNTN contemplates entering into a long term employment
with Stein as one of the considerations offered to Stein to
undertake the consultancy activities with FNTN; and
Whereas Stein wishes to aid FNTN as a consultant during its
development stages; and
Whereas Stein intends to accept, when and if offered by FNTN,
an acceptable long term employment agreement;
Now Therefore it is agreed as follows;
1. The above preamble to this Agreement, representing the
intent of Stein and FNTN to one and other is hereby incorporated
and made part of this Agreement,
2. FNTN, being unable, at this time, to offer and support a
long term employment agreement with Stein, agrees to retain Stein
as a paid consultant to aid FNTN to expand and implement its
initial business plan, funding and marketing activities as more
fully described in the original business plan attached hereto for
reference purposes.
3. FNTN agrees to pay to Stein a consulting fee, payable
from funds when and if available on a priority basis, a monthly
stipend of $12,500, (the "Consulting Fee") during the period
commencing with the date of this Agreement and terminating upon the
date that FNTN and Stein execute and enter into a mutually
acceptable Employment Agreement,
4. In the event FNTN does not pay the Consulting Fee to
Stein for three (3) consecutive months, then in that event, Stein
may, at his sole option, agree to defer any Consulting Fees or
terminate this Agreement upon advising FNTN in writing of his
intention to terminate his activities as a consultant.
(A) Upon termination as provided for hereinabove, neither
FNTN nor Stein shall have any further liability to each other
with the exception that FNTN shall remain liable to pay to
Stein any Consulting Fees due but not paid to Stein as well as
<PAGE>
any out of pocket expenses incurred or advanced by Stein for
the account of FNTN in his furtherance of his consulting
activities for FNTN under the terms of this Agreement.
5. FNTN shall advance or repay to Stein, as the case may be,
for any out-of-pocket expenses incurred or advanced by Stein in
performing his duties under the Agreement for the benefit of FNTN.
(A) Any single expense in excess of two hundred and fifty
dollars ($250) shall require the approval of the Board of
Directors of FNTN prior to Stein expending or incurring funds
equal to or greater than any single expense of $250.
6. It is the intent of this Agreement to establish a long
term employment agreement between FNTN and Stein, at the earliest
time, during which FNTN can implement the terms of the long term
employment agreement provided that:
(B) This Agreement shall still be in effective at the time
that employment agreement is offered by FNTN, accepted by
Stein and executed by FNTN and Stein and approved by the Board
of Directors of FNTN; and
(B) The term of the long term employment agreement shall be
for a term not less than five years with acceptable renewal
clauses.; and
(C) During the term of this Agreement as well as during the
terms of the long term employment agreement, Stein shall act
as FNTN's Temporary Secretary, and be elected to the Board of
Directors, during the effective term of this Agreement and
serve as the Secretary of FNTN and remain as a Board member as
provided by the terms of the long term employment agreement.
7. As an inducement for Stein to enter into this Agreement,
FNTN agrees to provide to Stein a total of 1,500,000 shares of
$0.001 par value of FNTN's common stock, to be considered as being
issued to Stein for a value of $1,500.00 and as an additional
payment applied to the consulting activities to be provided by
Stein to FNTN;
<PAGE>
(A) The shares issued hereunder are being provided from
FNTN's treasury shares and at a value equal to the par value
of the shares since there is currently no market for the
shares issued to Stein hereinabove).
(B) The shares to be issued hereunder shall be made available
as soon as practical and shall be effectively issued the
effective date of this Agreement as first written above.
8. This Agreement may be terminated unilaterally by FNTN in
the event Stein and FNTN have not negotiated, agreed to and
executed a long term employment by and between FNTN and Stein by
January 28, 1998.
(A) Upon termination as provided for hereinabove, neither
FNTN or Stein shall have any further liability to each other
with the exception that FNTN shall remain liable to pay to
Stein any Consulting Fees due but not paid to Stein as well as
any out of pocket expenses incurred or not paid to Stein as
well as any out of pocket expenses incurred or advanced by
Stein for the account of FNTN in his furtherance of his
consulting activities for FNTN under the terms of this
Agreement.
9. The terms of this Agreement have been unanimously
approved by FNTN's Board of Directors as evidenced by the Minutes
of the Board Directors dated February 27, 1997.
