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Registration No. -
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INFORMATION HIGHWAY.COM, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Florida 7389 65-015410
(State or other jurisdiction
of incorporation or (Primary Standard Industrial (I.R.S. Employee
organization) Classification Code Number) Identification No.)
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185 - 10751 Shellbridge Way
Richmond, British Columbia V6X 2W8, CANADA
(604) 278-5996
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Agent for Service: With a Copy to:
John G. Robertson, President James L. Vandeberg
INFORMATION HIGHWAY.COM, INC. 1601 Fifth Avenue, Suite 2100
185 - 10751 Shellbridge Way Seattle, Washington 98101-1681
Richmond, British Columbia V6X 2W8, CANADA (206) 447-7000
(604) 278-5996
</TABLE>
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If 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,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Title of each class of Maximum Maximum Amount of
securities to be Amount to be offering price aggregate registration
registered registered per unit offering price fee
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<S> <C> <C> <C> <C>
Common.................. 4,089,750(2) 2.875 per share(2) 11,758,031 3,104.12
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee. Pursuant to Rule 457(c) under the Securities Act of
1933 (the "Securities Act"), the price per share is estimated based on
the average of the high and low prices reported for shares of the
Information Highway.com's Common Stock as of May 8, 2000.
(2) Includes the registration for resale of shares of Common Stock issuable
upon exercise of warrants and options, and conversion of debentures.
Assumes the conversion of all debentures and exercise of all options and
warrants at the maximum number of shares issuable. For a description of
the number of shares and basis of ownership, please see "Selling
Shareholders". For a description of the various securities referred to
herein and the transactions in which they were issued, see "Description
of Securities." All sales offered pursuant to this Registration Statement
relate only to resales by Selling Shareholders.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by us federal securities law to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the sec relating to these securities has been +
+declared effective by the SEC. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--APRIL , 2000
PROSPECTUS
, 2000
INFORMATION HIGHWAY.COM INC.
185 - 10751 Shellbridge Way
Richmond, British Columbia V6X 2W8, CANADA
(604) 278-5996
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4,089,750 Shares
of Common Stock
to be sold by selling shareholders
This prospectus is part of a registration statement that permits selling
shareholders of Information Highway.com to sell their shares on a continuous or
delayed basis in the future. Information Highway.com will not receive any of
the proceeds from the sale of these shares, but may receive proceeds from the
exercise of options and warrants to acquire shares that are registered as part
of this offering. Selling shareholders may sell their shares to the public
immediately upon the effectiveness of the registration statement, or they may
elect to sell some or all of their shares at a later date. As a result, it is
impracticable to state either the number of shares that will be available to
the public or their price.
This is not an underwritten offering. Information Highway.com's stock is
traded in the over-the-counter market (OTC) and quoted through the OTC Bulletin
Board under the symbol "IHWY." On May 8, 2000, the reported closing price of
Information Highway.com's stock was $3.00 per share.
-----------
This investment involves a high degree of risk.
See "Risk Factors" beginning on page 4.
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NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF
THIS PROSPECTUS. NOR HAVE THEY MADE, NOR WILL THEY MAKE, ANY DETERMINATION
AS TO WHETHER ANYONE SHOULD BUY THESE SECURITIES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
You should rely only on the information contained in this document.
Information Highway.com has not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities.
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TABLE OF CONTENTS
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Page
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Prospectus Summary.................................................... 2
Risk Factors.......................................................... 4
Use of Proceeds....................................................... 15
Determination of Offering Price....................................... 15
Dilution.............................................................. 15
Selling Shareholders.................................................. 16
Plan of Distribution.................................................. 17
Legal Proceedings..................................................... 17
Directors and Executive Officers...................................... 18
Security Ownership of Certain Beneficial Owners and Management........ 20
Description of Capital Stock.......................................... 21
Interests of Named Experts and Counsel................................ 21
Disclosure of Commission Position on Indemnification for Securities
Act Liabilities...................................................... 21
Organization within Last Five Years................................... 22
Description of Business............................................... 22
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 31
Description of Property............................................... 46
Certain Relationships and Related Transactions........................ 46
Market Price of and Dividends on Capital Stock and Other Shareholder
Matters.............................................................. 47
Executive Compensation................................................ 49
Financial Statements.................................................. F-1
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................. II-1
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information you
should consider before buying shares in the offering. You should read the
entire prospectus carefully.
Investment Risks
An investment in this offering involves risk. The market for Internet
products, services and advertising is new, rapidly evolving and intensely
competitive. Our service has achieved only limited market acceptance to date.
Our Toronto business unit is our oldest operation, and it began operations only
four years ago. We have a limited operating history and a history of operating
losses. On a pro forma basis our net losses for the years ended May 31, 1999,
May 31, 1998 and May 31, 1997 were $949,000, $557,000 and $303,000,
respectively. Through the nine months ended February 29, 2000, our net loss was
$2,470,000. At February 29, 2000, our accumulated deficit was $4,127,000 and
our working capital was $163,000. We expect to incur substantial operating
losses, net losses and negative operating cash flow for the near term.
Information Highway.com, Inc.
Information Highway.com, Inc. conducts its operations through the following
three wholly-owned Canadian subsidiaries:
. YesIC Communications, Inc., acquired in February 1997;
. World Tel Internet (Toronto) Ltd., acquired in February 1997; and
. Blue Crow Internet Company, Ltd., acquired in December 1996.
Information Highway, Inc., a Washington corporation, initially acquired
these subsidiaries. Then, in February 1999, Information Highway, Inc. engaged
in a reverse takeover of Florida Venture Fund, Inc., a Florida corporation. As
a result of the reverse takeover, the shareholders of Information Highway, Inc.
came to own approximately 95% of the outstanding shares of Florida Venture
Fund, Inc. In connection with the reverse takeover, Florida Venture Fund, Inc.
changed its name to Information Highway.com, Inc.
Information Highway.com, Inc. is now the ultimate parent company whose
shares are traded on the OTC bulletin board (symbol: IHWY). Information
Highway.com, Inc.'s executive offices are located at 10751 Shellbridge Way,
Suite 185, Richmond, British Columbia V6X 2W8, Canada, our telephone number is
(604) 278-7494 and our facsimile number is (604) 278-3409.
Our Business
We serve as an Internet Service Provider (referred to as an ISP in the
industry) for companies and individuals that need access to the Internet in
exchange for a recurring fee. We intend to provide ISP services to a steadily
growing number of cities in North America as a "Virtual ISP". Our Virtual ISP
business model allows us to avoid purchasing and installing "backbone"
communications equipment and infrastructure in each city where we plan to offer
ISP services. Instead, we use AT&T's DMS-500 telephone switches to permit our
customers to connect to the Internet from cities across Canada using AT&T's
ISP-PRI service and high-speed, fiber-optic ATM links. We have an agreement
with a company recently acquired by AT&T which permits us to use their Canadian
network. We have also entered into agreements that permit us to market access
to the Internet in the Northeast United States and 20 cities (some in the
Northeast) across the United States, and in Canada. Our Northeast United States
Internet access agreements permit us to provide Digital Subscriber Line ("DSL")
access, which enables users to remain connected to the Internet 24 hours a day,
eliminating annoying busy signals, as well as the time and cost of waiting to
connect, without disrupting the subscriber's normal telephone service. Toronto,
Ontario is the first market in which we provided ISP services, beginning about
four years ago.
2
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Through our portal site compilation of Internet-based services and
information, "www.theexecutive.com," we provide localized and portal content
catering to business professionals. Through research, design, programming, co-
branding, and licensing, we have compiled Internet services and content in our
portal site that we believe are useful to companies, associations and
professionals. We believe we provide friendly, easy to navigate interfaces,
which are designed specifically for targeted user groups. We plan to market the
portal site throughout North America and internationally. We will let other
ISPs display our portal site in certain market areas. We also offer our
commercial clients the ability to market their products and services to our
portal site users through our newly developed Virtual Mall.
We believe the portal site will be popular because most business
professionals do not want to spend their own time searching the Internet for
the information that they need. Our portal site has assembled a functional
business site so that users can immediately find what they need. Portal site
users will be able to:
. monitor and research the stock market;
. plan and book their next business trip;
. check the local news and weather;
. participate in online forums;
. carry out electronic transactions via e-commerce; or
. find a suitable restaurant in their area.
We do not charge a fee for access to the basic portal site. We plan to
charge a design fee and a recurring fee for our portal site services that we
customize for companies or associations. We expect to receive advertising
revenues from the portal site.
The Offering
Up to 4,089,750 shares of common stock may be offered by the selling
shareholders. This amount includes 2,225,000 shares to be issued upon
conversion of the $1,500,000 principal amount of 5% Convertible Debentures. See
"Selling Shareholders" and "Plan of Distribution." As of the date of this
Prospectus, only 489,750 of the shares registered for public sale are
outstanding. The remaining shares have not yet been issued, but may be obtained
by selling shareholders through the exercise of options and warrants and the
conversion of debentures, and resold by them pursuant to this Prospectus. See
"Description of Securities." 3,600,000 shares of common stock underlying
outstanding options and warrants and convertible debentures exercisable or
convertible at varying prices. Information Highway.com may receive the cash
proceeds from the exercise of outstanding warrants and will benefit through
reduction of indebtedness by conversion of outstanding debentures. The selling
shareholders may sell all or any portion of the shares in this offering in one
or more transactions by a variety of methods, including through the OTC
Bulletin Board or in negotiated transactions. The selling shareholders will
determine the selling price of the shares. The selling shareholders will also
pay any broker or dealer commission, fee or other compensation or underwriter
discount. Information Highway.com will not receive any proceeds from the sale
of the common stock by the selling shareholders. See "Selling Shareholders" and
"Plan of Distribution."
3
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RISK FACTORS
You should not place undue reliance on forward-looking statements in this
prospectus. This prospectus contains forward-looking statements that involve
risks and uncertainties. We use words such as "anticipates", "believes",
"plans", "expects", "future", "intends" and similar expressions to identify
these forward-looking statements. This prospectus also contains forward-looking
statements attributed to certain third parties relating to their estimates
regarding the growth of the Internet, Internet advertising and online commerce
markets and spending. Prospective investors should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
prospectus. Our actual results could differ materially from those anticipated
in these forward-looking statements for many reasons, including the risks faced
by us described in "Risk Factors" and elsewhere in this prospectus.
Information Highway.com's success is dependent on a number of factors which
should be considered by prospective investors. Our principal assets, YesIC,
World Tel and Blue Crow, were acquired very recently. We have a relatively
young company and do not yet have any net earnings or net profits, and there is
no assurance that we will operate profitably in the future. As such, there is
no assurance that Information Highway.com stock will provide a return on
investment in the future.
We Have a Limited Operating History
Because we have concentrated our operations in Canada and have not yet
rolled out our business in the United States, it is difficult to evaluate our
business and our prospects. Our revenue and income potential is unproven and
our business model is still emerging. Our Toronto business unit is our oldest
ISP operation, and it began operations only four years ago. Our portal site is
just being completed. An investor in our common stock must consider the risks
and difficulties frequently encountered by early stage companies in new and
rapidly evolving markets. These risks include:
. our complete dependence on the growth of the acceptance of the Internet
as an electronic commerce medium;
. our need to develop and upgrade our infrastructure, including internal
controls, transaction processing systems, data storage and retrieval
systems and Web site;
. our need to manage changing operations, including implementation of new
financial and accounting systems; and
. our dependence upon and need to hire key personnel including software
developers.
We cannot assure you that our ISP business will retain its existing
customers or attract new ones, or that our portal site service will retain its
existing, or attract new, advertisers, consumers and network affiliates,
achieve significant additional revenues or improve operating margins in future
periods. Our Virtual Mall may not be accepted in the marketplace at all. There
can be no assurance that our services will achieve commercial success and, if
they do not, the price of our common stock will decline.
We Have a History of Losses and Expect Future Losses
We have not achieved profitability. We expect to incur net losses for the
foreseeable future and may never become profitable. On a pro forma basis our
net losses for the years ended May 31, 1999, May 31, 1998 and May 31, 1997 were
$949,000, $557,000 and $303,000, respectively. Through the nine months ended
February 29, 2000, our net losses were $2,470,000. At February 29, 2000, our
accumulated deficit was $4,127,000 and our working capital was $163,000. We
expect to incur substantial operating losses, net losses and negative operating
cash flow for the near term.
Our limited operating history makes it difficult to forecast our future
operating results. We cannot be certain that the recent growth in our revenues
will continue. We expect to continue to increase our marketing
4
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and sales, product development and general and administrative expenses. As a
result we will need to generate significant additional revenue and/or raise
additional funds to achieve profitability. If we do achieve profitability, we
cannot be certain that we will sustain or increase it.
Our Quarterly Financial Results Are Subject to Significant Fluctuations Because
of Many Factors, and Any of These Could Adversely Affect Our Stock Price
We believe that quarter-to-quarter comparisons of our operating results are
not a good indication of our future performance. It is likely that in some
future quarter our operating results may be below the expectations of public
market analysts and investors and, as a result of these or other factors, the
price of our common stock may fall. Our operating results have varied widely in
the past, and we expect that they will continue to vary significantly from
quarter-to-quarter due to a number of factors, including:
. demand for our online services by ISP customers, advertisers and
electronic shopping consumers;
. prices paid by ISP customers for Internet connections, which may
fluctuate due to price competition;
. prices paid by advertisers using the portal site service;
. our costs of attracting electronic shopping consumers to the portal
site, including costs of receiving exposure on third-party Web sites and
advertising costs;
. costs related to agreements with suppliers of content to our service and
professional services;
. loss of agreements with suppliers of content to our service and
professional services;
. our ability to significantly increase our distribution channels;
. the amount and timing of operating costs and capital expenditures
relating to expansion of our operations;
. costs and delays in introducing new services and improvements to
existing services;
. changes in the growth rate of Internet usage and acceptance by consumers
of electronic commerce;
. technical difficulties, system failures or Internet downtime;
. government regulations related to the Internet;
. our ability to upgrade and develop our information technology systems
and infrastructure;
. costs related to acquisitions of technologies or businesses; and
. general economic conditions, as well as those specific to the Internet
and related industries.
As a result of our limited operating history, it is difficult to accurately
forecast our revenue, and we have limited meaningful historical financial data
upon which to base planned operating expenses. We plan to significantly
increase our operating expenses to expand our marketing and sales operations,
broaden our customer support capabilities and fund greater levels of product
development. We base our current and future expense levels on our operating
plans and estimates of future revenue, and our expenses are relatively fixed.
Revenue and operating results are difficult to forecast because they generally
depend upon
. the number of ISP customers we have at any given time;
. the volume of visits to our portal site;
. the amounts paid by advertisers for advertising on our portal site; and
. the extent to which our corporate clients desire customized portal
sites.
We have only partial control over these factors. As a result, we may be
unable to adjust our spending in a timely manner to compensate for any
unexpected revenue shortfall. We also may be unable to increase our spending
and expand our operations in a timely manner to adequately meet user demand to
the extent it exceeds our expectations.
5
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Our Success Depends Upon Achieving a Large and Active Base of ISP Customers,
Advertisers and Electronic Shopping Consumers
Our ability to increase the volume of transactions on our services is
dependent upon achieving market acceptance from more ISP customers, advertisers
and electronic shopping consumers. In particular, we need to convince business
professionals of the superiority of our pre-selected compilation of services on
the portal site. Our service has achieved only limited market acceptance to
date. Internet sites are in their infancy in terms of establishing reputations
for content. Internet advertising in general is at an early stage of
development. Most potential advertisers have only limited experience
advertising on the Internet and have not devoted a significant portion of their
advertising expenditures to Internet advertising. Companies may not decide to
have us assist them to customize our portal site for their company's unique
needs. Our electronic commerce service may not achieve significant acceptance
by electronic shopping consumers. Failure to achieve and maintain a large and
active base of ISP customers, advertisers and electronic shopping consumers
would seriously harm our business.
Our Future Success Is Dependent Upon Further Developing and Enhancing Our
Business Relationships
We believe that our future success in penetrating our target markets depends
in part on our ability to further develop and maintain relationships with
owners of telecommunications networks and with content providers. Our
relationships with owners of telecommunications networks will permit us to
implement our "Virtual ISP" business model. If we cannot serve as an ISP for an
expanding base of customers, we will not be able to introduce new ISP customers
to the portal site. Similarly, if we introduce our ISP customers to the portal
site, but they do not like its content, we will lose advertisers and electronic
shopping consumers. We believe our relationships with owners of
telecommunications networks and with content providers are important in order
to facilitate broad market acceptance of our services and enhance our sales. If
we are unable to extend or obtain new agreements or arrangements for Virtual
ISP traffic in the United States on commercially acceptable terms or ensure the
highest quality content on our portal site, our business will be damaged.
We Are Dependent Upon Other Companies That Supply Services and Content to Us
If a telecommunications company that supplies us with Internet connections
suffers a service interruption, some or all of our ISP services, and perhaps
also our portal site, will also be interrupted. If a content provider suffers a
service interruption, or decides not to provide its content to us, we will lose
the ability to provide information to our portal site consumers that they may
have grown accustomed to receiving. There can be no assurance that we will be
successful in renewing contracts for these services and content on commercially
acceptable terms or that our costs with respect to these contracts will not
increase following any renewal. If we are unable to develop future key
relationships or maintain and enhance our existing relationships, our business
will be damaged.
Our Industry Is Highly Competitive, and We Cannot Assure You That We Will Be
Able to Compete Effectively
The market for Internet products, services and advertising is new, rapidly
evolving and intensely competitive. Information Highway.com currently or
potentially competes with many other ISPs, providers of Web directories, search
and information services as well as traditional media for consumer attention
and advertising expenditures. We expect competition to intensify in the future.
Barriers to entry may not be significant, and current and new competitors may
be able to launch new Websites at a relatively low cost. Accordingly, we
believe that our success will depend heavily upon achieving significant market
acceptance before our competitors and potential competitors introduce competing
services.
We compete with online services and other Websites, as well as traditional
offline media such as television, radio and print, for a share of advertisers'
total advertising budgets. We believe that the number of companies selling Web-
based advertising and the available inventory of advertising space has recently
increased substantially. Accordingly, we may face increased pricing pressure
for the sale of advertisements and direct marketing opportunities, which could
adversely affect our business and operating results.
6
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Many of these competitors, as well as potential entrants into our market,
have longer operating histories, larger customer or user bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do. Many of these current and potential competitors can devote
substantially greater resources to promotion and Website and systems
development than we can. In addition, as the use of the Internet and other
online services increases, larger, well-established and well-financed entities
may continue to acquire, invest in or form joint ventures with providers of Web
directories, search and information services or advertising solutions, and
existing providers of Web directories, search and information services or
advertising solutions may continue to consolidate. In addition, providers of
Internet browsers and other Internet products and services who are affiliated
with providers of Web directories and information services in competition with
our portal site may more tightly integrate these affiliated offerings into
their browsers or other products or services. Any of these trends would
increase the competition we face and could adversely affect our business and
operating results.
We Are Dependent Upon Maintaining and Expanding Our Computer and Communications
Systems
Our failure to achieve or maintain high capacity data transmission without
system downtime and achieve improvements to our transaction processing systems
and network infrastructure would adversely affect our business and results of
operations. Our success, in particular our ability to provide high quality
customer service, largely depends on the efficient and uninterrupted operation
of our computer and communications systems in order to accommodate our ISP
customers, the electronic shopping consumers and advertisers using our service.
Our success also depends upon our ability to rapidly expand our transaction-
processing systems and network infrastructure without any systems interruptions
in order to accommodate any significant increases in use of our services. We
believe that our current transaction-processing systems and network
infrastructure are insufficient to support our future growth. Although we are
enhancing and expanding our transaction-processing systems and network
infrastructure, we have experienced periodic systems interruptions and
infrastructure failures, which we believe will continue to occur. In the past,
limitations of our technology infrastructure have prevented us from maximizing
our business opportunities. In addition, many of our software systems are
custom-developed and we rely on our employees and certain third-party
contractors to develop and maintain these systems. If certain of these
employees or contractors become unavailable to us, we may experience difficulty
in improving and maintaining these systems. Furthermore, we expect that we will
continue to be required to manage multiple relationships with various software
and equipment vendors whose technologies may not be compatible, as well as
relationships with other third parties to maintain and enhance our technology
infrastructure.
Continued Adoption of the Internet as a Method of Conducting Business is
Necessary for Our Future Growth
The failure of the Internet to continue to develop as a commercial and
business medium would adversely affect our business. The widespread acceptance
and adoption of the Internet by traditional businesses for conducting business
and exchanging information is likely only if the Internet provides these
businesses with greater efficiencies and improvements.
Failure to Expand Internet Infrastructure Could Limit Our Future Growth
The recent growth in Internet traffic has caused frequent periods of
decreased performance, and if Internet usage continues to grow rapidly, the
Internet's infrastructure may not be able to support these demands and its
performance and reliability may decline. If outages or delays on the Internet
occur frequently or increase in frequency, overall Web usage, including usage
of our ISP services and our portal site in particular, could grow more slowly
or decline. Our ability to increase the speed and scope of our services to
users is ultimately limited by and dependent upon the speed and reliability of
both the Internet and our customers', advertisers' and consumers' internal
networks. Consequently, the emergence and growth of the market for our services
depends upon improvements being made to the entire Internet as well as to our
individual customers', advertisers' and consumers' networking infrastructures
to alleviate overloading and congestion.
7
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Increased Security Risks of Online Commerce May Deter Future Use of Our
Services
Concerns over the security of transactions conducted on the Internet and the
privacy of consumers may also inhibit the growth of the Internet and other
online services generally, and online commerce in particular. Our failure to
prevent security breaches could significantly harm our business and results of
operations. We cannot be certain that advances in computer capabilities, new
discoveries in the field of cryptography, or other developments will not result
in a compromise or breach of the algorithms we use to protect our transaction
data. Anyone who is able to circumvent our security measures could
misappropriate proprietary information, cause interruptions in our operations
or damage our brand and reputation. We do not believe that our data
repositories, financial systems and other technology resources are secure from
security breaches or sabotage and we occasionally experience attempts at
"hacking" or security breaches. We may be required to incur significant costs
to protect against security breaches or to alleviate problems caused by
breaches. Any well-publicized compromise of security could deter people from
using the Internet to conduct transactions that involve transmitting
confidential information or downloading sensitive materials, which would
adversely affect demand for ISP services, the business of our advertisers and,
accordingly, our business.
We Face the Risks of System Failures
We currently do not have a disaster recovery plan in effect and do not have
fully redundant systems for our services at an alternate site. A disaster such
as fire, flood, earthquake, power loss, telecommunications failure, break-in,
sabotage or a similar event could severely damage our business and results of
operations because our services could be interrupted for an indeterminate
length of time. Our operations depend upon our ability to maintain and protect
our computer systems, most of which are located in our principal headquarters
in Vancouver, British Columbia. British Columbia is located on or near known
earthquake fault zones, including an offshore subduction zone that some experts
predict will cause an exceptionally strong earthquake. The occurrence of a
natural disaster or unanticipated problems at our principal headquarters could
cause interruptions or delays in our business, loss of data or render us unable
to provide our services. In addition, failure by the third-party network access
providers to provide the data communications capacity required by us to serve
our ISP customers, as a result of human error, natural disaster or other
operational disruptions, could cause interruptions in our service. The
occurrence of any or all of these events could adversely affect our reputation,
brand and business which could cause the price of our common stock to decline.
We Have Experienced Significant Growth in Our Business in Recent Periods, and
Any Failure to Manage This Growth Could Damage Our Business
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We have increased, and plan to continue to increase, the
scope of our operations. These expansion efforts could be expensive and put a
strain on management, and, if we do not manage growth properly, it could
adversely affect our business. Our staff has grown and will continue to grow
substantially. At April 1, 2000, we had a total of 34 employees. We will need
to expand our infrastructure, which will include hiring certain key employees,
including without limitation, key employees in marketing and technology
development. Hiring such employees has historically been difficult, and we
cannot assure you that we will be able to successfully attract and retain a
sufficient number of qualified personnel.
Our Executive Officers and Certain Key Personnel are Critical to Our Business,
and These Officers and Key Personnel May Not Remain With Us in the Future
Our future success depends upon the continued service of our executive
officers and other key technology, marketing, sales and support personnel. Our
key employees include John Robertson, our Chief Executive Officer, and Ismael
Cristian Rodriguez, our Chief Technical Officer. None of our officers or key
employees is bound by an employment agreement for any specific term. Nor have
we obtained key man life insurance policy on for anyone. The loss of the
services of one or more of our key employees or executive officers, whether to
compete directly or indirectly with us, or otherwise, could have a significant
adverse effect on our business and
8
<PAGE>
could cause the price of our stock to decline. In particular, the services of
key members of our research and development team would be difficult to replace.
We cannot assure you that we will be able to successfully retain our key
personnel or, in the event we were to lose the services of any key personnel,
to replace such personnel.
We Face Risks of Claims from Third Parties for Intellectual Property
Infringement and Other Matters That Could Adversely Affect Our Business
Our services operate in part by making Internet services and content
available to our users. This creates the potential for claims to be made
against us, either directly or through contractual indemnification provisions
with third parties. These claims might, for example, be made for defamation,
negligence, copyright, trademark or patent infringement, personal injury,
invasion of privacy or other legal theories. Any claims could result in costly
litigation and be time consuming to defend, divert management's attention and
resources, cause delays in releasing new or upgrading existing services or
require us to enter into royalty or licensing agreements. Royalty or licensing
agreements, if required, may not be available on acceptable terms, if at all.
Litigation regarding intellectual property rights is common in the Internet
and software industries. We expect that Internet technologies and software
products and services may be increasingly subject to third-party infringement
claims as the number of competitors in our industry segment grows and the
functionality of products in different industry segments overlaps.
There can be no assurance that our services do not infringe the intellectual
property rights of third parties. A successful claim of infringement against us
and our failure or inability to license the infringed or similar technology
could adversely affect our business.
We May Not be Able to Protect the Intellectual Property Rights Upon Which Our
Business Relies
Our success and ability to compete with the portal site are substantially
dependent upon our internally developed technology and data resources, which we
protect through a combination of copyright, trade secret and trademark law. We
have no patents issued to date on our technology.
We are aware that certain other companies are using or may have plans to use
the terms "Information", "Highway", "Executive", "Site" and variations of these
terms as part of a company name, domain name, trademark or service mark. We
cannot assure you that other companies will not claim superior rights to these
names or that we will not be subject to infringement claims. A successful
infringement claim by the owner of a mark including a variation on these words
could require us to change our name, which would be expensive and disruptive to
our business. Further, despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
services, technology and other intellectual property, and we cannot be certain
that the steps we have taken will prevent any misappropriation or confusion
among consumers and advertisers.
The Conversion Of Our Convertible Debentures Will Have A Dilutive Impact On Our
Shareholders
In March 2000, we sold $1.5 million of our 5% convertible debentures to an
investor. The issuance of shares of our common stock upon the conversion of
these debentures will have a dilutive impact on our shareholders. In addition,
the number of shares issued on conversion of the debentures will increase if
the market price of our common stock decreases. As a result, our revenue per
share could be materially decreased in future periods, and the market price of
our common stock could drop.
We May Need Additional Capital Which Could Dilute the Ownership Interest of
Investors
We require substantial working capital to fund our business. If we raise
additional funds through the issuance of equity, equity-related or convertible
debt securities, these securities may have rights, preferences or privileges
senior to those of the rights of our common stock and our stockholders may
experience additional
9
<PAGE>
dilution. We cannot be certain that additional financing will be available to
us on favorable terms when required, or at all. Since our inception, we have
experienced negative cash flow from operations and expect to experience
significant negative cash flow from operations in the future.
Potential Acquisitions Could be Difficult to Integrate, Disrupt Our Business,
Dilute Stockholder Value and Adversely Affect Our Operating Results
We may make investments in or acquire complementary products, technologies
and businesses. These acquisitions and investments could disrupt our ongoing
business, distract our management and employees and increase our expenses.
Acquisition of another company could cause difficulties in assimilating that
company's personnel and operations. In addition, the key personnel of the
acquired company may decide not to work for us. Acquisitions of additional
services or technologies also involve risks of incompatibility and the need for
integration into our existing services and marketing, sales and support
efforts. If we finance the acquisitions by issuing equity securities, our
existing stockholders could be diluted. Any amortization of goodwill or other
assets, or other charges resulting from the costs of these acquisitions could
adversely affect our operating results.
Potential Year 2000 Problems with Our Internal Operating Systems or Our
Services Could Adversely Affect Our Business
We cannot assure you that we will not experience unanticipated negative
consequences from year 2000 problems, including material costs caused by
undetected errors or defects in the technology used in our internal systems.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
the year 2000 and 21st century dates from other 20th century dates. As a
result, computer systems and/or software products used by many companies may
need to be upgraded to solve this problem. We cannot anticipate the cost of
addressing any year 2000 issues which may arise, and we currently have no
contingency plans in place should a problem arise. We cannot assure you that we
will be able to modify our services and systems in a timely, cost effective and
successful manner should a year 2000 problem arise, and the failure to do so
could have a material adverse effect on our business and operating results.
Our Market May Undergo Rapid Technological Change and Our Future Success Will
Depend on Our Ability to Meet the Changing Needs of Our Industry
For our business to survive and grow, we must continue to enhance and
improve the functionality and features of our online services. The Internet and
the online advertising industry are rapidly changing. If new industry standards
and practices emerge, our existing services, technology and systems may become
obsolete. Our future success will depend on our ability to do the following:
. license and internally develop leading technologies useful in our
business;
. enhance our existing services;
. develop new services and technologies that address the increasingly
sophisticated and varied needs of prospective consumers; and
. respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
Developing our services and other proprietary technology entails significant
technical and business risks, as well as substantial costs. We may use new
technologies ineffectively, or we may fail to adapt our services, transaction-
processing systems and network infrastructure to user requirements or emerging
industry standards. If we face material delays in introducing new services,
products and enhancements, our users may forgo the use of our services and use
those of our competitors.
10
<PAGE>
Government Regulation and Legal Uncertainties May Damage Our Business
The laws and regulations applicable to the Internet and our services are
evolving and unclear and could damage our business. There are currently few
laws or regulations directly applicable to access to, or commerce on, the
Internet. Due to the increasing popularity and use of the Internet, it is
possible that laws and regulations may be adopted, covering issues such as user
privacy, defamation, pricing, taxation, content regulation, quality of products
and services, and intellectual property ownership and infringement. Such
legislation could expose Information Highway.com to substantial liability as
well as dampen the growth in use of the Internet, decrease the acceptance of
the Internet as a communications and commercial medium, or require Information
Highway.com to incur significant expenses in complying with any new
regulations. The European Union has recently adopted privacy and copyright
directives that may impose additional burdens and costs on international
operations. In addition, several telecommunications carriers, including
America's Carriers' Telecommunications Association, are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission, or FCC, in the same manner as other telecommunications services.
Because the growing popularity and use of the Internet has burdened the
existing telecommunications infrastructure and many areas with high Internet
usage have begun to experience interruptions in phone services, local telephone
carriers, such as Pacific Bell, have petitioned the FCC to regulate the
Internet and to impose access fees. Increased regulation or the imposition of
access fees could substantially increase the costs of communicating on the
Internet, potentially decreasing the demand for our services. A number of
proposals have been made at the federal, state and local level that would
impose additional taxes on the sale of goods and services through the Internet.
Such proposals, if adopted, could substantially impair the growth of electronic
commerce and could adversely affect us. Also, Congress recently passed (and the
President has signed into law) the Digital Millenium Copyright Act, which is
intended to reduce the liability of online service providers for listing or
linking to third-party Web sites that include materials that infringe
copyrights. Congress also recently passed (and the President has signed into
law) the Children's Online Protection Act and the Children's Online Privacy
Act, which will restrict the distribution of certain materials deemed harmful
to children and impose additional restrictions on the ability of online
services to collect user information from minors. Further, Congress recently
passed (and the President has signed into law) the Protection of Children from
Sexual Predators Act, which mandates that electronic communication service
providers report facts or circumstances from which a violation of child
pornography laws is apparent. Information Highway.com is currently reviewing
this legislation, and cannot currently predict the effect, if any, that this
legislation will have on our business. There can be no assurance that this
legislation will not impose significant additional costs on our business or
subject Information Highway.com to additional liabilities. Moreover, the
applicability to the Internet of existing laws governing issues such as
property ownership, copyright, defamation, obscenity and personal privacy is
uncertain. Information Highway.com may be subject to claims that our services
violate such laws. Any new legislation or regulation in the United States or
abroad or the application of existing laws and regulations to the Internet
could damage our business and cause the price of our common stock to decline.
Due to the global nature of the Internet, it is possible that the
governments of other states and foreign countries might attempt to regulate its
transmissions or prosecute Information Highway.com for violations of their
laws. Information Highway.com might unintentionally violate such laws. Such
laws may be modified, or new laws may be enacted, in the future. Any such
development could damage our business.
We May Incur Liabilities For the Activities of Users of Our Service
The law relating to the liability of providers of online services for
activities of their users is currently unsettled and could damage our business.
We do not carry insurance that will indemnify us for all liability for
activities of our users. We are aware that certain of our advertisers' Websites
offer or contain information about alcohol, tobacco, firearms, adult material
and other products, services and information that may be subject to regulation
by local, state or federal authorities. In addition, our advertisers' Websites
may contain text, images or information that could infringe third-party
copyrights, trademarks or other intellectual property rights. We cannot assure
you that Information- Highway.com will successfully avoid civil or criminal
liability for unlawful activities carried out by users of our service. The
imposition upon Information- Highway.com of potential
11
<PAGE>
liability for unlawful activities of users of our service could require us to
implement measures to reduce our exposure to such liability, which may require
us, among other things, to spend substantial resources or to discontinue
certain service offerings. Any costs incurred as a result of such liability or
asserted liability could damage our business.
We Cannot Assure You That Our Stock Price Will Not Decline During or As a
Result of this Offering
The trading market price of our common stock may decline below its current
price. Our common stock is currently very thinly traded on the OTC bulletin
board. An active public market for our common stock may not develop or be
sustained during or after this offering. The additional shares made available
for sale in the market as a result of this offering may depress the price of
our common stock.
Future Sales of Our Common Stock May Depress Our Stock Price
If our stockholders sell substantial amounts of common stock in the public
market, including shares issued upon the exercise of outstanding options and
warrants, and the conversion of debentures, the market price of our common
stock could fall.
As of March 29, 2000, a total of 7,828,017 shares were outstanding, held by
189 shareholders of which 3,182,500 were unregistered shares held by
affiliates. Rule 144 under the Securities Act of 1933 limits the amount of
these unregistered shares that an affiliate may sell in the marketplace to
approximately one percent of outstanding shares of Information Highway.com
every three months. Most of these affiliate shares are owned of record or
beneficially by Mr. Robertson or his daughter.
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<PAGE>
The outstanding shares and currently exercisable options of Information
Highway.com, including the shares covered by this offering, may be summarized
as follows:
<TABLE>
<CAPTION>
Number of
Shares Description
--------- -----------
<C> <S>
2,487,767 Currently issued and permitted to be sold in secondary market
without restriction
1,081,900 Options that could be exercised and then the shares resold
immediately in secondary market without restriction
125,817 Shares that may be sold beginning on various dates from December 8,
2000 to March 2nd, 2001 in secondary market without restriction.
674,450 Shares that may be sold beginning on various dates from March 29,
2000 to February 18, 2001 in secondary market without restriction
129,750 Shares that may be sold beginning on various dates from May 27, 2000
to July 15, 2000 in secondary market without restriction
880,500 Shares that may be sold beginning February 23, 2001 in secondary
market without restriction*
129,750 Shares that may be sold beginning on various dates from March 3,
2001 to February 18, 2002 in secondary market without restriction*
674,450 Shares that may be sold beginning on various dates from May 27, 2001
to July 15, 2001 in secondary market without restriction
125,817 Shares that may be sold beginning on various dates from December 8,
2001 to March 2nd, 2002 in secondary market without restriction.
3,486,500 Shares held by affiliates that may be sold under either Rule 701 or
Rule 144 beginning March 29, 2000 and options held by affiliates
that may be exercised either pursuant to Rule 701 or Form S-8 (7
persons; each limited to 1% of outstanding shares every 3 months)
</TABLE>
- --------
* Shareholders may sell earlier than date indicated subject to the limitation
that an affiliate may sell in the marketplace to approximately one percent of
outstanding shares of Information-Highway.com every three months
In addition, Information Highway.com has 610,317 warrants outstanding that
the holders may exercise up until dates ranging from October 6, 2000 to March
3, 2002, entitling holders to purchase 610,317 shares of common stock at prices
ranging from $4.00 to $6.22875 per share.
Information Highway.com also has 1,631,900 options available for grant which
may be exercised up until dates ranging from January 26, 2003 to December 1,
2004, entitling holders to purchase 1,631,900 shares of common stock at prices
ranging from $0.50 to $6.00 per share.
We Will Be Controlled by Our Current Officers and Directors After This Offering
Mr. Robertson, his daughter, certain companies and trusts that they
beneficially own, and other directors and officers of Information Highway.com
will, in the aggregate, beneficially own approximately [ ]% of our
outstanding common stock, assuming the issuance of all shares available under
the stock option plan and the warrants. These stockholders, if acting together,
would be able to significantly influence all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers
or other business combination transactions.
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<PAGE>
We May Have to Compete with Other Companies That Have Greater Resources
Our services compete against those of other established companies, some of
which have greater financial, marketing and other resources. These competitors
may be able to institute and sustain price wars, or imitate the features of our
services, resulting in a reduction of our market share and profitability. In
addition, there are no significant barriers to new competitors entering the
market place.
We Will Have to Raise Additional Capital, Which May Not Be Available
In our short history, we have had to raise, by way of debt and equity
financing, considerable funds to meet our capital needs. We will require
additional funds to implement our business plan. There is no guarantee that we
will be able to continue to raise the funds needed for our business on
acceptable terms, or at all. Failure to raise the necessary funds in a timely
fashion could delay or prevent us from implementing our business plan and
damage our business.
We May Issue Additional Shares, Which Could Dilute Your Ownership Interest
The substantial portion of the 50,000,000 authorized shares of our common
stock are unissued. The Board of Directors has the power to issue such shares
without shareholder approval. None of the 10,000,000 authorized shares of Class
A Preferred Stock have been issued. The Class A Preferred Stock may be issued
in series from time to time with such designation, rights, preferences and
limitations as the Board of Directors may determine by resolution and without
shareholder approval. There are outstanding warrants and options whose holders
may acquire additional shares of common stock. We fully intend to issue
additional shares of common stock or shares of Preferred Stock if necessary in
order to acquire products, properties, capital, businesses or for any other
corporate purposes. Any additional issuances by Information Highway.com from
its authorized but unissued shares would have the effect of further diluting
the percentage interest of existing shareholders.
No Preemptive Rights and No Cumulative Voting
There are no preemptive rights in connection with the common stock.
Cumulative voting in the election of directors is not permitted. Accordingly,
the holders of a majority of the shares of common stock, present in person or
by proxy, will be able to elect all of our Board of Directors.
No Foreseeable Dividends
We have not paid dividends on our common stock and do not anticipate paying
dividends on our common stock in the foreseeable future.
Our Stock Price Is Volatile, and May Fluctuate Widely Despite Our Operating
Performance
The market for our common stock is highly volatile and will likely continue
to behave in this manner in the future. Additionally, market prices for
securities of many smaller companies have experienced wide fluctuations not
necessarily related to the operating performance of the companies themselves.
Our Common Stock May Be Considered a Low-Priced Security, Which May Reduce Its
Price Because It Is More Difficult to Find a Person Permitted to Purchase It
Our securities are subject to Rule 15g-9 under the Securities Exchange Act
of 1934, which imposes additional sales practice requirements on broker-dealers
who sell such securities to persons other than established customers and
"accredited investors" (generally, individuals with net worths 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,
the rule may inhibit the ability of broker-dealers to sell our securities and
may inhibit the ability of shareholders to sell their shares in the secondary
market.
14
<PAGE>
USE OF PROCEEDS
This prospectus is part of a registration statement that permits certain
selling shareholders to sell their shares on a continuous or delayed basis in
the future. Because this prospectus is solely for the purpose of selling
shareholders, Information Highway.com will not receive any proceeds from the
sale of stock being offered. Information Highway.com will, however, receive
proceeds from the exercise of options and warrants to acquire shares that are
registered as part of this offering.
DETERMINATION OF OFFERING PRICE
This prospectus is solely for the purpose of allowing certain of our
shareholders to sell their stock. The selling shareholders may sell their
shares when the registration statement becomes effective, or they may elect to
sell some or all of their shares at a later date while the registration
statement is effective. The selling shareholders will determine the price for
and timing of any sales of their stock.
DILUTION
This prospectus is for sales of stock by certain of our shareholders on a
continuous or delayed basis in the future. Sales of common stock by
shareholders will not result in any substantial change to the net tangible book
value per share before and after the distribution of shares by the selling
shareholders. There will be no change in net tangible book value per share
attributable to cash payments made by purchasers of the shares being offered.
Prospective investors should be aware, however, that the price of shares
covered by this prospectus may not bear any rational relationship to net
tangible book value per share of Information Highway.com.
15
<PAGE>
SELLING SHAREHOLDERS
The following table gives the names of the shareholders for whose accounts
shares may be offered using this prospectus, the number of shares of common
stock of Information Highway.com beneficially owned by each named shareholder
before this offering, the percentage of the total shares of the company's
common stock as of March 29, 2000, represented by the shares owned, the number
of shares that may be offered for the stockholder's account in this offering,
and the number of shares to be owned by the shareholder following completion of
the offering. Beneficial ownership of shares includes any shares over which a
person exercises sole or shared voting or investment power, or of which a
person has the right to acquire ownership at any time within 60 days, for
example, through the exercise of a warrant, or an option that has vested as to
all or a portion of the underlying shares or through conversion of debentures.