10. This Agreement shall be construed and interpreted under
the laws of the state of New York.
11. The terms of this Agreement have been negotiated between
Stein and FNTN in New York City, New York State and represents the
full understandings between the parties and may not be amended
except by a writing signed by both parties.
Read and Agreed,
/s/ Ben B. Stein
Ben B. Stein
Financial Intranet Inc.
/s/ Michael Sheppard, Acting President 2/27/97
By: (Title)
<PAGE>
EXHIBIT 10.24
REGISTRATION RIGHTS AGREEMENT
WHEREAS, the Company has offered (the "Offering") a 7% promissory note in
the principal amount of $500,000 (the "Note") convertible into shares of the
Company's Common Stock (the "Note Shares") and a warrant (the "Warrant") to
purchase additional shares of Common Stock (the "Warrant Shares," the "Warrant
Shares and the Note Shares are hereinafter referred to as the Registrable
Securities");
WHEREAS, the Company is issuing shares of Common Stock and Warrants to
Cardinal Capital Management, Inc. and Josephberg, Groz & Co. (both included in
the definition of "Holders" OPEN ) as set forth in the Subscription Agreement
(as defined below);
WHEREAS, pursuant to the terms of and in order to induce the Holder to
enter into a certain subscription agreement dated the date hereof between the
Company and the Holder (the "Subscription Agreement") to purchase the Note and
the Warrants, the Company and the Holder have agreed to enter into this
Agreement;
WHEREAS, it is intended by the Company and the Holder that this Agreement
shall become effective immediately upon the acquisition by the Holder of the
Note and the Warrants (the ("Closing").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and in the Subscription Agreement, the Company hereby agrees as
follows:
1. Registration Rights
Mandatory Registration. (i) The Company shall prepare, and file with the
Securities and Exchange Commission (the "Commission"), within 30 days after the
date hereof, a Registration Statement or Registration Statements (as necessary)
on Form SB-2 or S-1 covering the resale of all of the Registrable Securities,
which Registration Statement(s), to the extent allowable under the Securities
Act and the rules promulgated thereunder (including without limitation Rule
416), shall state that such Registration Statement(s) also covers such
indeterminate
<PAGE>
number of additional shares (the "Indeterminate Shares") of Common Stock as
may become issuable upon conversion of the Note to prevent dilution resulting
from stock splits, stock dividends or similar transactions. The Company agrees
to register pursuant to the Registration Statement a number of shares equal to
the sum of (i) 150% of the number of Note Shares issuable upon conversion of the
Note on the date of filing of the Registration Statement and (ii) 1,250,000.
(ii) To the extent the Indeterminate Shares for any reason can not be
registered under the Registration Statement(s) required under Section 1(i)
above, then with respect to such Indeterminate Shares, the Company shall
prepare, and, on or before the date that is fifteen (15) days after the
Indeterminate Shares become issuable, file with the Commission a Registration
Statement or Registration Statements (as necessary), covering the resale of all
of the Indeterminate Shares.
2. Registration Procedures. If and whenever the Company is required by any
of the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Securities under the Securities Act, the
Company shall (except as otherwise provided in this Agreement), as expeditiously
as possible:
(a) prepare and file with the Commission a registration statement and shall
use its best efforts to cause such registration statement to be declared
effective and remain effective until all the Registrable Securities are sold or
become capable of being publicly sold without registration under the Securities
Act.