Shares of common stock subject to warrants and options currently exercisable or
exercisable within 60 days are deemed outstanding for purposes of computing the
percentage ownership of the person holding the options, but are not deemed
outstanding for computing the percentage ownership of any other person. The
information regarding the selling shareholders' beneficial ownership after this
offering assumes that all shares of common stock offered by the selling
shareholders through this prospectus are actually sold.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Total shares beneficially
owned before beneficially Shares owned after
Name, Address and offering owned being offering
Position with --------------- --------------- offered --------------
Company, if any Direct Number Number Percent for sale Number Percent
----------------- ------ ------- ------- ------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Gordon Friesen.......... 0 75,000 75,000 0.95 75,000 0 0.00
David Sass, Vice
President.............. 0 300,000 300,000 3.69 300,000 0 0.00
Russ Gallagher.......... 0 100,000 100,000 1.26 100,000 0 0.00
IP Equity Inc. ......... 225,000 125,000 350,000 4.40 350,000 0 0.00
Chris Agarwal........... 30,000 0 30,000 0.38 30,000 0 0.00
David Williamson
Associates Limited..... 5,000 0 5,000 0.06 5,000 0 0.00
Mark Nadelson........... 5,000 0 5,000 0.06 5,000 0 0.00
World of Internet.com
AG..................... 20,000 0 20,000 0.26 20,000 0 0.00
K & D Equities, Inc. ... 0 400,000 400,000 4.86 400,000 0 0.00
Garry Savage............ 0 100,000 100,000 1.26 100,000 0 0.00
Mallory M. Parmerlee
Trust Share............ 11,000 10,000 21,000 0.27 5,000 16,000 0.20
Shawn Lampman........... 12,500 25,000 37,500 0.48 12,500 25,000 0.32
Joe Ebner............... 25,000 50,000 75,000 0.95 25,000 50,000 0.64
Dave A. Hanson.......... 27,000 10,000 37,000 0.47 5,000 32,000 0.41
F.S.D.R.H. Trust........ 12,500 25,000 37,500 0.48 12,500 25,000 0.32
Gene Cartwright Living
Trust.................. 25,000 50,000 75,000 0.95 25,000 50,000 0.64
T. Kozub................ 5,000 10,000 15,000 0.19 5,000 10,000 0.13
The Sunrise Trust....... 45,000 30,000 75,000 0.95 15,000 60,000 0.77
Edward Keeney........... 3,000 6,000 9,000 0.11 3,000 6,000 0.08
T.H. Scheer............. 13,150 26,300 39,450 0.50 13,150 26,300 0.34
David Fan............... 6,600 13,200 19,800 0.25 6,600 13,200 0.17
Ladislav Korcek......... 2,000 4,000 6,000 0.08 2,000 4,000 0.05
Park Avenue Consulting
Group.................. 75,000 0 75,000 0.96 75,000 0 0.00
Senasqua Investors,
LLC(1)................. 0 411,000 411,000 4.99 2,500,000 0 0.00
</TABLE>
- --------
(1) Based upon the terms of the Senasqua Investors, LLC Warrant to Purchase
Common Stock of Information Highway.com and Information Highway.com Inc.
5% Convertible Debenture which are exhibits to the registration statement
that includes this prospectus. The beneficial ownership of Senasqua
Investors, LLC is calculated based upon the price of the common stock as
of March 29, 2000, and on the limitation contained in the debenture that
Senasqua may only convert the debenture to the point where its aggregate
beneficial ownership is equal to or less than 4.999% of Information
Highway.com Inc.'s common stock. The shares being offered for sale are
calculated based upon Information Highway.com Inc.'s conservative estimate
of the maximum number of shares of its stock that it may be required to
register under the warrant and debenture. For a full discussion of the
terms of the warrant and debentures please see "Plan of Distribution."
16
<PAGE>
PLAN OF DISTRIBUTION
This is not an underwritten offering. This prospectus is part of a
registration statement that permits selling shareholders to sell their shares
on a continuous or delayed basis in the future. Selling shareholders may sell
their shares to the public when the registration statement becomes effective,
or they may elect to sell some or all of their shares at a later date.
Information Highway.com has not committed to keep the registration statement
effective for any set period of time.
The shares of common stock offered hereby include the resale of 2,225,000
shares of common stock issuable upon conversion of the $1,500,000 principal
balance of 5% Convertible Debentures. These debentures are convertible into
shares of common stock at the conversion price for each share of common stock
equal to the lesser of (i) $6.22875 or (ii) .80 times the average of the five
lowest daily closing bid prices during the 20 days immediately preceding date
of notice of conversion of the debentures. The number of shares registered
pursuant to the conversion of debentures is calculated based upon Information
Highway.com's conservative estimate of the maximum number of shares of its
stock that it may be required to register under the debenture. The holder of
the debentures may not convert an amount of debentures that would result in
beneficial ownership of more than 4.999% of outstanding common stock of
Information Highway.com. The holder of the warrants and debentures, Senasqua
Investors LLC, may be deemed a statutory underwriter as a result of sales of
securities on this Form SB-2.
489,750 of the shares which may be offered by the selling shareholders are
outstanding on the date of this Prospectus, and the remaining 3,600,000 shares
may be issued by after the date of this Prospectus upon exercise of outstanding
options or warrants or the conversion of outstanding debentures held by selling
shareholders. All of the shares may be resold in the public market by the
selling shareholders. Information Highway.com will receive the exercise price
paid upon exercise of warrants and options for issuance of those shares;
however, any difference between that price and the price at which the shares
are sold in the market by the selling shareholders will accrue to the benefit
of the selling shareholders. Sales of any of these previously restricted shares
into the public market could impact the market adversely so long as this
offering continues. See "Risk Factors."
While the registration statement is effective, selling shareholders may sell
their shares directly to the public, without the aid of a broker or dealer, or
they may sell their shares through a broker or dealer on the OTC bulletin
board. Any commission, fee or other compensation of a broker or dealer would
depend on the brokers or dealers involved in the transaction. The selling
shareholders and any participating broker-dealers may be deemed to be
"underwriters" within the definition of Section 2(11) of the Securities Act of
1933, and any compensation received by these persons on resale may be deemed
"underwriting compensation."
LEGAL PROCEEDINGS
A Writ of Summons and Statement of Claim was filed against the Company in
the Supreme Court of British Columbia on April 20, 1999 by a former employee
and spouse of the employee (the "Plaintiffs"). The employee was retained by the
Company as a consultant on or about December 1996 and was subsequently
terminated for cause by the Company in December 1997. The Plaintiffs are
seeking monetary damages related to the alleged remuneration due pursuant to an
agreement and a stock option between the Company and the employee. The total
damages claimed amount to $597,000, including alleged unpaid remuneration and a
stock option benefit. The Plaintiffs are also claiming 5% of business revenue
from the operating subsidiary in Vancouver, Canada. The Company believes that
the Plaintiff's allegations are without legal or factual basis and therefore it
has not accrued any potential losses resulting from this claim except for legal
fees paid in establishing the defense. The Company intends to vigorously defend
this action. To the knowledge of the Company's Executive Officers and
Directors, the Company is not a party to any other legal proceeding or
litigation and none of its property is the subject of a pending legal
proceeding. Further, the Officers and Directors know of no other threatened or
contemplated legal proceedings or litigation.
17
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each Executive
Officer and Director of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
John G. Robertson.. 59 President, Chief Executive Officer, Director
Jennifer Lorette... 27 Executive Vice President, Secretary/Treasurer,
Principal Accounting Officer and Chief financial
Officer, Director
Donna M. Moroney... 40 Vice-President, Legal and Administration, and Director
James Vandeberg.... 56 Chief Operating Officer, Attorney with Ogden Murphy
Wallace, PLLC, Information Highway.com's legal
counsel, and a Director
</TABLE>
Mr. Robertson and Ms. Lorette have served as directors of our business since
the June 1997 Annual Meeting. Mr. Vandeberg was elected a director in January
1999. Ms. Moroney was elected a director of the Company in December, 1999. Each
director will serve until the next annual meeting of shareholders and their
respective successors are elected and qualified. All officers currently devote
part-time to the operation of the Company.
Executive Officers, Directors and Other Significant Employees of the
Company:
John G. Robertson--President, Principal Executive Officer and a member of the
Board of Directors
Mr. Robertson is a founder, President, Principal Executive Officer and a
member of the Board of Directors. Since October 1984, Mr. Robertson has been
President and a Director of Reg Technologies, Inc., a British Columbia
corporation trading on the Canadian Venture Exchange that, in cooperation with
certain controlled affiliates, is engaged in developing a rotary engine and
other devices utilizing Rand Cam Technology. Since February 1979, Mr. Robertson
has been President and a Director of LinuxWizardry Systems, Inc. (formerly
"Flame Petro-Minerals Corp."), a British Columbia corporation trading on the
OTC Bulletin Board and engaged in the development and marketing of a Linux
based, low cost router through its wholly-owned subsidiary, LinuxWizardry,
Inc., which was acquired in January 2000. Mr. Robertson is President, a
director and CEO of IAS Communications, Inc., an Oregon corporation traded over
the counter in the United States that has developed a television antenna which
is 14" in diameter and only 2 inches high that can replace existing outside log
periodic antennas and has the capability of receiving local television stations
up to a 60-mile radius.
Jennifer Lorette--Executive Vice President, Secretary/Treasurer, Principal
Financial Officer and Principal Accounting Officer, and a Member of the Board
of Directors
Ms. Lorette is a founder, Secretary/Treasurer, Principal Financial Officer
and Principal Accounting Officer. Since April 1994, Ms. Lorette has been Vice
President of Administration of Reg Technologies Inc. Since June 1994, Ms.
Lorette has been a Vice President of REGI U.S. and Chief Financial Officer and
Vice President of Linux Wizardry Systems Inc. From February 1994 to April 1994,
Ms. Lorette was an executive assistant at Reg Technologies, Inc. Ms. Lorette is
also Secretary/Treasurer of IAS Communications, Inc.
Donna M. Moroney--Vice-President, Legal and Administration, and a member of the
Board of Directors
Ms. Moroney has been a consultant to public companies since 1992. She has
been an officer of Information Highway.com since January 1998. She has been a
director of Linux Wizardry Systems Inc., an OTCBB company, since 1998. She is
an officer of Teryl Resources Corp., a Canadian Venture Exchange Company, a
director and officer of Teryl, Inc. Ms. Moroney has also been an instructor of
corporate/securities law for legal assistants.
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James L. Vandeberg--Chief Operating Officer and a member of the Board of
Director
Mr. Vandeberg is an attorney with the Seattle, Washington law firm of Ogden
Murphy Wallace, PLLC. He has served as counsel to Information Highway.com since
1996. Mr. Vandeberg graduated cum laude from the University of Washington with
a Bachelor of Arts degree in accounting in 1966, and from New York University
School of Law in 1969, where he was a Root-Tilden Scholar. He became a member
of the Washington Bar Association in 1969 and of the California Bar Association
in 1973. Mr. Vandeberg's practice focuses on the corporate finance area, and he
specializes in securities and acquisitions. He is a member and former director
of the American Society of Corporate Secretaries. Mr. Vandeberg was previously
general counsel and secretary of two NYSE companies and is a director of IAS
Communications, Inc.
Ismael Cristian Rodriguez--Manager of Information Systems and Senior Network
System Administrator
Mr. Rodriguez is 28 years old. He is the Manager of Information Systems and
Senior Network System Administrator, a position he has held since joining us in
1996. Prior to that, Mr. Rodriguez was a private consultant assisting clients
with Internet services, networking and computer hardware. Mr. Rodriguez
attended Vancouver Film School and received a Certificate for 3D Animation.
Jack Wasserman--Vice-President Toronto Operating Unit
Mr. Wasserman is 50 years old. He is Vice-President of the Toronto operating
unit and has held that position since joining us in 1995. Prior to that, Mr.
Wasserman was an accountant with World Tel (Toronto) Internet, Inc. Mr.
Wasserman received his accounting designation with Arthur Andersen and Company,
in 1976 in the Province of Ontario.
Carol Coleman--Controller
Ms. Coleman is a Chartered Accountant with over 10 years of experience in
the accounting industry. Her accounting background is in a variety of areas
including manufacturing and high-tech. Ms. Coleman's duties as Controller of
the Company include management of the accounting, management reporting,
banking, insurance and payroll.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 29, 2000 and assuming exchange
of all shares of Information Highway, Inc. for our shares as of February 23,
1999, the outstanding Common Stock owned of record or beneficially by each
Executive Officer and Director and by each person who owned of record, or was
known by us to own beneficially, more than 5% of Common Stock, and the
shareholdings of all Executive Officers and Directors as a group.
<TABLE>
<CAPTION>
Percentage
Shares of Shares
Name Owned Owned
---- --------- ----------
<S> <C> <C>
John G. Robertson(1)(2).................................. 2,577,000 31.7%
President and member of the Board of Directors
Jennifer Lorette(1)(3)................................... 234,500 3.0%
Executive Vice President, Secretary/Treasurer,
Chief Financial Officer and a member of the Board of
Directors
James L. Vandeberg(1)(3)................................. 123,400 1.6%
Chief Operating Officer and a member of the Board of
Directors
Donna Moroney(4)......................................... 74,000 .9%
Director, Vice-President, Legal and Administration,
and a member of the Board of Directors
Robertson Family Trust(5)................................ 2,448,000 31.3%
Access Information Services Inc.(6)...................... 398,000 5.1%
Jack Wasserman(7)........................................ 430,000 5.4%
All Executive Officers & Directors as a Group (Five
Individuals)(8)......................................... 6,284,900 74.4%
</TABLE>
- --------
Except as noted below, all shares are held of record and each record
shareholder has sole voting and investment power.
(1) These individuals are the Executive Officers and Directors of the Company
and may be deemed to be "parents or founders" of the Company as that term
is defined in the Rules and Regulations promulgated under the 1933 Act.
(2) Includes 2,050,000 shares owned or controlled by the Robertson Family
Trust, 70,000 shares owned of record by SMR Investments, Ltd, a
corporation owned by Susanne Robertson, wife of Mr. Robertson, 10,000
shares owned of record by Mrs. Robertson, and 300,000 options that are
currently exercisable. Mr. Robertson is one of three trustees of the
Robertson Family Trust, which acts by the majority vote of the three
trustees. Mr. Robertson disclaims beneficial ownership of the shares owned
or controlled by the Robertson Family Trust. Mr. Robertson's address is
the same as the Company's.
(3) Includes 100,000 options that are currently exercisable. Ms. Lorette's
address is the same as the Company's. Mr. Vandeberg's address is Ogden
Murphy Wallace, 2100 Westlake Center Tower, 1601 Fifth Avenue, Seattle,
Washington.
(4) Includes 50,000 options that are currently exercisable. Ms. Moroney's
address is the same as the Company's.
(5) Includes 398,000 shares owned of record by Access Information Services, a
corporation owned by the trust. The address of the Robertson Family Trust
is 185--10751 Shellbridge Way, Richmond, British Columbia V6X 2W8, Canada.
The trust acts by majority vote of its three trustees: (i) Mr. Robertson;
(ii) Susanne Robertson, Mr. Robertson's wife, 4040 Amundsen Place,
Richmond, BC V7C 4L8; and (iii) Eric Hanson, 4620 Britannia St., Richmond,
B.C. The sole beneficiary is Kelly Robertson, daughter of Mr. and Mrs.
Robertson, #401 12633 No. 2 Road, Richmond, B.C. V7E 6N5.
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(6) Access Information Services is a corporation owned by the Robertson Family
Trust. Its address is 185 - 10751 Shellbridge Way, Richmond, British
Columbia V6X 2W8, Canada.
(7) Includes 75,000 options that are currently exercisable. Mr. Wasserman's
address is the same as the Company's.
(8) Includes 625,000 options that are currently exercisable. Also see Note (2)
above regarding share ownership attributed to Mr. Robertson.
Changes in Control
There are no arrangements known us the operation of which may result in a
change of control.
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is a summary and is subject
to and qualified in its entirety by our articles of incorporation and bylaws,
which are included as exhibits to the registration statement of which this
prospectus forms a part, and by the applicable provisions of Florida law.
The authorized capital stock consists of 50,000,000 shares of Common Stock,
$0.0001 par value per share and 10,000,000 shares of Class A Preferred Stock,
$0.0001 par value per share. The holders of shares of common stock are entitled
to dividends, out of funds legally available therefor, when and as declared by
the Board of Directors. The Board of Directors has never declared a dividend
and does not anticipate declaring a dividend in the future. Each outstanding
share of common stock entitles the holder thereof to one vote per share on all
matters. The holders of shares of common stock have no preemptive or
subscription rights. The holders of shares of common stock do not have
cumulative voting rights in connection with the election of the board of
directors, which means that the holders of more than 50% of such outstanding
shares, voting for the election of directors, can elect all of the directors to
be elected, if they so choose, and, in such event, the holders of the remaining
shares will not be able to elect any of our directors. The Class A Preferred
Stock may be issued in series from time to time with such designations, rights,
preferences and limitations as the Board of Directors may determine by
resolution. The Board of Directors could use an issuance of Class A Preferred
Stock with dilutive or voting preferences to delay, defer or prevent a change
in control. In addition, the concentration of control over our common stock in
the Directors and Executive Officers could prevent any change in control not
acceptable to the existing Directors and Executive Officers.
INTERESTS OF NAMED EXPERTS AND COUNSEL
Neither Elliott Tulk Pryce Anderson nor Ogden Murphy Wallace, PLLC was
employed on a contingent basis in connection with the registration or offering
of Information Highway.com's common stock. James L. Vandeberg, of Ogden Murphy
Wallace, PLLC is the Chief Operating Officer and a Director of Information
Highway.com. Mr. Vandeberg directly owns 23,400 shares of the Registrant's
common stock and has options to acquire 100,000 shares of the Registrant's
common stock at a price of $4.00 per share that must be exercised by November
5, 2004. See "Executive Compensation."
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our bylaws provide that we will indemnify our officers and directors for
costs and expenses incurred in connection with the defense of actions, suits,
or proceedings against them on account of their being or having been directors
or officers of the Company, absent a finding of negligence or misconduct in the
performance of duty.
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Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the forgoing provisions, we have been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in that Act and is, therefore,
unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
Mr. Robertson and Ms. Lorette could be considered promoters of Information
Highway.com. Their interests in the Company, including the details of their
stock options, are disclosed below. See "Security Ownership of Certain
Beneficial Owners and Management" and "Executive Compensation".
DESCRIPTION OF BUSINESS
Information Highway.com, Inc. serves as an Internet Service Provider
(referred to as an "ISP" in the industry) for companies and individuals that
need access to the Internet in exchange for a recurring fee. We have also
developed and begun providing a compilation of Internet-based services and
information catering to business professionals known collectively as
www.theexecutive.com. We conduct our operations through the following three
wholly-owned Canadian subsidiaries:
. YesIC Communications, Inc., acquired in February 1997;
. World Tel Internet (Toronto) Ltd., acquired in February 1997; and
. Blue Crow Internet Company, Ltd., acquired in December 1996.
Information Highway, Inc., a Washington corporation, initially acquired
these subsidiaries. Then, in February 1999, Information Highway, Inc. engaged
in a reverse takeover of Florida Venture Fund, Inc., a Florida corporation. As
a result of the reverse takeover, the shareholders of Information Highway, Inc.
came to own approximately 95% of the outstanding shares of Florida Venture
Fund, Inc. In connection with the reverse takeover, Florida Venture Fund, Inc.
changed its name to Information Highway.com, Inc.
Information Highway.com, Inc. is now the ultimate parent company whose
shares are traded on the OTC bulletin board (symbol: IHWY). Information
Highway.com, Inc.'s executive offices are located at 10751 Shellbridge Way,
Suite 185, Richmond, British Columbia V6X 2W8, Canada, our telephone number is
(604) 278-5996 and our facsimile number is (604) 278-3409.
Business Development
Information Highway.com was incorporated in Florida in December 1988 as
Florida Venture Fund, Inc. Florida Venture Fund had not conducted any business
prior to February, 1999, when it engaged in a reverse takeover with Information
Highway, Inc., a Washington corporation. Information Highway, Inc. was formed
in October, 1996. It began to build the basis for the current business of the
Company by undertaking the following acquisitions:
. YesIC Communications, Inc., acquired in February, 1997;
. World Tel Internet (Toronto) Ltd., acquired in February, 1997; and
. Blue Crow Internet Company, Ltd., acquired in December, 1996.
In a reverse takeover, the shareholders of an acquired company generally end
up owning all or most of the resulting combined company. The reverse takeover
of Florida Venture Fund, Inc. by Information Highway, Inc. was conducted
pursuant to an Agreement and Plan of Reorganization entered into on February
17, 1999 and closed on February 23, 1999 between Florida Venture Fund, Inc.,
Information Highway, Inc. and certain shareholders of Information Highway, Inc.
Florida Venture Fund, Inc. acquired 3,235,000 common shares of
22
<PAGE>
Information Highway, Inc. (out of a total of 5,639,650 issued and outstanding
common shares) in exchange for 3,235,000 common shares of Florida Venture Fund,
Inc. In connection with the reverse takeover, Florida Venture Fund, Inc.
changed its name to Information Highway.com, Inc. It is our intention to
complete the exchange of shares of Information Highway.com common stock for the
remaining and outstanding common shares of Information Highway, Inc. on a one
for one basis. As of April 10, 2000, 2,359,650 of the remaining 2,404,650
Information Highway, Inc. shares had been exchanged for the same number of
Information Highway.com Inc.'s shares. In total, to January 10, 2000,
approximately 99% of Information Highway, Inc. shares had been exchanged.
Information Highway.com has allotted 45,000 shares in anticipation of the
remaining shares being exchanged. As part of the Agreement and Plan of
Reorganization, Information Highway.com caused 1,659,833 of its 1,979,500
common shares that were issued and outstanding prior to the closing to be
canceled and assumed the obligations of Information Highway, Inc. to issue
common shares pursuant to warrants and stock options issued by Information
Highway, Inc. Information Highway, Inc. paid $100,000 to the controlling
shareholder of Florida Venture Fund, Inc. as a finder's fee and to effect the
Agreement and Plan of Reorganization.
Overview of Information Highway.com's Business
We serve as an Internet Service Provider (referred to as an "ISP" in the
industry) for companies and individuals that need access to the Internet in
exchange for a recurring fee. We intend to provide ISP services to a steadily
growing number of cities in North America as a "Virtual ISP". A Virtual ISP
provides Internet access to its customers using the underlying
telecommunications infrastructure of another company, such as a telephone
company. The Virtual ISP business model should enable us to avoid purchasing
and installing "backbone" communications equipment and infrastructure in each
city where we plan to offer ISP services.
Our goal is to expand our ISP business throughout North America by
negotiating access to Virtual ISP "backbone" facilities and then repackaging
that access for sale to our customers and resellers (licensees). We have
entered into agreements that permit us to market access to the Internet user in
the Northeast United States and 20 cities (some in the Northeast) across the
United States, and in Canada. Toronto, Ontario is the first market in which we
provided ISP services, beginning about four years ago.
We believe that Internet users will begin to base their selection of an ISP
in part on the value-added services that their ISP provides. Through our portal
site compilation of Internet-based services and information, we provide
localized and portal content catering to business professionals. Through
research, design, programming, co-branding, and licensing, we have compiled
Internet services and content in our portal site that we believe are useful to
companies, associations and professionals. Portal site web pages are designed
specifically for targeted user groups, and we believe they provide friendly,
easy to navigate interfaces. Our basic portal site may be accessed through the
Internet at www.theexecutive.com. Other portal sites are customized to the
needs of specific Internet subscriber groups (whether by geographic location or
entity affiliation) and have different Internet addresses.
Industry Background--The Internet
The Internet is a global collection of thousands of interconnected computer
networks that links computers around the world and enables commercial
organizations, educational institutions, governmental agencies and individuals
to communicate electronically, access and share information and conduct
commerce. Unlike other public and private telecommunications networks that are
managed by businesses, governmental agencies or other entities, the Internet is
a cooperative interconnection of many such public and private networks. The
networks that comprise the Internet are connected in a variety of ways,
including the public-switched telephone network and dedicated high-speed leased
lines. Open communications on the Internet are enabled by TCP/IP, the common
Internet communications protocol, which enables communication across the
Internet regardless of the hardware and software used.
Recent technological advances, combined with cultural changes and evolving
business practices, have led to integration of the Internet into the activities
of individuals and the operations and strategies of commercial
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<PAGE>
organizations. Use of the Internet by individuals and relatively small
businesses and other organizations has been accelerated by dramatic increases
in cost-effective processing power and data storage capabilities in personal
computers, as well as widespread availability of multimedia, fax/modem, and
networking capabilities to the home computing market. According to CyberAtlas,
the Computer Industry Almanac conducted a study that found that North America
will remain the leading region for Internet users until at least 2005,
projecting that it will grow from about 83 million Internet users at the end of
1998 to nearly 230 million by the end of 2005. By the end of the year 2000, the
Computer Industry Almanac projects that Internet users in North America will
number almost 149 million. The Computer Industry Almanac defines Internet users
as adults with weekly usage in businesses and homes.
Much of the recent growth in Internet use by businesses and individuals has
been driven by the emergence of a network of servers and information available
on the worldwide web. The worldwide web, which is based on a client/server
model and a set of standards for information access and navigation, can be
accessed using software that allows non-technical users to exploit the
capabilities of the Internet. The worldwide web enables users to find, retrieve
and link information on the Internet easily and consistently. The development
of worldwide web technology and associated easy-to-use software has made the
Internet easier to navigate and more accessible to a larger number of users and
for a broader range of applications.
Until recently, individuals could access the Internet only through an
organization with a direct Internet connection, or through traditional online
services employing closed, proprietary networks that allow Internet access only
to limited Internet resources. With the growth and increasing commercialization
of the Internet, a number of Internet Service Providers, or ISPs, including
Information Highway.com, have emerged to provide direct access to individuals.
Traditional online services also have begun to increase the scope and capacity
of their access to the Internet. Access providers vary widely in geographic
coverage, subscriber focus and levels of Internet access. For example, access
providers may concentrate on certain types of subscribers (such as businesses
or individuals) that differ substantially in the type of service and support
required. Providers may also differ according to whether they provide direct or
non-direct access to the Internet. Direct access through Internet protocol such
as PPP (Point-to-Point Protocol) enable users to establish direct connections
to other computers on the Internet, including worldwide web sites or computers
operated by other users, and thereby have access to the full range of Internet
resources. Like most regional and national ISPs, we offer direct Internet
access.
Principal Services
We currently derive the overwhelming majority of our revenues (approximately
98%) from our ISP business. However, in the near future we expect that, with
the advertising and e-commerce marketing plans currently undertaken, an
increase in our revenues will be generated from our licensed portal partners,
licensed resellers, and high speed Digital Subscriber Line (DSL) customers in
the North American market. Over the past 18 months, we have devoted significant
resources to developing our portal site, which provides localized and portal
content catering to business professionals. We believe that the portal site
will ultimately produce significant revenues, as well as complement our ISP
services by functioning as an Internet access gateway.
Key strategic developments to date have included equipment, software and
robust network infrastructure acquisitions, acquisitions of licenses for web
content, research and development and marketing plan development. We possess
what management considers to be the latest in high-end computer management
systems. Hardware systems have been installed, tested, and are operating with
comprehensive redundancy and contingency plans (although we cannot guarantee
that we would maintain service in the face of every kind of natural disaster or
man-made disruption). We have the capacity to increase hardware storage
capabilities due to the modular nature of our equipment and without system
downtime.
ISP Services
We serve as an ISP for companies and individuals that need access to the
Internet in exchange for a recurring fee. We began as a local ISP in Toronto
and Vancouver, purchasing and installing the "backbone"
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<PAGE>
communications equipment and infrastructure necessary to be a stand-alone ISP.
Our costs of providing ISP services have historically included equipment
installation and ongoing service and maintenance charges. We intend to provide
ISP services to a steadily growing number of cities in North America as a
Virtual ISP by providing Internet access to our customers using the underlying
telecommunications infrastructure of other companies, such as telephone
companies. The Virtual ISP business model can enable us to avoid purchasing
hardware and installing "backbone" communications equipment and infrastructure
in each city where we plan to offer ISP services. As we introduce our Virtual
ISP presence in additional cities, each city will represent an increased lease
charge under our agreements with Internet access providers due to the need to
add bandwidth to accommodate the customer base in the new market. As we expand
our presence in a particular market, we will require additional increases in
bandwidth depending on data transmission volumes.
Our goal is to expand our ISP business throughout North America by
negotiating access to the telecommunications "backbone" facilities of Internet
access providers and then repackaging that access for sale to our customers and
resellers (licensees). We have entered into agreements that permit us to market
access to the Internet in the Northeast United States and 20 cities (some in
the Northeast) across the United States, and in Canada. In September 1999, we
entered into an agreement with Bell Atlantic that lets us provide Internet
access in the Northeast United States on high-speed Digital Subscriber Lines
("DSLs"). The agreement has a three-year term and is subject to renewal
annually thereafter. Under the agreement, we pay fees to Bell Atlantic monthly
based on a per-user basis. In March 1999, we entered into an agreement with
Level 3 Communications that lets us provide Internet access in 20 cities across
the United States using their fiber-optic backbone (a phone line). The
agreement does not have a specific term and is on a month-to- month basis.
Under the agreement, we pay fees to Level 3 Communications based on a per-port
fee (each port provides capacity for a certain volume of data transmission). In
November 1998, we entered into an agreement with Metro Net Communications,
recently acquired by AT&T, which permits us to use their Canadian network of
high-speed, fiber-optic ATM links. The agreement has a five- year term and no
stated renewal clause. Under the agreement, we pay fees to Metro Net
Communications based on a per-port fee. We plan to pursue agreements with
additional Internet access providers based on the markets we seek to serve and
the acceptability of the terms offered by Internet access providers serving
those markets. We must develop and maintain our relationships with
telecommunications companies in order to implement our "Virtual ISP" business
model and facilitate broad market acceptance in North America of our services
and enhance our sales.
We select certain target markets in which we will offer our services and
commit corresponding resources for marketing and infrastructure. We base our
target market assessment on four years of research and development through our
involvement in the Internet industry. Because we do not have a universal
presence on the Internet as an ISP, our ability to achieve market penetration
in the target markets we select to serve has a significant effect on our
ability to maintain and increase our revenues. As of January 31, 2000, we had
approximately 15,000 dial-up customers through our own ISP service and through
our resellers in North America.
Maintaining market penetration successes by minimizing customer turnover
also has a significant effect on our ability to maintain and increase our
revenues. We have had an overall rate of customer turnover during the past four
years of approximately 6,000 ISP customers. A large portion of this turnover
has occurred due to some technical difficulties rolling out new AT&T (formerly
MetroNet) leased lines. A higher percentage of customers than usual have
terminated service due principally to slow transmission speeds and inadvertent
disconnection of transmissions. We are working with AT&T to correct these
problems. We expect customer turnover to increase in the future as competition
intensifies. We expect that service quality (i.e., data transmission speed and
periods of down time) and price will be the major factors that influence ISP
users to switch their ISP. We believe that the availability of customized
portal sites (and other such similar Internet link compilations targeted to
specific user groups) with our value-added services will increasingly become
another factor that ISP customers will consider in their assessment of service
quality. See "Principal Services--Our Portal Site".
We currently have a significant market presence (more than 13,000 dial-up
ISP customers) in Toronto. In addition, we have begun to provide ISP services
in Vancouver and Calgary as a Virtual ISP. We can now offer
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through Level 3's fibre optic backbone broadband ISP services in Seattle,
Washington, D.C., Dallas, Houston, Philadelphia, San Francisco, Miami, New
York, Baltimore and Los Angeles. We will add additional cities to our service
area as we assess the market opportunities and the terms available from
Internet access providers.
Recent Developments
In December 1999, we completed a license agreement with ISP Power
Corporation, whereby we licensed ISP's PRISM software that provides integrated
billing and customer care software solutions, which will consolidate all of our
billings and customer related management needs into one powerful, flexible and
automated package that reduces costs and increases profits. The PRISM software
integrates into the Microsoft Commercial Internet System. This software package
provides up-to-date information about customers and enables us to co-brand our
billing system to our Virtual ISP's, while allowing them to retain their own
identity, even when it relates directly to the billing of their customers. With
the installation of this new software and the implementation of Microsoft's
MCIS system, we can now scale up to 10,000,000 users by increasing its
hardware.
On August 24, 1999, we entered into a multi-user DSL agreement with Bell
Atlantic Data Solutions to sell multi-user ADSL (Asymmetric Digital Subscriber
line) service, Internet access and ancillary services. This enables us to offer
to our business customers ADSL Internet service for up to 30 users over one
phone line within the Bell Atlantic footprint in the United States, which
consists of thirteen states from Virginia to Maine. We will offer three types
of Infospeed DSL with downstream speeds of up to 7.1 Mbps and upstream speeds
of up to 680 Kbps.
In February 2000, we launched our Voice Over Internet Protocol (VoIP) analog
program, beginning with production on its rollout program in Canada utilizing
AT&T's fibre optic backbone. With our gateway (www.ihwyphone.com) basic and
enhanced voice services over the Internet, including voice enhanced web
commerce and interactive multimedia communications are now offered.
On February 17, 2000, we entered into a partnership agreement with
LinuxWizardry Systems, Inc. to distribute and market its Linux based, low cost
router to our customers. The Linux operating system allows for an easy
configuration of Internet routers and network appliances through a drag and
drop graphical user interface. The LinuxWizardry router will not require an
expensive network specialist to configure the LinuxWizardry router and will
therefore allow small businesses to take control of their networks.
We selected Ramp Networks, Inc. to provide ADSL solutions to our small
businesses and residential markets in the Bell Atlantic footprint in the
Eastern United States, as well as selected cities served by Level 3
Communications nationwide. High-speed ADSL service with the WebRamp 600I,
Ramp's enhanced platform for software and services, is available through our
network of ISPs. Ramp is also a licensed reseller of our Internet service and
related services through Ramp's value-added resellers.
In March 2000, we launched our Spanish portal site
(http://latino.theexecutive.com), which Portal site offers free access for
Spanish speaking users, allowing them access to all of our standard service on
its portals. We are also in the process of co-branding further content and
shopping resources with www.itiendas.com, www.espanol.com and CD NOW in
Spanish.
Effective March 2000, we commenced trading on the newly created "High Risk
Market" on the Hamburg Stock Exchange, which is a market that features
predominantly US companies listed on the OTC Bulletin Board or the NASDAQ
exchange.
Our Portal Site
We believe that Internet users will begin to select their ISP based in part
on the value-added services that their ISP provides. Through our portal site
compilation of Internet-based services and information, we provide localized
and portal content designed to cater to business professionals. Through
research, design,
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programming, co-branding, and licensing, we have compiled Internet services and
content in our portal site that we believe are useful to companies,
associations and professionals. Portal site web pages are designed specifically
for targeted user groups, and we believe they provide friendly, easy to
navigate interfaces. Our basic portal site may be accessed through the Internet
at www.theexecutive.com. Other portal sites are customized to the needs of
specific Internet subscriber groups (whether by geographic location or entity
affiliation) and have different Internet addresses.
We are now licensing customized portal sites to other ISPs, companies and
individuals throughout North America. We also offer our clients the ability to
market their products and services to portal site users through our Virtual
Mall. We believe the portal site will be popular because most business
professionals do not want to spend a lot time surfing the Internet for the
information that they need. The portal site has assembled a functional portal
site to enable users to access the information they require immediately. Portal
site users will be able to:
. Monitor and research the stock market;
. Plan and book their next business trip;
. Check the local news and weather;
. Find a suitable restaurant in their area
. participate in online forums;
. use of our virtual shopping mall
. Carry out electronic transactions via e-commerce; and
. Find a suitable restaurant in their area.
. Use our web based Internet based Voice Over Internet Protocol service
We do not charge a fee for access to our portal site. We charge a design fee
and a recurring maintenance fee for our portal site partners that we customize
for companies or associations. We also charge a monthly maintenance fee when we
license portals to other ISPs to display our customized portal site. We receive
additional revenues from advertising and e-commerce generated from each
customized portal site. Our portal site has two main purposes. One important
purpose of the portal site is to provide our value added services. Thus far the
industry has focused on providing high speed access to the Internet and has
largely neglected the content development market. The greatest difficulty in
content development is encouraging people to pay for the information they need.
Some companies have attempted to charge for information. However, information
can always be found free on the Internet. While people will not pay for raw
information, we believe that when information and services are properly
bundled, Internet users will find value in convenience, organization,
relevance, and meaningful communication. Internet content is now aimed at broad
target markets doing little to customize information to users needs. Our portal
site aims to provide content customized to the needs of our dial-up users,
partners, specific interest groups, companies, and associations.
Although anyone with Internet access will be able to visit the basic portal
site or the customized regional sites maintained by us, only our (or one of its
ISP licensee's) ISP customers will be able to access certain value-added
services available on the portal site. For example, we currently offer our ISP
customers e-mail with no additional charge, and plan to offer 100 minutes of
voice-over Internet Protocol ("IP") phone service with no additional charge.
Anybody accessing a portal site who is not an ISP customer of ours (or one of
our ISP licensees) cannot access these value-added services without any
additional charge. We believe that by providing these value-added services,
along with the other useful services and content conveniently located at the
portal site, we will have a competitive advantage in attracting and retaining
ISP customers.
Our portal site's second main purpose is to be a profit center. We believe
that the portal site will ultimately become a profit center in its own right.
We believe we can generate non-ISP revenues by providing information organized
and packaged for consumers and businesses. While people will not pay for raw
information, we
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believe that when information and services are properly bundled, two distinct
revenue streams are available. One revenue stream will be available from
licensees that wish to customize our portal site for their own targeted user
group. Such licensees would include other ISPs, companies and associations. We
believe that they will pay for the convenience, organization, relevance, and
meaningful communication provided by the pre-packaged portal site information
and services, and the tools required to organize and maintain them. A second
distinct revenue stream will be available by virtue of Internet users (whether
they are our ISP customers and licensees, or those of other unrelated ISPs)
visiting the portal site and accessing its information and services. This
revenue stream would include advertising and e-commerce commission revenues.
Our portal site is a new concept and, while we have high hopes for its ultimate
success, has yet to provide material revenues.
We have committed significant resources to the development of the portal
site, and we intend to continue to commit significant resources to its
development, maintenance and marketing and advertising. Through research,
design, programming, co- branding, and licensing, we compile a collection of
the most compelling and functional Internet services. These services are then
synthesized into a single web interface. Finally, this web interface is
customized to function as a dedicated service for dial-up communities, interest
groups, associations, and companies, who in turn sell dial-up access to the
service to their users, members, associates, or employees. In other words, the
portal site makes available Internet comprehensive services such as stock quote
systems, travel reservation systems, shopping networks, and chat technologies,
and then adds information and directories unique to any given group or
organization. In some cases, its networks may even form the backbone of a
corporate Intranet. Because of the modular nature of the portal site's
information and service components, we can offer businesses and associations
the components that they want as the basis of their customized intranets or
executive sites. An initial development and licensing fee, together with
monthly maintenance fees, will be charged for the development of a customized
portal site. The modular nature of the portal site's information and service
components will also facilitate establishing local customized portal sites in
those markets where we, or one of our licensees, seek to establish or maintain
an ISP presence.
Our portal site, with its value-added services, is available to Internet
users, and a print and Internet advertising campaign is currently underway to
attract additional Internet users (prospective new ISP customers) to the portal
site. We also have succeeded in attracting some business advertising, and we
intend to seek additional advertising customers. We have also introduced our
Virtual Mall. The Virtual Mall provides links to web pages where Internet users
can view merchandise and make purchases using their credit cards. We either
receive a commission from the vendor when an Internet user makes a purchase
after entering a web page through the Virtual Mall or we receive rent from the
vendor for providing a link to the vendor's web page from the Virtual Mall.
We also license portal sites to third parties that want to display their own
web pages. Since March 1999, we have licensed our portal site to five partners
in the United States. Pursuant to the licenses, we developed private-labeled
versions of the portal site for the licensees for their customers throughout
Canada and the United States. The licensees paid an initial set up fee and pay
a monthly maintenance fee. Each licensee also shares with us the advertising
and e-commerce revenues generated from the portals. In April 1999, we also
licensed a Spanish version of our portal site to an ISP in Mexico City, Mexico.
We believe that we will continue to enter into license agreements with other
ISPs, companies and associations in the future. We are currently pursuing an
aggressive advertising and marketing campaign underway throughout the United
States and Canada.
Although the portal site (www.theexecutive.com) does not yet provide a
material portion of our revenues, we believe that in the near future the
revenues generated by the licensing of portal sites will increase both in terms
of absolute dollars and as a percentage of total revenues. We constantly assess
the content of the portal site, adding, deleting or substituting information or
services when warranted. Currently the major components of the portal site
include:
. Demon Systems's stock quote and research system;
. Internet Travel Network's travel reservation system;
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. WeatherLabs, Inc.'s weather information;
. Ichat Rooms's chat room system;
. Information Highway.com's Virtual Shopping Mall
. Screaming Media, a comprehensive news service
. Web-based E-mail
. VoIP web based Internet long distance phone calls
Some of this content is actually resident on our web pages, and some of it
is accessed by links to other websites. Compensation arrangements with content
providers are generally based on the number of Internet users that access a
particular item of content (known in the industry as "hits"). With respect to
advertising revenues derived from banner advertisements placed on various web
pages, we generally share revenue with the content provider for the web page.
In addition, we entered into a two year licensing and multicasting agreement
with broadcast.com. We will sell broadcast.com's services to associations,
local ISPs, portal site users, local dial-up, and national virtual ISP
customers. Services will include audio and video hosting, and live event
broadcasting (multicasting) including multimedia presentations, trade shows and
conferences. We will receive a percentage of revenues generated by these
services for a period of two years and will have the option to renew this
contract annually.
These components represent only a small sample of planned future content. We
anticipate entering into similar agreements in the future to fully develop and
expand the content in the portal site. New content suppliers are constantly
being identified for existing and potential portal sites. Additional content
will also be developed by associations and companies themselves.