(b) prepare and file with the Commission such amendments and supplements to
such offering or registration statement and the prospectus used in connection
therewith as may be necessary to keep such statement effective and to comply
with the provisions of the Securities Act with respect to the sale or other
disposition of all securities covered by such registration statement whenever
the Holder or Holders of such securities shall desire to sell or otherwise
dispose of the same (including prospectus supplements with respect to the sales
of securities or the conversion and/or exercise of the Promissory Note or
Warrants from time to time in connection with a registration statement pursuant
to Rule 415 of the Commission);
(c) furnish to each Holder such numbers of copies of a summary prospectus
or other prospectus, including a preliminary prospectus or any amendment or
supplement to any prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as such Holder may reasonably request
in order to facilitate the public sale or other disposition of the securities
owned by such Holder;
(d) use its best efforts to register and qualify the securities covered by
such
<PAGE>
registration statement under such other securities or blue sky laws of such
jurisdictions as each Holder shall reasonably request, and do any and all other
acts and things which may be necessary or advisable to enable such Holder to
consummate the public sale or other disposition in such jurisdictions of the
securities owned by such Holder, except that the Company shall not for any such
purpose be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any general
consent to service of process;
(e) list such securities on any securities exchange on which any securities
of the Company is then listed, if the listing of such securities is then
permitted under the rules of such exchange;
(f) enter into and perform its obligations under an underwriting agreement,
if the offering is an underwritten offering, in usual and customary form, with
the managing underwriter or underwriters of such underwritten offering;
(g) notify each Holder of Registrable Securities subject to such offering
statement or being registered by such registration statement, at any time when a
prospectus relating thereto covered by such registration statement is required
to be delivered under the Securities Act, of the happening of any event of which
it has knowledge as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing; and
(h) take such other actions as shall be reasonably requested by any Holder
to facilitate the registration and sale of the Registrable Securities.
(i) The Company agrees that it shall declare the Registration Statement
effective within two Business Days after being informed by the Commission that
it may do so.
3. Expenses. All expenses incurred in any registration of the Holders'
Registrable Securities under this Agreement shall be paid by the Company,
including, without limitation, printing expenses, fees and disbursements of
counsel for the Company, expenses of any audits to which the Company shall agree
or which shall be necessary to comply with governmental requirements in
connection with any such registration, all registration and filing fees for the
Holders' Registrable Securities under federal and State securities laws, and
expenses of complying with the securities or blue sky laws of any jurisdictions
pursuant to Section 2(d); provided, however, the Company shall not be liable for
(a) any discounts or commissions to any underwriter; (b) any stock transfer
taxes incurred with respect to Registrable Securities sold in the Offering or
(c) the fees and expenses of counsel for any Holder, provided that the Company
will pay the costs and expenses of Company counsel when the Company's counsel is
representing any or all selling security holders.
<PAGE>
4. Assignment of Registration Rights. The rights of the Holders under this
Agreement, including the rights to cause the Company to register Registrable
Securities may be assigned without the written prior consent of the Company,
provided that the assignee agrees in writing to be bound by the terms of this
Agreement and to provide the Company with such information as it may require in
order to register the Registrable Securities held by such assignee.
5. Indemnification. In the event any Registrable Securities are included in
a registration statement pursuant to this Agreement:
(a) Company Indemnity. Without limitation of any other indemnity provided
to any Holder, either in connection with the Offering or otherwise, to the
extent permitted by law, the Company shall indemnify and hold harmless each
Holder, the affiliates, officers, directors and partners of each Holder, any
underwriter (as defined in the Securities Act) for such Holder, and each person,
if any, who controls such Holder or underwriter (within the meaning of the
Securities Act or the Securities Exchange Act of 1934 (the "Exchange Act"),
against any losses, claims, damages or liabilities (joint or several) to which
they may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statements including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law, and the Company shall reimburse
each such Holder, affiliate, officer or director or partner, underwriter or
controlling person for any legal or other expenses incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
any Holder in any such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder or any
other officer, director or controlling person thereof or any Violation which
arises from a violation by a Holder of the Securities Act, the Exchange Act or
any state securities law.
(b) Holder Indemnity. The Holder shall indemnify and hold harmless the
Company, its affiliates, officers, directors, and authorized representatives,
any underwriter (as defined in the Securities Act) and each person, if any, who
controls the Company or the underwriter (within the meaning of the Securities
Act or the Exchange Act), against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the Securities Act,
the Exchange Act or any state securities law, and the Company shall reimburse
each such Holder, affiliate, officer
<PAGE>
or director or partner, underwriter or controlling person for any legal or
other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; insofar as such losses,
claims, damages or liabilities (or actions and respect thereof) arise out of or
are based upon any untrue statements or untrue information provided by such
Holder to the Company in connection with the offer or sale of Registrable
Securities.
(c) Notice; Right to Defend. Promptly after receipt by an indemnified party
under this Section 5 of notice of the commencement of any action (including any
governmental action), such indemnified party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section 5,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in and if the
indemnifying party agrees in writing that it will be responsible for any costs,
expenses, judgments, damages and losses incurred by the indemnified party with
respect to such claim, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if the indemnified party reasonably believes that
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall relieve such indemnifying party of any liability to the indemnified
party under this Agreement only if and to the extent that such failure is
prejudicial to its ability to defend such action, and the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Agreement.
(d) Contribution. If the indemnification provided for in this Agreement is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage 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 such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other
hand in connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relevant fault of the indemnifying party and the indemnified
party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Notwithstanding the foregoing, the amount any Holder shall be obligated to
contribute pursuant to the Agreement shall be limited to an amount equal to the
proceeds to such Holder of the Registrable Securities sold pursuant to the
registration statement which gives rise to such obligation to contribute (less
the aggregate amount
<PAGE>
of any damages which the Holder has otherwise been required to pay in
respect of such loss, claim, damage, liability or action or any substantially
similar loss, claim, damage, liability or action arising from the sale of such
Registrable Securities).
(e) Survival of Indemnity. The indemnification provided by this Agreement
shall be a continuing right to indemnification and shall survive the
registration and sale of any Registrable Securities by any person entitled to
indemnification hereunder and the expiration or termination of this Agreement.
6 Remedies.
(a) Time is of Essence. The Company agrees that time is of the essence of
each of the covenants contained herein and that, in the event of a dispute
hereunder, this Agreement is to be interpreted and construed in a manner that
will enable the Holders to sell their Registrable Securities as quickly as
possible after such Holder have indicated to the Company that it desires its
Registrable Securities to be registered.
(b) Remedies Upon Default or Delay. - Liquidated Damages. The Company shall
use its best efforts to obtain effectiveness of the Registration Statement as
soon as practicable. If the Registration Statement(s) covering the Registrable
Securities required to be filed by the Company pursuant to Section 1 hereof is
not declared effective by the Commission on or before March 31, 1999 (other than
by reason of any act or failure to act in a timely manner by the Holder or its
counsel) (the "Registration Deadline"), then (a "Delay") the Company will make
payments to the Holder, as liquidated damages and in such amounts and at such
times as shall be determined pursuant to this Section, an amount to be
determined as follows. The Company shall pay to the Holder, at the Holder's
option, cash in an amount for the first 30 days of such Delay equal to $5,000,
and $10,000 for each additional 30 day period. Such amounts shall be for (i) the
number of months (prorated for partial months beginning April 1, 1999 and ending
on the date the Registration Statement is declared effective by the Commission,
provided, however, that there shall be excluded from such period any delays
which are solely attributable to changes required by the Holder in the
Registration Statement with respect to information relating to the Holder,
including, without limitation, changes to the plan of distribution, or to the
failure of the Holder to conduct its review of the registration statement in a
reasonably prompt manner; (ii) the number of months (prorated for partial
months) that sales cannot be made pursuant to the Registration Statement after
the Registration Statement has been declared effective; and (iii) the number of
months (prorated for partial months) that the Common Stock is not listed or
included for quotation on the OTC Bulletin Board or another United States
national securities exchange after the Registration Statement has been declared
effective. The foregoing shall not relieve the Company from its obligations to
register the Registrable Securities pursuant to this Agreement. If the Company
does not remit the aforementioned to the Holders as set forth above, the Company
will pay the Holders' reasonable costs of collection, including attorneys fees,
in addition to the liquidated
<PAGE>
damages. The registration of the Securities pursuant to this provision
shall not affect or limit Holder's other rights or remedies as set forth in this
Agreement.
7. Notices.
Any notice required by the provisions of this Agreement will be in writing
and will be deemed effectively given: (a) upon personal delivery to the party to
be notified; (b) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient; if not, then on the next business day; (c) five
(5) days after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (d) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt.
i. If to the Company, at:
Financial Intranet, Inc.
410 Saw Mill River Road
Ardsley, New York 10502
Attn.: Michael Sheppard
with a copy to:
Steven Schuster, Esq.
McLaughlin & Stern, LLP
260 Madison Avenue
New York, New York 10016
ii. if to any Holder of any Registrable Securities, to the address of such
Holder as it appears on the signature page hereto.
or at such other address as it may have furnished in writing to the other
party to this Agreement
8. Successors and Assigns. Except as otherwise expressly provided herein,
this Agreement shall inure to the benefit of and be binding upon the successors
and permitted assigns of the Company and each of the Holders.