Competitive Conditions
The market for Internet products, services and advertising is new, rapidly
evolving and intensely competitive. We currently or potentially compete with
many other ISPs, providers of Web directories, search and information services,
as well as traditional media, for consumer attention and advertising
expenditures. We expect competition to intensify in the future. Barriers to
entry may not be significant, and current and new competitors may be able to
provide ISP services and to launch new websites at a relatively low cost.
Accordingly, we believe that our success will depend heavily upon achieving
significant market acceptance before our competitors and potential competitors
introduce competing services. We compete with other ISPs for ISP customers.
Although some affirmative effort is required to change ISPs, there are no
significant barriers to ISP customers changing their ISP in response to service
quality or price considerations.
We compete with online services and other websites, as well as traditional
offline media such as television, radio and print, for a share of advertisers'
total advertising budgets. The number of companies offering e-commerce outlets
and selling web-based advertising, and the available inventory of related space
on web pages, has recently increased substantially. Accordingly, we may face
pricing pressure on our e-commerce commissions and for the sale of
advertisements.
Many of our competitors, as well as potential entrants into our markets,
have longer operating histories, larger customer or user bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do. Many of these current and potential competitors can devote
substantially greater resources to promotion and website and systems
development than we can. In addition, as the use of the Internet and other
online services increases, larger, well-established and well-financed entities
may continue to acquire, invest in or form joint ventures with ISPs, providers
of web directories, search and information services or advertising solutions,
and existing ISPs, providers of web directories, search and information
services or advertising solutions may continue to consolidate. In addition,
providers of Internet browsers and other Internet products and services who are
affiliated with ISPs or providers of web directories and information services
in competition with our portal site may more tightly integrate these affiliated
offerings into their browsers or other products or services. Any of these
trends would increase the competition we face.
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Governmental Regulation
The laws and regulations applicable to the Internet and to our services are
evolving and unclear and could damage our business. There are currently few
laws or regulations directly applicable to access to, or commerce on, the
Internet. Due to the increasing popularity and use of the Internet, it is
possible that laws and regulations may be adopted, covering issues such as user
privacy, defamation, pricing, taxation, content regulation, quality of products
and services, and intellectual property ownership and infringement. Such
legislation could expose us to substantial liability as well as dampen the
growth in use of the Internet, decrease the acceptance of the Internet as a
communications and commercial medium, or require us to incur significant
expenses in complying with any new regulations. The European Union has recently
adopted privacy and copyright directives that may impose additional burdens and
costs on international operations. In addition, several telecommunications
carriers, including America's Carriers' Telecommunications Association, are
seeking to have telecommunications over the Internet regulated by the Federal
Communications Commission, or FCC, in the same manner as other
telecommunications services. Because the growing popularity and use of the
Internet has burdened the existing telecommunications infrastructure and many
areas with high Internet usage have begun to experience interruptions in phone
services, local telephone carriers, such as Pacific Bell, have petitioned the
FCC to regulate the Internet and to impose access fees. Increased regulation or
the imposition of access fees could substantially increase the costs of
communicating on the Internet, potentially decreasing the demand for our
services. A number of proposals have been made at the federal, state and local
level that would impose additional taxes on the sale of goods and services
through the Internet. Such proposals, if adopted, could substantially impair
the growth of electronic commerce and could adversely affect us. Also, Congress
recently passed (and the President has signed into law) the Digital Millennium
Copyright Act, which is intended to reduce the liability of online service
providers for listing or linking to third-party Web sites that include
materials that infringe copyrights. Congress also recently passed (and the
President has signed into law) the Children's Online Protection Act and the
Children's Online Privacy Act, which will restrict the distribution of certain
materials deemed harmful to children and impose additional restrictions on the
ability of online services to collect user information from minors. Further,
the United States recently enacted the Protection of Children from Sexual
Predators Act, which mandates that electronic communication service providers
report facts or circumstances from which a violation of child pornography laws
is apparent. We cannot currently predict the effect, if any, that this
legislation will have on our business. There can be no assurance that this
legislation will not impose significant additional costs on our business or
subject us to additional liabilities. Moreover, the applicability to the
Internet of existing laws governing issues such as property ownership,
copyright, defamation, obscenity and personal privacy is uncertain. We may be
subject to claims that our services violate such laws. Any new legislation or
regulation in the United States or abroad or the application of existing laws
and regulations to the Internet could damage our business.
Due to the global nature of the Internet, it is possible that the
governments of other states and foreign countries might attempt to regulate our
transmissions or prosecute us for violations of their laws. We might
unintentionally violate such laws. Such laws may be modified, or new laws may
be enacted, in the future. Any such development could damage our business.
Other Information
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We have increased, and plan to continue to increase, the
scope of our operations. Our staff has grown and will continue to grow
substantially. At April 1, 2000, we had a total of 34 employees. We are
continuing to expand our infrastructure, including hiring new employees when
required, including key employees in marketing and technology development. We
will need to expand our infrastructure, which will include hiring certain key
employees, including without limitation, key employees in marketing and
technology development. Hiring such employees has historically been difficult.
We do not believe that environmental laws have or will have a significant
effect on our business. In their report on our financial statements, our
auditors have expressed doubt about our ability to continue in business
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as a going concern. We will need additional funds to continue in business and
to implement our business plan as proposed, which we may not be able to obtain.
Equity or debt financing may not be available to us on terms acceptable to us,
or at all. We have undertaken steps to address Year 2000 Issues. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Issues".
Available Information and Reports to Securities Holders
Information Highway.com has filed with the Securities and Exchange
Commission a registration statement on Form SB-2 with respect to the common
stock offered by this prospectus. This prospectus, which constitutes a part of
the registration statement, does not contain all of the information set forth
in the registration statement or the exhibits and schedules which are part of
the registration statement. For further information with respect to Information
Highway.com and its common stock, see the registration statement and the
exhibits and schedules thereto. Any document Information Highway.com files may
be read and copied at the Commission's Public Reference Room located at 450
Fifth Street N.W., Washington D.C. 20549, and the public reference rooms in New
York, New York, and Chicago, Illinois. Please call the Commission at 1-800-SEC-
0330 for further information about the public reference rooms. Information
Highway.com's filings with the Commission are also available to the public from
the Commission's website at http://www.sec.gov.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements. The words "anticipate",
"believe", "expect", "plan", "intend", "estimate", "project", "could", "may",
"foresee", and similar expressions are intended to identify forward-looking
statements. The following discussion and analysis should be read in conjunction
with the our Financial Statements and the Notes thereto and other financial
information included elsewhere in this report which contains, in addition to
historical information, forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from the results
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere in this prospectus.
Overview
We serve as an Internet Service Provider (referred to as an "ISP" in the
industry) for companies and individuals that need access to the Internet in
exchange for a recurring fee. We intend to provide ISP services to a steadily
growing number of cities in North America as a "Virtual ISP". A Virtual ISP
provides Internet access to its customers using the underlying
telecommunications infrastructure of another company, such as a telephone
company. The Virtual ISP business model should enable us to avoid purchasing
and installing "backbone" communications equipment and infrastructure in each
city where we plan to offer ISP services.
Our goal is to expand our ISP business throughout North America by
negotiating access to Virtual ISP "backbone" facilities and then repackaging
that access for sale to our customers and resellers (licensees). We have
entered into agreements that permit us to market access to the Internet in the
Northeast United States and 20 cities (some in the Northeast) across the United
States, and in Canada. Our Northeast United States Internet access agreements
permit us to provide Digital Subscriber Line ("DSL") access, which enables
users to remain connected to the Internet 24 hours a day, eliminating annoying
busy signals, as well as the time and cost of waiting to connect, without
disrupting the subscriber's normal telephone service. Toronto, Ontario is the
first market in which we provided ISP services, beginning about four years ago.
We believe that Internet users will begin to base their selection of an ISP
in part on the value-added services that their ISP provides. Through our portal
site compilation of Internet-based services and information, we provide
localized and portal content catering to business professionals. Through
research, design, programming, co-branding, and licensing, we have compiled
Internet services and content in our portal site that we believe are useful to
companies, associations and professionals. Portal site web pages are designed
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specifically for targeted user groups, and we believe they provide friendly,
easy to navigate interfaces. Our basic portal site may be accessed through the
Internet at www.theexecutive.com. Other portal sites are customized to the
needs of specific Internet subscriber groups (whether by geographic location or
entity affiliation) and have different Internet addresses.
We plan to market the portal site throughout North America, starting with
our Virtual ISP locations. We may also let other ISPs display customized portal
sites in certain markets. We also offer our commercial clients the ability to
market their products and services to portal site users through our newly
developed Virtual Mall.
Our portal site has assembled a functional business site to enable business
professionals to immediately find what they need rather than spending time
searching the Internet for the information they need. Portal site users are
able to:
. monitor and research the stock market;
. plan and book their next business trip;
. check the local news and weather;
. participate in online forums;
. carry out electronic transactions via e-commerce; and
. find a suitable restaurant in their area.
We do not charge a fee for access to the basic portal site. We charge a
design fee and a recurring maintenance fee for portal sites that we customize
for companies or associations. We also charge a monthly maintenance fee when we
license portals to other ISPs to display a customized portal site. We receive
additional revenues from advertising and e-commerce transactions generated from
each customized portal site.
We Conduct Our Operations Through One Wholly-owned US Subsidiary and Three
Wholly-owned Canadian Subsidiaries
Information Highway, Inc., a Washington corporation, actually acquired these
subsidiaries. Then, in February 1999, Information Highway, Inc. engaged in a
reverse takeover of Florida Venture Fund, Inc., a Florida corporation. As a
result of the reverse takeover, the shareholders of Information Highway, Inc.
came to own approximately 95% of the outstanding shares of Florida Venture
Fund, Inc. In connection with the reverse takeover, Florida Venture Fund, Inc.
changed its name to Information Highway.com, Inc. and is now the ultimate
parent company whose shares are traded on the OTC bulletin board (symbol:
IHWY).
Effect of Reorganization During Fiscal 1999
The reverse take-over was conducted pursuant to an Agreement and Plan of
Reorganization entered into on February 17, 1999 and completed on February 23,
1999 between Florida Venture Fund, Inc., Information Highway, Inc. and certain
shareholders of Information Highway, Inc. Florida Venture Fund, Inc. acquired
3,235,000 common shares of Information Highway, Inc. out of a total of
5,639,650 issued and outstanding common shares in exchange for 3,235,000 common
shares of Florida Venture Fund, Inc. It is Information Highway.com's intention
to complete the exchange of shares of its common stock for the remaining and
outstanding common shares of Information Highway, Inc. on a one for one basis.
As of January 31, 2000, 2,314,650 of the remaining 2,404,650 Information
Highway, Inc. shares had been exchanged for the same number of Information
Highway.com shares. In total, to January 31, 2000, approximately 98% of
Information Highway, Inc. shares had been exchanged. We have allotted 90,000
shares in anticipation of the remaining shares being exchanged. As part of the
Agreement and Plan of Reorganization we caused 1,659,833 of its 1,979,500
common shares that were issued and outstanding prior to the closing to be
cancelled and assumed the obligations of Information Highway, Inc. to issue
common shares pursuant to warrants and stock options issued by Information
Highway, Inc.
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For accounting purposes the acquirer was the legal subsidiary, Information
Highway, Inc., as approximately 95% of the issued and outstanding common shares
of Florida Venture Fund, Inc. at the time of the reverse takeover were owned by
the shareholders of Information Highway, Inc. and the Board of Directors of
Information Highway, Inc. now comprises Information Highway.com's Board of
Directors. As Information Highway, Inc. is the legal subsidiary of Information
Highway.com, Inc., the nature of the business combination is a reverse takeover
whereby the control of the assets and the business of Florida Venture Fund,
Inc. (as it was then named) was acquired by Information Highway, Inc. and the
consolidated financial statements are issued under the name of Information
Highway.com, Inc., but is a continuation of Information Highway, Inc. and not
Florida Venture Fund, Inc. The legal capital structure remains that of Florida
Venture Fund, Inc. but the stated shareholders' equity of Information Highway,
Inc. has replaced the stated shareholders' equity of Florida Venture Fund, Inc.
Similarly, Florida Venture Fund, Inc.'s statements of operations and cash flows
represent a continuation of Information Highway, Inc.'s consolidated financial
statements.
Factors Affecting Ongoing Operations
Prior to acquiring Information Highway, Inc. in February, 1999, we had not
conducted any business since inception in 1988. The following discussion
relates to Information Highway, Inc.'s continuing operations and not that of
the Information Highway.com prior to the reverse takeover.
Although planned principal activities have started producing significant
revenues, in our effort to rapidly expand infrastructure and network services
and develop the portal site, we have suffered net losses each quarter to
February 29, 2000. At February 29, 2000, our accumulated deficit was $4,126,954
and our working capital was $162,934. We expect to incur substantial operating
losses, net losses and negative operating cash flow for the near term.
Revenues
Revenue consists of mainly the provision of Internet dial-up services. We
receive limited revenue from banner advertisements, web-site development and
hosting, e-commerce commission revenue and the resale of products over the
Internet.
We completed a license agreement with ISP Power Corporation in early
December. ISP Power Corporation's PRISM Software provides integrated billing
and customer care software solutions. The PRISM software will consolidate all
of our billing and customer related management needs into one powerful,
flexible and automated package that will help reduce costs and increase profits
for ourselves.
The PRISM software integrates into the Microsoft Commercial Internet System
(MCIS), which enables us to provide up-to-the-minute billing information to
customers. In addition, we will be able to co-brand our billing system for
Virtual ISP's, thereby allowing us to retain our own identity, even when it
relates directly to the billing of our customers.
Revenue is recognized at the time services are provided. All related costs
are recognized in the period in which they occur. Customer deposits for
Internet dial-up services to be provided in the future are treated as deferred
revenues.
The following factors affect our revenue:
. Service Offering--We derive most of our operating revenue from the ISP
service we provide to our customers;
. Penetration of Target Markets--We select certain target markets in which
we will offer our services and commit corresponding resources for
marketing and infrastructure. We base our target market assessment on
two years of research and development through our involvement in the
Internet industry. Our ability to achieve market penetration in the
target markets we select to serve has a significant effect on our
ability to maintain and increase our revenues;
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. Turnover--Maintaining market penetration successes by minimizing
customer turnover also has a significant effect on our ability to
maintain and increase our revenues. To date, customer turnover has been
minimal. We expect customer turnover to increase in the future as
competition intensifies. We expect that service quality (i.e., data
transmission speed and periods of down time) and price will be the major
factors that influence ISP customers to switch their ISP;
. Portal site--Portal site revenues, which to date are mostly from
advertising, are not yet material to our total revenues. We expect that
advertising and e-commerce commission revenues related to our customized
portal site, as well as fee-based revenues from customized portal site
licensees, will grow in the future, both in dollar amount and as a
percentage of our total revenues.
Cost of Revenues
Cost of revenues consists primarily of the cost of serving our Internet
dial-up service customers and the cost of developing web-sites for customers.
These costs include salaries for technical support and customer service,
depreciation of Internet dial-up and web-site hosting equipment, license fees,
equipment leasing costs, telephone line costs and rent to house equipment and
staff directly involved in serving customers.
Our network and service costs have historically included equipment
installation and ongoing service and maintenance charges. As we introduce our
Virtual ISP presence in additional cities, each city will represent an
increased lease charge under our agreement with Internet access providers due
to the need to add bandwidth to accommodate the customer base in the new
market. We have entered into agreements that permit us to market access to the
Internet in the Northeast United States and 20 cities (some in the Northeast)
across the United States, and in Canada. Our Northeast United States Internet
access agreements permit us to provide Digital Subscriber Line ("DSL") access,
which enables users to remain connected to the Internet 24 hours a day,
eliminating annoying busy signals, as well as the time and cost of waiting to
connect, without disrupting the subscriber's normal telephone service. As we
expand our presence in a particular market, we will require additional
increases in bandwidth depending on data transmission volumes.
Other Operating Expenses
Our other operating expenses include portal site development and
maintenance, information systems, billing and collections, general management
and overhead, and administrative functions. Head count in functional areas,
such as customer service, engineering and operations, along with expansion of
our portal site and the locations in which we provide ISP services and
increases in the number of our customers, will drive increases in expenses.
Results of Operations for the Three Months Ended February 29, 2000 as Compared
to the Three Months Ended February 28, 1999
Revenues
Revenues increased by $80,000 (31%) to $335,000 from $255,000 in the
comparative quarter. This increase was due to an increased subscriber base in
Vancouver and Toronto. Based on assumptions about demand for our ISP services
and the portal site, we anticipate that the dollar amount of future revenues
will continue to increase over current levels. During the first six months
ended November 30, 1999, we have switched on 50 ports (minimum per agreement
with Level 3 Communications) in each of 7 cities which enables us to service up
to 500 customers in each city. The cost of these portals for the three months
ended February 29, 2000 was $48,364. There was no revenue generated during the
quarter from these ports.
We are beginning to receive small amounts of revenue from banner
advertisements, developing web-sites for customers, reselling portal site
information and service modules pursuant to license agreements and reselling
product over the Internet. We have also sold product over the Internet pursuant
to a Resellers Agreement. Sales from this source were $10,000 and costs were
$8,000.
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Cost of Revenues
Cost of revenues increased by $308,000 (174%) to $485,000 from $177,000 in
the comparative quarter. One-time "catchup" Internet and telephone charges,
totalling $220,000, were paid or accrued during the quarter. These are not
expected to occur in future. The largest components of cost of revenues are
telephone costs and Internet and license fees. The increases in these costs are
reflective of the increase in our subscriber base. Sales increased by 31% while
cost of revenues increased by 50% not including the one-time "catchup" charges.
We realized some economy of scale because some of the fixed cost of revenue
relating to equipment and rent.
We completed a license agreement with Virtual Plus Technologies, LLC to sell
dial-up, ADSL Internet access service, web design and hosting and e-commerce
solutions to the Washington, DC area in addition to a non-exclusive license in
the Baltimore, Maryland area. We also licensed our customized portal site
www.theexecutive.com site to Virtual Plus Technologies for use in Washington,
DC and Baltimore, Maryland. The agreement represents the first step of our
North American roll out, in which we will license our services to other virtual
Internet partners on an exclusive or non-exclusive basis utilizing Level 3
Communications' advanced fibre optic network. We plan to aggressively market
our services to several other major US cities including Seattle, Dallas,
Boston, Chicago, Atlanta, Cincinnati, Detroit, Los Angeles, Miami, New York,
Orlando, Philadelphia, San Diego, San Jose, Tampa and New Jersey.
Gross Profit
After deducting the effect of the one-time catchup charges discussed under
"Cost of Revenues" gross profit decreased by $8,000 (10%) to $70,000 from
$78,000 in the comparative quarter. As a percentage of sales gross profit
decreased to 21% from 30% in the comparative quarter. Increased competition in
the Internet Service Provider industry increases pressure of fee reduction for
new subscribers and renewing subscribers. We intend to decrease the cost of
telephone and Internet switching fees with new agreements with backbone or
bandwidth providers.
Marketing and Sales Expenses
Marketing and sales expenses have increased by $79,000 (168%) to $126,000
from $47,000 in the comparative quarter. The major component of this increase
was a result of a marketing plan to increase advertisements in industry
specific publications throughout Canada. We had very little marketing and sales
effort in the comparative quarter.
General and Administrative Expenses
General and administrative expenses for corporate overhead and Internet
business related activities combined have increased by $666,000 to $810,000
from $144,000 in the comparative quarter.
General and administrative expenses relating to corporate overhead
activities, and not Internet business-related activities, have increased by
$634,000 to $703,000 from $69,000 in the comparative quarter. As a result of
the reverse takeover during February, 1999, we are now incurring expenses
relating to being an active operating public company and is incurring
additional expenses relating to investor relations and financial consulting.
Investor relations and financial consulting increased by $400,000 to
$431,000 as compared to $31,000 in the comparative quarter. Part of this
increase was $79,000 paid in shares (in the previous quarter) to IP Equity,
Inc. for Internet-based marketing and financial consulting services. Pursuant
to this Agreement we were also committed to file a Registration Statement
registering these securities by November 6, 1999. IP Equity, Inc. and we have
agreed to pay interest of $23,000 until such time as the commitment is met.
During the current quarter a total of $87,000 was paid and/or accrued and
charged to operations. A company was paid $60,000 and was issued warrants in
the previous quarter valued at $147,800 for a marketing and advertising program
including
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banner ads, newsgroup coverage and press release distribution. A total of
$153,000 of these costs were charged to operations this quarter. A company was
issued 20,000 shares valued at $73,000 for European investor relations of which
$50,000 was charged to operation during this quarter.
Professional fees increased by $60,000 to $74,000 from $14,000 in the
comparative quarter. These additional costs relate to a number of security
issuances and regulatory matters.
Another one-time charge was a $100,000 bonus declared payable to our
President for all prior services rendered.
General and administrative expenses relating to Internet business related
activities increased by $32,000 to $107,000 from $75,000 in the comparative
quarter. The major components of these expenses were: amortization of goodwill
of $43,000, salaries and consulting fees of $39,000 (up by $19,000) and
telephone costs of $11,000.
Product Development Expenses
Product development costs consist of expenses incurred by ourselves in the
development and creation of our portal site. Product development costs include
compensation and related expenses for programmers, depreciation of computer
hardware and software, rent, telephone and costs incurred in developing
features and functionality of the service. Product development costs are
expensed as incurred.
Product development expenses increased by $31,000 (94%) to $64,000 from
$33,000 in the comparative quarter. The major component of the increase in
product development expenses was salaries and consulting fees of $50,000 as we
continue to expand our services and improve our products.
Depreciation and Amortization Expenses
Depreciation and amortization expense has been allocated to cost of
revenues, marketing and sales, general and administrative, and product
development based on the use of each capital asset. Approximately 60% of
capital assets was used in cost of revenues, 15% in marketing and sales, 10% in
general and administrative and 15% in product development. Depreciation and
amortization of capital assets increased by $15,000 to $25,000 as compared to
$10,000 in the comparative quarter.
Purchased goodwill was amortized at $15,000 per month over its estimated
useful life of three years. The estimated useful life of three years was chosen
to reflect the short-term life of the related business because of increased
competition, the lack of a universal presence and technological advancements
and obsolescence in the industry. Amortization expense has been allocated to
general and administrative expense for the Internet business. Goodwill was
fully amortized by the end of the quarter.
We anticipate entering into operating leases for any network equipment and
software in the future to minimize capital expenditures.
Net Loss for the Three Months Ended February 29, 2000 as Compared to the Three
Months Ended February 28, 1999
Our net losses have come mainly from investor relations activities and
overhead costs associated with organization, restructuring and financing
operations in Toronto and Vancouver, Canada and costs of developing new and
improved services and expanding our marketing plan into other North American
markets. We have switched on 50 ports (minimum per agreement with Level 3
Communications) in each of 7 cities which enables us to service up to 500
customers in each city. The cost of these portals for the three months ended
February 29, 2000 was $48,364. There was no revenue generated during the period
from these portals. Other operating activities conducted in the United States
were expenses incurred for investor relations and professional fees. Our head
office is in Richmond, BC, Canada, which does not conduct any business related
to the Internet. Our sole purpose is to provide administration, investor
relations services and services relating to being a public company.
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Results of Operations for the Nine Months Ended February 29, 2000 as Compared
to the Nine Months Ended February 28, 1999
Revenues
Revenues increased by $249,000 (33%) to $1,003,000 from $752,000 in the
comparative period. This increase was due to an increased subscriber base in
Vancouver and Toronto. Based on assumptions about demand for our ISP services
and our portal site, we anticipate that the dollar amount of future revenues
will increase over current levels. We have switched on 50 ports (minimum per
agreement with Level 3 Communications) in each of 7 cities which enable us to
service up to 500 customers in each city. The cost of these portals for the
nine months ended February 29, 2000 was $129,141. There was no revenue
generated during the period from these ports.
We are beginning to receive small amounts of revenue from banner
advertisements, developing web-sites for customers, reselling portal site
information and service modules pursuant to license agreements and reselling
product over the Internet. We have also sold product over the Internet pursuant
to a Resellers Agreement. Sales from this source were $10,000 and costs were
$8,000.
Cost of Revenues
Cost of revenues increased by $405,000 (77%) to $927,000 from $522,000 in
the comparative period. One-time "catchup" Internet and telephone charges,
totalling $220,000, were paid or accrued during the period. These are not
expected to occur in future. The largest components of cost of revenues are
telephone costs and Internet and license fees. The increases in these costs are
reflective of the increase in our subscriber base. Sales increased by 33% while
cost of revenues increased by 35% not including the one-time "catchup" charges.
We realized some economy of scale because some of the fixed cost of revenue
relates to equipment and rent.
We completed a license agreement with Virtual Plus Technologies, LLC to sell
dial-up, ADSL Internet access service, web design and hosting and e-commerce
solutions to the Washington, DC area in addition to a non-exclusive license in
the Baltimore, Maryland area. We also licensed our customized portal site
www.theexecutive.com site to Virtual Plus Technologies for use in Washington,
DC and Baltimore, Maryland. The agreement represents the first step of our
North American rollout, in which we will license our services to other virtual
Internet partners on an exclusive or non-exclusive basis utilizing Level 3
Communications' advanced fiber optic network. We plan to aggressively market
our services to several other major US cities including Seattle, Dallas,
Boston, Chicago, Atlanta, Cincinnati, Detroit, Los Angeles, Miami, New York,
Orlando, Philadelphia, San Diego, San Jose, Tampa and New Jersey.
Gross Profit
After deducting the effect of the one-time catchup charges discussed under
"Cost of Revenues" gross profit increased by $65,000 (28%) to $295,000 from
$230,000 in the comparative period. As a percentage of sales gross profit
stayed the same at 30%. Increased competition in the Internet Service Provider
industry increases pressure of fee reduction for new subscribers and renewing
subscribers. We intend to decrease the cost of telephone and Internet switching
fees with new agreements with backbone or bandwidth providers.
Marketing and Sales Expenses
Marketing and sales expenses have increased by $175,000 (122%) to $318,000
from $143,000 in the comparative period. The major component of this increase
was a result of a marketing plan to increase advertisements in industry
specific publications throughout Canada. We had very little marketing and sales
effort in the comparative period.
General and Administrative Expenses
General and administrative expenses for corporate overhead activities and
Internet business-related activities combined have increased by $1,481,000 to
$1,914,000 from $433,000 in the comparative period.
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General and administrative expenses relating to corporate overhead
activities, and not Internet business-related activities, have increased by
$1,416,000 to $1,616,000 from $210,000 in the comparative period. As a result
of the reverse takeover during February, 1999, we are now incurring expenses
relating to being an active operating public company and is incurring
additional expenses relating to investor relations and financial consulting.
Investor relations and financial consulting increased by $1,066,000 to
$1,153,000 as compared to $87,000 in the comparative period. Part of this
increase was $679,000 paid in shares to IP Equity, Inc. for Internet-based
marketing and financial consulting services. Pursuant to this Agreement we were
also committed to file a Registration Statement registering these securities by
November 6, 1999. IP Equity, Inc. and we have agreed to pay interest of $23,000
until such time as the commitment is met. During the current quarter a total of
$87,000 was paid and/or accrued and charged to operations. A company was paid
$60,000 and was issued warrants in the previous quarter valued at $147,800 for
a marketing and advertising program including banner ads, newsgroup coverage
and press release distribution. A company was issued 20,000 shares valued at
$73,000 for European investor relations.
Professional fees increased by $91,000 to $138,000 from $47,000 in the
comparative period. These additional costs relate to a number of security
issuances and regulatory matters.
Another one-time charge was a $100,000 bonus declared payable to our
President for all prior services rendered.
General and administrative expenses relating to Internet business related
activities increased by $75,000 to $298,000 from $223,000 in the comparative
period. The major components of these expenses were: amortization of goodwill
of $135,000, salaries and consulting fees of $101,000 (up by $41,000) and
telephone costs of $22,000.
Product Development Expenses
Product development costs consist of expenses incurred by us in the
development and creation of our portal site. Product development costs include
compensation and related expenses for programmers, depreciation of computer
hardware and software, rent, telephone and costs incurred in developing
features and functionality of the service. Product development costs are
expensed as incurred.
Product development expenses increased by $86,000 (87%) to $184,000 from
$99,000 in the comparative period. The major component of the increase in
product development expenses was salaries and consulting fees of $100,000 as we
continue to expand our services and improve our products.
Depreciation and Amortization Expenses
Depreciation and amortization expense has been allocated to cost of
revenues, marketing and sales, general and administrative, and product
development based on the use of each capital asset. Approximately 60% of
capital assets was used in cost of revenues, 15% in marketing and sales, 10% in
general and administrative and 15% in product development. Depreciation and
amortization of capital assets increased by $35,000 to $72,000 as compared to
$37,000 in the comparative period.
Purchased goodwill was amortized at $15,000 per month over its estimated
useful life of three years. The estimated useful life of three years was chosen
to reflect the short-term life of the related business because of increased
competition, the lack of a universal presence and technological advancements
and obsolescence in the industry. Amortization expense has been allocated to
general and administrative expense for the Internet business. Goodwill was
fully amortized by the end of the period.
We anticipate entering into operating and capital leases for any network
equipment and software in the future to minimize capital expenditures.
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Net Loss for the Nine Months Ended February 29, 2000 as Compared to the Nine
Months Ended February 28, 1999
Our business is carried on in one industry segment being the provision of
access to the Internet and providing services, including on-line publishing, to
individual and corporate subscribers.
Up until May 31, 1999 we operated in one geographic segment, being Canada,
located in Vancouver, BC and Toronto, Ontario. Subsequent to May 31, 1999 we
began expansion of our ISP business into 22 cities in the United States by
setting up Virtual ISP's. We have switched on 50 ports (minimum per agreement
with Level 3 Communications) in each of 7 cities which enable us to service up
to 500 customers in each city. The cost of these portals for the nine months
ended February 29, 2000 was $129,000. There was no revenue generated during the
period from these portals.
Our head office is in Richmond, BC, Canada. The head office does not conduct
any business specifically related to the Internet. Our sole purpose is to
provide administration, investor relations services and services relating to
being a public company. Included in general and administrative expenses and net
loss is $1,616,000 relating to such activities. The net loss relating to
Internet activities in Canada amounted to $854,000.
Our net losses have come mainly from investor relations activities and
overhead costs associated with organization, restructuring and financing start-
up operations in Toronto and Vancouver, Canada and costs of developing new and
improved services and expanding our marketing plan into other North American
markets. Other operating activities conducted in the United States thus far
were expenses incurred including investor relations and professional fees.
Results of Operations for the Year Ended May 31, 1999 as Compared to the Year
Ended May 31, 1998
Revenues
Revenues have increased by $150,000 to $1,009,000 as compared to $859,000 in
the previous period, which is an increase of 17.5%. This increase is due to an
increased subscriber base in Vancouver and Toronto. Based on assumptions about
demand for our ISP services and our portal site, we anticipate that the dollar
amount of future revenues will increase over current levels.
We are beginning to receive small amounts of revenue from banner
advertisements, developing web-sites for customers and reselling product
pursuant to license agreements.
Cost of Revenues
Cost of revenues have increased by $126,000 to $776,000 as compared to
$650,000 in the previous year, which is an increase of 19%. This increase is
approximately the same as the increase in revenues. The largest components of
cost of revenues is telephone costs of $266,000 as compared to $238,000 in the
previous year; Internet and license fees of $224,000 as compared to $197,000 in
the previous year; and salaries and consulting fees of $192,000 as compared to
$155,000 in the previous year. The increases in these costs are reflective of
the increase in our subscriber base.
Gross Profit
Gross profit was 23.1% in fiscal 1999 as compared to 24.4% in fiscal 1998.
With increased competition in the Internet Service Provider industry there has
been increased pressure to reduce fees for new subscribers and renewing
subscribers. This reduction of fees results in lower gross profit as there is
not a reciprocal decrease in cost to service our customers. We plan to decrease
the cost of telephone and Internet switching fees with new agreements with
backbone or bandwidth providers.
Marketing and Sales Expenses
Marketing and sales expenses have increased by $53,000 to $224,000 as
compared to $171,000 in the previous year, which is an increase of 31%. The
major component of this increase was a result of a marketing
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plan to increase advertisements in industry specific publications which
increased by $43,000 to $103,000 as compared to $60,000 in the previous year.
The other major component of marketing and sales is salaries which increased by
$8,000 to $64,000 as compared to $56,000 in the previous year. Other costs
relate to rent, telephone and amortization of capital assets.
General and Administrative Expenses
General and administrative expenses for corporate overhead activities and
Internet business related activities have increased by $350,000 to $800,000 as
compared to $450,000 in the previous year, which is an increase of 78%.
General and administrative expenses relating to corporate overhead
activities, and not Internet business related activities, have increased by
$319,000 to $478,000 as compared to $159,000 in the previous year, which is an
increase of 200%. As a result of the reverse takeover, we incurred one-time
expenses relating to professional fees and investor relations advertising and
consulting. Professional fees such as legal and accounting increased by
$115,000 to $158,000 as compared to $43,000 in the previous year. This increase
relates to costs incurred, or to be incurred, to complete and file various
documents with the NASD and the United States Securities and Exchange
Commission on Form 10-SB, 10-QSB, S-8 and 10-KSB in addition to legal fees to
effect the reverse takeover; the majority of these expenses were incurred in
the final quarter ended May 31, 1999. Investor relations advertising and
consulting increased by $157,000 to $164,000 as compared to $7,000 in the
previous year. The major components of this increase was; $114,000 paid in
shares and cash to two non-related companies for Internet-based marketing and
investor communications services including e-mails to their respective data
bases of customers. The remaining $50,000 was paid to various consultants and
companies for news releases and in-house investor relations services. Office,
rent and telephone increased by $58,000 to $62,000 as a result of various
office and telephone costs incurred during and after becoming a public company.
Salaries and management fees decreased by $43,000 to $45,000 as a result of
reapplying certain salaried employees to Internet related business activities
from corporate related activities. Travel increased by $12,000 to $18,000 as a
result of trips to New York, Toronto and Las Vegas by our senior management.
Transfer agent and various filing fees increased by $11,000 to $11,000 as a
result of becoming a public company. Amortization of head office equipment
increased by $5,000 to $10,000. The vast majority of all of the above expenses
were incurred in the final quarter of fiscal 1999.
General and administrative expenses relating to Internet business related
activities increased by $31,000 to $323,000 as compared to $292,000 in the
previous year, an increase of 11%. The major component of general and
administrative expenses was; amortization of goodwill of $160,000; salaries and
consulting fees of $97,000; office, rent and telephone of $46,000; legal and
accounting of $11,000 and bank charges of $9,000.
Product Development Expenses
Product development costs consist of expenses incurred by us in the
development and creation of our portal site. Product development costs include
compensation and related expenses for programmers, depreciation of computer
hardware and software, rent, telephone and costs incurred in developing
features and functionality of the service. Product development costs are
expensed as incurred.
Product development expenses increased by $11,000 to $156,000 as compared to
$145,000 in the previous year, an increase of 8%. The major component of
product development expenses was; salaries and consulting fees of $117,000,
rent and telephone of $25,000, and amortization of capital assets used directly
in product development activities of $13,000. Related expenses incurred in the
previous year were comparatively similar as incurred in fiscal 1999.
Depreciation and Amortization Expenses
Depreciation and amortization expense has been allocated to cost of
revenues, marketing and sales, general and administrative, and product
development based on the use of each capital asset. During fiscal 1999 and
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1998 approximately 60% of capital assets was used in cost of revenues, 15% in
marketing and sales, 10% in general and administrative and 15% in product
development. Depreciation and amortization of capital assets increased by
$32,000 to $90,000 as compared to $58,000 in the previous year.
Purchased goodwill has been amortized at $13,000 per month over its
estimated useful life of three years. The estimated useful life of three years
was chosen to reflect the short-term life of the related business because of
increased competition, the lack of a universal presence and technological
advancements and obsolescence in the industry. Amortization expense has been
allocated to general and administrative expense for the Internet business.
Goodwill will be fully amortized during fiscal 2000.
We anticipate entering into operating leases for any network equipment and
software in the future to minimize capital expenditures.
Income Taxes
We generated US and Canadian net operating losses ("NOL") carried forward of
$835,000 during the current year as compared to $424,000 for the comparative
year. Total NOL's from inception to May 31, 1999 totals $1,385,000. We expect
some consolidated losses for the foreseeable future which will generate
additional NOL's. However, our ability to use NOL's is dependant on generating
profits in the future and may also be subject to annual limitations. In
addition, income taxes may be payable during this time due to operating income
in certain tax jurisdictions. In the future, if we achieve operating profits
and the NOL's have been exhausted or have expired, we may experience
significant tax expense. We recognized no provision for taxes because we
operated at a loss from inception through to May 31, 1999. The deferred tax
asset value has been reduced to nil because we can not be assured that it is
more likely than not that we will utilize the NOL's carried forward in future
years. If it was more likely than not to realize these losses we would have
recorded a deferred tax asset of $525,000.
Net Loss for the Year Ended May 31, 1999 as Compared to the Year Ended May 31,
1998
Our net losses have come mainly from overhead costs associated with
organization, restructuring and financing start-up operations in Toronto and
Vancouver, Canada and costs of developing new and improved services and
expanding our marketing plan into other North American markets. The only
operating activities conducted in the United States thus far were expenses
incurred in the going public process including investor relations and
professional fees. Our head office is in Richmond, BC, Canada which does not
conduct any business related to the Internet. Our sole purpose is to provide
administration, investor relations services and services relating to being a
public company. Included in general and administrative expenses and net loss is
$477,000 as compared to $159,000 in fiscal 1998, relating to such activities.
The net loss relating to Internet activities amounted to $471,000 as compared
to $398,000 in fiscal 1998.
Results of Operations for the Year Ended May 31, 1998 as Compared to the Pro
Forma Year Ended May 31, 1997
The discussion for these two periods is based on the actual results for the
period from October 15, 1996 to May 31, 1997 of Information Highway, Inc.
combined with the actual results of the three operating Canadian subsidiaries
from acquisition date to May 31, 1997 combined with the pro forma results of
the three Canadian operating subsidiaries for the period from June 1, 1996 to
the date of acquisition. By comparing on this basis a more meaningful
management discussion will result. The comparative pro forma information is
contained in Note 11 to the audited consolidated financial statements contained
in this report and included elsewhere.
Revenues
Revenues have increased by $438,000 to $859,000 as compared to $421,000 in
the comparative period, which is an increase of 104%. This increase is due to
an increased subscriber base in Vancouver and Toronto.
Our revenues in 1998 and 1997 was solely from the provision of Internet
services.
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Cost of Revenues
Cost of revenues have increased by $315,000 to $650,000 as compared to
$335,000 in the comparative period, which is an increase of 94%. This increase
is slightly less than the percentage increase in revenues. The largest
components of cost of revenues is; telephone costs of $238,000 as compared to
$80,000 in the comparative period, Internet and license fees of $197,000 as
compared to $11,000 in the comparative period, and salaries and consulting fees
of $120,000 as compared to $199,000 in the comparative period. The increase in
telephone costs was a result of telephone leasing costs in Vancouver and the
decrease in salaries and benefits was due to a reallocation to other
departments and overall streamlining of the services provided. The increase in
Internet and license fees was due to the portal site being completed and fully
operational.
Gross Profit
Gross profit was 24.4% during fiscal 1998 as compared to 20.6% during the
comparative period. The increase in gross profit was a result of less manpower
needed to service our customers.
Marketing and Sales Expenses
Marketing and sales expenses have increased by $92,000 to $171,000 as
compared to $79,000 in the comparative period, which is an increase of 116% and
is directly related to the increase in sales. The major component of this
increase was a result of a marketing plan to increase advertisements in
industry specific publications which increased by $27,000 to $60,000 as
compared to $33,000 in the comparative period. The other major component of
marketing and sales is salaries which doubled to $56,000. Other costs relate to
rent, telephone and amortization of capital assets.
General and Administrative Expenses
General and administrative expenses for corporate overhead activities and
Internet business related activities increased by $176,000 to $451,000 as
compared to $275,000 in the comparative period, which is an increase of 64%.
General and administrative expenses relating to corporate overhead
activities, and not Internet business related activities, have increased by
$120,000 to $159,000 as compared to $39,000 in the comparative period, which is
an increase of 307%. This was a result of the head office being formed in
October, 1996 in Richmond, BC, Canada or six months of the comparative period.
The largest components of this increase was; management salaries and fees
increased by $66,000 to $88,000 as compared to $22,000 in the comparative
period and legal and accounting increased by $40,000 to $43,000 as compared to
$3,000 in the comparative period. These increases were due to the acquisition
of the subsidiaries, raising of capital and organization of the business.
General and administrative expenses relating to Internet business related
activities increased by $56,000 to $292,000 as compared to $236,000 in the
comparative period, an increase of 24%. The major component of general and
administrative expenses was; amortization of goodwill of $160,000 as compared
to $139,000 in the comparative period, salaries and consulting fees of $35,000
as compared to $7,000 in the comparative period, office, rent and telephone of
$72,000 and legal and accounting of $14,000.
Product Development Expenses
Product development costs consist of expenses incurred by us in the
development and creation of our portal site. Product development costs include
compensation and related expenses for programmers, depreciation of computer
hardware and software, rent, telephone and costs incurred in developing
features and functionality of the service. Product development costs are
expensed as incurred.
Product development expenses increased by $109,000 to $145,000 as compared
to $36,000 in the previous year, an increase of 303%. The major component of
product development expenses was; salaries and consulting
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fees of $114,000, rent and telephone of $22,000, and amortization of capital
assets used directly in product development activities of $9,000. We devoted
resources to the development of our portal site in Toronto.
Depreciation and Amortization Expenses
Depreciation and amortization expense has been allocated to cost of
revenues, marketing and sales, general and administrative, and product
development based on the use of each capital asset. During fiscal 1998 and 1997
approximately 60% of capital assets was used in cost of revenues, 15% in
marketing and sales, 10% in general and administrative and 15% in product
development. Depreciation and amortization of capital assets increased by
$28,000 to $58,000 as compared to $30,000 in the comparative period.
Purchased goodwill has been amortized at $13,000 per month over its
estimated useful life of three years. The estimated useful life of three years
was chosen to reflect the short-term life of the related business because of
increased competition, the lack of a universal presence and technological
advancements and obsolescence in the industry. Amortization expense has been
allocated to general and administrative expense for the Internet business.
We anticipate entering into operating leases for any network equipment and
software in the future to minimize capital expenditures.
Income Taxes
We generated US and Canadian net operating losses ("NOL") carried forward of
$424,000 during the current year as compared to $127,000 for the comparative
year. We expect some consolidated losses for the foreseeable future which will
generate additional NOL's. However, our ability to use NOL's is dependant on
generating profits in the future and may also be subject to annual limitations.
In addition, income taxes may be payable during this time due to operating
income in certain tax jurisdictions. In the future, if we achieve operating
profits and the NOL's have been exhausted or have expired, we may experience
significant tax expense. We recognized no provision for taxes because we
operated at a loss from inception through to May 31, 1998. The deferred tax
asset value has been reduced to nil because we can not be assured that it is
more likely than not that we will utilize the NOL's carried forward in future
years. If it was more likely than not to realize these losses we would have
recorded a deferred tax asset of $197,000.
Net Loss for the Year Ended May 31, 1998 as Compared to the Pro Forma Year
Ended May 31, 1997
Our net losses have come mainly from overhead costs associated with
organization, restructuring and financing start-up operations in Toronto and
Vancouver, Canada and costs of developing new and improved services and
expanding our marketing plan into other Canadian markets. Our head office is in
Richmond, BC, Canada which does not conduct any business related to the
Internet. Our sole purpose is to provide investor relations services and
services relating to being a public company. Included in general and
administrative expenses and net loss is $159,000 as compared to $39,000 in the
comparative period, relating to such activities. The net loss relating to
Internet activities amounted to $398,000 as compared to $264,000 in the
comparative period.
Liquidity and Financial Resources at May 31, 1999
We have historically satisfied our capital needs by cash generated from
operations, by borrowing from affiliates and by issuing equity securities. Our
operating activities used $521,000 and $198,000 for the years ended May 31,
1999 and 1998, respectively. During the year ended May 31, 1998, we used
$224,000, generated by issuing equity securities, and $110,000, generated from
borrowings from affiliates, to fund our operating cash shortfall of $198,000
and to make capital expenditures of $109,000. During the year ended May 31,
1999, we used $863,000, generated by issuing equity securities, to fund our
operating cash shortfall of $521,000, to repay borrowings from affiliates of
$197,000 and to make capital expenditures of $139,000. The operation,
development and expansion of our business will likely require additional
capital infusions for the foreseeable future.
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We have a working capital deficit, as at May 31, 1999, of $314,000, and will
require funds to finance our ongoing operating activities for the foreseeable
future and will need some funds for capital expenditures. We plan to manage our
payables balances and satisfy our operating and capital needs partially from
cash generated by operating activities and partially through sales of equity
securities. Subsequent to May 31, 1999 we raised a total of $770,000 pursuant
to an Offering Memorandum, stock option exercises and warrant exercises as
follows:
. an Offering Memorandum was completed on August 11, 1999 whereby 129,750
units were issued at $4.00 per unit for total proceeds of $519,000, each
unit containing one common share and one Series "A" Warrant to acquire
one additional share at $4.00 per share expiring April 30, 2000 and one
Series "B" Warrant to acquire one additional share at $6.00 per share
expiring April 30, 2001. If all warrants were exercised we would receive
a further $1,297,500;
. we issued 156,200 shares pursuant to warrants exercised at $1.00 per
share for total proceeds of $171,200. There are currently 370,650
additional warrants outstanding exercisable at $1.00 per share for
potential proceeds of $370,650. These warrants expire between October
1999 and December 1999;
. we issued 135,000 shares pursuant to options exercised at between $0.50
and $0.75 per share for total proceeds of $80,000. We currently have
285,000 shares reserved for the exercise of stock options at $0.50 per
share, 217,666 shares reserved for the exercise of stock options at
$0.75 per share, 700,000 shares reserved for the exercise of stock
options at $4.00 per share and 125,000 shares reserved for stock options
at $5.00 per share. If all of these options were exercised we would
receive $3,730,750.
Liquidity and Financial Resources at February 29, 2000
We have historically satisfied our capital needs by borrowing from
affiliates in the short-term and by issuing equity securities.
We have also used these sources to provide a portion of our operating cash
requirements to make up for a cash shortfall from operating activities. During
the nine months ended February 29, 2000, we used $2,034,000, generated by
issuing equity securities, to fund our operating cash shortfall of $1,300,000
to repay borrowings from affiliates of $113,000, to make capital expenditures
of $156,000 and to increase our cash position by $461,000 to $498,000. The
operation, development and expansion of our business will likely require
additional capital infusions for the foreseeable future.
We have working capital, as at February 29, 2000, of $163,000, and will
require additional funds to finance our ongoing operating activities for the
foreseeable future and will need some funds for capital expenditures. We plan
to manage our payables balances and satisfy our operating and capital needs
partially by generating cash (although at a shortfall) through our operating
activities and partially through issuing equity securities.
We will require additional financing in order to carry out our business plan
as proposed. Our capital requirements may vary based upon: the timing and
success of our roll out and as a result of regulatory, technological and
competitive developments; demand for our services or our anticipated cash flow
from operations is less or more than expected; our development plans or
projections changing or proving to be inaccurate; it engaging in any
acquisitions; or it accelerating deployment of our network services or
otherwise altering the schedule or targets of our roll out plan. We are not
presently considering any specific business acquisition.
We will need additional funds to continue in business and to implement our
business plan as proposed. In addition to working capital as at February 29,
2000 of $163,000 we have raised a further $100,000 pursuant to a private
placement of 25,000 units at $4.00 per unit. On March 7, 2000 we received gross
proceeds of $1,500,000 (net proceeds of $1,332,727 after a commission of
$150,000 and legal fees of $17,273 were paid)
44
<PAGE>
pursuant to the issuance of our $1,500,000 principal amount of 5% Convertible
Debentures. We also issued to the Debenture holder a warrant to acquire 225,000
of our shares exercisable at $6.22875 expiring March 3, 2002.
The principal capital expenditures incurred to date related to putting
networks in place in Toronto and Vancouver. The majority of the networking
equipment has been acquired in previous periods, and new equipment will be
leased under operating leases. Our strategy now is to create Virtual ISP
presences in new markets (i.e., North American cities) pursuant to our
agreements with Internet access providers, so that it will not have to commit
to capital expenditures to build out a network in each new market. We may need
to commit working capital, however, to fund increased lease payments to
Internet access providers until revenues from new subscribers begin to cover
the increase in monthly lease costs attributable to the new market. We have
switched on 50 ports (minimum per agreement with Level 3 Communications) in
each of 7 cities which enable us to service up to 500 customers in each city.
The cost of these portals for the nine months ended February 29, 2000 was
$129,000. There was no revenue generated during the period from these portals.
We expect our capital expenditures to continue at a modest rate in future
periods as necessary, arising primarily from the purchase of some
infrastructure equipment necessary for the development and expansion of our
defined markets. We made capital expenditures of $156,000 in the current
period, principally to acquire hardware related to the development and
maintenance of the portal site. Included in this is $96,000 of computer
equipment acquired by way of a capital lease.
We have arranged a 30 day contract with eQuest Technologies, Inc. a
Microsoft Certified Solution Provider to implement Microsoft's Commercial
Internet System (MCIS). eQuest Technologies, Inc. and ISP Power Corporation
will also install and integrate PRISM's billing and accounting package for us.
In addition eQuest can provide us the installation of network infrastructure,
security, custom and application development.
The first phase has commenced on our network operations center in Vancouver
BC, which entails the installation/integration of IBM's servers and MCIS 2.5
components. The second phase will consist of the integration and customization
of the PRISM billing system.
Year 2000 Issues
We cannot provide assurance that we will not experience unanticipated
negative consequences from year 2000 problems, including material costs caused
by undetected errors or defects in the technology used in our internal systems
as we operates in the Year 2000.
We Did Not Experience Any Problems With Our Systems or Service Providers During
the Year 2000 Rollover Period
Our online services and their associated and supporting tools, Web sites and
infrastructure were designed and developed to be year 2000 compliant. Our
internal systems, including those used to deliver our services, utilize third-
party hardware and software. Based on vendors' representations received thus
far and our experience with the Year 2000 rollover, we believe that the third-
party hardware and software it uses is year 2000 compliant.
To date, we have spent an estimated $100,000, in part to address year 2000
issues. These expenditures consisted mainly of purchases of new year 2000-
compliant computer equipment, and some of these purchases would have been made
in the ordinary course of replacing aging equipment. We presently estimate that
the total remaining cost of addressing year 2000 issues will not be material.
These estimates were derived utilizing a number of assumptions, including the
assumption that we have already identified any significant year 2000 issues.
However, these assumptions may not be accurate, and actual results could differ
materially from those anticipated. In view of our year 2000 review and
remediation efforts to date, the recent development of our services, the recent
installation of our information technology equipment and systems, we do not
consider contingency planning to be necessary at this time.
45
<PAGE>
We believe that any lingering Year 2000 problems will occur in the
processing of financial transactions. We believe that our billing systems will
accurately invoice our subscribers and licensees. We will remain vigilant in
our review of invoices from our vendors to detect potential Year 2000 errors in
their charges to us.
If we discover that certain of our services need modification, or certain of
our third-party hardware and software is not year 2000 compliant, we will try
to make modifications to our services and systems on a timely basis. We do not
believe that the cost of these modifications will materially affect our
operating results. However, we cannot provide assurance that we will be able to
modify these products, services and systems in a timely, cost-effective and
successful manner, and the failure to do so could have a material adverse
effect on our business and operating results.
DESCRIPTION OF PROPERTY
Our headquarters and executive offices are located at #185-10751 Shellbridge
Way, Richmond, British Columbia V6X 2W8 and our telephone number is (604) 278-
7494. Our leases, on a month-to-month basis, approximately 200 square feet of
space at the aforementioned office from SMR Investments Ltd., a private British
Columbia company owned by Susanne Robertson, the wife of John G. Robertson. The
monthly rent fee is approximately $350.00 ($CN500.00). We also lease facilities
in Vancouver and Toronto. The Vancouver site supports both ISP services and the
portal site. The lease term is 28 months with monthly payments of approximately
$5,000.00 ($CN7,500.00). The Toronto offices support ISP services. The lease
term is 54 months with monthly payments of approximately $2,000.00
($CN2,950.00). We believe that our present facilities will be suitable for the
operation of our business for the foreseeable future. The facilities are
adequately insured against perils commonly covered by business insurance
policies. These locations could be replaced without significant disruption.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At May 31, 1999 and 1998, we owed the amounts set forth below to the
following affiliated companies:
<TABLE>
<CAPTION>
May 31,
----------------
Affiliate 1999 1998 Nature of Affiliation
--------- ------- -------- -------------------------------
<S> <C> <C> <C>
Access Information Systems.... $50,554 $ 37,500 (1)
JGR Petroleum Inc............. $ 6,000 $ 27,155 Controlled by John G. Robertson
Reg Technologies, Inc......... $12,895 $ 2,285 (2)
SMR Investment Ltd............ $33,527 $199,414 (3)
</TABLE>
- --------
(1) See Security Ownership of Certain Beneficial Owners and Management, the
table thereunder and the notes thereto.
(2) Reg Technologies Inc. is a British Columbia Corporation listed on the
Canadian Venture Exchange. Since October 1984, Mr. Robertson has been
President and a Director of Reg Technologies Inc. SMR Investment Ltd., a
British Columbia corporation, holds a controlling interest in Reg
Technologies Inc. From 1977 through 1999, Mr. Robertson was President and a
member of the Board of Directors of SMR Investment Ltd. Susanne M.
Robertson, Mr. Robertson's wife, owns SMR Investment Ltd.
(3) From 1977 through 1999, Mr. Robertson was President and a member of the
Board of Directors of SMR Investment Ltd. Susanne M. Robertson, Mr.
Robertson's wife, owns SMR Investment Ltd.
The indebtedness is unsecured and non-interest bearing.
From April, 1998 through February, 2000, Vandeberg Johnson & Gandara, a law
firm in which James L. Vandeberg, Information Highway.com's Chief Operating
Officer and a Director, was a partner, was paid $185,956.84 for legal services.
From March 1, 2000 through May 5, 2000, Ogden Murphy Wallace, PLLC,
Mr. Vandeberg's current firm, was paid $10,000 for legal services.
46
<PAGE>
Mr. Robertson and Ms. Lorette could be considered promoters of Information
Highway.com. Their interests, including the details of their stock options, are
disclosed above. See "Security Ownership of Certain Beneficial Owners and
Management" and "Executive Compensation".
No other compensation is paid to any of our Executive Officers or Directors.
We may in the future create retirement, pension, profit sharing, insurance and
medical reimbursement plans covering our Officers and Directors. At the present
time, no such plans exist. No advances have been made or are contemplated to
any of our Officers or Directors.
MARKET PRICE OF AND DIVIDENDS ON CAPITAL
STOCK AND OTHER SHAREHOLDER MATTERS
There is a limited public market for the Common Stock of Information
Highway.com which has traded on the OTC Bulletin Board under the symbol "IHWY"
since February 24, 1999. The high and low bid prices for the stock each
quarter, through February 29, 2000, as reported by Nasdaq Trading & Market
Services, are as follows:
<TABLE>
<CAPTION>
Bid Price
---------------
High Low
------- -------
<S> <C> <C>
Quarter ended February 28, 1999............................ $ 7.375 $0.00
Quarter ended May 31, 1999................................. $12.50 $3.375
Quarter ended August 31, 1999.............................. $13.00 $3.1875
Quarter ended November 30, 1999............................ $ 8.75 $2.50
Quarter ended February 29, 2000............................ $ 6.25 $3.94
</TABLE>
47
<PAGE>
These quotations reflect inter-dealer prices, without retail mark-up, mark-
down or commission and may not represent actual transactions. As of March 29,
2000, there were 7,838,017 shares of Common Stock outstanding, held by 189
shareholders of record and by various broker/dealers on behalf of an
indeterminate number of street name shareholders. As of March 29, 2000,
shares of common stock were subject to issuance pursuant to
outstanding options at prices ranging from $0.50 to $5.00 per share and
shares of common stock were subject to issuance pursuant to outstanding
warrants at prices ranging from $1.00 to $6.00 per share.
<TABLE>
<CAPTION>
Number of
Shares Description
--------- -----------
<C> <S>
2,487,767 Currently issued and permitted to be sold in secondary market
without restriction
1,081,900 Options that could be exercised and then the shares resold
immediately in secondary market without restriction
125,817 Shares that may be sold beginning on various dates from December 8,
2000 to March 2nd, 2001 in secondary market without restriction.
674,450 Shares that may be sold beginning on various dates from March 29,
2000 to February 18, 2001 in secondary market without restriction
129,750 Shares that may be sold beginning on various dates from May 27, 2000
to July 15, 2000 in secondary market without restriction
880,500 Shares that may be sold beginning February 23, 2001 in secondary
market without restriction*
129,750 Shares that may be sold beginning on various dates from March 3,
2001 to February 18, 2002 in secondary market without restriction*
674,450 Shares that may be sold beginning on various dates from May 27, 2001
to July 15, 2001 in secondary market without restriction
125,817 Shares that may be sold beginning on various dates from December 8,
2001 to March 2nd, 2002 in secondary market without restriction.
3,486,500 Shares held by affiliates that may be sold under either Rule 701 or
Rule 144 beginning March 29, 2000 and options held by affiliates
that may be exercised either pursuant to Rule 701 or Form S-8 (7
persons; each limited to 1% of outstanding shares every 3 months)
</TABLE>
- --------
* Shareholders may sell earlier than date indicated subject to the limitation
that an affiliate may sell in the marketplace to approximately one percent
of outstanding shares of Information-Highway.com every three months
In addition, Information Highway.com has 610,317 warrants outstanding that
the holders may exercise up until dates ranging from October 6, 2000 to March
3, 2002, entitling holders to purchase 610,317 shares of common stock at prices
ranging from $4.00 to $6.22875 per share.
Information Highway.com also has 1,631,900 options available for grant which
may be exercised up until dates ranging from January 26, 2003 to December 1,
2004, entitling holders to purchase 1,631,900 shares of common stock at prices
ranging from $0.50 to $6.00 per share.
To date, we have not paid any dividends on our Common Stock and do not
expect to declare or pay any dividends on such Common Stock in the foreseeable
future. Payment of any dividends will be dependent upon future earnings, if
any, our financial condition, and other factors as deemed relevant by our Board
of Directors.
48
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation awarded to, earned by or paid to
Mr. Robertson for the designated fiscal years. No executive officer had an
annual salary and bonus in excess of $100,000 during the past three fiscal
years. The information contained in the table relates to our predecessor (now
our subsidiary) prior to the February 1999 reorganization. Pursuant to
paragraph (a)(5) of Item 402 of Regulation S-B, the table omits columns that
are not applicable to Mr. Robertson's compensation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
(a) (b) (e) (g)
Securities
Other Annual Underlying
Compensation Options/SARs
Name and Principal Position Year ($) (#)
--------------------------- ---- ------------ ------------
<S> <C> <C> <C>
John G. Robertson................................ 1999 575,500(1) 300,000
President and Chief Executive Officer 1998 48,000(2) 150,000
1997 30,000(3)
</TABLE>
- --------
(1) On February 23, 1999 Mr. Robertson exercised 150,000 stock options with an
exercise price of $0.50 per share. Based on the closing market price of our
stock of $3.75 on February 24, 1999, its first day of trading, according to
rules of the Securities and Exchange Commission the exercise resulted in
compensation to Mr. Robertson of $487,500. We paid Access Information
Services, Inc. a management fee of $2,500 per month and an additional
$1,500 per month for rent and secretarial services each month. Access
Information Services, Inc. is a corporation owned by a trust of which Mr.
Robertson is one of three voting trustees and of which Kelly Robertson, Mr.
Robertson's daughter, is the beneficiary. We have disclosed the entire
amount of these payments, $48,000, as other compensation paid to Mr.
Robertson, due to his shared control over the trust, even though he will
not receive this amount in cash.
(2) We paid Access Information Services, Inc. a management fee of $2,500 per
month and an additional $1,500 per month for rent and secretarial services
each month. Access Information Services, Inc. is a corporation owned by a
trust of which Mr. Robertson is one of three voting trustees and of which
Kelly Robertson, Mr. Robertson's daughter, is the beneficiary. We have
disclosed the entire amount of these payments, $48,000, as other
compensation paid to Mr. Robertson, due to his shared control over the
trust, even though he will not receive this amount in cash.
(3) We paid Access Information Services, Inc. a management fee of $2,500 per
month and an additional $1,500 per month for rent and secretarial services
each month from inception (October 15, 1996). Access Information Services,
Inc. is a corporation owned by a trust of which Mr. Robertson is one of
three voting trustees and of which Kelly Robertson, Mr. Robertson's
daughter, is the beneficiary. We have disclosed the entire amount of these
payments, $30,000, as other compensation paid to Mr. Robertson, due to his
shared control over the trust, even though he will not receive this amount
in cash.
The following table sets forth certain information concerning grants of
stock options pursuant to stock option plans to the named Executive Officer
during the year ended May 31, 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
<TABLE>
<CAPTION>
(a) (b) (c) (d) (d) (e)
% of Total
Options/SARs Market Price of
Number of Securities Granted to Underlying
Underlying Employees in Security on Expiration
Name Options/SARs Granted Fiscal Year Exercise Price Grant Date Date
---- -------------------- ------------ -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
John G. Robertson....... 300,000 50.4% $4.00 $4.50 May 21, 2004
</TABLE>
49
<PAGE>
The following table sets forth certain information concerning exercises of
stock options pursuant to stock option plans by the named Executive Officer
during the year ended May 31, 1999 and stock options held at year end.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at FY-End Options/SARs at FY-
(#) End ($)
---------------------- --------------------
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
---- --------------- -------------- ---------------------- --------------------
<S> <C> <C> <C> <C>
John G. Robertson....... 150,000 487,500 300,000/-0- -0-(1)/-0-
</TABLE>
- --------
(1) Mr. Robertson's 300,000 options were not in-the-money based on the May 28,
1999 closing price of $3.75 for our common stock.
We do not have any Long Term Incentive Plans. Directors receive no
compensation for their service as such, although they do receive reimbursement
for reasonable expenses incurred in attending meetings of the Board of
Directors. In addition to the options granted to Mr. Robertson, Ms. Lorette and
Mr. Vandeberg each were granted options to purchase 50,000 shares of our common
stock, due in part to their service as directors. Ms. Lorette's options,
granted during fiscal year 1998, are fully vested, have an exercise price of
$0.50 per share and must be exercised by January 26, 2003. Mr. Vandeberg's
options, granted during fiscal year 1999, are fully vested, have an exercise
price of $0.75 per share and must be exercised by January 18, 2004. We have no
obligation or policy to grant stock options to directors.
We may in the future create retirement, pension, profit sharing, insurance
and medical reimbursement plans covering our Officers and Directors. At the
present time, no such plans exist. No advances have been made or are
contemplated to any of our Officers or Directors.
We do not have any employment contracts, termination of employment and
change of control arrangements.
50
<PAGE>
FINANCIAL STATEMENTS INDEX
<TABLE>
<CAPTION>
Page No.
--------
<C> <S> <C>
Nine Months Ended February 29, 2000 and February 28, 1999
1. (unaudited)
Consolidated Balance Sheets.................................... F-2
Consolidated Statements of Operations.......................... F-3
Consolidated Statements of Cash Flows.......................... F-4
Notes to the Consolidated Financial Statements................. F-5
2. Fiscal Years Ended May 31, 1999 and 1998 (audited)
Consolidated Balance Sheets.................................... F-11
Consolidated Statements of Operations.......................... F-12
Consolidated Statements of Stockholders' Equity................ F-13
Consolidated Statements of Cash Flows.......................... F-15
Notes to the Consolidated Financial Statements................. F-16
</TABLE>
F-1
<PAGE>
INFORMATION HIGHWAY.COM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 29, May 31,
2000 1999
------------ -----------
(unaudited) (audited)
ASSETS
<S> <C> <C>
Current Assets
Cash............................................... $ 498,175 $ 37,622
Accounts receivable................................ 5,031 --
Inventory (Note 5)................................. 31,241 9,695
Prepaid expenses and deposits...................... 106,747 70,487
Due from related parties (Note 5).................. 47,752 --
----------- -----------
688,946 117,804
Property, Plant and Equipment (Note 3)............... 471,439 270,092
Goodwill............................................. -- 134,848
----------- -----------
Total Assets..................................... 1,160,385 522,744
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable................................... 307,404 267,279
Accrued liabilities................................ 136,117 65,151
Deferred revenues.................................. 48,997 34,049
Advances from related parties (Note 5)............. -- 65,186
Current portion of capital lease obligations (Note
4)................................................ 33,494 --
----------- -----------
526,012 431,665
Long-term Liabilities
Long-term portion of capital lease obligations
(Note 4).......................................... 62,528 --
----------- -----------
588,540 431,665
Stockholders' Equity
Common Stock (Note 6), 50,000,000 shares authorized,
par value $.0001 per share, 7,876,767 and 6,469,951
issued and outstanding respectively................. 788 647
Additional paid in capital......................... 3,845,001 1,698,351
Warrants issued for cash (Note 6).................. 57,000 --
Value of Warrants issued for services (Note 6)..... 418,620 --
Common stock allotted for cash pursuant to private
placements (Note 6)
(95,817 shares at $4.00 per share and 35,000
shares at $0.75 per share respectively)........... 383,268 50,000
----------- -----------
4,704,677 1,748,998
Preferred Stock, 10,000,000 shares authorized, par
value $.0001 per share, none issued................. -- --
Translation adjustments.............................. (5,878) (1,145)
Accumulated Deficit.................................. (4,126,954) (1,656,774)
----------- -----------
Total Stockholders' Equity....................... 571,845 91,079
----------- -----------
Total Liabilities and Stockholders' Equity....... 1,160,385 522,744
=========== ===========
</TABLE>
(See accompanying notes)
F-2
<PAGE>
INFORMATION HIGHWAY.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
February 29, February 29,
---------------------- ----------------------
2000 1999 2000 1999
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues....................... $ 334,751 $ 254,853 $ 1,001,549 $ 752,470
Cost of Revenues............... 485,007 176,927 926,565 522,389
Gross Profit (Loss)............ (150,256) 77,926 74,984 230,081
Operating Expenses
Marketing and sales.......... 126,077 47,412 318,008 142,814
General and administrative... 809,783 143,621 1,914,339 432,613
Product development.......... 64,260 32,787 183,677 98,761
Portal costs for US expansion
(Note 8).................... 48,364 129,141
----------- --------- ----------- ---------
Total Operating Expenses... 1,048,484 223,820 2,545,165 674,188
----------- --------- ----------- ---------
Net loss....................... (1,198,740) (145,894) (2,470,180) (444,107)
Historical basic and dilutive
net loss per share............ (0.16) (0.03) (0.34) (0.04)
Weighted average shares used to
compute basic and historical
net loss per share............ 7,667,000 5,500,000 7,247,000 5,000,000
=========== ========= =========== =========
</TABLE>
Diluted loss per share has not been presented separately as the result is
anti dilutive.
(See accompanying notes)
F-3
<PAGE>
INFORMATION HIGHWAY.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
--------------------------
February 29, February 28,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS TO OPERATING ACTIVITIES:
Net loss......................................... $(2,470,180) $(444,107)
Adjustments to reconcile net loss to cash
Depreciation and amortization.................. 72,407 41,717
Amortization of goodwill....................... 134,848 119,811
Shares and warrants issued for services
rendered...................................... 899,314 --
Change in non-cash working capital items
Decrease in accounts receivable................ (5,031) (12,202)
Increase in prepaid expenses................... (36,260) (3,580)
Increase in inventory.......................... (21,546) --
Increase in accounts payable and accruals...... 111,091 4,046
Increase in unearned revenue................... 14,948 --
----------- ---------
Net Cash Used in Operating Activities........ (1,300,409) (294,315)
CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Increase in common stock......................... 2,034,365 601,697
Decrease in advances from related parties........ (112,938) (261,784)
----------- ---------
Net Cash from Financing Activities........... 1,921,427 339,913
CASH FLOWS TO INVESTING ACTIVITIES:
Increase in property, plant and equipment........ (155,732) (3,831)
----------- ---------
Net Cash to Investing Activities............. (155,732) (3,831)
Translation Adjustments............................ (4,733) 5,759
Increase in Cash During the Period................. 460,553 47,526
Cash--Beginning of Period.......................... 37,622 35,699
----------- ---------
Cash--End of Period................................ $ 498,175 $ 83,225
=========== =========
NON-CASH FINANCING ACTIVITIES--SEE NOTE 6 FOR
SHARES AND WARRANTS ISSUED FOR SERVICES RENDERED
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............................. 2,632 5,786
Cash paid for income taxes......................... -- --
</TABLE>
(See accompanying notes)
F-4
<PAGE>
INFORMATION HIGHWAY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Operations
Florida Venture Fund, Inc. (the "Company" or "FVFI") was incorporated
December 5, 1988 in the state of Florida. During 1997, the Company's common
stock was submitted for quotation on the OTC Bulletin Board System. From
incorporation to February 17, 1999 the Company did not engage in any business
activity other than initial organization, initial financing and some business
investigation activities.
Pursuant to a letter agreement dated February 17, 1999, the Company
completed an Agreement and Plan of Reorganization with Information Highway,
Inc., herein "IHI", whereby a business combination was completed and all of the
outstanding common stock of Information Highway, Inc. was, or will be,
exchanged for common shares of the Company representing a change of control of
the Company by way of reverse takeover. As part of the Plan of Reorganization
the Company's name was changed to Information Highway.com, Inc.
IHI was incorporated in the State of Washington on October 15, 1996. Prior
to the reverse takeover IHI acquired three Canadian operating subsidiaries in
the business of providing access to the Internet and providing services,
including on-line publishing, to individual and corporate subscribers.
2. Basis of Presentation
Consolidated Financial Statements
These consolidated financial statements include the accounts of the Company
and its wholly owned US subsidiary, Information Highway, Inc. which owns three
consolidated, wholly-owned, Canadian subsidiaries. As IHI was the acquirer in a
reverse takeover business combination culminating on February 17, 1999, its
fiscal year-end of May 31 is the Company's new fiscal year-end and the business
of IHI will be the continuing business reported for all comparative purposes,
including the statements of operations and cash flows. Prior to the reverse
takeover the Company's fiscal year end was December 31.
Estimates and Assumptions
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 in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Reclassification
Certain amounts in the financial statements have been reclassified to be
consistent and comparable from year-to-year.
Adjustments
These interim financial statements include all adjustments which in the
opinion of management are necessary in order to make the financial statements
not misleading.
3. Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization.
F-5
<PAGE>
INFORMATION HIGHWAY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
3. Property, Plan and Equipment (continued)
<TABLE>
<CAPTION>
Accumulated
Depreciation and 2000 Net
Cost Amortization Book Value
-------- ---------------- -----------
(unaudited)
<S> <C> <C> <C>
Computer equipment--capital lease........ $ 96,022 $ 5,335 $ 90,687
Computer equipment....................... 359,269 183,891 175,378
Computer software........................ 180,079 30,726 149,353
Office furniture and equipment........... 52,347 19,586 32,761
Production equipment..................... 25,000 10,125 14,875
Leasehold improvements................... 11,567 3,182 8,385
-------- -------- --------
724,284 252,845 471,439
</TABLE>
4. Capital Lease Obligation
The Company has acquired computer equipment by way of a capital lease with
monthly payments of $2,667 over a three year period ending February 28, 2003.
5. Related Party Transactions
(a) Amounts owing from/to related parties and affiliates are related to common
expenses paid by the Company on behalf of affiliates and are due on demand,
unsecured and non-interest bearing. These amounts were recorded at their
exchange amounts.
(b) Pursuant to a Management Agreement dated December 1, 1998, with a company
related to the President of the Company, the Company is committed to pay
management fees of $2,500 per month and rent and secretarial fees of $1,500
per month for a term of three years expiring December 1, 2001.
(c) A partnership, of which a director of the Company is a partner, was paid
$73,790 for legal services rendered during the nine months ended February
29, 2000.
(d) A bonus of $100,000 was declared payable to the President of the Company.
(e) Finished goods inventory of $31,241 was acquired from a public company with
common Presidents pursuant to a Marketing Agreement dated January 20, 1999.
The Company has the exclusive worldwide rights to market the product over
the Internet. The agreement is for five years subject to minimum annual
sales criteria.
6. Common Stock Issuances and Related Commitments
Private Placements
Prior to becoming public the Company approved and completed two private
placements of units and issued 814,150 units at $0.75 per unit to raise
$610,612. These units were issued in December, 1998 and contained one share and
one warrant to acquire one additional share at $1.00 if exercised by December
30, 1999, some of which were extended to February 18, 2000. Of the 814,150
warrants issued, 805,350 warrants were exercised by February 18, 2000 for
proceeds of $805,350. Warrants with respect to 8,800 shares expired. No amount
was allocated to warrants as there was no market for the stock prior to
becoming a public company.
The Company offered units pursuant to an Offering Memorandum. Each unit
consisted of one common share, one Series "A" Warrant to acquire one additional
share at $4.00 per share expiring April 30, 2000, and
F-6
<PAGE>
INFORMATION HIGHWAY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
6. Common Stock Issuances and Related Commitments (continued)
one Series "B" Warrant to acquire one additional share at $6.00 per share
expiring April 30, 2001. The offering was completed on August 11, 1999. On
completion of the offering, a total of 129,750 units were issued at $4.00 per
unit for total proceeds of $519,000. All warrants are currently outstanding.
The proceeds of this private placement were allocated on the following basis:
$462,000 to common shares, $47,000 to Series A Warrants and $10,000 to Series B
Warrants.
Shares issued for services
In July, 1999 the Company issued 125,000 shares to IP Equity, Inc. pursuant
to a Marketing and Financial Consulting Agreement dated June 23, 1999. These
shares were valued at $4.69 per share or $440,000 in total. In October, 1999
the Company issued an additional 50,000 shares to IP Equity, Inc. These shares
were valued at $4.778 per share or $238,900 in total. These amounts, totalling
$678,900, were charged to operations during the nine months ended February 29,
2000. Pursuant to this Agreement the Company was committed to file a
Registration Statement registering these securities by November 6, 1999. IP
Equity, Inc. and the Company have agreed to pay interest of $23,226 until such
time as the commitment is met. During the most recent quarter a total of
$87,478 was paid and/or accrued and charged to operations.
In July, 1999 the Company issued 2,500 shares valued at $8.80 per share or
$22,000 in total in connection with the successful completion of the Company's
Internet portal telephony project. This amount was capitalized.
In November, 1999 the Company issued 20,000 shares to World of Internet.com,
a European investor relations company. These shares were valued at $3.631 per
share or $72,614 in total which has all been charged to operations.
Warrants issued for services
On November 15, 1999 the Company paid $20,000 and issued 400,000 warrants to
acquire up to 400,000 shares exercisable at $3.50 per share expiring November
15, 2000 for a three month marketing and advertising program including banner
ads, news group coverage and press release distribution. The Company must also
pay $20,000 in December, 1999 and $20,000 in January, 2000. The value of the
warrants on the date of issue was $147,800. Total compensation expense of
$207,800 was recognized during the nine months ended February 29, 2000.
On December 1, 1999, Garry Savage and the Company entered into an Agreement
related to private placement financing and investor relations. The Agreement
calls for a 10% finders fee to be paid pursuant to a private placement of units
at $4.00 per unit. A total of $36,327 has been paid to February 29, 2000. In
addition, 100,000 warrants were issued to acquire 100,000 shares exercisable at
$4.00 per share expiring December 1, 2002. The value of these warrants was
$270,820 which was charged to additional paid in capital.
Stock Option Plan
On June 30, 1997, amended on May 21, 1999 and then amended and restated
February 8, 2000, the Company has reserved 2,500,000 common shares pursuant to
a stock option plan expiring May 31, 2007. During the year the Company granted
certain employees and directors stock options to acquire up to 710,000 shares
at $4.00 per share, up to 325,000 shares at $5.00 per share, and up to 35,000
shares at $6.00 per share all expiring between May and December, 2004.
F-7
<PAGE>
INFORMATION HIGHWAY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
6. Common Stock Issuances and Related Commitments (continued)
Stock option activity during the nine months ended February 29, 2000
<TABLE>
<CAPTION>
May 31, 1999 Price Granted Exercised(E) February 29, 2000
# $ # Cancelled(C) # Expiry Date
------------ ------ ------- ------------ ----------------- -----------
<S> <C> <C> <C> <C> <C>
370,000 0.50 -- 231,750(E) 138,250 January 26, 2003
267,666 0.75 -- 177,666(E) 90,000 August, 2003 to February, 2004
600,000 4.00 710,000 100,000(E) 1,210,000 May to November, 2004
5.00 325,000 150,000(C) 174,900 June to November, 2004
100(C)
6.00 35,000 -- 35,000 December, 2004
--------- --------- ---------- ---------
1,237,666 1,070,000 659,516 1,648,150
========= ========= ========== =========
</TABLE>
Options are granted for services to be provided to the Company. Statement of
Financial Accounting Standards No. 123 ("SFAS 123") requires that an enterprise
recognize, or at its option, disclose the impact of the fair value of stock
options and other forms of stock based compensation in the determination of
income. The Company has elected under SFAS 123 to continue to measure
compensation cost on the intrinsic value basis set out in APB Opinion No. 25.
As options are granted at exercise prices based on the market price of the
Company's shares at the date of grant, no compensation cost is recognized.
However, under SFAS 123, the impact on net income and income per share of the
fair value of stock options must be measured and disclosed on a fair value
based method on a pro forma basis.
The fair value of the employee's purchase rights under SFAS 123, was
estimated using the Black-Scholes model with the following assumptions used for
grants on January 26, 1998: risk free interest rate was 5.47%, expected
volatility of 20%, an expected option life of six months and no expected
dividends; and for grants between August 14, 1998 and February 23, 1999, as a
group: risk free interest rate was 5.27%, expected volatility of 20%, an
expected option life of six months and no expected dividends; and for grants
between May 19, 1999 and December 1, 1999, as a group: risk free interest rate
was 5.27%, expected volatility of 20%, an expected option life of six months
and no expected dividends.
If compensation expense had been determined pursuant to SFAS 123, the
Company's net loss and net loss per share for the three months and nine months
ended February 29, 2000 and February 28, 1999 would have been as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
February 29, February 29,
---------------------- ----------------------
2000 1999 2000 1999
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net loss
As reported................ $(1,198,740) $(145,894) $(2,470,180) $(444,107)
Pro forma.................. (1,381,476) (150,636) (3,163,854) (459,897)
Basic net loss per share
As reported................ (0.16) (0.03) (0.34) (0.04)
Pro forma.................. (0.18) (0.03) (0.44) (0.04)
</TABLE>
7. Contingent Liability--Lawsuit
A Writ of Summons and Statement of Claim was filed against the Company in
the Supreme Court of British Columbia in April 1999 by a former employee and
spouse of the employee (the "Plaintiffs"). The
F-8
<PAGE>
INFORMATION HIGHWAY.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
7. Contingent Liability--Lawsuit (continued)
employee was retained by the Company as a consultant on or about December 1996
and was subsequently terminated for cause by the Company in December 1997. The
Plaintiffs are seeking monetary damages related to the alleged remuneration
pursuant to the agreement and a stock option between the Company and the
employee. The total damages claimed amounts to $597,000 including alleged
unpaid remuneration and a stock option benefit. The plaintiff's are also
claiming 5% of business revenue from the operating subsidiary in Vancouver,
Canada. This subsidiary operated at a net loss from operations during the
period from acquisition in December 1996 to date. Management believes that the
Plaintiff's alleged claim is without legal or factual basis and therefore have
not accrued any potential losses resulting from this claim except for legal
fees paid in establishing the defence. The Company intends to vigorously defend
this action.
8. Segmented Information
The Company has adopted SFAS No. 131 Disclosure About Segments of an
Enterprise and related information.
The business of the Company is carried on in one industry segment being the
provision of access to the Internet and providing services, including on-line
publishing, to individual and corporate subscribers.
Up until May 31, 1999 the Company operated in one geographic segment, being
Canada, located in Vancouver, BC and Toronto, Ontario. Subsequent to May 31,
1999 the Company began expansion of its ISP business into 22 cities in the
United States by setting up Virtual ISP's. The Company has switched on 50 ports
(minimum per agreement with Level 3 Communications) in each of 7 cities which
enables the Company to service up to 500 customers in each city. The cost of
these portals for the nine months ended February 29, 2000 was $129,141. There
was no revenue generated during the period.
The Company's head office is in Richmond, BC, Canada. The head office does
not conduct any business specifically related to the Internet . Its sole
purpose is to provide administration, investor relations services and services
relating to being a public company. Included in general and administrative
expenses and net loss is $1,616,432 relating to such activities. The net loss
relating to Internet activities in Canada amounted to $853,748.
F-9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Information Highway.com, Inc. (formerly Florida Venture Fund, Inc.)
We have audited the accompanying consolidated balance sheets of Information
Highway.com, Inc. (formerly Florida Venture Fund, Inc.) as of May 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended May 31, 1999 and 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Information
Highway.com, Inc. (formerly Florida Venture Fund, Inc.) as of May 31, 1999 and
1998, and the results of its operations, and changes in its stockholders'
equity and cash flows for the years ended May 31, 1999 and 1998 in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 1
to the financial statements, the Company has not achieved profitable operations
since inception and has accumulated losses of $1,656,774 and a working capital
deficit of $313,861. These factors raise doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also discussed in Notes 1 and 11. These financial statements do not include any
adjustments which might result from the outcome of this uncertainty.
/s/ "Elliott, Tulk, Pryce, Anderson"
Chartered Accountants
Vancouver, Canada
September 15, 1999
F-10
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31,
----------------------
1999 1998
----------- ---------
ASSETS
<S> <C> <C>
Current Assets
Cash................................................. $ 37,622 $ 35,699
Accounts receivable.................................. -- 4,442
Inventory (Note 6)................................... 9,695 --
Prepaid expenses..................................... 70,487 3,001
----------- ---------
Total Current Assets................................... 117,804 43,142
Property and Equipment (Note 5)........................ 270,092 209,353
Other Assets (Note 4).................................. 134,848 294,598
----------- ---------
Total Assets....................................... $ 522,744 $ 547,093
=========== =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable..................................... $ 267,279 $ 196,608
Accrued liabilities.................................. 65,151 10,000
Deferred revenues.................................... 34,049 20,000
Advances from related parties (Note 6)............... 65,186 261,784
----------- ---------
Total Current Liabilities.......................... 431,665 488,392
=========== =========
Commitments and Contingencies (Notes 1 and 8)
Stockholders' Equity
Common Stock (Note 7), 50,000,000 shares authorized,
par value $.0001 per share, 6,469,951 and 4,766,000
issued and outstanding respectively................. 647 477
Additional Paid in Capital on Common Stock........... 1,698,351 700,484
Common Stock allotted and issued subsequently (35,000
and 82,650 shares respectively)..................... 50,000 61,987
----------- ---------
1,748,998 762,948
Preferred Stock, 10,000,000 shares authorized, par
value $.0001 per share, none issued................. -- --
Translation adjustments.............................. (1,145) 3,654
----------- ---------
1,747,853 766,602
Accumulated Deficit.................................. (1,656,774) (707,901)
----------- ---------
Total Stockholders' Equity......................... 91,079 58,701
----------- ---------
Total Liabilities and Stockholders' Equity......... $ 522,744 $ 547,093
=========== =========
</TABLE>
(See accompanying notes)
F-11
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended May 31,
--------------------
1999 1998
---------- ---------
<S> <C> <C>
Revenues................................................. $1,008,657 $ 859,184
Cost of Revenues......................................... 775,816 649,584
---------- ---------
Gross Profit............................................. 232,841 209,600
Operating Expenses
Marketing and sales.................................... 224,492 171,047
General and administrative............................. 801,702 450,595
Product development.................................... 155,520 145,165
---------- ---------
Total Operating Expenses................................. 1,181,714 766,807
---------- ---------
Net loss................................................. 948,873 557,207
========== =========
Historical basic and dilutive net loss per share......... .18 .14
Weighted average shares used to compute basic and
historical net loss per share........................... 5,382,000 3,896,000
</TABLE>
Diluted loss per share has not been presented separately as the result is
anti dilutive.
(See accompanying notes)
F-12
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Information Highway, Inc.--
stockholders' equity section
from October 15, 1996
(Inception) to February 17, No. of Par Additional
1999 Shares Value Paid-in
(prior to reverse takeover) Issued $0.0001 Capital Total Deficit
---------------------------- --------- ------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance as at October 15, 1996
(Date of Inception of
Information Highway, Inc.).... -- $-- $ -- $ -- $ --
Issued for cash:
$0.10 per share pursuant to a
subscription received in
October, 1996............... 15,000 2 1,498 1,500 --
$0.50 per share pursuant to a
subscription received in
April, 1997................. 1,000 1 499 500 --
Issued for settlement of debt:
$0.365 per share agreed
price--February, 1997....... 24,000 2 8,758 8,760 --
$0.50 per share--April,
1997........................ 45,000 4 22,496 22,500 --
Issuance of stock in
acquisitions of subsidiaries
(Note 4):
At a fair value of $0.10 per
share to acquire a 100%
interest in:
Blue Crow Internet Co.
Ltd....................... 125,000 13 12,487 12,500 --
World-Tel Internet
(Toronto) Ltd............. 342,000 34 34,166 34,200 --
YesIC Communications Inc... 3,115,000 311 311,189 311,500 --
Net loss for the period........ -- -- -- -- (150,694)
--------- ---- ---------- ---------- ---------
Balance as at May 31, 1997..... 3,667,000 367 391,094 391,461 (150,694)
Issued for cash:
$0.10 per share pursuant to a
private placement........... 600,000 60 59,940 60,000 --
$0.50 per share pursuant to a
private placement........... 499,000 50 249,450 249,500 --
Net loss for the year.......... -- -- -- -- (557,207)
--------- ---- ---------- ---------- ---------
Balance as at May 31, 1998..... 4,766,000 477 700,484 700,961 (707,901)
Issued for cash pursuant to two
private placements at $0.75
per share..................... 797,150 80 597,782 597,862 --
Issued for services at a fair
market value at $0.75 per
share......................... 76,500 7 57,368 57,375 --
--------- ---- ---------- ---------- ---------
Balance as at February 17,
1999, prior to reverse
takeover...................... 5,639,650 $564 $1,355,634 $1,356,198 $(707,901)
========= ==== ========== ========== =========
</TABLE>
(See accompanying notes)
F-13
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------------------
Information Highway.com,
Inc.--capital stock No. of Par Additional
section from May 31, 1996 Shares Value Paid-in
to May 31, 1999 Issued $.0001 Capital Total Deficit
- ------------------------- ---------- ------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance May 31, 1996,
1997, 1998 and prior to
reverse takeover on
February 17, 1999....... 1,979,500 $ 198 $ 28,530 $ 28,728 $ (28,728)
Reverse takeover
adjustments (Note 3):
Cancellation of shares
for no consideration.. (1,659,833) (166) 166 -- --
Elimination of
deficit............... -- -- (28,728) (28,728) 28,728
---------- ----- ---------- ---------- -----------
Deficit of Information
Highway, Inc. as at
May 31, 1998............ (707,901)
---------- ----- ---------- ---------- -----------
Issuance or allotment of
shares to effect reverse
takeover (see table
above).................. 5,639,650 564 1,355,634 1,356,198 --
Cost of reverse takeover
transaction............. -- -- (100,000) (100,000) --
Shares issued for cash
pursuant to a private
placement at $0.75 per
share................... 15,000 1 11,249 11,250 --
Shares issued pursuant to
stock options exercised
at $0.75 per share...... 27,334 3 20,497 20,500 --
Shares issued pursuant to
stock options exercised
at $0.50 per share...... 210,000 21 104,979 105,000 --
Shares issued for
services at a fair
market value of $0.75
per share............... 5,000 -- 3,750 3,750 --
Shares issued for
services at a fair
market value of $5.00
per share............... 10,000 1 49,999 50,000 --
Shares issued for
property at a fair
market value of $4.00
per share............... 3,000 1 11,999 12,000 --
Shares issued pursuant to
warrants exercised at
$1.00 per share......... 240,300 24 240,276 240,300 --
---------- ----- ---------- ---------- -----------
Net loss for the year.... (948,873)
---------- ----- ---------- ---------- -----------
Balance as at May 31,
1999.................... 6,469,951 $ 647 $1,698,351 $1,698,998 $(1,656,774)
========== ===== ========== ========== ===========
</TABLE>
(See accompanying notes)
F-14
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended May 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $(948,873) $(557,207)
Adjustments to reconcile net loss to cash Depreciation
and amortization...................................... 89,776 57,611
Amortization of goodwill............................... 159,748 159,745
Financial services paid for by issuing shares.......... 111,125 --
Change in non-cash working capital items (Increase)
decrease in accounts receivable....................... 4,442 (2,814)
(Increase) decrease in prepaid expenses................ (67,486) 2,275
(Increase) in inventory................................ (9,695) --
Increase in accounts payable and accrued liabilities... 125,822 147,133
Increase (decrease) in deferred revenues............... 14,049 (4,495)
--------- ---------
Net Cash Used in Operating Activities................ (521,092) (197,752)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock (net of finders fee paid)................. 862,925 223,488
Increase (decrease) in related party advances.......... (196,598) 110,345
--------- ---------
Net Cash Provided by Financing Activities............ 666,327 333,833
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment........ (138,515) (108,983)
--------- ---------
Net Cash to Investing Activities..................... (138,515) (108,983)
--------- ---------
Translation Adjustments.................................. (4,797) 3,654
Increase in Cash During the Period....................... 1,923 30,752
Cash--Beginning of Period................................ 35,699 4,947
--------- ---------
Cash--End of Period...................................... $ 37,622 $ 35,699
========= =========
NON-CASH FINANCING ACTIVITIES:
The Company issued 91,500 shares for financial
services.............................................. 111,125 --
The Company issued 3,000 shares for property........... 12,000 --
--------- ---------
$ 123,125 $ --
========= =========
SUPPLEMENTAL DISCLOSURES:
Interest paid.......................................... -- --
Income taxes paid...................................... -- --
</TABLE>
(See accompanying notes)
F-15
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations, Reorganization and Continuance of Business
Florida Venture Fund, Inc. (the "Company" or "FVFI") was incorporated
December 5, 1988 in the state of Florida. The Company has the authority to
issue 50,000,000 common shares of $.0001 par value. The Company may transact
any and all lawful business for which corporations may be incorporated under
the Florida General Corporation Act.
During 1997, the Company's common stock was submitted for quotation on the
OTC Bulletin Board System and was assigned the trading symbol FVFL.
From incorporation to February 17, 1999 the Company did not engage in any
business activity other than initial organization, initial financing and some
business investigation activities.
Pursuant to a letter agreement dated February 17, 1999, the Company
completed an Agreement and Plan of Reorganization with Information Highway,
Inc., herein "IHI", whereby a business combination was completed and all of the
outstanding common stock of Information Highway, Inc. was, or will be,
exchanged for common shares of the Company representing a change of control of
the Company by way of reverse takeover, see Note 3. As part of the Plan of
Reorganization the Company's name was changed to Information Highway.com, Inc.
IHI was incorporated in the State of Washington on October 15, 1996. See
Note 4 regarding IHI's acquisition of three Canadian operating subsidiaries in
the business of providing access to the Internet and providing services,
including on-line publishing, to individual and corporate subscribers.
IHI emerged from being a development stage company during its fiscal year
ended May 31, 1998. In a development stage company, management devoted most of
its activities to establishing the business. Planned principal activities have
started producing significant revenues, however, the Company has experienced
start-up losses from October 15, 1996 (Inception) to May 31, 1999 totalling
$1,656,774 and has a working capital deficit as at May 31, 1999 of $313,861.
There is risk that the Company's ability to continue as a going concern could
be in jeopardy based on these factors. The ability of the Company to continue
as a going concern is dependent upon its successful efforts to raise additional
equity financing, and further develop the market for its products and services.
As discussed in Note 11 the Company has raised in excess of $750,000 to improve
its working capital situation and has plans to raise up $6,000,000 pursuant to
a private placement of 1,000,000 units at $6.00 per unit.
2. Significant Accounting Policies
Consolidated Financial Statements
These consolidated financial statements include the accounts of the Company
and its wholly owned US subsidiary, Information Highway, Inc. which owns three
consolidated, wholly-owned, Canadian subsidiaries, see Note 4. As IHI was the
acquirer in a reverse takeover business combination culminating on February 17,
1999, its fiscal year-end of May 31 will be the Company's new fiscal year-end
and the business of IHI will be the business reported for all comparative
purposes, including the statements of operations and cash flows. See Note 3 for
a discussion on this business combination and reverse takeover accounting.
Prior to the reverse takeover transaction the Company's fiscal year end was
December 31.
Estimates and Assumptions
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 in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
F-16
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies (continued)
Reclassification
Certain amounts in the financial statements have been reclassified to be
consistent and comparable from year-to-year.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, in banks and all highly
liquid investments with a maturity of three months or less when purchased.
Concentration of Credit Risk
The Company does not have any concentrations of credit risk as the majority
of its customers prepay for services. For those instances when credit is
extended it is based on an evaluation of the customer's financial condition,
and generally collateral is not required. The Company does not have any
customers that account for in excess of 10% of income.
The Company places its temporary cash investments with high credit quality
financial institutions and limits the amount of credit exposure to any one
financial institution.
Inventory
Inventory is comprised of finished goods purchased to resell over the
Internet. Finished goods are carried at the lower of landed cost or net
realizable value.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed
utilizing the declining balance method over an estimated useful life of the
related asset category. Computer equipment and software and production
equipment is depreciated at 30% per annum and furniture and office equipment at
20%. Leasehold improvements are amortized over ten years utilizing the
straight-line method.
Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards (SFAS) No. 121
"Accounting for the Impairment of Long-Lived Assets".
Goodwill is a long-lived asset representing the excess of purchase
consideration over fair market value of net identifiable assets acquired, and
is amortized on a straight-line basis over its estimated useful life. Goodwill
is evaluated in each reporting period to determine if there were events or
circumstances which would indicate a possible inability to recover the carrying
amount. Such evaluation is based on various analyses including undiscounted
future cash flows which necessarily involves significant management judgment.
Financial Instruments
The fair value of the Company's current assets and current liabilities were
estimated to approximate their carrying values due to the immediate or short-
term maturity of these financial instruments. The Company operates in Canada
and virtually all of its assets and liabilities are giving rise to significant
exposure to market risks from changes in foreign currency rates. The financial
risk is the risk to the Company's operations that arise from fluctuations in
foreign exchange rates and the degree of volatility of these rates. Currently,
the Company does not use derivative instruments to reduce its exposure to
foreign currency risk.
F-17
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies (continued)
Revenue Recognition and Deferred Revenues
Revenue consists of the provision of Internet dial-up services, banner
advertisements, web-site development and hosting and E-Commerce revenue sharing
with various Internet partners.
Revenue is recognized at the time services are provided. All related costs
are recognized in the period in which they occur. Customers deposits for
Internet dial-up services to be provided in the future are treated as deferred
revenues.
Cost of Revenue
Cost of revenue consists primarily of the cost of serving the Company's
Internet dial-up service customers and the cost of developing web-sites for
customers. Cost associated with above revenue generating activities consists of
salaries for technical support and customer service, depreciation of Internet
dial-up and web-site hosting equipment, license fees, equipment leasing costs,
telephone line costs and rent to house equipment and staff directly involved in
serving customers.
Product Development Costs
Product development costs consist of expenses incurred by the Company in the
development and creation of its portal site Web-Site. Product development costs
include compensation and related expenses for programmers, depreciation of
computer hardware and software, rent, telephone and costs incurred in
developing features and functionality of the service. Product development costs
are expensed as incurred.
Accounting for Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," requires that stock
awards granted subsequent to January 1, 1995, be recognized as compensation
expense based on their fair value at the date of grant. Alternatively, a
company may account for granted stock awards under Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and disclose
pro forma income amounts which would have resulted from recognizing such awards
at their fair value. The Company has elected to account for stock-based
compensation expense under APB No. 25 and make the required pro forma
disclosures for compensation expense (see Note 7).
Foreign Exchange
All of the Company's Canadian operating subsidiaries are operationally and
financially independent of the parent and are considered self-sustaining. As
such, the current rate method is used whereby assets and liabilities are
translated into United States dollars at exchange rates in effect at the
balance sheet dates. Shareholders' equity accounts are translated using
historical exchange rates. Income and expense items are translated at average
exchange rates for the periods. Accumulated net translation adjustments are
included as a separate component of shareholders' equity.
Current monetary assets and liabilities of the Company which are denominated
in foreign currencies are translated at the exchange rate in effect at the
balance sheet dates. Revenues and expenses are translated at rates of exchange
prevailing on the transaction dates. Exchange gains or losses on the
realization of current monetary assets and the settlement of current monetary
liabilities are recognized currently to operations. The gain or loss realized
on these transactions amounted to a gain of $119 for fiscal 1999 and a loss of
$2,992 for fiscal 1998.
Income Taxes
The Company has adopted the provisions of Financial Accounting Standards
Board Statement No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109
requires that deferred taxes reflect the tax consequences
F-18
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies (continued)
on future years of differences between the tax bases of assets and liabilities
and their financial reporting amounts. At the date of adoption of SFAS 109,
there was no material effect on the Company's financial statements.
Pursuant to SFAS 109 the Company is required to compute tax asset benefits
for net operating loss carry forwards. Potential benefit of net operating
losses has not been recognized in the financial statements because the Company
cannot be assured that it is more likely than not that it will utilize the net
operating loss carry forwards in future years.
The Company's Canadian subsidiaries have Canadian tax losses of $482,000 to
offset future years Canadian taxable income. These losses expire as follows:
<TABLE>
<S> <C>
2003.................... $ 3,000
2004.................... 66,000
2005.................... 138,000
2006.................... 275,000
</TABLE>
The Company and the Company's US subsidiary have US tax losses of $903,000
to offset future years US taxable income. These losses expire as follows:
<TABLE>
<S> <C>
2012.................... $ 61,000
2013.................... 286,000
2014.................... 556,000
</TABLE>
The components of the net deferred tax asset, the statutory tax rate, the
effective tax rate and the elected amount of the valuation allowance are
scheduled below:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net Combined Operating Losses...................... $ 835,000 $ 424,000
Statutory Combined Canadian and US Tax Rate........ 39% 37%
Effective Tax Rate................................. -- --
Deferred Tax Asset................................. 328,000 157,000
Valuation Allowance................................ (328,000) (157,000)
--------- ---------
Net Deferred Tax Asset............................. -- --
========= =========
</TABLE>
Basic and Diluted Net Income (Loss) per Share
The Company computes net income (loss) per share in accordance with SFAS No.
128, "Earnings per Share" (SFAS 128). SFAS 128 requires presentation of both
basic an diluted earnings per share (EPS) on the face of the income statement.
Basic EPS is computed by dividing net income (loss) available to common
shareholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period including stock
options, using the treasury stock method, and convertible preferred stock,
using the if-converted method. In computing Diluted EPS, the average stock
price for the period is used in determining the number of shares assumed to be
purchased from the exercise of stock options or warrants. Diluted EPS excludes
all dilutive potential common shares if their effect is anti dilutive.
New Accounting Pronouncements
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive Income. This
statement requires that all items that are required to be
F-19
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Significant Accounting Policies (continued)
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. Comprehensive income is the same as net income for
all periods presented.
Effective January 1, 1998, the Company adopted Statement of Accounting
Standards No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and
Related Information. This statement requires the Company to report income/loss,
revenue, expense and assets by business segment including information regarding
the revenues derived from specific products and services and about the
countries in which the Company is operating. The Statement also requires that
the Company report descriptive information about the way that operating
segments were determined, the products and services provided by the operating
segments, differences between the measurements used in reporting segment
information and those used in the Company's general-purpose financial
statements and changes in the measurement of segment amounts from period to
period. As noted above this statement establishes standards for reporting and
display and has no material effect on the Company's financial condition or
results of operations.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132 (SFAS 132), Employers' Disclosures about Pensions and other
Post Retirement Benefits. This statement standardizes the disclosure
requirements for pension and other post retirement benefits. The Company
typically does not offer the types of benefit programs that fall under the
guidelines of this statement.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging
Activities. This statement establishes accounting and reporting standards for
derivative instruments and requires recognition of all derivatives as assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. The statement is effective for fiscal years
beginning after June 15, 1999. The Company does not have any derivative
instruments and has not entered into any hedging activities.
3. Business Combination
Pursuant to an Agreement and Plan of Reorganization entered into on February
17, 1999 and completed on February 23, 1999 between the Company, Information
Highway, Inc. ("IHI") and certain shareholders of IHI, the Company acquired
3,235,000 common shares of IHI out of a total of 5,639,650 issued and
outstanding common shares in exchange for 3,235,000 common shares of the
Company. It is the Company's intention to complete the exchange of shares of
its common stock for the remaining and outstanding common shares of IHI on a
one for one basis. As of September 15, 1999, 2,235,150 of the 2,404,650 IHI
shares had been exchanged for the same number of Company shares. In total, to
September 15, 1999 97% of IHI shares had been exchanged. The Company has
allotted 169,500 shares in anticipation of the remaining shares of IHI being
exchanged. As part of the Agreement and Plan of Reorganization the Company
caused 1,659,833 of its 1,979,500 common shares that were issued and
outstanding, prior to the closing, to be cancelled and assumed the obligations
of IHI to issue common shares pursuant to warrants and stock options issued by
IHI. IHI paid $100,000 to the controlling shareholder of the Company to effect
the Agreement and Plan of Reorganization including the cancellation of
1,659,833 shares.
For accounting purposes the acquirer is IHI, as 95% of the issued and
outstanding common shares of the Company are owned by the shareholders of IHI
and the entire Board of Directors of the Company is now comprised of the entire
Board of Directors of IHI. As IHI is the legal subsidiary of the Company the
nature of the business combination is a reverse takeover whereby the control of
the Company is acquired by IHI and the consolidated financial statements are
issued under the name of the Company but is a continuation of IHI and
F-20
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Business Combination (continued)
not the Company. The legal capital structure remains that of the Company but
the shareholders' equity of IHI has replaced the shareholders' equity of the
Company. Similarly, the Company's income statements and statements of cash
flows represent a continuation of IHI's consolidated financial statements.
The accounting treatment of the reverse takeover is based on the following
consideration that was paid to shareholders of the Company:
<TABLE>
<S> <C>
Cash paid to the controlling shareholder of FVFI................. $100,000
Net liabilities of FVFI assumed at book value.................... --
Value attributed to the 319,667 shares of FVFI not cancelled..... --
--------
$100,000
========
</TABLE>
The $100,000 payment to the controlling shareholder of FVFI has been
treated, for accounting purposes, as a reduction of additional paid in capital
and not as goodwill as the nature of the transaction was for IHI to obtain a
listing on the OTC Bulletin Board by way of reverse takeover. The cost is
associated with publicly listing shares and not with any business associated
with FVFI.
4. Business Combinations of Information Highway, Inc. Prior to the Reverse
Takeover
Information Highway, Inc. acquired three operating Canadian subsidiaries
during the period December, 1996 to February 28, 1997, in the business of
providing access to the Internet and providing services, including on-line
publishing, to individual and corporate subscribers. The acquisitions were
accounted for using the purchase method of accounting for business
combinations. IHI issued 3,582,000 of its common shares at a fair market value
of $0.10 per share and $27,380 as cash consideration for all three
acquisitions. In total, IHI assumed net liabilities of $113,663. The excess of
the purchase price over the fair market value of net liabilities assumed,
totalling $499,243, was allocated to goodwill. Details of liabilities assumed
and assets acquired are as follows:
<TABLE>
<S> <C>
(i) Consideration
Capital stock of IHI issued (3,582,000 at $.10).................... $ 358,200
Cash paid.......................................................... 27,380
---------
385,580
(ii) Net liabilities assumed
Liabilities assumed
Accounts payable................................................. 43,080
Unearned revenue................................................. 20,000
Loans from directors............................................. 37,853
Loans from affiliated companies.................................. 127,491
---------
228,424
Assets acquired
Cash received in combination..................................... (7,055)
Accounts receivable.............................................. (1,711)
Capital assets................................................... (105,995)
---------
(114,761)
Net liabilities assumed............................................ 113,663
---------
(iii) Excess of cost over book value................................. $ 499,243
=========
</TABLE>
F-21
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Business Combinations of Information Highway, Inc. Prior to the Reverse
Takeover (continued)
The excess of cost over book value, totalling $499,243, was allocated to
goodwill as there were no other fair market value adjustments to non-monetary
assets or other identifiable intangible assets. Goodwill has been capitalized
and is being amortized over its estimated useful life of three years.
<TABLE>
<CAPTION>
Accumulated 1999 Net 1998 Net
Cost Amortization Book Value Book Value
-------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Goodwill....................... $499,243 $364,395 $134,848 $294,598
</TABLE>
5. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization.
<TABLE>
<CAPTION>
Accumulated
Depreciation
and 1999 Net 1998 Net
Cost Amortization Book Value Book Value
-------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Computer equipment and software.... $365,550 $157,630 $207,920 $172,827
Office furniture and equipment..... 45,883 14,214 31,669 26,115
Production equipment (Note 6(f))... 25,000 3,750 21,250 --
Leasehold improvements............. 11,567 2,314 9,253 10,411
-------- -------- -------- --------
$448,000 $177,908 $270,092 $209,353
</TABLE>
Depreciation and amortization per class of asset:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Computer equipment and software................................ $75,508 $51,833
Office furniture and equipment................................. 6,345 4,622
Production equipment........................................... 3,750 --
Leasehold improvements......................................... 1,158 1,156
------- -------
$86,761 $57,611
</TABLE>
6. Related Party Transactions
(a) Amounts owing to the President and director of the Company and
affiliated companies under the President's control are from short-term cash
loans, are due on demand, unsecured and non-interest bearing. The Company
intends on repaying a portion or all of these debts in the next fiscal year.
These cash loans were recorded at their exchange amounts.
(b) The President and director of the Company was also President and a
director of World-Tel and Chief Executive Officer and a director of YesIC prior
to their acquisition, see Note 4. These two business combinations were recorded
at the fair value of shares issued at the time of acquisition which
approximated fair value of shares being issued at the time to arms length
parties for cash consideration.
(c) Pursuant to a Management Agreement dated December 1, 1998 between IHI
and a company related to the President of IHI, the Company is committed to pay
management fees of $2,500 per month and rent and secretarial fees of $1,500 per
month for a term of three years expiring December 1, 2001.
(d) A partnership, of which a director of the Company is a partner, was paid
$91,182 cash (1998--$19,562) for legal services rendered during the year.
(e) Certain officers and/or directors or Company's related to officers
and/or directors of the Company have participated in various private placements
from inception to date.
F-22
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Related Party Transactions (continued)
(f) Finished goods inventory was acquired from a public company with common
Presidents pursuant to a Marketing Agreement dated January 20, 1999. The
Company has the exclusive worldwide rights to market the product over the
Internet. The Company paid $25,000 for production equipment and $7,000 for
certain components. The agreement is for five years subject to minimum annual
sales criteria.
7. Common Stock Issuances and Related Commitments
Pursuant to the Agreement and Plan of Reorganization the Company assumed all
common stock obligations of IHI as they relate to stock based compensation
plans and warrants issued to acquire common shares.
Private Placements
IHI approved and completed two private placements of units and issued
812,150 units at $0.75 per unit to raise $609,112. These units were issued
between October and December, 1998. Each unit contained one share and one
warrant to acquire one additional share at $1.00 if exercised between October
and December, 1999. Of the 812,150 warrants issued 270,300 warrants were
exercised as at May 31, 1999 for proceeds of $270,300 and 171,200 warrants were
exercised subsequently for proceeds of $171,200.
The proceeds of the above private placements were allocated 100% to the
common shares issued; no amount was allocated to warrants as the warrant price
was set higher than fair market value and there is a one year hold period on
these shares and no market for the warrants.
Stock Option Plan
On June 30, 1997, and amended on May 21, 1999, IHI reserved 2,500,000 common
shares pursuant to a stock option plan. On January 26, 1998 the Company granted
stock options to certain directors and employees to acquire 725,000 shares at
$0.50 per share expiring January 26, 2003. Stock options granted to certain
employees to acquire 145,000 common shares at $0.50 per share were cancelled.
Stock options were granted to certain directors, officers and employees to
acquire 295,000 common shares at $0.75 per share expiring five years after
grant date being between August 14, 2003 and February 23, 2004.
F-23
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Common Stock Issuances and Related Commitments (continued)
May 31, 1998
<TABLE>
<CAPTION>
Exercised (E)
May 31, 1997 # Price $ Granted # Cancelled (C) May 31, 1998 # Expiry Date
-------------- ------- --------- ------------- ----------------- -----------
<C> <C> <C> <C> <C> <S>
Nil 0.50 725,000 (145,000)(C) 580,000 37646
========= ======= ======== =========
May 31, 1999
<CAPTION>
Exercised (E)
May 31, 1998 # Price $ Granted # Cancelled (C) May 31, 1999 # Expiry Date
-------------- ------- --------- ------------- ----------------- -----------
<C> <C> <C> <C> <C> <S>
580,000 0.50 -- (210,000)(E) 370,000 37646
August, 2003 to
-- 0.75 295,000 (27,334)(E) 267,666 February, 2004
-- 4.00 600,000 -- 600,000 May, 2004
--------- ---- ------- -------- ---------
580,000 895,000 (237,334) 1,237,666
========= ======= ======== =========
Subsequent to May 31, 1999
<CAPTION>
Exercised (E)
May 31, 1999 # Price $ Granted # Cancelled (C) August 31, 1999 # Expiry Date
-------------- ------- --------- ------------- ----------------- -----------
<C> <C> <C> <C> <C> <S>
370,000 0.50 -- 85,000(E) 285,000 37646
August, 2003 to
267,666 0.75 -- 50,000(E) 217,666 February, 2004
600,000 4.00 100,000 -- 700,000 May to June, 2004
5.00 275,000 150,000(C) 125,000 38160
--------- ------- -------- ---------
1,237,666 375,000 285,000 1,327,666
========= ======= ======== =========
</TABLE>
The options are granted for services provided to the Company. Statement of
Financial Accounting Standards No. 123 ("SFAS 123") requires that an enterprise
recognize, or at its option, disclose the impact of the fair value of stock
options and other forms of stock based compensation in the determination of
income. The Company has elected under SFAS 123 to continue to measure
compensation cost on the intrinsic value basis set out in APB Opinion No. 25.
As options are granted at exercise prices based on the market price of the
Company's shares at the date of grant, no compensation cost is recognized.
However, under SFAS 123, the impact on net income and income per share of the
fair value of stock options must be measured and disclosed on a fair value
based method on a pro forma basis.
The fair value of the employee's purchase rights under SFAS 123, was
estimated using the Black-Scholes model with the following assumptions used for
grants on January 26, 1998: risk free interest rate was 5.47%, expected
volatility of 20%, an expected option life of six months and no expected
dividends; and for grants between August 14, 1998 and February 23, 1999, as a
group: risk free interest rate was 5.27%, expected volatility of 20%, an
expected option life of six months and no expected dividends; and for grants
between May 19, 1999 and June 23, 1999, as a group: risk free interest rate was
5.27%, expected volatility of 20%, an expected option life of six months and no
expected dividends.
F-24
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Common Stock Issuances and Related Commitments (continued)
If compensation expense had been determined pursuant to SFAS 123, the
Company's net loss and net loss per share for the years ended May 31, 1999 and
1998 would have been as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net loss
As reported........................................ $(948,873) $(557,207)
Pro forma.......................................... (988,993) (570,779)
Basic net loss per share
As reported........................................ (.18) (.14)
Pro forma.......................................... (.18) (.15)
</TABLE>
8. Commitments and Contingent Liability
(a) Commitments
The Company is committed to making the following lease or contract payments
for the next five fiscal years:
<TABLE>
<CAPTION>
For the years ended May 31,
---------------------------------------
2000 2001 2002 2003 2004
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Management consulting................... $30,000 $17,500 $ -- $ -- $ --
Equipment leases........................ 21,417 -- -- -- --
Licence fees............................ 8,333 -- -- -- --
Premises leases......................... 35,446 36,473 32,417 26,044 21,409
------- ------- ------- ------- -------
$95,196 $53,973 $32,417 $26,044 $21,409
======= ======= ======= ======= =======
</TABLE>
(b) Contingent Liability--Lawsuit
A Writ of Summons and Statement of Claim was filed against the Company in
the Supreme Court of British Columbia in April 1999 by a former employee and
spouse of the employee (the "Plaintiffs"). The employee was retained by the
Company as a consultant on or about December 1996 and was subsequently
terminated for cause by the Company in December 1997. The Plaintiffs are
seeking monetary damages related to the alleged remuneration pursuant to the
agreement and a stock option between the Company and the employee. The total
damages claimed amounts to $597,000 including alleged unpaid remuneration and a
stock option benefit. The plaintiff's are also claiming 5% of business revenue
from the operating subsidiary in Vancouver, Canada. This subsidiary operated at
a net loss from operations during the period from acquisition in December 1996
to date. Management believes that the Plaintiff's alleged claim is without
legal or factual basis and therefore have not accrued any potential losses
resulting from this claim except for legal fees paid in establishing the
defence. The Company intends to vigorously defend this action.
9. Segmented Information
The Company has adopted SFAS No. 131 Disclosure About Segments of an
Enterprise and related information.
The business of the Company is carried on in one industry segment being the
provision of access to the Internet and providing services, including on-line
publishing, to individual and corporate subscribers.
F-25
<PAGE>
INFORMATION HIGHWAY.COM, INC.
(FORMERLY FLORIDA VENTURE FUND, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Segmented Information (continued)
Up until May 31, 1999 the Company operated in one geographic segment, being
Canada, located in Vancouver, BC and Toronto, Ontario. Subsequent to May 31,
1999 the Company has begun expansion of its ISP business into 22 cities in the
United States by setting up Virtual ISP's.
The Company's head office is in Richmond, BC, Canada. The head office does
not conduct any business specifically related to the Internet . Its sole
purpose is to provide administration, investor relations services and services
relating to being a public company. Included in general and administrative
expenses and net loss is $477,672 (1998--$159,031) relating to such activities.
The net loss relating to Internet activities in Canada amounted to $471,201
(1998--$398,176).
10. Uncertainty Due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent something other than
a date. The effects of the Year 2000 Issue may be experienced before, on, or
after January 1, 2000, and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure
which could affect an entity's ability to conduct normal business operations.
It is not possible to be certain that all aspects of the Year 2000 Issue
affecting the Company, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
11. Subsequent Events
The Company has issued a further 171,200 shares pursuant to warrants
exercised at $1.00 per share for total proceeds of $171,200.
A total of 135,000 shares have been issued pursuant to stock options
exercised at between $0.50 per share and $0.75 per share for proceeds of
$80,000.
On June 23, 1999 stock options were granted to certain employees to acquire
100,000 shares at $4.00 per share and 275,000 shares at $5.00 per share, of
which 150,000 were cancelled.
Subsequent to May 31, 1999 the Company has raised $519,000, pursuant to an
Offering Memorandum, and issued 129,750 units at $4.00 per unit which closed
August 11, 1999. Each unit contained one common share and one Series "A"
Warrant to acquire one additional share at $4.00 per share expiring April 30,
2000 and one Series "B" Warrant to acquire one additional share at $6.00 per
share expiring April 30, 2001.
F-26
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Information Highway.com has not authorized any dealer, salesperson or other
person to give you written information other than this prospectus or to make
representations as to matters not stated in this prospectus. You must not rely
on unauthorized information. This prospectus is not an offer to sell these
securities or a solicitation of your offer to buy the securities in any
jurisdiction where that would not be permitted or legal. Neither the delivery
of this prospectus nor any sales made hereunder after the date of this
prospectus shall create an implication that the information contained herein
or the affairs of Information Highway.com have not changed since the date
hereof.
Until , 2000 (90 days after the date of this prospectus),
all dealers that effect transactions in these shares of common stock may be
required to deliver a prospectus. This is in addition to the dealer's
obligation to deliver a prospectus when acting as an underwriter and with
respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,089,750 Shares
of Common Stock to be
sold by current shareholders
Information Highway.com Inc.
1177 West Hastings, Suite 2110
Vancouver, British Columbia V6E 2K3, CANADA
(604) 687-2199
-------------
PROSPECTUS
-------------
, 2000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Our Articles of Incorporation provide that we must indemnify our directors
and officers to the fullest extent permitted under the Florida Business
Corporation Act, against all liabilities incurred by reason of the fact that
the person is or was a director or officer of ours or a fiduciary of an
employee benefit plan, or is or was serving at our request as a director or
officer, or fiduciary of an employee benefit plan, of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
The effect of these provisions is potentially to indemnify our Company's
directors and officers from all costs and expenses of liability incurred by
them in connection with any action, suit or proceeding in which they are
involved by reason of their affiliation with us.
Item 25. Other Expenses of Issuance and Distribution
The securities are being registered for the account of selling shareholders,
but all of the following expenses will be borne by us. The amounts set forth
are estimates except for the SEC registration fee:
<TABLE>
<S> <C>
SEC registration fee............................................. $ 3,100
Printing and engraving expenses.................................. 25,000
Attorneys' fees and expenses..................................... 50,000
Accountants' fees and expenses................................... 5,000
Transfer agent's and registrar's fees and expenses............... 5,000
Miscellaneous.................................................... 15,000
--------
Total.......................................................... $103,100
========
</TABLE>
Item 26. Recent Sales of Unregistered Securities
Set forth below is information regarding the issuance and sales of our
securities without registration during the past three years. No such sales
involved the use of an underwriter and no commissions were paid in connection
with the sale of any securities.
(1) In connection with our reorganization in February 1999, we assumed
contractual obligations of one of our subsidiaries under outstanding
warrants to issue shares of common stock for $1.00 per share. During the
quarter ended November 30, 1999, we issued 34,150 shares pursuant to
warrants exercised at $1.00 per share or total proceeds of $34,150. The
sale of the shares was exempt from registration under Regulation S and
under Rule 506 and under Section 4(2) of the Securities Act of 1933. We
provided disclosure to each of the warrant holders in connection with our
reorganization with Information Highway, Inc. and pursuant to our filings
with the Commission. Each of the warrant holders owned shares of
Information Highway, Inc. that they have now exchanged for our shares.
During the quarter ended November 30, 1999, we issued shares to 6
purchasers of which 2 were accredited investors. On September 30, 1999, we
had temporarily halted the exercise of our warrants until we could further
verify the accredited investor status of some of its warrant holders and
shareholders who had previously exercised similar warrants. Upon further
investigation, we determined that through November 30, 1999, in connection
with the exercise of all $1.00 warrants assumed in connection with our
reorganization in February 1999, we issued shares to 48 purchasers, of
which 17 were accredited investors and 8 were
II-1
<PAGE>
foreign citizens whose purchases were covered by Regulation S. All of the
shares issued pursuant to the warrant exercises bear a legend indicating
that they are restricted securities. $65,000 of these sales were exempt
under Regulation S under the Securities Act of 1933, as amended, due to the
foreign nationality of the relevant purchasers.
(2) On February 23, 1999 we issued a total of 499,000 shares of common
stock to certain shareholders of PrivCo in exchange for 499,000 shares of
Information Highway, Inc. The issuance of the common stock was exempt from
registration under Rule 504 of Regulation D under Section 3(b) of the
Securities Act of 1933, as amended. Our shares were valued at $0.75 per
share, the price per Unit that Information Highway, Inc. had obtained in
its most recent offering of securities, in which Information Highway, Inc.
offered Units consisting of one share of unrestricted common stock and one
warrant for $0.75 per Unit. If the exemption under Rule 504 of Regulation D
is not available, we believe that this offering was also exempt under
Regulation S and Section 4(2) under the Securities Act of 1933, as amended,
due to the foreign nationality of the relevant shareholders of Information
Highway, Inc., their prior contacts with Information Highway, Inc. and its
management, and the limited number of investors (four).
(3) On February 23, 1999, we issued a total of 2,736,000 shares of
common stock to certain shareholders in exchange for 2,736,000 shares of
Information Highway, Inc. common stock. The issuance of the shares was
exempt from registration under Rule 506 of Regulation D, Regulation S and
Section 4(2) of the Securities Act of 1933, as amended, due to the foreign
nationality of the relevant shareholders of Information Highway, Inc.,
their prior contacts with Information Highway, Inc. and its management, and
the limited number of investors (six).
(4) On February 23, 1999 we began an offer to certain shareholders of
Information Highway, Inc. to exchange 834,000 shares of their unrestricted
Information Highway, Inc. common stock for 834,000 shares of our common
stock exempt from registration under Rule 504 of Regulation D under Section
3(b) of the Securities Act of 1933, as amended. Upon discovery that three
investors who had made deposits in the Information Highway, Inc. offering
set forth in item (a) below had not been issued their Information Highway,
Inc. shares, this offering was expanded to 854,000 shares to include the
20,000 shares purchased by those investors. Of the 20,000 shares
identified, 15,000 were issued in the fiscal year ended May 31, 1999, and
5,000 were issued after May 31, 1999. Our shares were valued at $0.75 per
share, the price per Unit that Information Highway, Inc. had obtained in
its most recent offering of securities, in which Information Highway, Inc.
offered Units consisting of one share of unrestricted common stock and one
warrant for $0.75 per Unit. As of August 31, 1999, all but 37,000 shares
had been exchanged. The offerees consisted of the Information Highway, Inc.
shareholders who purchased units in Information Highway, Inc. as described
in item (a), below, and two affiliates who had acquired Information
Highway, Inc. shares in the Yes IC acquisition (February 1997). If the
exemption under Rule 504 of Regulation D is not available, we believe that
221,000 shares (which includes the shares of the two affiliates) from this
offering will also be exempt under Regulation S due to the foreign
nationality of the shareholders.
(5) On February 23, 1999, we began an offer to certain shareholders of
Information Highway, Inc. to exchange 1,570,650 shares of their restricted
Information Highway, Inc. common stock for 1,570,650 shares of our common
stock exempt from registration under Rule 506 of Regulation D, Regulation S
and Section 4(2) of the Securities Act of 1933, as amended. We furnished to
purchasers in a timely manner an Exchange Offering Memorandum and financial
information, limited the manner of the offering, promptly filed notices of
sales, and limited the number of domestic non-accredited investors to 2. If
the exemptions under Rule 506 and Section 4(2) are not available, we
believe that 1,151,000 shares from this offering will also be exempt under
Regulation S due to the foreign nationality of the shareholders.
(6) In February 1999, we issued 5,000 shares to David Williamson
Associates Ltd. for marketing and investor relations services in the United
Kingdom. The offer and sale of the shares were exempt from registration
under Section 4(2) of the Securities Act of 1933. If the foregoing
exemption is not available, this sale was exempt under Regulation S under
the Securities Act of 1933 due to the purchaser's foreign nationality.
II-2
<PAGE>
(7) In connection with the reorganization of the Company in February
1999, the Company assumed contractual obligations of one of its
subsidiaries under outstanding warrants to issue shares of common stock for
$1.00 per share. During the quarter ended May 31, 1999, the Company issued
270,300 shares pursuant to warrants exercised at $1.00 per share for total
proceeds of $270,300. The sale of the shares was exempt from registration
under Regulation S and under Rule 506 under and Section 4(2) of the
Securities Act of 1933. The Company provided disclosure to each of the
warrant holders in connection with our reorganization with Information
Highway, Inc. Each of the warrant holders owned shares of Information
Highway, Inc. that they have now exchanged for our shares. Through May 31,
1999, we issued shares to 30 purchasers, of which 7 were accredited
investors and 6 were foreign citizens whose purchases were covered by
Regulation S. Through September 30, 1999, when we determined not to issue
any further shares to non- accredited investors pursuant to the warrants
until such time as the shares could be registered, we issued shares to 45
purchasers, of which 7 were accredited investors and 7 were foreign
citizens whose purchases were covered by Regulation S. All of the shares
issued pursuant to the warrant exercises bear a legend indicating that they
are restricted securities. $53,000 of these sales were exempt under
Regulation S under the Securities Act of 1933, as amended, due to the
foreign nationality of the relevant purchasers.
(8) In March 1999, we issued 10,000 shares to its affiliate Access
Information Services in exchange for services rendered. The offer and sale
of the shares were exempt from registration under Section 4(2) of the
Securities Act of 1933. If the foregoing exemption is not available, this
sale was exempt under Regulation S under the Securities Act of 1933 due the
foreign nationality of the ultimate beneficial owners of Access Information
Services.
(9) In March 1999, we issued 3,000 shares to IED Internet Engines &
Design Ltd. in connection with the acquisition of an Internet portal
telephony businesses. The offer and sale of the shares were exempt from
registration under Section 4(2) of the Securities Act of 1933. If the
foregoing exemption is not available, this sale was exempt under Regulation
S under the Securities Act of 1933 due the foreign nationality of the
purchaser. On July 27, 1999, we issued the balance of 2,500 shares owing to
IED Internet Engines & Design Ltd.
(10) Beginning March 31, 1999, we conducted an offering of units
pursuant to an Offering Memorandum. Each unit consisted of one common
share, one Series "A" Warrant to acquire one additional share at $4.00 per
share expiring April 30, 2000, and one Series "B" Warrant to acquire one
additional share at $6.00 per share expiring April 30, 2001. The offering
was completed on August 11, 1999. On completion of the offering, a total of
129,750 units were issued at $4.00 per unit for total proceeds of $519,000.
Through May 31, 1999, 5000 units were issued at $4.00 per unit for total
proceeds of $20,000. The offer and sale of the units were exempt from
registration under Rule 506 under and Section 4(2) of the Securities Act of
1933. We furnished to purchasers in a timely manner an Offering Memorandum
and financial information, limited the manner of the offering, promptly
filed notices of sales, and limited the number of non- accredited investors
to 5 investors. If the foregoing exemptions are not available, we the
Company believes that $72,600 of these sales were also exempt under
Regulation S under the Securities Act of 1933, as amended, due to the
foreign nationality of the relevant purchasers.
(11) During the quarter ended May 31, 1999, we issued 237,334 shares
pursuant to options exercised at between $0.50 and $0.75 per share for
total proceeds of $125,500. The sale of the shares was exempt from
registration under Rule 701 under Section 3(b) of the Securities Act of
1933. The sales were made on exercise of grants under our written stock
option plan, a copy of which we have has provided to our participants. The
150,000 shares issued to John Robertson were also exempt from registration
under Rule 506 under and Section 4(2) of the Securities Act of 1933. Mr.
Robertson is an accredited investor by virtue of his positions as a
director and executive officer. If the foregoing exemptions are not
available, we believe that all $125,500 of these sales were also exempt
under Regulation S under the Securities Act of 1933, as amended, due to the
foreign nationality of the relevant purchasers.
(12) In October 1999, we issued 50,000 shares to IP Equity, Inc. for
marketing and financial consulting services. On June 23, 1999, we issued
175,000 shares to IP Equity for investor relations and
II-3
<PAGE>
marketing activities carried out on behalf of Information Highway.com. The
offers and sales of the shares were exempt from registration under Rule 506
under and Section 4(2) of the Securities Act of 1933.
(13) Pursuant to an Offering Memorandum dated October 6th, 1999, we
issued 125,817 units at a price of $4.00 per unit. Each unit consisted of
one common share and one warrant to purchase one additional share at $5.00
up to and including October 6th, 2000. The offering was completed on March
2, 2000 for total proceeds of $503,268. The offer and sale of the units
were exempt from registration under Rule 506 under and Section 4(2) of the
Securities Act of 1933. The Company furnished to purchasers in a timely
manner an Offering Memorandum and financial information, limited the manner
of the offering, promptly filed notices of sales, and limited the number of
non-accredited investors to 1 investor.
(14) In November 1999, we issued 20,000 shares to World of Internet.com
for marketing and financial consulting services. The offer and sale of the
shares were exempt from registration under Rule 506 under and Section 4(2)
of the Securities Act of 1933, Regulation S under the Securities Act of
1933, and beyond the jurisdiction of Section 5 of the Securities Act of
1933.
(15) In November 1999, we granted a warrant to purchase up to 400,000
shares of our common stock at a price of $3.50 per share to K&D Equities,
Inc. for marketing services. The offer and sale of the warrants were exempt
from registration under Rule 506 under and Section 4(2) of the Securities
Act of 1933.
(16) During the quarter ended November 30, 1999, we issued 295,166
shares pursuant to options exercised at between $0.50 and $4.00 per share
for total proceeds of $382,000. The sale of the shares was exempt from
registration under Rule 701 under Section 3(b) of the Securities Act of
1933. The sales were made on exercise of grants under our written stock
option plan, a copy of which we have provided to participants. In the event
Rule 701 is not available, we believe that 60,000 shares were also exempt
from registration under Rule 506 under and Section 4(2) of the Securities
Act of 1933. If the foregoing exemptions are not available, we further
believe that $344,500 of these sales were also exempt under Regulation S
under the Securities Act of 1933, as amended, due to the foreign
nationality of the relevant purchasers.
(17) On December 1, 1999, we entered into an agreement with Garry Savage
issuing 100,000 warrants to acquire 100,000 shares exercisable at $4.00 per
share expiring December 1, 2002. Copies of the agreement and warrants are
exhibits hereto. The offer and sale of the warrants were exempt from
registration under Rule 506 and Section 4(2) of the Securities Act of 1933.
(18) On March 3, 2000 we entered into a Securities Purchase Agreement
with Senasqua Investors LLC pursuant to which we issued debentures in the
principal amount of $1,500,000 maturing March 3, 2002, and warrants to
acquire 225,000 shares exercisable at $6.22875 per share expiring March 3,
2002. The aggregate purchase price for the debentures and warrants was
$1,500,000. The offer and sale of the warrants and debentures were exempt
from registration under Rule 506 and Section 4(2) of the Securities Act of
1933.
Set forth below is information regarding the issuance and sales of
securities of Information Highway, Inc. without registration during the
past three years. No such sales involved the use of an underwriter and no
commissions were paid in connection with the sale of any securities.
(19) Information Highway, Inc. conducted an offering to its founders,
some of whom purchased through controlled affiliates, beginning in December
1996. On completion of the offering in March 1997, a total of 600,000
shares were issued at $0.10 per share for total proceeds of $60,000. The
offer and sale of the shares were exempt from registration under Rule 504
and Rule 506 of Regulation D under Sections 3(b) and 4(2), respectively, of
the Securities Act of 1933, and under Section 4(2) of the Securities Act of
1933. If the foregoing exemptions are not available, these sales were
exempt under Regulation S under the Securities Act of 1933 due to the
foreign nationality of the purchasers or their ultimate beneficial owners.
(20) In December 1996, Information Highway, Inc. commenced an offering
of common stock pursuant to an Offering Memorandum. On completion of the
offering in March 1997, a total of 500,000 shares were issued at $0.50 per
share for total proceeds of $250,000. The offer and sale of the units were
exempt from registration under Rule 504 and Rule 506 of Regulation D under
Sections 3(b) and 4(2),
II-4
<PAGE>
respectively, of the Securities Act of 1933. Information Highway, Inc.
furnished to purchasers in a timely manner an Offering Memorandum and
financial information, limited the manner of the offering, promptly filed
notices of sales, and limited the number of non-accredited investors to 14
investors. If the foregoing exemptions are not available, $89,750 of these
sales were exempt under Regulation S under the Securities Act of 1933 due
to the foreign nationality of the purchasers.
(21) Information Highway, Inc. conducted three acquisitions that were
exempt from registration under Regulation S under the Securities Act of
1933 due to the foreign nationality of the persons who accepted shares of
Information Highway, Inc. in exchange for their holdings in the acquired
companies: (i) In February 1997, of YesIC, Communications, Inc., in
exchange for the issue of 3,105,000 shares to 17 foreign persons; (ii) In
February 1997, of World Tel, Internet (Toronto) Ltd., in exchange for the
issue of 387,000 shares to 5 foreign persons; and (iii) In December 1996,
of Blue Crow Internet Company, Ltd., in exchange for the issue of 149,000
shares to 4 foreign persons. If the exemption under Regulation S under the
Securities Act of 1933 due to the foreign nationality of the persons who
accepted shares of Information Highway, Inc. in exchange for their holdings
in the acquired companies is not available, we believe that each of the
offerings is exempt under Rule 506 under Section 4(2) of the Securities Act
of 1933 and that offerings (ii) and (iii) are exempt under Rule 504 under
Section 3(b) of the Securities Act of 1933.
(22) In April 1997, Mr. Robertson purchased 1,000 shares at $0.50 per
share, which he then gifted to a family friend as a bar mitzvah present. In
October 1996 Mr. Robertson purchased 15,000 shares at $0.10 per share as a
founder of Information Highway, Inc. The offer and sale of the shares were
exempt from registration under Rule 506 of Regulation D under Section 4(2)
of the Securities Act of 1933 and under Section 4(2) of the Securities Act
of 1933. If the foregoing exemptions are not available, these sales were
exempt under Regulation S under the Securities Act of 1933 due
Mr. Robertson's foreign nationality.
(23) In April 1998, Information Highway, Inc. concluded an offering of
units pursuant to an Offering Memorandum. Each unit consisted of one common
share and one warrant to acquire an additional share at $1.00 per share by
December 30, 1999. On completion of the offering, a total of 139,650 units
were issued at $0.75 per unit for total proceeds of $100,987.50. The offer
and sale of the units were exempt from registration under Rule 504 and Rule
506 of Regulation D under Sections 3(b) and 4(2), respectively, of the
Securities Act of 1933. Information Highway, Inc. furnished to purchasers
in a timely manner an Offering Memorandum and financial information,
limited the manner of the offering, promptly filed notices of sales, and
limited the number of non-accredited investors to 1 investor.
(24) In January 1999, Information Highway, Inc. concluded an offering of
units pursuant to an Offering Memorandum. Each unit consisted of one common
share and one warrant to acquire an additional share at $1.00 per share by
December 30, 1999. Due to a mix-up in connection with changing its bank, we
inadvertently overlooked deposits of $15,000 received during the offering
for an additional 20,000 units. Including these units that should have been
issued at the closing of the offering, a total of 754,000 units were issued
at $0.75 per unit for total proceeds of $565,500. The offer and sale of the
units were exempt from registration under Rule 504 of Regulation D under
Section 3(b) of the Securities Act of 1933. If the exemption under Rule 504
of Regulation D is not available, $90,750 of these sales were exempt under
Regulation S under the Securities Act of 1933 due to the foreign
nationality of the purchasers.
Item 27. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Name
------- ----
<C> <S>
2.1* Agreement and Plan of Reorganization between the Company and
Information Highway, Inc.
3.1* Articles of Incorporation, restated as amended on February 23, 1999
and November 1, 1989
3.2* Bylaws
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
4.1* Specimen Share Certificate for Common Stock
4.2* Form of Warrants ($1.00)
4.3* Stock Option Plan
4.4* Form of Stock Option Agreement
4.5** Form of Warrants ($4.00 and $6.00)
4.6*** Form of Warrants ($3.50)
4.7****** Savage Warrants
4.8 Form of Debenture (Senasqua Investors LLC)
4.9 Warrant (Senasqua Investors LLC)
4.10 Registration Rights Agreement (Senasqua Investors LLC)
4.11 Securities Purchase Agreement (Senasqua Investors LLC)
5.1 Opinion re: Legality
10.1**** VPOP Service Agreement between MetroNet Communications and YesIC
Communications
10.2**** Level 3 Communications Terms and Conditions for Delivery of Service
10.3**** ADSL Service Agreement dated August 24, 1999, by and between Bell
Atlantic Network Integration, Inc. and Information Highway.com,
Inc.
10.4***** IP Equity Marketing and Financial Consulting Agreement
10.5****** Savage Agreement
23.1 Consent of Independent Auditors.
23.2 Consent of Counsel (see Exhibit 5.1).
27.1****** Financial Data Schedule.
</TABLE>
- --------
* Incorporated by reference from our registration statement on form 10-SB
filed with the Securities and Exchange Commission on April 14, 1999.
** Incorporated by reference from Amendment No. 1 to our registration
statement on Form 10-SB filed with the Securities and Exchange
Commission on October 12, 1999.
*** Incorporated by reference from our quarterly report on Form 10-QSB for
the quarterly period ended November 30, 1999, filed with the Securities
and Exchange Commission on January 14, 2000.
**** Incorporated by reference from our annual report on Form 10-KSB for the
fiscal year ended May 31, 1999, filed with the Securities and Exchange
Commission on October 6, 1999.
***** Incorporated by reference from our quarterly report on Form 10-QSB for
the quarterly period ended August 31, 1999, filed with the Securities
and Exchange Commission on October 15, 1999.
****** Incorporated by reference from our quarterly report on Form 10-QSB for
the quarterly period ended February 29, 2000, filed with the Securities
and Exchange Commission on April 14, 2000.
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration
II-6
<PAGE>
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 prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Vancouver, Province of
British Columbia, CANADA, on May 11, 2000.
Information Highway.com Inc.
/s/ John G. Robertson
By: _________________________________
John G. Robertson
Its President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John G. Robertson President, Principal May 11, 2000
______________________________________ Executive Officer
John G. Robertson
/s/ Jennifer Lorette Executive Vice President, May 11, 2000
______________________________________ Secretary/Treasurer,
Jennifer Lorette Principal Accounting
Officer and Chief
Financial Officer
/s/ John G. Robertson Director May 11, 2000
______________________________________
John G. Robertson
/s/ Jennifer Lorette Director May 11, 2000
______________________________________
Jennifer Lorette
/s/ Donna Moroney Director May 11, 2000
______________________________________
Donna Moroney
/s/ James L. Vandeberg Director May 9, 2000
______________________________________
James L. Vandeberg
</TABLE>
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Name
------- ----
<C> <S>
2.1* Agreement and Plan of Reorganization between the Company and
Information Highway, Inc.
3.1* Articles of Incorporation, restated as amended on February 23, 1999
and November 1, 1989
3.2* Bylaws
4.1* Specimen Share Certificate for Common Stock
4.2* Form of Warrants ($1.00)
4.3* Stock Option Plan
4.4* Form of Stock Option Agreement
4.5** Form of Warrants ($4.00 and $6.00)
4.6*** Form of Warrants ($3.50)
4.7****** Savage Warrants
4.8 Form of Debenture (Senasqua Investors LLC)
4.9 Warrant (Senasqua Investors LLC)
4.10 Registration Rights Agreement (Senasqua Investors LLC)
4.11 Securities Purchase Agreement (Senasqua Investors LLC)
5.1 Opinion re: Legality
10.1**** VPOP Service Agreement between MetroNet Communications and YesIC
Communications
10.2**** Level 3 Communications Terms and Conditions for Delivery of Service
10.3**** ADSL Service Agreement dated August 24, 1999, by and between Bell
Atlantic Network Integration, Inc. and Information Highway.com,
Inc.
10.4***** IP Equity Marketing and Financial Consulting Agreement
10.5****** Savage Agreement
23.1 Consent of Independent Auditors
23.2 Consent of Counsel (see Exhibit 5.1)
27.1****** Financial Data Schedule
</TABLE>
- --------
* Incorporated by reference from our registration statement on form 10-SB
filed with the Securities and Exchange Commission on April 14, 1999.
** Incorporated by reference from Amendment No. 1 to our registration
statement on Form 10-SB filed with the Securities and Exchange
Commission on October 12, 1999.
*** Incorporated by reference from our quarterly report on Form 10-QSB for
the quarterly period ended November 30, 1999, filed with the Securities
and Exchange Commission on January 14, 2000.
**** Incorporated by reference from our annual report on Form 10-KSB for the
fiscal year ended May 31, 1999, filed with the Securities and Exchange
Commission on October 6, 1999.
***** Incorporated by reference from our quarterly report on Form 10-QSB for
the quarterly period ended August 31, 1999, filed with the Securities
and Exchange Commission on October 15, 1999.
****** Incorporated by reference from our quarterly report on Form 10-QSB for
the quarterly period ended February 29, 2000, filed with the Securities
and Exchange Commission on April 14, 2000.
<PAGE>
EXHIBIT 4.8
Exhibit A
---------
FORM OF DEBENTURE
No. 1,2,3
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION SHALL NO LONGER BE REQUIRED.
INFORMATION HIGHWAY.COM, INC.
5% CONVERTIBLE DEBENTURE
$500,000 March 3, 2000
New York, New York
1. Consideration. FOR VALUE RECEIVED, INFORMATION HIGHWAY.COM, INC.
a Florida corporation (the "undersigned" or the "Company"), hereby promises to
pay to the order of Senasqua Investors LLC, at its offices located at 110
Colabaugh Pond Road, Croton-on-Hudson, New York 10520 or at such other place as
the holder hereof (the "holder" or the "Registered Holder") shall designate to
the undersigned in writing, in lawful money of the United States of America or
in New York Clearing House Funds, the principal amount of Five Hundred Thousand
Dollars on the Maturity Date (as defined below). Interest shall accrue on the
outstanding principal balance at the interest rate of five (5%) percent per
annum. For purposes of calculating interest accrued hereon, interest shall be
calculated on the basis of the actual number of days elapsed in a 360 day year.
This Debenture is one of three (3) Debentures issued to the Registered Holder on
the date hereof in the aggregate principal amount of one million five hundred
thousand dollars ($1,500,000). The undersigned promises to pay the said
principal sum in accordance with the terms of this Debenture (as defined below).
2. Payment. On March 3, 2002 (the "Maturity Date") the undersigned
shall pay the holder all unpaid principal and interest, if any, on this
Debenture. At the Company's option, any interest payment required to be paid on
this Debenture may be made in the form of the issuance to the holder of the
Company's common stock, par value $.0001 per share (the "Common Stock"), with
the number of shares of such Common Stock to be payable in lieu of such interest
payments to be determined in accordance with the provisions of Section 6, as if
such interest payment were a portion of the principal amount of the Debenture to
be converted into Common Stock.
<PAGE>
Principal and interest shall be payable at the most recent address as
the Registered Holder shall have designated to the Company in writing. No
payment of the principal of this Debenture may be made prior to the Maturity
Date by the Company without the consent of the Registered Holder, except as
otherwise provided herein.
3. Overdue Interest Payments. Interest on the indebtedness evidenced
by this Debenture after default or maturity accelerated or otherwise shall be
due and payable at the rate of ten (10%) percent per annum, subject to the
limitations of applicable law.
4. Holidays. If this Debenture or any installment hereof becomes due
and payable on a Saturday, Sunday or public holiday under the laws of the State
of New York, the due date hereof shall be extended to the next succeeding
business day and interest shall be payable at the rate of five (5%) percent per
annum during such extension. All payments received by the holder shall be
applied first to the payment of all accrued interest payable hereunder.
5. Issuance of Debentures. This Debenture has been issued by the
Company pursuant to the authorization of the Board of Directors of the Company
(the "Board") and issued pursuant to a Securities Purchase Agreement, dated as
of the date hereof, by and between the Company and the Purchaser identified
therein (the "Securities Purchase Agreement"). Pursuant to the Securities
Purchase Agreement, the Company issued $1,500,000 principal amount of the
Debentures and warrants to purchase (the "Warrants") 225,000 shares of the
Company's Common Stock. The Securities Purchase Agreement contains certain
additional terms that are binding upon the Company and each Registered Holder of
the Debentures. A copy of the Securities Purchase Agreement may be obtained by
any registered holder of the Debentures from the Company upon written request.
Capitalized terms used but not defined herein shall have the meanings set forth
in the Securities Purchase Agreement, including the Exhibits thereto. This
Debenture and the other 5% Convertible Debentures due 2002 issued by the
Company pursuant to the terms of the Securities Purchase Agreement, together
with any debentures from time to time issued in replacement thereof, whether
pursuant to transfer and assignment, partial conversion thereof or otherwise,
are collectively referred to herein as the "Debentures."
6. Conversion.
(a) Subject to and in compliance with the provisions hereof, the
holder shall have the right to convert all or a portion of the outstanding
principal amount of this Debenture into such number of shares of Common Stock
(the shares of Common Stock issuable upon conversion of, and issuable in lieu of
interest payments on, this Debenture, if any, are hereinafter referred to as the
"Conversion Shares") as shall equal the quotient obtained by dividing (x) the
principal amount of this Debenture to be converted by (y) the Applicable
Conversion Price (as hereinafter defined) and by surrender of this Debenture,
such surrender to be made in the manner provided herein.
(b) For purposes hereof the term "Applicable Conversion Price" shall
mean the lesser of (i) $6.22875 (the "Fixed Price") and (ii) the product
obtained by multiplying (x) the Average Closing Price (as hereinafter defined)
by (y) .80.
2
<PAGE>
For purposes hereof the "Average Closing Price" with respect to any
conversion elected to be made by the holder shall be the average of the five (5)
lowest daily closing bid prices (each such price is referred to individually as
a "Floating Reference Price" and, collectively, as the "Floating Reference
Prices") during the twenty (20) trading days immediately preceding the date on
which the holder gives the Company a written notice of the holder's election to
convert outstanding principal of this Debenture. The closing bid price on any
trading day shall be (a) if the Common Stock is then listed or quoted on either
the OTC Bulletin Board, the NASDAQ SmallCap Market or the NASDAQ National
Market, the reported closing bid price for the Common Stock as reported by
Bloomberg, L.P. ("Bloomberg") or The Wall Street Journal (the "Journal") or on
such day (or, if not so reported, as otherwise reported by The NASDAQ Small Cap
Market, NASDAQ National Market or the OTC Bulletin Board, as the case may be),
(b) if the Common Stock is listed on either the American Stock Exchange or New
York Stock Exchange, the closing bid price for the Common Stock on such exchange
on such day as reported by Bloomberg or the Journal or (c) if neither (a) nor
(b) apply but the Common Stock is quoted in the over-the-counter market, another
recognized exchange, or on the pink sheets, the last reported bid price thereof
on such date. If the prices of the Common Stock cannot be calculated on such
date on any of the foregoing bases, such prices on such date shall be the fair
market value as mutually determined by the Company and the Registered Holder for
which the calculation is required in order to determine the Applicable
Conversion Price; provided, however, that if the Company and the Registered
Holder are unable to mutually determine the fair market value, such fair market
value shall be determined by a nationally recognized investment banking firm or
firm of independent chartered accountants of recognized standing (which firm may
be the firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the Board and holders of a majority in
interest of the Debentures. "Trading day" shall mean any day on which the
Company's Common Stock is traded for any period on the principal securities
exchange or other securities market on which the Common Stock is then being
traded.
(c) If, during any period following March 3, 2000 (the "Original Issue
Date"), as a result of the occurrence of any of the events set forth in Section
3(f) or 3(g) of the Registration Rights Agreement, dated as of March 3, 2000, by
and between the Company and the Purchaser set forth therein (the "Registration
Rights Agreement"), the Purchaser set forth therein is not able to sell shares
of Common Stock issuable upon conversion of, or in lieu of interest payments on,
this Debenture pursuant to a registration statement filed pursuant to such
agreement, the Registered Holder shall have the right, for any purpose under
this Debenture during such period and thereafter, to designate as the Applicable
Conversion Price any Conversion Price that would have been applicable during
such period had the Registered Holder delivered a Notice of Conversion with
respect to any portion of this Debenture. "Conversion Date" shall have the
meaning given such term in Section 5(b) of the Securities Purchase Agreement.
(d) The Registered Holder shall convert this Debenture in accordance
with Section 5(b) of the Securities Purchase Agreement. If the Company fails to
deliver to the holder a certificate or certificates for shares of Common Stock
in the period set forth in the
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Securities Purchase Agreement, the Company shall make certain payments to the
holder in accordance with Section 5(d) of the Securities Purchase Agreement.
(e) If the entire outstanding principal amount of this Debenture is
not converted, the Company shall also issue and deliver to such holder a new
Debenture of like tenor in the principal amount equal to the principal which was
not converted and dated the Original Issue Date. Each conversion shall be deemed
to have been effected immediately prior to the close of business on the date on
which a Notice of Conversion shall have been delivered as aforesaid, and the
person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented thereby at
such time on such date.
(f) All shares of Common Stock delivered upon conversion of, or in
lieu of interest payments on, this Debenture will, upon delivery, be duly
authorized, validly issued and fully paid and nonassessable.
(g) No fractional shares of Common Stock shall be issued upon
conversion of, or in lieu of interest payments on, this Debenture. Instead of
any fractional share of Common Stock which would otherwise be deliverable upon
the conversion of, or in lieu of interest payments on, the principal of this
Debenture, the Company shall pay to the holder an amount in cash (computed to
the nearest cent) equal to the Average Closing Price multiplied by the fraction
of a share of Common Stock represented by such fractional interest.
(h) The issuance of certificates for shares of Common Stock upon any
conversion of, or in lieu of interest payments on, this Debenture shall be made
without charge to the payee hereof for any tax or other expense in respect to
the issuance of such certificates, all of which taxes and expenses shall be paid
by the Company, and such certificates shall be issued only in the name of the
registered holder of this Debenture.
(i) Notwithstanding anything herein to the contrary, at no time shall
the Registered Holder (including its officers, directors and affiliates)
maintain in the aggregate beneficial ownership (as defined for purposes of
Section 16 of the Securities Exchange Act of 1934, as amended) of shares of
Common Stock in excess of 4.999% of the Company's outstanding Common Stock and
accordingly, the Registered Holder may only convert this Debenture up to the
point where its aggregate beneficial ownership (as defined for purposes of
Section 16 of the Securities Exchange Act of 1934, as amended) of shares of
Common Stock is equal to or less than 4.999% of the Company's outstanding Common
Stock.
7. Redemption by Company.
(a) If, after the Original Issue Date, there shall occur a Change in
Control of the Company (as defined below), then, at the option of the Registered
Holder, the Company shall, on the effective date of and subject to the
consummation of such Change in Control, redeem this Debenture for cash from the
Registered Holder at a redemption price equal to one hundred twenty percent
(120%) of the aggregate principal and accrued interest
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outstanding under this Debenture. Nothing in this subsection shall limit the
Registered Holder's right to convert this Debenture on or prior to such Change
in Control. For purposes hereof, a "Change in Control" shall be deemed to have
occurred if (A) any person or group (as defined for purposes of Regulation 13D
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) shall
have become the beneficial owner or owners of more than fifty percent (50%) of
the outstanding voting stock of the Company; (B) there shall have occurred a
merger or consolidation in which the Company or an affiliate of the Company is
not the survivor or in which holders of the Common Stock of the Company shall
have become entitled to receive cash, securities of the Company other than
voting common stock or securities of any other person; (C) at any time persons
constituting the Existing Board of Directors cease for any reason whatsoever to
constitute at least a majority of the members of the Board of Directors of the
Company; or (D) there shall have occurred a sale of all or substantially all the
assets of the Company. For purposes hereof, the term "Existing Board of
Directors" shall mean the persons constituting the Board of Directors of the
Company on the date hereof, together with each new director whose election, or
nomination for election by the Company's stockholders is approved by a vote of
the majority of the members of the Existing Board of Directors who are in office
immediately prior to the election or nomination of such director.
(b) In the event that the Company is subject to NASDAQ Rule 4310 or
4460, if prior to the time the stockholders of the Company shall have approved
the transactions contemplated by the Securities Purchase Agreement as provided
in clause (B) below, the number of shares of Common Stock issued (i) upon
conversion of the Debentures and (ii) in lieu of interest payments on the
Debentures, if any, (collectively, the "Conversion Shares"), shall be equal to
or more than 19.9% of the number of the shares of capital stock outstanding on
the Closing Date (a "Redemption Event"), the Company shall have the option to
(A) redeem the outstanding principal amount of this Debenture at the redemption
price of one hundred twenty percent (120%) of the principal amount hereof plus
accrued interest on this Debenture, if any, or (B) call a special meeting of its
stockholders for the purpose of approving the transactions contemplated by the
Securities Purchase Agreement, including the issuance of the Debentures and
Warrants on the terms set forth therein, together with any other approvals that
shall be required so as to cause the transactions contemplated by the Securities
Purchase Agreement to remain in compliance with the Rules and Regulations of
Nasdaq (including Rule 4460 of Nasdaq's Non-Qualitative Designation Criteria on
the occurrence of a Redemption Event; such approvals are referred to herein as
the "Required Approvals"). The Company shall determine within five (5) business
days following the occurrence of any Redemption Event which of such actions it
shall take, and shall promptly furnish notice to the Purchaser as to such
determination, including, if applicable, a notice of redemption. If the Company
does not make a determination within such five (5) day period, this Debenture
shall be redeemed the first business day following the end of such five (5) day
period, if any, at the redemption price of one hundred twenty percent (120%) of
the principal amount hereof plus accrued interest on the Debenture, if any.
(c) If the Company elects to call a special meeting of its
stockholders pursuant to Section 6(b) to obtain the Required Approvals, the
Company shall obtain such Required Approvals within thirty (30) days of the
distribution of the notice described in such Section (such thirty (30) day
period is referred to herein as an "Approval Period"). If such approval is not
obtained within the Approval Period, this Debenture shall be redeemed on the
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first business day following the Approval Period at the redemption price of one
hundred twenty percent (120%) of the principal amount hereof plus accrued
interest on the Debenture, if any.
(d) If the Company fails to have a registration statement effective
within one hundred fifty (150) days of the date of the Stock Purchase Agreement,
at the option of the Purchaser, the Company shall redeem these Debentures at a
redemption price of one hundred twenty percent (120%) of the principal amount
hereof plus accrued and unpaid interest thereon, if any.
(e) If the Company shall be required to redeem the Debentures pursuant
to any of the terms or conditions set forth in this Section 7, the Company shall
remit the redemption price to the Registered Holder thereof immediately upon
such redemption.
8. Covenants.
(a) The Company will pay all taxes, assessments and governmental
charges lawfully levied or assessed upon it, its property and any part thereof,
and upon its income for profits, and any part thereof, before the same shall
become delinquent; and will duly observe, and conform to, all lawful
requirements of any governmental authority relative to any of its property, and
all covenants, terms and conditions upon or under which any of its property is
held; provided that nothing in this Section shall require the Company to observe
or conform to any requirement of governmental authority so long as the validity
thereof shall be contested in good faith by appropriate proceedings or to pay
any such tax, assessment or governmental charges so long as the validity thereof
shall be contested in good faith by appropriate proceedings and adequate
reserves with respect thereto shall have been set aside on the books of the
Company.
(b) Subject to the other provisions of this Debenture, the Company at
all times will maintain its corporate existence and right to carry on its
business and will duly procure all necessary renewals and extensions thereof and
use its best efforts to maintain, preserve and renew all of its rights, powers,
privileges and franchises; provided, however, that nothing herein contained
shall be construed to prevent the Company from ceasing or omitting to exercise
any rights, powers, privileges or franchises which, in the judgment of the
Board, can no longer be profitably exercised, nor to prevent the consolidation,
merger or liquidation of any subsidiary or subsidiaries of the Company with or
into the Company.
(c) The Company will at no time close its stock transfer books against
the transfer of any shares of Common Stock issued or issuable upon the
conversion of, or in lieu of interest payments on, the Debentures, in any manner
which interferes with the timely conversion of such Debentures.
(d) As used in this Debenture, the term "Common Stock" shall include
all stock of any class or classes (however designated) of the Company,
authorized on or after the date hereof, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall
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ordinarily be entitled to vote for the election of the directors of the Company.
The Company shall not, without the prior written consent of the Registered
Holder of this Debenture, issue any shares of its capital stock, other than as
permitted by Section 4(i) of the Securities Purchase Agreement, in exchange for
Debentures as provided hereunder or upon exercise of the Warrants in accordance
with the terms thereof.
(e) The Company will not, by amendment of its Certificate of
Incorporation or By-laws or through any reorganization, recapitalization,
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 or
pursuant to the Securities Purchase Agreement by the Company, and will at all
times assist in good faith in the carrying out of all the provisions of this
Debenture and the Securities Purchase Agreement and in the taking of all such
action as may be necessary or appropriate in order to protect the conversion
rights of the Registered Holders of the Debentures against impairment.
(f) In the event of 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 (other than a cash dividend) or
other distribution, any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, the Company shall mail to each Registered Holder of the
Debentures, at least ten (10) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
9. Limitation on Certain Corporate Acts. The Company hereby
covenants and agrees that upon any consolidation or merger or upon the transfer
of all or substantially all of the property or assets of the Company, the due
and punctual payment of the principal and interest on all the Debentures
according to their tenor and the due and punctual performance and observance of
all the terms, covenants and conditions of the Debentures and the Securities
Purchase Agreement to be kept and performed by the Company shall be expressly
assumed by the corporation formed by such consolidation, or into which the
Company shall have merged or by the purchaser of such property or assets; and
such assumption shall be an express condition of such merger or consolidation
agreement or agreement for the transfer of property or assets.
10. Events of Default. In case one or more of the following events
of default shall have occurred:
(a) default in the due and punctual payment of interest upon or
principal of any of the Debentures as and when the same becomes due and payable
either at maturity or otherwise; or
(b) failure to deliver the shares of Common Stock required to be
delivered upon conversion of, or in lieu of interest payments on, the
Debentures in the manner and at the time required by Section 5 of the Securities
Purchase Agreement; or
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(c) failure of the Company to have authorized the number of shares of
Common Stock issuable upon conversion of, or in lieu of interest payments on,
the Debentures, or exercise of the Warrants; or
(d) failure on the part of the Company to duly observe or perform any
of its other covenants or agreements contained in, or to cure any material
breach in a material representation or covenant contained in the Securities
Purchase Agreement, the Debentures or the Registration Rights Agreement for a
period of ten (10) days after the date on which written notice of such failure
or breach requiring the same to be remedied has been given by a Registered
Holder to the Company; or
(e) a decree or order by a court having jurisdiction has been entered
adjudging the Company (or any Material Subsidiary (as herein after defined))
bankrupt or insolvent, or approving a petition seeking reorganization of the
Company (or any Material Subsidiary) under any applicable bankruptcy law and
such decree or order has continued undischarged or unstayed for a period of
thirty (30) days; or a decree or order of a court having jurisdiction for the
appointment of a receiver or liquidator or trustee or assignee in bankruptcy or
insolvency of the Company (or any Material Subsidiary) or of all or
substantially all of its property, or for the winding-up or liquidation of its
affairs, has been entered, and has remained in force undischarged or unstayed
for a period of thirty (30) days; or
(f) the Company (or any Material Subsidiary) institutes proceedings to
be adjudicated a voluntary bankrupt, or consents to the filing of a bankruptcy
proceeding against it, or files a petition or answer or consent seeking
reorganization under applicable law, or consents to the filing of any such
petition or to the appointment of a receiver or liquidator or trustee or
assignee in bankruptcy or insolvency of it or of all or substantially all of its
property, or makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts generally as they become due; or if the
Company (or any Material Subsidiary) shall suffer any writ of attachment or
execution or any similar process to be issued or levied against it or any
significant part of its property which is not released, stayed, bonded or
vacated within thirty (30) days after its issue or levy; or if the Company (or
any Material Subsidiary) takes corporate action in furtherance of any of the
aforesaid purposes or conditions; or
(g) if any default shall occur under any indenture, mortgage,
agreement, instrument or commitment evidencing or under which there is at the
time outstanding any indebtedness of the Company (or a Material Subsidiary), in
excess of $500,000, or which results in such indebtedness, in an aggregate
amount (with other defaulted indebtedness) in excess of $500,000 becoming due
and payable prior to its due date and if such indenture or instrument so
requires, the holder or holders thereof (or a trustee on their behalf) shall
have declared such indebtedness due and payable; or
(h) if any of the Company or its subsidiaries shall default in the
observance or performance of any material term or provision of a material
agreement to which it is a party or by which it is bound, and such default is
not waived or cured within the applicable grace period; or
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(i) if a final judgment which, either alone or together with other
outstanding final judgments against the Company and its subsidiaries, exceeds an
aggregate of $500,000 shall be rendered against the Company (or any Material
Subsidiary) and such judgment shall have continued undischarged or unstayed for
thirty (30) days after entry thereof;
then, in each and every such case other than those specified in clauses (e) and
(f) above, so long as such event of default has not been remedied and unless the
principal of all the Debentures has already become due and payable, the holder
of this Debenture, by notice in writing to the Company, may declare the
principal of this Debenture and the interest accrued thereon, if not already due
and payable, to be due and payable immediately, and upon any such declaration
the same shall become and shall be immediately due and payable, anything herein
contained to the contrary notwithstanding and, upon the occurrence of the events
specified in clauses (e) and (f) above, such principal and interest shall
automatically become and shall be due and payable immediately without any action
on the part of any holder of Debentures, anything herein contained to the
contrary notwithstanding.
For purposes of this Section 10, "Material Subsidiary" means any
subsidiary with respect to which the Company has directly or indirectly
invested, loaned, advanced or guaranteed the obligations of, an aggregate amount
exceeding fifteen percent (15%) of the Company's gross assets, or the Company's
proportionate share of the assets or net income of which (based on the
subsidiary's most recent financial statements) exceed fifteen percent (15%) of
the Company's gross assets or net income, respectively, or the gross revenues of
which exceed fifteen percent (15%) of the gross revenues of the Company based
upon the most recent financial statements of such subsidiary and the Company.
11. Transferability. This Debenture is transferable, in whole or in
part, only in accordance with the terms of Section 5 of the Securities Purchase
Agreement. The Registered Holder may submit a written request, in person or by
his duly authorized attorney, for a transfer of this Debenture on the register
of the Company maintained at its principal offices. The Company may deem and
treat the person in whose name this Debenture is registered as the absolute
owner hereof, for the purpose of receiving payment of the principal thereof and
interest hereon, whether or not the same shall be overdue, and for all other
purposes whatsoever, including but without limitation, the giving of any written
notices required hereunder, and the Company shall not be affected by any notice
to the contrary.
12. Stock Splits; Dividends; Adjustments; Reorganizations.
(a) If the Company, at any time after the Original Issue Date, (i)
shall pay a stock dividend or otherwise make a distribution or distributions on
any equity securities (including investments or securities convertible into or
exchangeable for such equity securities) in shares of Common Stock, (ii) issue
any securities payable in shares of Common Stock, (iii) subdivide the
outstanding shares of Common Stock into a larger number of shares, (iv) combine
outstanding shares of Common Stock into a smaller number of shares, the Fixed
Price and each Floating Reference Price prior to the date of any such occurrence
(collectively, the "Reference Prices") shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding
before such event and of which the denominator shall be the number
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of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 12(a) shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of an issuance, a subdivision or a combination.
(b) In the event that the Company, at any time after the Original
Issue Date, issues or sells any Common Stock or securities which are convertible
into or exchangeable for its Common Stock or any convertible or exchangeable
securities, or any warrants or other rights to subscribe for or to purchase or
any options for the purchase of its Common Stock or any such convertible or
exchangeable securities (other than shares or options issued pursuant to the
Company's employee or director option plans or shares issued upon exercise of
options, warrants or rights outstanding on the date of the Securities Purchase
Agreement and listed in the Company's most recent periodic report filed under
the Exchange Act) at an effective purchase price per share which is less than
the Fixed Price then in effect, then the Fixed Price in effect immediately prior
to such issue or sale shall be reduced effective concurrently with such issue or
sale to an amount determined by multiplying such Fixed Price then in effect by a
fraction, (x) the numerator of which shall be the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale, plus
(2) the number of shares of Common Stock which the aggregate consideration
received by the Company for such additional shares would purchase at such Fixed
Price then in effect; and (y) the denominator of which shall be the number of
shares of Common Stock of the Company outstanding immediately after such issue
or sale.
For the purposes of the foregoing adjustment, in the case of the
issuance of any convertible or exchangeable securities, warrants, options or
other rights to subscribe for or to purchase or exchange for, shares of Common
Stock ("Exchangeable Securities"), the maximum number of shares of Common Stock
issuable upon exercise, conversion or exchange of such Exchangeable Securities
shall be deemed to be outstanding, provided that no further adjustment shall be
made upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Exchangeable Securities.
(c) If the Company, at any time after the Original Issue Date, shall
distribute to all holders of Shares of Common Stock evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Section 12(b) above) then in each such
case the Fixed Price thereafter shall be determined by multiplying the Fixed
Price in effect immediately prior to the record date fixed for determination of
shareholders entitled to receive such distribution by a fraction of which the
denominator shall be the Market Price for Shares of Common Stock (as defined
below) determined as of the record date mentioned above, and of which the
numerator shall be such Market Price for Shares of Common Stock on such record
date less the then fair market value at such record date of the portion of such
assets or evidences of indebtedness so distributed applicable to one outstanding
share of Common Stock as determined by the Board in good faith; provided,
however that in the event of a distribution exceeding twenty-five percent (25%)
of the net assets of the Company, such fair market value shall be determined by
an Appraiser selected in good faith by the Board and holders of a majority in
interest of the Debentures. In either case the adjustments shall be described
in a statement provided to all holders of Debentures of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one outstanding
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share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
"Market Price for Shares of Common Stock" shall mean the price of
one share of Common Stock determined as follows:
(i) If the Common Stock is then listed or quoted on either the OTC
Bulletin Board, the NASDAQ SmallCap Market or the NASDAQ National Market, the
reported closing bid price for the Common Stock as reported by Bloomberg or the
Journal on such day (or, if not so reported, as otherwise reported by The NASDAQ
Small Cap Market, NASDAQ National Market or the OTC Bulletin Board, as the case
may be);
(ii) If the Common Stock is listed on the New York Stock Exchange or
the American Stock Exchange, the closing bid price for the Common Stock on such
exchange on such day as reported by Bloomberg or the Journal;
(iii) If neither (i) nor (ii) apply but the Common Stock is quoted
in the over-the-counter market, another recognized exchange or on the pink
sheets, the last reported bid price thereof on such date; and
(iv) If neither clause (i), (ii) or (iii) above applies, the market
value as determined by a nationally recognized investment banking firm or other
nationally recognized financial advisor retained by the Company for such
purpose, taking into consideration, among other factors, the earnings history,
book value and prospects for the Company, and the prices at which shares of
Common Stock recently have been traded. Such determination shall be conclusive
and binding on all persons.
(d) (1) In the event that at any time or from time to time after the
Original Issue Date, the Common Stock issuable upon the conversion of, or in
lieu of interest payments on, the Debentures is changed into the same or a
different number of shares of any class or classes of stock, whether by merger,
consolidation, recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or reorganization
provided for elsewhere in this Paragraph 12), then and as a condition to each
such event provision shall be made in a manner reasonably acceptable to the
holders of Debentures so that each holder of Debentures shall have the right
thereafter to convert such Debenture into, and to receive in lieu of interest
payments, the kind of stock receivable upon such recapitalization,
reclassification or other change by holders of shares of Common Stock, all
subject to further adjustment as provided herein. In such event, the formulae
set forth herein for conversion and redemption shall be equitably adjusted to
reflect such change in number of shares or, if shares of a new class of stock
are issued, to reflect the market price of the class or classes of stock
(applying the same factors used in determining the Fixed Price) issued in
connection with the above described transaction.
(2) If at any time or from time to time after the Closing Date there
is a capital reorganization of the Common Stock, including by way of a sale of
all or substantially all of the assets of the Company (other than a
recapitalization, subdivision,
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combination, reclassification or exchange of shares provided for elsewhere in
this Paragraph 12), then, as a part of and a condition to such reorganization,
provision shall be made in a manner reasonably acceptable to the holders of the
Debentures so that the holders of the Debentures shall thereafter be entitled to
receive upon conversion of, or in lieu of interest payments on, the Debentures
the number of shares of stock or other securities or property to which a holder
of the number of shares of Common Stock deliverable upon conversion, or in lieu
of interest payments on, the Debentures would have been entitled on such capital
reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Paragraph 12 with respect to the rights of
the holders of the Debentures after the reorganization to the end that the
provisions of this Paragraph 12 shall be applicable after that event and be as
nearly equivalent as may be practicable, including, by way of illustration and
not limitation, by equitably adjusting the formulae set forth herein for
conversion and redemption to reflect the market price of the securities or
property (applying the same factors used in determining the Market Price for
Shares of Common Stock) issued in connection with the above described
transaction.
(e) If at any time during the period ending twelve (12) months after
the Original Issue Date, the Company sells or agrees to sell (including
pursuant to a letter of intent, term sheet, or similar means) shares of Common
Stock or securities or options convertible into, exercisable for, or
exchangeable for, shares of Common Stock (other than (i) a sale pursuant to a
bona fide registered public offering of shares of Common Stock by the Company
conducted on the basis of a firm commitment underwriting raising at least
$10,000,000 and (ii) shares or options issued pursuant to the Company's
employee, director or consultant stock option plans) then, if the effective or
maximum sales price of the shares of Common Stock with respect to such
transaction (including the effective or maximum conversion exercise or exchange
price) ("Other Price") is less than the Fixed Price of the Debentures at such
time, the Company, at the option of a holder exercised by written notice to the
Company, shall adjust the Fixed Price applicable to the Debentures of such
holder not yet converted in form and substance reasonably satisfactory to such
holder of Debentures so that the conversion price applicable to those Debentures
shall, in no event, be greater, after giving effect to all other adjustments
contained therein, than the Other Price.
(f) Whenever any element of the Applicable Conversion Price is
adjusted pursuant to Section 12(a), (b), (c), (d) or (e), the Company shall
promptly mail to each holder of the Debentures, a notice setting forth the
Applicable Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(g) In the event of any taking by the Company of a record date 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, any
security or right convertible or exchangeable into or entitling the holder
thereof to receive additional shares of Common Stock, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company, shall
deliver to each holder of Debentures at least thirty (30) days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution, security or right and
the amount and character of such dividend, distribution, security or right.
12
<PAGE>
13. Remedies Cumulative. The rights, powers and remedies given to
the payee under this Debenture shall be in addition to all rights, powers and
remedies given to it by virtue of the Securities Purchase Agreement, any
document or instrument executed in connection therewith, or any statute or rule
of law.
14. Non-Waiver. Any forbearance, failure or delay by the payee in
exercising any right, power or remedy under this Debenture, the Securities
Purchase Agreement, any documents or instruments executed in connection
therewith or otherwise available to the payee shall not be deemed to be a waiver
of such right, power or remedy, nor shall any single or partial exercise of any
right, power or remedy preclude the further exercise thereof.
15. Modifications and Waivers. No modification or waiver of any
provision of this Debenture, the Securities Purchase Agreement or any documents
or instruments executed in connection therewith shall be effective unless it
shall be in writing and signed by the payee, and any such modification or waiver
shall apply only in the specific instance for which given.
16. Attorney's Fees. If this Debenture shall not be paid when due
and shall be placed by the Registered Holder hereof in the hands of an attorney
for collection, through legal proceedings or otherwise, or if this Debenture
shall not be converted into shares of Common Stock on the Conversion Date,
subject to the provisions of Section 6 hereof, and an action is brought by the
Registered Holder with respect thereto, the Company shall pay attorney's fees to
the Registered Holder hereof, together with reasonable costs and expenses of
collection or enforcement incurred in connection with any such action.
17. Enforcement; Specific Performance. (a) In case any one or more
Events of Default shall occur and be continuing, a Registered Holder of a
Debenture then outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law. Each holder
agrees that it will give written notice to the other holders prior to
instituting any such action.
(b) The Company expressly agrees that each Registered Holder may not
have adequate remedies at law if the Company does not perform its obligations
under this Debenture. Upon a breach of the terms or covenants of this Debenture
by the Company, the Registered Holder shall, each in addition to all other
remedies, be entitled to obtain injunctive relief, and an order for specific
performance of the Company's obligations hereunder.
18. Governing Law. This Debenture and the rights and obligations of
the parties hereto, shall be governed, construed and interpreted according to
the laws of the State of New York. The Company agrees that any final judgment
after exhaustion of all appeals or the expiration of time to appeal in any such
action or proceeding shall be conclusive and binding, and may be enforced in any
federal or state court in the United States by suit on the judgment or in any
other manner provided by law. Nothing contained in this Debenture shall affect
or limit the right of the Registered Holder to serve any process or notice or
motion or other application in
13
<PAGE>
any other manner permitted by law, or limit or affect the right of the
Registered Holder to bring any action or proceeding against the Company or any
of its property in the courts of any other jurisdiction. The Company hereby
consents to the jurisdiction of the federal courts whose districts encompass any
part of the City of New York or the state courts of the State of New York
sitting in the City of New York in connection with any dispute arising under
this Debenture, and hereby waives, to the maximum extent permitted by law, any
objection, including any objections based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions.
19. Payee Defined. The term "payee" as used herein shall be deemed
to include the payee and its successors, endorsees and assigns.
20. Waiver of Presentment, etc. The undersigned hereby waives
presentment, demand for payment, protest, notice of protest and notice of non-
payment hereof.
21. Headings. The headings contained in this Debenture are for
reference purposes only and shall not affect the meaning of interpretation of
this Debenture.
22. Notices. Any notice to any party required or permitted hereunder
shall be given in writing (unless otherwise specified herein) and shall be
effective upon personal delivery, via facsimile (upon receipt of confirmation of
error-free transmission) or two business days following deposit of such notice
with an internationally recognized courier service, with postage prepaid and
addressed to such party at the address set forth in the first paragraph of this
Agreement with a copy to the Company at the address set forth below, and to the
other parties thereunto entitled at the following addresses, or at such other
addresses as a party may designate by five days advance written notice to each
of the other parties hereto.
Company: Information Highway.com, Inc.
#185-10751 Shellbridge Way
Richmond, British Columbia V6X 2W8
Attention: John G. Robertson, President
Tel: (604) 278-5996
Fax: (604) 278-3409
With a copy to:
Ogden Murphy Wallace P.L.L.C.
2100 Westlake Center Tower
1601 Fifth Avenue
Seattle, Washington 98101-1686
Attention: James L. Vandeberg, Esq.
Tel: (206) 447-7000
Fax: (206) 447-0215
14
<PAGE>
Registered Holder: Senasqua Investors LLC
c\o WEC Asset Management LLC
110 Colabaugh Pond Road
Croton-on-Hudson, New York 10520
Attention: Daniel J. Saks
Tel: (914) 271-2211
Fax: (914) 271-0889
With a copy to:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Mark Saks, Esq.
Tel: (212) 326-0140
Fax: (212) 326-0806
23. Amendments and Modification. Changes in or additions to this
Debenture may be made, and compliance with any covenant or condition herein set
forth may be omitted only if the Company shall obtain the written consent from
the Registered Holder of this Debenture.
[SIGNATURE PAGE FOLLOWS, REMAINDER OF PAGE INTENTIONALLY BLANK]
15
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be executed as
of the date first written above.
INFORMATION HIGHWAY.COM, INC.
By:______________________________________
Name: John G. Robertson
Title: President
<PAGE>
NOTICE OF CONVERSION
The conversion form appearing below should only be executed by the
Registered Holder desiring to convert all or part of the principal amount of the
Debenture attached hereto.
CONVERSION FORM
Date: ____________________________________________
TO: INFORMATION HIGHWAY.COM, INC.
The undersigned hereby exercises the conversion privilege upon the
terms and conditions set forth in the attached Debenture, to the extent of the
maximum number of shares of Common Stock issuable pursuant to the terms of
Section 6 of the Debenture, and accordingly, authorizes the Company to apply
$__________ principal amount of the attached Debenture to payment in full for
such shares of Common Stock. Please register such shares and make delivery
thereof as follows:
Registered in the Name of (Giving First or Middle Name in Full)
Name ______________________________________________
(Please Print)
Address ___________________________________________
<PAGE>
DELIVERY INSTRUCTIONS
To be completed ONLY if Certificates are to be mailed to persons other
than the Registered Holder.
Name ______________________________________________
(Please Print)
Address ___________________________________________
Signature _________________________________________
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfer
unto _______________________________________________________ the within
Debenture and all rights thereunder, hereby irrevocably authorizing the Company
to transfer said Debenture on the books of the Company, with full power of
substitution in the premises.
Dated:_____________________________________________
Signature:_________________________________________
Print Name:________________________________________
<PAGE>
EXHIBIT 4.9
EXHIBIT B
---------
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER OR ANY STATE SECURITIES LAWS OR THE PROVISIONS OF THIS
WARRANT.
No. of Shares of Common Stock: 225,000
WARRANT
To Purchase Common Stock of
INFORMATION HIGHWAY.COM, INC.
THIS IS TO CERTIFY THAT Senasqua Investors LLC, a Delaware limited
liability company, or its registered assigns, is entitled, at any time from the
Warrant Issuance Date (as hereinafter defined) to the Expiration Date (as
hereinafter defined), to purchase from Information Highway.com, Inc., a Florida
corporation (the "Company"), two hundred twenty-five thousand (225,000) shares
of Common Stock (as hereinafter defined and subject to adjustment as provided
herein), in whole or in part, including fractional parts, at a purchase price
per share equal to $6.22875 (subject to any adjustments made to such amount
pursuant to Section 4 hereto) on the terms and conditions and pursuant to the
provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, other than Warrant Stock.
"Book Value" shall mean, in respect of any share of Common Stock on
any date herein specified, the consolidated book value of the Company as of the
last day of any month immediately preceding such date, divided by the number of
Fully Diluted Outstanding shares of Common Stock as determined in accordance
with GAAP (assuming the payment of the exercise prices for such shares) by a
firm of independent certified public accountants of recognized national standing
selected by the Company and reasonably acceptable to the Holder.
"Business Day" shall mean any day that is not a Saturday or Sunday or
a day on which banks are required or permitted to be closed in the State of New
York.
"Closing Date" shall have the meaning set forth in the Securities
Purchase Agreement.
<PAGE>
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, par value $.0001 per share, of the Company as
constituted on the Closing Date, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the holders
of shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to the holders of
Common Stock of the Company in the circumstances contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for shares of
Common Stock, either immediately or upon the occurrence of a specified date or a
specified event.
"Current Warrant Price" shall mean, $6.22875 subject to any
adjustments to such amount made in accordance with Section 4 hereof.
"Debentures" shall has the meaning set forth in the Securities
Purchase Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean March 3, 2002.
"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of this Warrant, outstanding on such date,
and other options or warrants to purchase, or securities convertible into,
including without limitation the shares of Common Stock outstanding on such date
which would be deemed outstanding in accordance with GAAP for purposes of
determining book value or net income per share.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"Holder" shall mean the Person in whose name the Warrant or Warrant
Stock set forth herein is registered on the books of the Company maintained for
such purpose.
"Market Price" per Common Share means the average of the closing bid
prices of the Common Shares as reported on the National Association of
Securities Dealers Automated Quotation System for the National Market,
("NASDAQ") or, if such security is not listed or admitted to trading on the
NASDAQ, on the principal national security exchange or quotation system on which
such security is quoted or listed or admitted to trading, or, if not quoted or
listed or admitted to trading on any national securities exchange or quotation
system, the closing bid
<PAGE>
price of such security on the over-the-counter market on the day in question as
reported by the National Association of Security Dealers, Inc., or a similar
generally accepted reporting service, as the case may be, for the five (5)
trading days immediately preceding the date of determination.
"Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated a date even herewith by and between the Company and Senasqua
Investors LLC, as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which are,
or which upon their issuance on the exercise of this Warrant would be, evidenced
by a certificate bearing the restrictive legend set forth in Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated as of a date even herewith by and between the Company and
Senasqua Investors LLC, as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock
or of any interest in either thereof, which would constitute a sale thereof
within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrant Issuance Date" shall mean any date on which Warrants are
issued pursuant to the Securities Purchase Agreement.
"Warrants" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
holders of the Warrants upon the exercise thereof.
<PAGE>
2. EXERCISE OF WARRANT
2.1. Manner of Exercise. From and after the Warrant Issuance Date
and until 5:00 P.M., New York City time, on the Expiration Date, Holder may
exercise this Warrant, on any Business Day, for all or any part of the number of
shares of Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at the office or agency designated by the Company
pursuant to Section 12, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock to
be purchased, (ii) payment by cash, check or bank draft payable to the Company
of the Warrant Price in cash or by wire transfer or cashier's check drawn on a
United States bank or by the Holder's surrender of Warrant Stock (or the right
to receive such number of shares) having an aggregate Market Price equal to the
Warrant Price for all shares then being purchased and (iii) this Warrant. Such
notice shall be substantially in the form of the subscription form appearing at
the end of this Warrant as Exhibit A, duly executed by Holder or its agent or
attorney. Upon receipt of the items referred to in clauses (i), (ii) and (iii)
above, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute or cause to be executed and deliver
or cause to be delivered to Holder a certificate or certificates representing
the aggregate number of full shares of Common Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share, as hereinafter provided.
The stock certificate or certificates so delivered shall be, to the extent
possible, in such denomination or denominations as Holder shall request in the
notice and shall be registered in the name of Holder or, subject to Section 9,
such other name as shall be designated in the notice. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and Holder or any other Person so designated to be
named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the Warrant has been exercised by payment to
the Company of the Warrant Price. If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Stock, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant.
The Holder shall be entitled to exercise the Warrant notwithstanding
the commencement of any case under 11 U.S.C. (S) 101 et seq. (the "Bankruptcy
Code"). In the event the Company is a debtor under the Bankruptcy Code, the
Company hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. (S) 362 in respect of the Holder's exercise right. The
Company hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. (S) 362 in respect of the exercise of the Warrant. The
Company agrees, without cost or expense to the Holder, to take or consent to any
and all action necessary to effectuate relief under 11 U.S.C. (S) 362.
2.2. Payment of Taxes and Charges. All shares of Common Stock
issuable upon the exercise of this Warrant pursuant to the terms hereof shall be
validly issued, fully paid and nonassessable, and without any preemptive rights.
The Company shall pay all expenses in
<PAGE>
connection with, and all taxes and other governmental charges that may be
imposed with respect to, the issue or delivery thereof.
2.3. Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the Market Price per share
of Common Stock on the relevant exercise date.
2.4. Continued Validity. A holder of shares of Common Stock issued
upon the exercise of this Warrant, in whole or in part (other than a holder who
acquires such shares after the same have been publicly sold pursuant to a
Registration Statement under the Securities Act or sold pursuant to Rule 144
thereunder), shall continue to be entitled with respect to such shares to all
rights to which it would have been entitled as Holder under Sections 9, 10 and
14 of this Warrant. The Company will, at the time of exercise of this Warrant,
in whole or in part, upon the request of Holder, acknowledge in writing, in form
reasonably satisfactory to Holder, its continuing obligation to afford Holder
all such rights; provided, however, that if Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to Holder all such rights.
2.5. Call Rights. Upon ten (10) days prior written notice (the "Call
Notice") to the Holders of the Warrants, the Company shall have the right to
call and require such Holders to sell to the Company all of such Holder's
Warrants then outstanding at the termination of such ten (10) day period if: (i)
the closing bid price of the Company's Common Stock on any national securities
exchange or automatic quotation system on which the Company's Common Stock is
then listed or quoted, equals or exceeds the product of two and the Current
Exercise Price for thirty (30) consecutive trading days; and (ii) the
Registration Statement (as defined in the Registration Rights Agreement) is and
has been continuously effective during such thirty (30) consecutive trading
days. Any such Call Notice shall comply with Section 14.2 below and shall
specify the date for purchase of such Warrants. The purchase price for each
called Warrant shall be equal to the product of five cents ($.05) and the number
of shares of Common Stock purchasable pursuant to such Warrant and shall be paid
within two (2) Business Days of the receipt by the Company of each Warrant.
Notwithstanding anything else contained in this Section 2.5 to the contrary, the
Holder of this Warrant shall be entitled to exercise a called Warrant and sell
the underlying Warrant Stock during such ten (10) day period in accordance with
the terms of this Warrant.
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Sections 9, transfer of
this Warrant and all rights hereunder, in whole or in part, shall be registered
on the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company referred to in Section 2.1
or the office or agency designated by the Company pursuant to Section 12,
together with a written assignment of this Warrant substantially in the form of
Exhibit B hereto duly executed by Holder or its agent or attorney. Upon such
surrender, the Company shall, subject to Section 9, execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees and in the
denomination specified in such instrument of assignment,
<PAGE>
and shall issue to the assignor a new Warrant evidencing the portion of this
Warrant not so assigned, and this Warrant shall promptly be cancelled. A
Warrant, if properly assigned in compliance with Section 9, may be exercised by
a new Holder for the purchase of shares of Common Stock without having a new
Warrant issued.
3.2. Division and Combination. Subject to Section 9, this Warrant
may be divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3. Expenses. The Company shall prepare, issue and deliver at its
own expense the new Warrant or Warrants under this Section 3.
3.4. Maintenance of Books. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration of
transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1. Stock Dividends, Subdivisions and Combinations. If at any time
the Company shall:
(a) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(b) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
<PAGE>
4.2. Reserved.
4.3. Other Provisions Applicable to Adjustments under this Section.
The following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price provided for in this Section 4:
(f) When Adjustments to Be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event requiring
an adjustment shall occur. For the purpose of any adjustment, any specified
event shall be deemed to have occurred at the close of business on the date of
its occurrence.
(g) Fractional Interests. In computing adjustments under this Section
4, fractional interests in Common Stock shall be taken into account to the
nearest 1/10th of a share.
(h) When Adjustment Not Required. If the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
(i) Challenge to Good Faith Determination. Whenever the Board of
Directors of the Company shall be required to make a determination in good
faith of the fair value of any item under this Section 4, such determination may
be challenged in good faith by the Holder, and any dispute shall be resolved by
an investment banking firm of recognized national standing selected by the
Holder and reasonably acceptable to the Company.
4.4. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of the Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
<PAGE>
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate, subject to the Holder's consent, in order to provide for
adjustments of shares of Common Stock for which this Warrant is exercisable
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section 4. For purposes of this Section 4.4, "common stock of the
successor or acquiring corporation" shall include stock of such corporation of
any class which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption and shall
also include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 4.4 shall similarly
apply to successive reorganizations, reclassifications, mergers, consolidations
or disposition of assets.
4.5. Other Action Affecting Common Stock. In case at any time or
from time to time the Company shall take any action in respect of its Common
Stock, other than any action taken in the ordinary course of the Company's
business or any action described in this Section 4, which would have a material
adverse effect upon the rights of the Holder, the number of shares of Common
Stock and/or the purchase price thereof shall be adjusted in such manner as may
be equitable in the circumstances, as determined in good faith by an investment
bank selected by Holder.
4.6. Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the Current Warrant Price to be less
than the par value per share of Common Stock.
4.7. No Voting Rights. This Warrant shall not entitle its Holder to
any voting rights or other rights as a shareholder of the Company.
5. NOTICES TO HOLDER
5.1. Notice of Adjustments. Whenever the number of shares of Common
Stock for which this Warrant is exercisable, or whenever the price at which a
share of such Common Stock may be purchased upon exercise of the Warrants, shall
be adjusted pursuant to Section 4, the Company shall forthwith prepare a
certificate to be executed by an executive officer of the Company setting forth,
in reasonable detail, the event requiring the adjustment and the method by which
such adjustment was calculated, specifying the number of shares of Common Stock
for which this Warrant is exercisable and (if such adjustment was made pursuant
to Section 4.4 or 4.5) describing the number and kind of any other shares of
stock or Other Property for which this Warrant is exercisable, and any change in
the purchase price or prices thereof, after giving effect to such adjustment or
change. The Company shall promptly cause a signed copy of such certificate to
be delivered to the Holder in accordance with Section 14.2. The Company shall
keep at its office or agency designated pursuant to Section 12 copies of all
such certificates and cause the same to be available for inspection at said
office during normal
<PAGE>
business hours by the Holder, its representatives, or any prospective purchaser
of a Warrant designated by the Holder.
5.2. Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or other distribution,
or any right to subscribe for or purchase any evidences of its indebtedness, any
shares of stock of any class or any other securities or property, or to receive
any other right, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least thirty (30) Business Days' prior written notice of the date on which a
record date shall be selected for such dividend, distribution or right or for
determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least thirty (30)
Business Days' prior written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause also shall specify (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
6. NO IMPAIRMENT
The Company shall not by any action, including, without limitation,
amending 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 of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of
<PAGE>
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (c) use its best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form reasonably
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, the Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of any Warrant and
payment therefor in accordance with the terms of such Warrant, shall be duly and
validly issued and fully paid and nonassessable, and not subject to preemptive
rights.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and non-assessable shares of such Common Stock at
such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to
the holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record as of the close of business on a Business Day. The
Company will not at any time close its stock transfer books or Warrant transfer
books so as to result in preventing or delaying the exercise or transfer of any
Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are
<PAGE>
intended to ensure compliance with the provisions of the Securities Act with
respect to the Transfer of any Warrant or any Warrant Stock. Holder, by
acceptance of this Warrant, agrees to be bound by the provisions of this Section
9.
9.1. Restrictive Legend. The Holder by accepting this Warrant and
any Warrant Stock agrees that this Warrant and the Warrant Stock issuable upon
exercise hereof may not be assigned or otherwise transferred unless and until
(i) the Company has received an opinion of counsel for the Holder that such
securities may be sold pursuant to an exemption from registration under the
Securities Act or (ii) a registration statement relating to such securities has
been filed by the Company and declared effective by the Commission.
Each certificate for Warrant Stock issuable hereunder shall bear a
legend substantially worded as follows unless such securities have been sold
pursuant to an effective registration statement under the Securities Act:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended (the
"Act") or any state securities laws. The securities may not be
offered for sale, sold, assigned, offered, transferred or
otherwise distributed for value except (i) pursuant to an
effective registration statement under the Act or any state
securities laws or (ii) pursuant to an exemption from
registration or prospectus delivery requirements under the Act or
any state securities laws in respect of which the Company has
received an opinion of counsel satisfactory to the Company to
such effect. Copies of the agreement covering both the purchase
of the securities and restricting their transfer may be obtained
at no cost by written request made by the holder of record of
this certificate to the Secretary of the Company at the principal
executive offices of the Company."
a) Except as otherwise provided in this Section 9, the Warrant shall
be stamped or otherwise imprinted with a legend in substantially the
following form:
"This Warrant and the securities represented hereby have not
been registered under the Securities Act of 1933, as amended, or
any state securities laws and may not be transferred in violation
of such Act, the rules and regulations thereunder or any state
securities laws or the provisions of this Warrant."
9.2. Notice of Proposed Transfers. Prior to any Transfer or
attempted Transfer of any Warrants or any shares of Restricted Common Stock, the
Holder shall give five (5) days' prior written notice (a "Transfer Notice") to
the Company of Holder's intention to effect such Transfer, describing the manner
and circumstances of the proposed Transfer, and obtain from counsel to Holder an
opinion that the proposed Transfer of such Warrants or such Restricted Common
Stock may be effected without registration under the Securities Act or state
securities laws. After the Company's receipt of the Transfer Notice and
opinion, such Holder shall thereupon be entitled to Transfer such Warrants or
such Restricted
<PAGE>
Common Stock, in accordance with the terms of the Transfer Notice. Each
certificate, if any, evidencing such shares of Restricted Common Stock issued
upon such Transfer and the Warrant issued upon such Transfer shall bear the
restrictive legends set forth in Section 9.1, unless in the opinion of such
counsel such legend is not required in order to ensure compliance with the
Securities Act.
9.3. Required Registration. Pursuant to the terms and conditions set
forth in the Registration Rights Agreement, the Company shall prepare and file
with the Commission not later than the thirtieth (30th) day after the Closing
Date, a Registration Statement relating to the offer and sale of the Common
Stock issuable upon exercise of the Warrants and shall use its best efforts to
cause the Commission to declare such Registration Statement effective in
accordance with the terms set forth in Section 2(a) of the Registration Rights
Agreement.
9.4. Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 9.1 shall terminate as to any particular Warrant
or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable
upon the exercise of the Warrants) (i) when and so long as such security shall
have been effectively registered under the Securities Act and applicable state
securities laws and disposed of pursuant thereto or (ii) when the Company shall
have received an opinion of counsel that such shares may be transferred without
registration thereof under the Securities Act and applicable state securities
laws. Whenever the restrictions imposed by Section 9 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive
from the Company upon written request of the Holder, at the expense of the
Company, a new Warrant bearing the following legend in place of the restrictive
legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT
CONTAINED IN SECTION 9 HEREOF TERMINATED ON ________, 20__, AND
ARE OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legends set forth in Section 9.1.
9.5. Listing on Securities Exchange. If the Company shall list any
shares of Common Stock on any securities exchange, it will, at its expense, list
thereon, maintain and, when necessary, increase such listing of, all shares of
Common Stock issued or, to the extent
<PAGE>
permissible under the applicable securities exchange rules, issuable upon the
exercise of this Warrant so long as any shares of Common Stock shall be so
listed during the Exercise Period.
10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such information
as may be reasonably necessary for Holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale of any
Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of the Holder shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like tenor
to Holder; provided, in the case of mutilation, no indemnity shall be required
if this Warrant in identifiable form is surrendered to the Company for
cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant, such office to be
initially located at #185-10751 Shellbridge Way, Richmond, British Columbia V6X
2W8, fax: (604) 278-3409 provided, however, that the Company shall provide
prior written notice to Holder of a change in address no less than 30 days prior
to such change.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
14. MISCELLANEOUS
14.1. Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate as a
waiver of such right or otherwise prejudice Holder's rights, powers or remedies,
notwithstanding all rights hereunder terminate on the Expiration Date. If the
Company fails to make, when due, any payments provided for hereunder, or fails
to comply with any other provision of this Warrant, the
<PAGE>
Company shall pay to Holder such amounts as shall be sufficient to cover any
direct and indirect losses, damages, costs and expenses including, but not
limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.
14.2. Notice Generally. Except as may be otherwise provided herein,
any notice or other communication or delivery required or permitted hereunder
shall be in writing and shall be delivered personally or sent by certified mail,
postage prepaid, or by a nationally recognized overnight courier service, and
shall be deemed given when so delivered personally or by overnight courier
service, or, if mailed, three (3) days after the date of deposit in the United
States mails, as follows:
(1) if to the Company, to:
Information Highway.com, Inc.
#185-10751 Shellbridge Way
Richmond, British Columbia V6X 2W8
Attention: John G. Robertson, President
Tel: (604) 278-5996
Fax: (604) 278-3409
with a copy to:
Ogden Murphy Wallace P.L.L.C.
2100 Westlake Center Tower
1601 Fifth Avenue
Seattle, Washington 98101-1686
Attention: James L. Vandeberg, Esq.
Tel: (206) 447-7000
Fax: (206) 447-0215
(2) if to the Purchaser to:
Senasqua Investors LLC
WEC Asset Management LLC
110 Colabaugh Pond Road
Croton-on-Hudson, New York 10520
Attention: Daniel J. Saks
Tel: (914) 271-2211
Fax: (914) 271-0889
with a copy to:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Mark Saks, Esq.
Tel: (212) 326-0140
Fax: (212) 326-0806
<PAGE>
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3. Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses
and disbursements of any kind which may be imposed upon, incurred by or asserted
against Holder in any manner relating to or arising out of any failure by the
Company to perform or observe in any respect any of its covenants, agreements,
undertakings or obligations set forth in this Warrant.
14.4. Remedies. Holder in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
14.5. Successors and Assigns. Subject to the provisions of Sections
3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and assigns of Holder. The provisions of this Warrant are intended to be for
the benefit of all Holders from time to time of this Warrant and, with respect
to Section 9 hereof, holders of Warrant Stock, and shall be enforceable by any
such Holder or holder of Warrant Stock.
14.6. Amendment. This Warrant and all other Warrants may be modified
or amended or the provisions hereof waived only with the prior written consent
of the Company and the Holder.
14.7. Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
14.8. Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
14.9. Governing Law. This Warrant shall be governed by the laws of
the State of New York, without regard to the provisions thereof relating to
conflict of laws. The Company consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of New York or the state courts
of the State of New York sitting in the City of New York in connection with any
dispute arising under this Warrant or any of the transactions contemplated
hereby, and hereby waives, to the maximum extent permitted by law, any
objection, including any objections based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions.
<PAGE>
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK, SIGNATURE PAGE TO FOLLOW.]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and its corporate seal to be impressed hereon and attested by its Secretary or
an Assistant Secretary.
Dated: March 3, 2000
INFORMATION HIGHWAY.COM, INC.
By:
----------------------------
Name: John G. Robertson
Title: President
Attest:
By:
--------------------------
Name: Jennifer Lorette
Title: Secretary
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of ______ Shares of Common Stock of Information
Highway.com, Inc., and herewith makes payment therefor in cash or by check or
bank draft made payable to the Company, all at the price and on the terms and
conditions specified in this Warrant and requests that certificates for the
shares of Common Stock hereby purchased (and any securities or other property
issuable upon such exercise) be issued in the name of and delivered to
_____________ whose address is _________________ and, if such shares of Common
Stock shall not include all of the shares of Common Stock issuable as provided
in this Warrant, that a new Warrant of like tenor and date for the balance of
the shares of Common Stock issuable hereunder be delivered to the undersigned.
_______________________________
(Name of Registered Owner)
_______________________________
(Signature of Registered Owner)
_______________________________
(Street Address)
_______________________________
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
No. of Shares of
Name and Address of Assignee Common Stock
---------------------------- ----------------
and does hereby irrevocably constitute and appoint _______ ________________
attorney-in-fact to register such transfer on the books of Information
Highway.com, Inc., maintained for the purpose, with full power of substitution
in the premises.
Dated: Print Name:
------------------------ --------------------
Signature:
--------------------
Witness:
-----------------------
NOTICE: The signature on this assignment must correspond with the
name as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT 4.10
EXHIBIT D
---------
FORM OF REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of March 3, 2000 (this
"Agreement"), is entered into by and between INFORMATION HIGHWAY.COM, INC., a
Florida corporation (the "Company") and Senasqua Investors LLC, a Delaware
limited liability company (the "Purchaser").
W I T N E S S E T H:
WHEREAS, pursuant to a Securities Purchase Agreement, dated as of March 3,
2000, by and between the Purchaser and the Company (the "Securities Purchase
Agreement"), the Company has agreed to issue and sell to the Purchaser
$1,500,000 principal amount of the Company's 5% Convertible Debentures due 2002
(the "Debentures") and two year Warrants to purchase 225,000 shares of Common
Stock of the Company (the "Warrants"; the Debentures and the Warrants
collectively, the "Securities");
WHEREAS, pursuant to the terms of the Debentures and the Warrants, (i) upon
the conversion of the Debentures and (ii) upon exercise of the Warrants, the
Company will issue shares of the Company's common stock, par value $.0001 per
share (the "Common Stock") (the shares of Common Stock issued or issuable to the
Purchaser upon the conversion the Debentures and/or upon the exercise of the
Warrants are collectively referred to herein as the "Shares") to the Purchaser;
and
WHEREAS, to induce the Purchaser to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchaser
hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Minimum Conversion Shares" on any date means a number of shares
equal to at least the sum of: (x) two (2) times the number of shares of Common
Stock that are issuable upon conversion of the Debentures on such date, without
regard to any limitation on any holder's ability to convert the Debentures and
(y) the number of shares of Common Stock issuable upon exercise of the
Warrants.
(ii) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing one or more Registration Statement
or Statements in compliance
<PAGE>
with the Securities Act and pursuant to Rule 415 under the Securities Act or any
successor rule providing for offering securities on a continuous basis ("Rule
415"), and the declaration or ordering of effectiveness of such Registration
Statement by the Securities and Exchange Commission (the "Commission").
(iii) "Registrable Securities" means collectively, the Shares
and the Warrants.
(iv) "Registration Statement" means a registration statement of
the Company under the Securities Act.
Capitalized terms used herein and not otherwise defined herein shall have
the meanings set forth in the Securities Purchase Agreement, the Debentures or
the Warrants, as the case may be.
2. Registration.
Mandatory Registration. The Company shall prepare and, as soon as
practicable but in no event later than thirty (30) days after the Closing Date
(the "Required Filing Date"), file with the Commission a Registration Statement
on Form SB-2, or an amendment to any pending Registration Statement on Form SB-2
of the Company, covering resales of (a) the Warrants and (b) the Minimum
Conversion Shares on the filing date. In the event that Form SB-2 is
unavailable for such a registration, the Company shall use such other form as is
available for such a registration. Such Registration Statement or amended
Registration Statement, as the case may be, shall state that, in accordance with
Rule 416 under the Securities Act, it also covers such indeterminate number of
additional Shares as may become issuable upon conversion of the Debentures and
exercise of the Warrants (i) to prevent dilution resulting from stock splits,
stock dividends or similar transactions and (ii) to the extent consistent with
the interpretations of the Commission of such rule at such time, resulting from
any adjustment in the applicable Conversion Price of such Debentures or the
Current Warrant Price of such Warrants. If on any date the Minimum Conversion
Shares exceed the total number of Shares so registered, the Company shall (i)
if such Registration Statement has not been declared effective by the Commission
at that time, amend the Registration Statement filed by the Company pursuant to
the preceding portions of this paragraph, to register all of such Minimum
Conversion Shares, or (ii) if such Registration Statement has been declared
effective by the Commission at that time, file with the Commission an additional
Registration Statement on SB-2 (or, in the event that Form SB-2 is unavailable
for such a registration, on such other form as is available) to register all of
such Minimum Conversion Shares that have not already been so registered. The
Company shall use its best efforts to cause any such Registration Statement or
amended Registration Statement, as the case may be, to become effective within
the earliest to occur of (i) ninety (90) days following the Closing Date; or
(ii) if the Commission elects not to conduct a review of the Registration
Statement, the date which is five (5) business days after the date upon which
either the Company or its counsel is so notified, whether orally or in writing,
whether orally or in writing, that the Commission has no further comments with
respect to the Registration Statement, or that the Registration Statement may be
declared effective. The earliest of such dates is referred to herein as the
"Required Effective Date." Notwithstanding the use of the terms "Required
Filing Date" and "Required Effective Date" herein, the Company shall at all
2
<PAGE>
times use its best efforts to file each required Registration Statement or
amendment to a Registration Statement as soon as possible after the Closing Date
or after the date the Company becomes obligated to file such Registration
Statement or amendment, as the case may be, and to cause each such Registration
Statement or amendment to become effective as soon as possible thereafter. No
securities of the Company other than the Registrable Securities shall be
included in any such Registration Statement. The Company shall keep each
Registration Statement effective pursuant to Rule 415 at all times until such
date as is the earlier of (i) the date on which all of the Registrable
Securities have been sold and (ii) the date which is two (2) years following the
date hereof.
(b) Payments by the Company.
(i) (A) If the Registration Statement covering the Registrable
Securities is not filed in proper form with the Commission on or prior to the
Required Filing Date, (B) if the Registration Statement covering the Registrable
Securities is not effective on or prior to the Required Effective Date, (C) if
the number of Shares qualified for trading on the OTC Bulletin Board or NASDAQ
SmallCap Stock Market or reserved by the Company for issuance shall be
insufficient for issuance upon the conversion of the outstanding Debentures and
the exercise of the Warrants, or (D) upon the occurrence of a Blackout Event (as
described in Section 3(f) or Section 3(g) below) (each of the events described
in clauses (A) through (D) of this paragraph are referred to herein as a
"Registration Default"), the Company will make payments to the Purchaser in such
amounts and at such times as shall be determined pursuant to this Section 2(b).
(ii) The amount (the "Periodic Amount") to be paid by the Company to
the Purchaser for each thirty (30) day period, or portion thereof, during which
a Registration Default shall be in effect (each such period, a "Default Period")
shall be equal to two percent (2%) of the sum of (a) the principal amount of
Debentures outstanding and (b) the principal amount of Debentures converted into
shares of Common Stock (the "Purchase Price"); provided, with respect to any
Default Period during which the relevant Registration Defaults shall have been
cured, the Periodic Amount shall be pro rated for the number of days during such
period during which the Registration Defaults were pending; and provided
further, that the payment of such Periodic Amounts shall not relieve the Company
from its continuing obligations to register the Registrable Securities pursuant
to Section 2(a).
(iii) Each Periodic Amount shall be payable by the Company, in cash or
other immediately available funds, to the Purchaser on the last day of each
month during which a Registration Default occurred or was continuing, without
demand therefor by the Purchaser. If the Company shall not remit the Periodic
Amounts payable to the Purchaser as set forth in paragraph (ii) above, the
Company will pay the Purchaser reasonable costs of collection, including
attorneys' fees, in addition to the Periodic Amounts.
(iv) The parties acknowledge that the damages which may be incurred by
the Purchaser if the Registration Statement is not filed by the Required Filing
Date, if the Registration Statement has not been declared effective by the
Required Effective Date, if an insufficient number of shares of Common Stock
shall be qualified for trading or reserved for issuance, or if the provisions of
Section 3(f) or 3(g) become applicable, may be difficult to
3
<PAGE>
ascertain. The parties agree that the Periodic Amount represents a reasonable
estimate on the part of the parties, as of the date of this Agreement, of the
amount of such damages.
(c) Piggyback Registration. (i) If at any time or from time to time, the
Company shall determine to register any of its securities, for its own account
or the account of any of its shareholders, other than a Registration Statement
relating solely to employee share option plans or pursuant to an acquisition
transaction on Form S-4, the Company will:
(A) provide to the Purchaser written notice thereof as soon as
practicable prior to filing the Registration Statement; and
(B) include in such Registration Statement and in any underwriting
involved therein, all of the Registrable Securities specified in a
written request by the Purchaser made within fifteen (15) days after
receipt of such written notice from the Company.
(ii) If the Registration is for a registered public offering
involving an underwriting, the Company shall so advise the Purchaser as a part
of the written notice given pursuant to this Section. In such event, the rights
of the Purchaser hereunder shall include participation in such underwriting and
the inclusion of the Registrable Securities in the underwriting to the extent
provided herein. To the extent that the Purchaser proposes to distribute its
securities through such underwriting, the Purchaser shall (together with the
Company and any other securityholders of the Company distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this
Section, if the managing underwriter of such underwriting determines that
marketing factors require a limitation of the number of shares to be offered in
connection with such underwriting, the managing underwriter may limit the number
of Registrable Securities to be included in the Registration and underwriting
(provided, however, that (a) the Registrable Securities shall not be excluded
from such underwritten offering prior to the exclusion of any securities held by
officers and directors of the Company or their affiliates, (b) the Registrable
Securities shall be entitled to at least the same priority in an underwritten
offering as any securities included in such offering by any of the Company's
other existing securityholders, and (c) the Company shall not enter into any
agreement that would provide any securityholder with priority in connection with
an underwritten offering greater than the priority granted to the Purchaser
hereunder). The Company shall so advise any of its other securityholders who
are distributing their securities through such underwriting pursuant to their
respective piggyback registration rights, and the number of shares of
Registrable Securities and other securities that may be included in the
registration and underwriting shall be allocated among the Purchaser and all
other securityholders of the Company in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by the Purchaser and such
other securityholders at the time of the filing of the registration statement.
If the Purchaser disapproves of the terms of any such underwriting, it may elect
to withdraw therefrom by written notice to the Company. Any Registrable
Securities so excluded or withdrawn from such underwriting shall be withdrawn
from such Registration.
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(d) Eligibility for Form SB-2. The Company represents and warrants that
it meets all of the requirements for the use of Form SB-2 for the Registration
of the sale by the Purchaser and any transferee who purchases the Registrable
Securities, and the Company covenants that it shall file all reports required to
be filed by the Company with the Commission in a timely manner, and shall take
such other actions as may be necessary to maintain such eligibility for the use
of Form SB-2.
(e) Priority in Filing. The Company covenants that beginning on the
Closing Date and ending on the date that is one hundred and eighty (180) days
after the Registration Statement filed pursuant to Section 2(a) of this
Agreement becomes effective ( provided that if, after the effective date of such
Registration Statement, the Purchaser shall be unable to sell Registrable
Securities pursuant to such Registration Statement for any number of days, the
provisions of this Section 2(e) shall apply for an additional number of days
equal to the number of days during which any Purchaser is unable to sell
Registrable Securities pursuant to such Registration Statement), the Company
will not file any Registration Statement, other than a Registration Statement
required by Section 2(a) hereof, without the written consent of the Purchaser,
except that the Company may include on the Registration Statement securities to
be sold by the selling stockholders in the amounts listed on Schedule 2(e)
hereto.
3. Obligations of the Company.
In connection with the registration of the Registrable Securities, the
Company shall do each of the following:
(a) Prepare and file with the Commission the Registration Statements
required by Section 2 of this Agreement and such amendments (including post-
effective amendments) and supplements to the Registration Statements and the
prospectuses used in connection with such Registration Statements, each in such
form as to which the Purchasers and its counsel shall not have objected, as may
be necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all of the
Registrable Securities of the Company covered by the Registration Statements
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statements;
(b) Furnish to each Purchaser, if the Registrable Securities of such
Purchaser are included in the Registration Statement, and its legal counsel
identified to the Company, promptly after the same is prepared and publicly
distributed, filed with the Commission, or received by the Company, a copy of
the Registration Statement, each preliminary prospectus, each final prospectus,
and all amendments and supplements thereto and such other documents, as such
Purchaser may reasonably request in order to facilitate the disposition of its
Registrable Securities;
(c) Furnish to each Purchaser and its counsel copies of any
correspondence between the Company and the Commission with respect to any
Registration Statement or amendment or supplement thereto filed pursuant to this
Agreement;
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(d) Use all reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statements under such other
securities or blue sky laws of such jurisdictions as each Purchaser may
reasonably request, (ii) prepare and file in those jurisdictions such amendments
(including post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period, (iii) take such other actions as may be
necessary to maintain such registrations and qualifications in effect at all
times during the Registration Period and (iv) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions, provided that in connection therewith, the Company shall not be
required to qualify as a foreign corporation or to file a general consent to the
service of process in any jurisdiction;
(e) Qualify such securities for trading on the OTC Bulletin Board and
list such securities on all the other national securities exchanges on which any
securities of the Company are then listed, and file any filings required by
Nasdaq and/or such other exchanges;
(f) As promptly as practicable after becoming aware of such event,
notify each Purchaser of the occurrence of any event, as a result of which the
prospectus included in any 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 in order to make the statements therein, in light
of the circumstances under which they were made, not misleading, and to use its
best efforts to promptly prepare a supplement or amendment to such Registration
Statement or other appropriate filing with the Commission to correct such untrue
statement of omission, and to deliver a number of copies of such supplement or
amendment to each Purchaser as such Purchaser may reasonably request;
(g) As promptly as practicable after becoming aware of such event,
notify each Purchaser (or, in the event of an underwritten offering, the
managing underwriters) of the issuance by the Commission or any stop order or
other suspension of the effectiveness of any Registration Statement at the
earliest possible time, and to use its best efforts to promptly obtain the
withdrawal of such stop order or other suspension of effectiveness (the
occurrence of any of the events described in paragraphs (f) and (g) of this
Section 3 is referred to herein as a BlackoutEvent);
(h) During the period commencing upon (i) the Purchasers' receipt of a
notification pursuant to Section 3(f) above or (ii) the entry of a stop order or
other suspension of the effectiveness of the Registration Statement described in
Section 3(g) above, and ending at such time as (x) the Company shall have
completed the applicable filings (and if applicable, such filings shall have
been declared effective) and shall have delivered to the Purchasers the
documents required pursuant to Section 3(f) above or (y) such stop order or
other suspension of the effectiveness of the Registration Statement shall have
been removed, the Company shall be liable to remit the payments required to be
paid to the Purchasers pursuant to Section 2(b) above;
(i) Suspend the use of any prospectus used in connection with any
Registration Statement only in the event, and for such period of time as, such a
suspension is required by the rules and regulations of the Commission;
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<PAGE>
(j) Enter into such customary agreements for secondary offerings
(including a customary underwriting agreement with the underwriter or
underwriters, if any) and take all such other actions reasonably requested by
the Purchaser in connection therewith in order to expedite or facilitate the
disposition of such Registrable Securities. Whether or not an underwriting
agreement is entered into and whether or not the Registrable Securities are to
be sold in an underwritten offering the Company shall:
(i) make such representations and warranties to the Purchaser and the
underwriter or underwriters, if any, in form, substance and scope as are
customarily made by issuers to selling stockholders and underwriters in
secondary offerings;
(ii) cause to be delivered to the sellers of Registrable Securities
and the underwriter or underwriters, if any, opinions of independent
counsel to the Company (which counsel and opinions shall be reasonably
satisfactory in form, scope and substance to Purchaser and the
underwriter(s), if any, and their counsel), (A) on and dated as of the
effective day of the applicable Registration Statement (and in the case of
an underwritten offering, dated the date of delivery of any Registrable
Securities sold pursuant thereto) stating that (x) such Registration
Statement complies in all material respects with the requirements of the
Securities Act and the rules and regulations of the Commission thereunder,
(y) such Registration Statement does not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and (z)
the documents incorporated by reference in the prospectus accompanying such
Registration Statement, at the time they were filed with the Commission or
as amended, complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations thereunder and, when read together with the other
information in such prospectus, do not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and (B)
within fifteen (15) days following the filing of the Company's Annual
Report on Form 10-K for each fiscal year thereafter, an opinion of
independent counsel to the Company, updating the opinion referred to in
clause (A) of this paragraph;
(iii) cause to be delivered, immediately prior to the effectiveness
of the applicable Registration Statement (and, in the case of an
underwritten offering, at the time of delivery of any Registrable
Securities sold pursuant thereto), and at the beginning of each fiscal year
following a year during which the Company's independent certified public
accountants shall have reviewed any of the Company's books or records, a
"comfort" letter from the Company's independent certified public
accountants addressed to the Purchaser and each underwriter, if any,
stating that such accountants are independent public accountants within the
meaning of the Securities Act and the applicable published rules and
regulations thereunder, and otherwise in customary form and covering such
financial and accounting matters as are customarily covered by letters of
the independent certified public accountants delivered in connection with
secondary offerings; such accountants shall have undertaken in each such
letter to update the same during each such fiscal year in which such books
or records are being reviewed so that each such letter shall remain
current, correct and complete throughout such fiscal year;
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<PAGE>
and each such letter and update thereof, if any, shall be reasonably
satisfactory to the Purchaser;
(iv) if an underwriting agreement is entered into, the same shall
include customary indemnification and contribution provisions to and from
the underwriters and procedures for secondary underwritten offerings;
(v) deliver such documents and certificates as may be reasonably
requested by any purchaser of the Registrable Securities being sold or the
managing underwriter or underwriters, if any, to evidence compliance with
clause (i) above and with any customary conditions contained in the
underwriting agreement, if any; and
(vi) deliver to Purchaser on the effective day of the applicable
Registration Statement (and, in the case of an underwritten offering, on
the date of delivery of any Registrable Securities sold pursuant thereto),
and at the beginning of each fiscal quarter thereafter, a certificate in
form and substance as shall be reasonably satisfactory to Purchaser,
executed by an executive officer of the Company and to the effect that all
the representations and warranties of the Company contained in the
Securities Purchase Agreement are still true and correct except as
disclosed in such certificate; the Company shall, as to each such
certificate delivered at the beginning of each fiscal quarter, update or
cause to be updated each such certificate during such quarter so that it
shall remain current, complete and correct throughout such quarter; and
such updates received by Purchaser during such quarter, if any, shall have
been reasonably satisfactory to Purchaser.
(k) Make available for inspection by Purchasers, their
representative(s), any underwriter participating in any disposition pursuant to
a Registration Statement, and any attorney or accountant retained by any
Purchaser or underwriter, all financial and other records customary for purposes
of a Purchasers' and underwriters' due diligence examination of the Company and
review of any Registration Statement, all filings made with the Commission
subsequent to the Closing, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such representative, underwriter,
attorney or accountant in connection with such Registration Statement, provided
that such parties agree to keep such information confidential;
(l) Cooperate with the Purchasers to facilitate the timely preparation
and delivery of certificates for the Registrable Securities to be offered
pursuant to any Registration Statement and to enable such certificates for the
Registrable Securities to be in such denominations or amounts, as the case may
be, as the Purchasers may reasonably request, and registered in such names as
the Purchasers may request; and, within three (3) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the Commission, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Purchasers) an appropriate
instruction and opinion of such counsel; and
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<PAGE>
(m) Permit counsel to Purchaser to review the Registration Statement
and all amendments and supplements thereto within a reasonable period of time
(but not less than five (5) business days) prior to each filing, and to
incorporate those changes, if provided to the Company or its counsel within such
five (5) business day period, suggested by such counsel.
4. Obligations of the Purchaser.
Obligations of the Purchasers. In connection with the registration of
the Registrable Securities, the Purchaser shall have the following obligations:
(a) Furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of the
Registrable Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities. The intended method or methods of
disposition and/or sale (Plan of Distribution) of the Registrable Securities as
so provided by the participating Purchaser shall be included without alteration
in any Registration Statement covering the Registrable Securities and shall not
be changed without written consent of the Purchaser. At least five (5) business
days prior to the first anticipated filing date of any Registration Statement,
the Company shall notify the Purchaser of the information the Company requires
from the Purchaser if the Purchaser elects to have any of its Registrable
Securities included in such Registration Statement; and
(b) The Purchaser agrees that, upon receipt of any notice from the
Company of the happening of any Blackout Event of the kind described in Section
3(f) or 3(g) above, it will immediately discontinue disposition of its
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such copies of the supplemented or amended
prospectus contemplated by Section 3(f) or 3(g) shall be furnished to the
Purchaser.
5. Expenses of Registration.
Other than underwriting discounts and commissions, all expenses
incurred in connection with registrations, filings or qualifications pursuant to
this Agreement, including, without limitation, all registration, listing, and
qualification fees, printing and accounting fees, and the fees and disbursements
of counsel for the Company, and the fees of one counsel to the Purchaser with
respect to the Registration Statement filed pursuant hereto, shall be borne by
the Company, up to a maximum of three thousand dollars ($3,000).
6. Indemnification.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
(a) The Company will indemnify and hold harmless each Purchaser, each
of its officers, directors and partners, and each person, if any, who controls
such Purchaser within the meaning of the Securities Act or the Exchange Act
(each, an Indemnified Person), against any losses, claims, damages, liabilities
or expenses (joint or several) incurred (collectively, Claims) to which any of
them may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
or alleged untrue statement of a
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<PAGE>
material fact contained in the Registration Statement or any post-effective
amendment thereof or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, (ii) any untrue or alleged statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the Commission) or the omission or alleged omission to state therein any
material fact necessary in order to make the statements made 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 or foreign securities law or any rule or regulation
under the Securities Act, the Exchange Act or any state or foreign securities
law (the matters in foregoing clauses (i) through (iii) being, collectively,
Violations). The Company shall, subject to the provisions of Section 6(b) below,
reimburse each Purchaser, promptly as such expenses are incurred and are due and
payable, for any legal and other costs, expenses and disbursements in giving
testimony or furnishing documents in response to a subpoena or otherwise,
including without limitation, the costs, expenses and disbursements, as and when
incurred, of investigating, preparing or defending any such action, suit,
proceeding or investigation (whether or not in connection with litigation in
which such Purchaser is a party), incurred by it in connection with the
investigation or defense of any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a) shall not (i) apply to any Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof supplement thereto; (ii) with respect to
any preliminary prospectus, inure to the benefit of any such person from whom
the person asserting any such Claim purchased the Registrable Securities that
are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the final prospectus, as then amended or
supplemented, if such final prospectus was timely made available by the Company
pursuant to Section 3(b) hereof; (iii) be available to the extent that such
Claim is based upon a failure of any Purchaser to deliver or to cause to be
delivered the prospectus made available by the Company, if such prospectus was
timely made available by the Company pursuant to Section 3(b) hereof; or (iv)
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Purchaser
pursuant to Section 9. Each Purchaser will indemnify the Company and its
officers and directors against any Claims arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company, by or on behalf of such Purchaser,
expressly for use in connection with the preparation of the Registration
Statement, subject to such limitations and conditions as are applicable to the
Indemnification provided by the Company in this Section 6.
(b) Promptly after receipt by an Indemnified Person under this Section
6 of notice of the commencement of any action (including any governmental
action), such Indemnified Person shall, if a Claim in respect thereof is to be
made against any indemnifying party under
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<PAGE>
this Section 6, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in, and to the extent that the indemnifying party so desires,
jointly with any other indemnifying party similarly notified, to assume control
of the defense thereof with counsel mutually satisfactory to the indemnifying
party and the Indemnified Person; provided, however, that an Indemnified Person
shall have the right to retain its own counsel with the reasonable fees and
expenses to be paid by the indemnifying party, if, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such counsel
of the Indemnified Person and the indemnifying party would be inappropriate due
to actual or potential differing interests between such Indemnified Person and
any other party represented by such counsel in such proceeding. In such event,
the Company shall pay for only one separate legal counsel for the Purchasers,
and such legal counsel shall be selected by the Purchasers holding a majority of
the Shares outstanding (assuming conversion and/or exercise of all outstanding
Securities and Warrant Debentures). The failure to deliver written notice to an
indemnifying party within a reasonable time after the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person under this Section 6, except to the extent that the
indemnifying party is materially prejudiced in its ability to defend such
action. The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable.
(c) No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Person of an unconditional and irrevocable release from all
liability in respect of such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that any provisions
relating to indemnification or contribution contained in the underwriting
agreements entered into among the Company, the underwriters and the Purchaser in
connection with an underwritten public offering are in conflict with the
foregoing provisions, the provisions in such underwriting agreements shall be
controlling as to the Registrable Securities included in the public offering;
provided, however, that if, as a result of this Section 6(d), any Purchaser, its
officers, shareholders, members, directors, partners or any person controlling
such Purchaser is or are held liable with respect to any Claim for which they
would be entitled to indemnification hereunder but for this Section 6(d) in an
amount which exceeds the aggregate proceeds received by such Purchaser from the
sale of Registrable Securities included in a registration pursuant to such
underwriting agreement (the "Excess Liability"), the Company shall reimburse
such Purchaser for such Excess Liability.
7. Contribution.
To the extent any indemnification by an indemnifying party is
prohibited or limited under applicable law, the indemnifying party agrees to
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage, liability or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the Indemnified Person on the other hand in connection with the
statements or omissions which resulted in such Claim, as well as any other
relevant equitable considerations. The
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<PAGE>
relative fault of the indemnifying party and the Indemnified Person shall be
determined by reference to, among other things, whether the untrue statement of
a material fact or the omission to state a material fact on which such Claim is
based relates to information supplied by the indemnifying party or by the
Indemnified Person, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Notwithstanding the forgoing, (a) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation and (b)
contribution by any seller of Registrable Securities shall be limited in amount
to the net proceeds received by such seller from the sale of such Registrable
Securities. The Company and the Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Purchaser and any other party were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in this Section.
8. Reports Under Exchange Act.
With a view to making available to the Purchaser the benefits of Rule
144 promulgated under the Securities Act or any other similar rule or regulation
of the Commission that may at any time permit the Purchaser to sell securities
of the Company to the public without registration ("Rule 144"), the Company
agrees to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144;
(ii) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(iii) furnish to the Purchaser, so long as the Purchaser owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of the Securities
Act and the Exchange Act, (ii) a copy of the most recent annual or periodic
report of the Company and such other reports and documents so filed by the
Company and (iii) such other information as may be reasonably requested to
permit such Purchaser to sell such securities pursuant to Rule 144 without
registration.
9. Assignment of the Registration Rights.
The rights to have the Company register Registrable Securities pursuant to
this Agreement shall be automatically assigned by any Purchaser to any
transferee of all or any portion of the Securities or Shares held by such
Purchaser if: (a) such Purchaser agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the Securities or Shares with respect to which such registration rights are
being transferred or assigned; (c) at or before the time the Company receives
the written notice contemplated by clause (b) of this sentence, the transferee
or assignee agrees in writing with the Company to be bound by all of the
provisions contained herein; and
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(d) the transferee of the relevant Securities or Shares complies with the
restrictions on the Purchaser set forth in Section 4 of the Securities Purchase
Agreement.
10. Amendment of Registration Rights.
Any provision of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and holders of 75% of the Registrable Securities from time to time. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon the Purchaser and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of the
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free
transmission) or two business days following deposit of such notice with an
internationally recognized courier service, with postage prepaid and addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by five days advance written
notice to each of the other parties hereto.
Company: Information Highway.com, Inc.
#185-10751 Shellbridge Way
Richmond, British Columbia V6X 2W8
Attention: John G. Robertson, President
Tel: (604) 278-5996
Fax: (604) 278-3409
With a copy to:
Ogden Murphy Wallace P.L.L.C.
2100 Westlake Center Tower
1601 Fifth Avenue
Seattle, Washington 98101-1192
Attention: James L. Vandeberg, Esq.
Tel: (206) 447-7000
Fax: (206) 447-0215
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Purchaser: Senasqua Investors LLC
c\o WEC Asset Management LLC
110 Colabaugh Pond Road
Croton-on-Hudson, New York 10520
Attention: Daniel J. Saks
Tel: (914) 271-2211
Fax: (914) 271-0889
With a copy to:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Mark Saks, Esq.
Tel: (212) 326-0140
Fax: (212) 326-0806
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York, except for provisions with respect to
internal corporate matters of the Company which shall be governed by the
corporate laws of the State of Florida. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. This Agreement has been entered into
freely by each of the parties, following consultation with their respective
counsel, and shall be interpreted fairly in accordance with its terms, without
any construction in favor of or against either party. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction, such validity
or unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth, or referred to
herein and in the other Primary Documents. This Agreement supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof.
14
<PAGE>
(f) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The Company acknowledges that any failure by the Company to
perform its obligations under Section 2(a), or any delay in such performance
could result in direct damages to the Purchaser, and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay.
[SIGNATURE PAGE TO FOLLOWS, REMAINDER OF PAGE INTENTIONALLY BLANK]
15
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed.
INFORMATION HIGHWAY.COM, INC.
By:
--------------------------------------
Name: John G. Robertson
Title: President
SENASQUA INVESTORS LLC
By: WEC Asset Management LLC, Manager
By:
--------------------------------------
Name: Daniel J. Saks
Title: Managing Director
16
<PAGE>
SCHEDULE 2(e)
ADDITIONAL COMMON STOCK
TO BE INCLUDED ON THE REGISTRATION STATEMENT
<TABLE>
<CAPTION>
Name of Selling Shareholder Number of Shares of Number of Warrants Number of Shares that
Common Stock to be Shares that may be may be acquired upon
Qualified acquired upon exercise of Stock
exercise of Option
Warrants
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gordon Friesen 75,000
- --------------------------------------------------------------------------------------------------
David Sass 300,000
- --------------------------------------------------------------------------------------------------
Russ Gallagher 100,000
- --------------------------------------------------------------------------------------------------
JGR Petroleum Inc. 50,000
- --------------------------------------------------------------------------------------------------
IP Equity Inc. 225,000 125,000
- --------------------------------------------------------------------------------------------------
Chris Agarwal 30,000
- --------------------------------------------------------------------------------------------------
David Williamson Associates 5,000
Limited
- --------------------------------------------------------------------------------------------------
Mark Nadelson 5,000
- --------------------------------------------------------------------------------------------------
World of Internet.com AG 20,000
- --------------------------------------------------------------------------------------------------
K & D Equities, Inc. 400,000
- --------------------------------------------------------------------------------------------------
Garry Savage 100,000
- --------------------------------------------------------------------------------------------------
Mallory M. Parmerlee Trust 5,000
Share
- --------------------------------------------------------------------------------------------------
Shawn Lampman 12,500
- --------------------------------------------------------------------------------------------------
Joe Ebner 25,000
- --------------------------------------------------------------------------------------------------
Dave A. Hanson 5,000
- --------------------------------------------------------------------------------------------------
F.S.D.R.H. Trust 12,500
- --------------------------------------------------------------------------------------------------
Gene Cartwright Living Trust 25,000
- --------------------------------------------------------------------------------------------------
T. Kozub 5,000
- --------------------------------------------------------------------------------------------------
The Sunrise Trust 15,000
- --------------------------------------------------------------------------------------------------
Edward Keeney 3,000
- --------------------------------------------------------------------------------------------------
T.H. Scheer 13,150
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name of Selling Shareholder Number of Shares of Number of Warrants Number of Shares that
Common Stock to be Shares that may be may be acquired upon
Qualified acquired upon exercise of Stock
exercise of Option
Warrants
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
David Fan 6,600
- --------------------------------------------------------------------------------------------------
Ladislav Korcek 2,000
- --------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
EXHIBIT 4.11
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of March 3, 2000 is entered
into by and between Information Highway.com, Inc., a Florida corporation (the
"Company"), and Senasqua Investors LLC, a Delaware limited liability company
(the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemptions from registration provided by
Regulation D ("Regulation D") promulgated by the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), and/or Section 4(2) of the Securities Act; and
WHEREAS, the Purchaser wishes to purchase, and the Company wishes to issue,
upon the terms and subject to the conditions of this Agreement, one million five
hundred thousand dollars ($1,500,000) principal amount of the Company's 5%
Convertible Debentures (the "Debentures") and warrants (the "Warrants") to
purchase two hundred twenty-five thousand (225,000) shares of common stock of
the Company, par value $.0001 per share (the "Common Stock"). The Debentures
are convertible, at the holder's option, into the Company's Common Stock, on the
terms set forth therein, and the Warrants may be exercised for the purchase of
Common Stock, on the terms set forth therein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
a. Purchase of Securities. On the Closing Date (as defined herein)
the Purchaser hereby agrees to purchase from the Company (i) Debentures in the
principal amount of one million five hundred thousand dollars ($1,500,000),
which shall be issued in substantially the form attached hereto as Exhibit A,
and (ii) Warrants to purchase two hundred twenty-five thousand (225,000) shares
of Common Stock, which shall be issued in substantially the form attached hereto
as Exhibit B the aggregate. The aggregate purchase price for such Debentures
and Warrants (collectively, the "Securities") shall be one million five hundred
thousand dollars ($1,500,000), and shall be payable in same day funds.
b. Closings. The Debentures and the Warrants to be purchased by the
Purchaser hereunder, in definitive form, and in such denominations and
registered in such names as the Purchaser or its representative, if any, may
request upon notice to the Company, shall be delivered by or on behalf of the
Company for the account of the Purchaser, against payment by the Purchaser or on
its behalf of the purchase price therefor by wire transfer to an account of the
Company, all at the offices of Pryor Cashman Sherman & Flynn LLP, 410 Park
Avenue, New York, New York 10022, at 9:30 a.m., New York time on March 3, 2000,
or at such other time and date as the Purchaser or its representative, if any,
and the Company may agree upon in writing, such date being referred to herein as
the "Closing Date."
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Purchaser represents and warrants to, and covenants and agrees with,
the Company as follows:
a. The Purchaser and each of its equity owners is (i) experienced in
making investments of the kind described in this Agreement and the related
documents, (ii) able, by reason of the business and financial experience of its
management, to protect its own interests in connection with the transactions
described in this Agreement and the related documents, and (iii) able to afford
the entire loss of its investment in the Securities.
b. All subsequent offers and sales of the Debentures, the Warrants,
and the Common Stock issuable upon conversion or exercise of, or in lieu of
interest payments on the Debentures or the Warrants, shall be made pursuant to
an effective registration statement under the Securities Act or pursuant to an
applicable exemption from such registration.
c. The Purchaser understands that the Securities are being offered
and sold to it in reliance upon exemptions from the registration requirements of
the United States federal securities laws, and that the Company is relying upon
the truth and accuracy of the Purchaser's representations and warranties, and
the Purchaser's compliance with its agreements, each as set forth herein, in
order to determine the availability of such exemptions and the eligibility of
the Purchaser to acquire the Securities.
d. The Purchaser: (A) has been provided with sufficient information
with respect to the business of the Company and such documents relating to the
Company as the Purchaser has requested and Purchaser has carefully reviewed the
same including, without limitation, the Company's Form 10-QSB for the fiscal
year quarter November 30, 1999 filed with the Securities and Exchange Commission
("the Commission"), (B) has been provided with such additional information with
respect to the Company and its business and financial condition as the
Purchaser, or the Purchaser's agent or attorney, has requested, and (C) has had
access to management of the Company and the opportunity to discuss the
information provided by management of the Company and any questions that the
Purchaser had with respect thereto have been answered to the full satisfaction
of the Purchaser.
e. The Purchaser has the requisite corporate power and authority to
enter into this Agreement and this Agreement has been duly and validly
authorized, executed and delivered on behalf of the Purchaser and is a valid and
binding agreement of the Purchaser, enforceable in accordance with its terms,
except to the extent that enforcement of this Agreement may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors' rights
generally and to general principles of equity.
f. This Agreement and the registration rights agreement, dated the
date hereof, between the Company and the Purchaser (the "Registration Rights
Agreement"), attached hereto as Exhibit D, and the transactions contemplated
hereby and thereby, have been duly and validly authorized by the Purchaser; and
such agreements, when executed and delivered by each of the
2
<PAGE>
Purchaser and the Company will each be a valid and binding agreement of the
Purchaser, enforceable in accordance with their respective terms, except to the
extent that enforcement of each such agreement may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to creditors' rights generally and to
general principles of equity.
3. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to the Purchaser that:
a. Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Florida.
Each of the Company's subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction.
Each of the Company and its subsidiaries is duly qualified as a foreign
corporation in all jurisdictions in which the failure to so qualify would have a
material adverse effect on the Company and its subsidiaries taken as a whole.
Schedule 3(a) lists all subsidiaries of the Company and, except as noted
therein, all of the outstanding capital stock of such subsidiaries is owned of
record and beneficially by the Company.
b. Capitalization. On the date hereof, the authorized capital of the
Company consists of 50,000,000 shares of Common Stock, par value $.0001 per
share, of which 7,790,017 are issued and outstanding and 10,000,00 shares of
preferred stock, par value $.0001 per share, of which no shares are issued and
outstanding. Schedule 3(b) sets forth all of the options, warrants and
convertible securities of the Company, and any other rights to acquire
securities of the Company (collectively, the "Derivative Securities") which are
outstanding on the date hereof, including in each case (i) the name and class of
such Derivative Securities, (ii) the issue date of such Derivative Securities,
(iii) the number of shares of Common Stock of the Company into which such
Derivative Securities are convertible as of the date hereof, (iv) the conversion
or exercise price or prices of such Derivative Securities as of the date hereof,
(v) the expiration date of any conversion or exercise rights held by the owners
of such Derivative Securities and (vi) any registration rights associated with
such Derivative Securities or outstanding Common Stock.
c. Concerning the Debentures, the Warrants and Common Stock. The
Common Stock issuable upon conversion of, or in lieu of interest payments on,
the Debentures, and upon exercise of the Warrants, when issued, shall be duly
and validly issued, fully paid and non-assessable, and will not subject the
holder thereof to personal liability by reason of being such a holder. There
are no preemptive rights or rights of first refusal of any stockholder of the
Company, as such, to acquire any of the Securities, or the Common Stock issuable
to the Purchaser pursuant to the terms of the Debentures and the Warrants.
d. Reporting Company Status. The Common Stock is registered under
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company has duly filed all materials and documents required to be
filed pursuant to all reporting obligations under either Section 13(a) or 15(d)
of the Exchange Act, if any, prior to the offer and sale of the Securities. The
Common Stock is listed and traded on the OTC Bulletin Board, and the Company is
not aware of any pending or contemplated action or proceeding of any kind to
suspend the trading of the Common Stock.
3
<PAGE>
e. Authorized Shares. The Company has legally available a sufficient
number of authorized and unissued shares of Common Stock as may be necessary to
effect the conversion of the Debentures and the exercise of the Warrants. The
Company understands and acknowledges the potentially dilutive effect to the
Common Stock of the issuance of shares of Common Stock upon conversion of the
Debentures and the exercise of the Warrants. The Company further acknowledges
that its obligation to issue shares of Common Stock upon conversion of the
Debentures and upon exercise of the Warrants is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company and notwithstanding the
commencement of any case under 11 U.S.C. (S) 101 et seq. (the "Bankruptcy
Code"). In the event the Company becomes a debtor under the Bankruptcy Code,
the Company hereby waives to the fullest extent permitted any rights to relief
it may have under 11 U.S.C. (S) 362 in respect of the conversion of the
Debentures and the exercise of the Warrants. The Company agrees, without cost
or expense to the Purchaser, to take or consent to any and all action necessary
to effectuate relief under 11 U.S.C. (S) 362.
f. Legality. The Company has the requisite corporate power and
authority to enter into this Agreement and to issue and deliver the Debentures,
the Warrants, and the Common Stock issuable upon conversion of, or in lieu of
interest payments on, the Debentures and the exercise of the Warrants.
g. Transaction Agreements. This Agreement, the Registration Rights
Agreement, the Debentures and the Warrants (collectively, the "Primary
Documents"), and the transactions contemplated hereby and thereby, have been
duly and validly authorized by the Company; this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the Primary
Documents, when executed and delivered by the Company, will each be, a legal,
valid and binding agreement of the Company, enforceable in accordance with their
respective terms, except to the extent that enforcement of each of the Primary
Documents may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect relating
to creditors' rights generally and to general principles of equity.
h. Non-contravention. The execution and delivery of this Agreement
and each of the other Primary Documents, and the consummation by the Company of
the other transactions contemplated by this Agreement and each of the other
Primary Documents, does not and will not conflict with or result in a breach by
the Company of any of the terms or provisions of, or constitute a default under,
the Certificate of Incorporation or By-laws of the Company, or any material
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which they or any of their
properties or assets are bound, or any existing applicable law, rule, or
regulation or any applicable decree, judgment or order of any court or United
States federal or state regulatory body, administrative agency, or any other
governmental body having jurisdiction over the Company, its subsidiaries, or any
of their properties or assets. Neither the filing of the registration statement
required to be filed by the Company pursuant to the Registration Rights
Agreement nor the offering or sale of the Debentures or the Warrants as
contemplated by this Agreement gives rise to any rights, other than those which
have been waived or satisfied on or prior to the Closing Date, for or relating
to the registration of any shares of the Common Stock.
4
<PAGE>
i. Approvals. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the entry into or the performance of this Agreement and the
other Primary Documents.
j. SEC Filings. None of the reports or documents filed by the Company
with the Commission (the "SEC Documents") contained, at the time they were
filed, any untrue statement of a material fact or omitted to state any material
fact required to be stated therein, or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
k. Stabilization. Neither the Company, nor any of its affiliates,
has taken or may take, directly or indirectly, any action designed to cause or
result in, or which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the shares of
Common Stock.
l. Absence of Certain Changes. Except as disclosed in the Company's
SEC Documents and since May 31, 1999, there has been no material adverse change
nor any material adverse development in the business, properties, operations,
financial condition, prospects, outstanding securities or results of operations
of the Company.
m. Full Disclosure. There is no fact known to the Company (other
than general economic conditions known to the public generally) that has not
been disclosed in writing to the Purchaser (i) that could reasonably be
expected to have a material adverse effect upon the condition (financial or
otherwise) or the earnings, business affairs, properties or assets of the
Company or (ii) that could reasonably be expected to materially and adversely
affect the ability of the Company to perform the obligations set forth in the
Primary Documents. The representations and warranties of the Company set forth
in this Agreement do not contain any untrue statement of a material fact or omit
any material fact necessary to make the statements contained herein, in light of
the circumstances under which they were made, not misleading.
n. Title to Properties; Liens and Encumbrances. The Company has good
and marketable title to all of its material properties and assets, both real and
personal, and has good title to all its leasehold interests, in each case
subject only to mortgages, pledges, liens, security interests, conditional sale
agreements, encumbrances or charges created in the ordinary course of business.
o. Patents and Other Proprietary Rights. The Company has sufficient
title and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for the conduct of its business as now conducted and as proposed to be
conducted, and such business does not and would not conflict with or constitute
an infringement on the rights of others.
p. Permits. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now
conducted, the lack of which would materially and adversely affect the business
or financial condition of the Company. The
5
<PAGE>
Company is not in default in any respect under any of such franchises, permits,
licenses or similar authority.
q. Absence of Litigation. Except as disclosed in the Company's SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board or body pending or, to the knowledge of the
Company or any of its subsidiaries, threatened against or affecting the Company
or any of its subsidiaries, in which an unfavorable decision, ruling or finding
would have a material adverse effect on the properties, business, condition
(financial or other) or results of operations of the Company and its
subsidiaries, taken as a whole, or the transactions contemplated by the Primary
Documents, or which would adversely affect the validity or enforceability of, or
the authority or ability of the Company to perform its obligations under, the
Primary Documents.
r. No Default. Each of the Company and its subsidiaries is not in
default in the performance or observance of any obligation, covenant or
condition contained in any indenture, mortgage, deed of trust or other
instrument or agreement to which it is a party or by which it or its property
may be bound.
s. Transactions with Affiliates. Except as disclosed in the Company's
public filings with the Commission, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors or
affiliates that, had they existed on May 31, 1999, would have been required to
be disclosed in the Company's 1999 Annual Report to stockholders.
t. Employment Matters. The Company is in compliance in all material
respects with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company would have any liability; the Company has not incurred and
does not expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which would cause
the loss of such qualification.
u. Insurance. The Company maintains property and casualty, general
liability, personal injury and other similar types of insurance with financially
sound and reputable insurers that is adequate, consistent with industry
standards and the Company's historical claims experience. The Company has not
received notice from, and has no knowledge of any threat by, any insurer (that
has issued any insurance policy to the Company) that such insurer intends to
deny coverage under or cancel, discontinue or not renew any insurance policy
presently in force.
v. Taxes. All applicable tax returns required to be filed by the
Company and each of its subsidiaries have been prepared and filed in compliance
with all applicable laws, or if not yet filed have been granted extensions of
the filing dates which extensions have not expired,
6
<PAGE>
and all taxes, assessments, fees and other governmental charges upon the
Company, its subsidiaries, or upon any of their respective properties, income or
franchises, shown in such returns and on assessments received by the Company or
its subsidiaries to be due and payable have been paid, or adequate reserves
therefor have been set up if any of such taxes are being contested in good
faith; or if any of such tax returns have not been filed or if any such taxes
have not been paid or so reserved for, the failure to so file or to pay would
not in the aggregate have a material adverse effect on the business or financial
condition of the Company and its subsidiaries, taken as a whole.
w. Foreign Corrupt Practices Act. Neither the Company nor any of its
directors, officers or other employees has (i) used any Company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to any political activity; (ii) made any direct or indirect
unlawful payment of Company funds to any foreign or domestic government official
or employee; (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person. The
Company maintains a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
x. Investment Company Act. The Company is not conducting, and does
not intend to conduct its business in a manner which would cause it to become,
an "investment company," as defined in Section 3(a) of the Investment Company
Act of 1940, as amended.
y. Agent Fees. Except for one hundred fifty thousand dollars
($150,000) which shall be paid by the Company to David Kalish, the Company has
not incurred any liability for any finder's or brokerage fees or agent's
commissions in connection with the offer and sale of the transactions
contemplated by this Agreement.
z. Private Offering. Subject to the accuracy of the Purchaser's
representations and warranties set forth in Section 2 hereof, the offer, sale
and issuance of the Securities and the other securities as contemplated by this
Agreement are exempt from the registration requirements of the Securities Act.
The Company agrees that neither the Company nor anyone acting on its behalf will
offer any of the Debentures, the Warrants, or any similar securities for
issuance or sale, or solicit any offer to acquire any of the same from anyone so
as to render the issuance and sale of such securities subject to the
registration requirements of the Securities Act. The Company has not offered or
sold the Securities by any form of general solicitation or general advertising,
as such terms are used in Rule 502(c) under the Securities Act.
aa. Year 2000 Processing. The computer systems used by the Company
and its subsidiaries (the "Systems"), both hardware and software, are in good
working order. The Company has taken steps that are reasonable to ensure that
the occurrence of the year 2000 does not materially and adversely affect the
Systems of the Company, its subsidiaries, or their
7
<PAGE>
business, and no material expenditures are required in order to cause such
Systems to operate properly as a result of the change of the year 1999 to 2000.
The Company and its subsidiaries have resolved all issues discovered as a result
of year 2000 inquires or compliance testing or otherwise known to the Company.
bb. Environmental Matters. Neither the Company and its subsidiaries,
nor any predecessor in interest nor, to the Company's knowledge, after due
inquiry, any other person has ever caused or permitted any Hazardous Material
(as defined below) to be released, treated or disposed of on, at, under or
within any real property owned, leased or operated by the Company and its
subsidiaries or any predecessor in interest, and no such real property has ever
been used (either by the Company and its subsidiaries, any predecessor in
interest or, to the Company's knowledge, after due inquiry, by any other person)
as a treatment, storage or disposal site for any Hazardous Material. The
Company has no liabilities with respect to Hazardous Materials, and to the
knowledge of the Company, after due inquiry, no facts or circumstances exist
which could give rise to liabilities with respect to Hazardous Materials, which
could have any reasonable likelihood of having a material adverse effect on the
Company. For purposes of this Agreement "Hazardous Materials" shall mean (i)
any pollutants or contaminations, (ii) any asbestos or insulation or other
material composed of or containing asbestos and (iii) any petroleum product and
any hazardous, toxic or dangerous waste, substance or material defined as such
in, or for purposes of, the Comprehensive Environmental Response, Compensation
and Liability Act, any so-called "Superfund" or "Superlien" law, or (iv) any
other applicable federal, state, local or other statute, law, ordinance, code,
rule, regulation, order or decree concerning the protection of human health or
the environment or otherwise regulating, relating to, or imposing liability or
standards of conduct concerning, any hazardous, toxic or dangerous waste,
substance or material, as now or at any time hereafter in effect.
cc. Intellectual Property. Except as set forth in the SEC Documents,
to the best of the Company's knowledge, each of the Company and its subsidiaries
owns or possesses adequate rights to use all material patents, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names and
copyrights which are described in the SEC Documents; except as set forth in the
SEC Documents, the Company has not received any notice of, and has no knowledge
of, any infringement of or conflict with asserted rights of the Company by
others with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names and copyrights which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business of the Company and its subsidiaries, taken as a
whole, as presently conducted; and, except as set forth in the SEC Documents,
the Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with the asserted rights of others with respect to
any patent, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names and copyrights which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
or business of the Company and its subsidiaries, taken as a whole, as presently
conducted.
8
<PAGE>
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Purchaser acknowledges that, except as
provided in the Registration Rights Agreement, (1) neither the Debentures, the
Warrants, nor the Common Stock issuable upon conversion of, or in lieu of
interest payments on, the Debentures or upon exercise of the Warrants, have
been, and are not being, registered under the Securities Act, and may not be
transferred unless (A) subsequently registered thereunder or (B) they are
transferred pursuant to an exemption from such registration; and (2) any sale of
the Debentures, the Warrants or the Common Stock issuable upon conversion or
exchange thereof made in reliance upon Rule 144 under the Securities Act may be
made only in accordance with the terms of said Rule and further, if said Rule is
not applicable, any resale of the Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the Securities Act, may require compliance
with another exemption under the Securities Act and the rules and regulations of
the Commission thereunder. The provisions of Section 4(a) and 4(b) hereof,
together with the rights of the Purchaser under this Agreement and the other
Primary Documents, shall be binding upon any subsequent transferee of the
Debentures and the Warrants.
b. Restrictive Legend. The Purchaser acknowledges and agrees that,
until such time as the Securities or the Common Stock issuable upon conversion
or exchange thereof shall have been registered under the Securities Act or the
Purchaser demonstrates to the reasonable satisfaction of the Company and its
counsel that such registration shall no longer be required, such Securities or
the Common Stock issuable upon conversion or exchange thereof may be subject to
a stop-transfer order placed against the transfer of such Securities, and such
Securities shall bear a restrictive legend in substantially the following form:
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS
TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL OR OTHER
EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
SHALL NO LONGER BE REQUIRED.
c. Filings. The Company undertakes and agrees that it will make all
required filings in connection with the sale of the Securities or the Common
Stock issuable upon conversion or exchange thereof to the Purchaser as required
by United States laws and regulations, or by any domestic securities exchange or
trading market, including, qualifying the shares of Common Stock issuable upon
exercise of the Warrants for trading on the OTC Bulletin Board or the filing of
a listing application with NASDAQ to list all of the shares of Common Stock
issuable upon conversion of the Debentures and upon the exercise of the
Warrants, as applicable, and if applicable, the filing of a notice on Form D (at
such time and in such manner as required by the rules and regulations of the
Commission), and to provide copies thereof to the Purchaser promptly after such
filing or filings.
9
<PAGE>
d. OTC Bulletin Board. The Company agrees and covenants that it will
not seek to have the trading of its Common Stock through OTC Bulletin Board
suspended or terminated, will use its best efforts to maintain its eligibility
for trading on OTC Bulletin Board and, if such trading of its Common Stock is
suspended or terminated, will use its best efforts to requalify its Common Stock
or otherwise cause such trading to resume.
e. Reporting Status. So long as the Purchaser beneficially owns any
of the Securities, the Company shall timely file all reports required to be
filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
and shall not terminate its status as an issuer required to file reports under
the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination.
f. State Securities Filings. The Company shall from time to time
promptly take such action as the Purchaser or any of its representatives, if
applicable, may reasonably request to qualify the Securities or the Common Stock
issuable upon conversion or exchange thereof for offering and sale under the
securities laws (other than United States federal securities laws) of the
jurisdictions in the United States as shall be so identified to the Company, and
to comply with such laws so as to permit the continuance of sales therein,
provided that in connection therewith, the Company shall not be required to
qualify as a foreign corporation or to file a general consent to the service of
process in any jurisdiction.
g. Use of Proceeds. The Company will use all of the net proceeds
from the issuance of the Securities for the development of portal sites in
Canada, the United States and internationally; for expansion of the virtual
Internet service within Canada and the United States; for production and rollout
of the Voice Over Internet protocol phone services; for marketing and for
working capital and to pay the costs of this offering.
h. Reservation of Common Stock. The Company will at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the conversion of the Debentures and the
exercise of the Warrants. The Company will use its best efforts at all times to
maintain a number of shares of Common Stock so reserved for issuance that is no
less than two (2) times the number that is then actually issuable upon the
conversion of the Debentures and the exercise in full of the Warrants.
i. Sales of Additional Shares. The Company shall not, directly or
indirectly, without the prior written consent of the Purchaser, offer, sell,
offer to sell, contract to sell or otherwise dispose of any (1) shares of Common
Stock at a price below four dollars ($4.00) per share, (2) any security or other
instrument convertible into or exchangeable for shares of its Common Stock, or
(3) securities that contain any form of repricing rights, in each case, for a
period beginning on the date hereof and ending on the date that is later of two
hundred seventy (270) days after the date of this Agreement or one hundred
eighty (180) days after the Registration Statement (as defined in the
Registration Rights Agreement) is declared effective by the Commission (the
"Lock-Up Period"), except that the Company may (i) issue securities for the
aggregate consideration of at least $15 million in connection with a bona fide,
firm commitment, underwritten public offering under the