9. Amendment and Waiver. This Agreement may be amended, and the observance
of any term of this Agreement may be waived, but only with the written consent
of the Company and the Holders of Securities representing a majority of the
Registrable Securities; provided, however, that no such amendment or waiver
shall take away any registration right of any Holder of Registrable Securities
or reduce the amount of reimbursable costs to any Holder of Registrable
Securities in connection with any registration hereunder without the consent of
such Holder; further provided, however, that without the consent of any other
Holder of Registrable Securities, any Holder may from time to time enter into
one or more agreements amending, modifying or waiving the provisions
<PAGE>
of this Agreement if such action does not adversely affect the rights or
interest of any other Holder of Registrable Securities. No delay on the part of
any party in the exercise of any right, power or remedy shall operate as a
waiver thereof, nor shall any single or partial exercise by any party of any
right, power or remedy preclude any other or further exercise thereof, or the
exercise of any other right, power or remedy.
10. Counterparts. One or more counterparts of this Agreement may be signed
by the parties, each of which shall be an original but all of which together
shall constitute one and same instrument.
11. Governing Law. This warrant will be construed and enforced in
accordance with, and the rights of the parties will be governed by, the laws of
the State of New York without regard to conflict of laws principles. Any
litigation based thereon, or arising out of, under, or in connection with, this
agreement or any course of conduct, course of dealing, statements (whether oral
or written) or actions of the Company or Holder shall be brought and maintained
exclusively in the court of the state of New York without reference to its
conflicts of laws rules or principles. The Company and the Holder hereby
expressly and irrevocably submits to the jurisdiction of the federal Courts of
the state of New York for the purpose of any such litigation as set forth above
and irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Holder further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal service
within or without the State of New York. The Holder hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have or hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum.
12. Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not be
affected thereby.
13. Headings. The headings in this Agreement are for convenience of
reference only and shall not be deemed to alter or affect the meaning or
interpretation of any provisions hereof.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date first above written.
FINANCIAL INTRANET, INC.
By ____________________________
AHOOD F SHARBATLY
By /s/Yasser M. Zaidan
Yasser M. Zaidan, as Power of Attorney
CARDINAL CAPITAL MANAGEMENT, INC.
By_____________________________
JOSEPHBERG GROSZ & CO.
By:_____________________________
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Financial Intranet, Inc.
(Formerly Wee Wees, Inc.)
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form SB-2), and related prospectus of Financial
Intranet, Inc. (formerly Wee Wees, Inc.) and to the incorporation by reference
therein of our report dated October 9, 1998, except for Note 9, as to which the
date is December 1, 1998 with respect to the financial statements as of December
31, 1997 and 1996 and for the year ended December 31, 1997 and the period
December 17, 1996 (date of inception) to December 31, 1996.
New York, New York REMINICK, AARONS & COMPANY, LLP
February 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 149,225
<SECURITIES> 0
<RECEIVABLES> 51,919
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 205,522
<PP&E> 1,016,161
<DEPRECIATION> 102,377
<TOTAL-ASSETS> 1,332,521
<CURRENT-LIABILITIES> 791,584
<BONDS> 500,000
0
0
<COMMON> 20,561
<OTHER-SE> 20,376
<TOTAL-LIABILITY-AND-EQUITY> 1,332,521
<SALES> 91,281
<TOTAL-REVENUES> 91,281
<CGS> 146,533
<TOTAL-COSTS> 146,533
<OTHER-EXPENSES> 2,068,614
<LOSS-PROVISION> 41,200
<INTEREST-EXPENSE> 2,138
<INCOME-PRETAX> (2,167,204)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,167,204)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,167,204)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,929
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,032
<PP&E> 235,712
<DEPRECIATION> 0
<TOTAL-ASSETS> 395,992
<CURRENT-LIABILITIES> 231,031
<BONDS> 0
0
0
<COMMON> 15,589
<OTHER-SE> 149,372
<TOTAL-LIABILITY-AND-EQUITY> 395,992
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 817,280
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 150
<INCOME-PRETAX> (817,430)
<INCOME-TAX> 0
<INCOME-CONTINUING> (817,430)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (817,430)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
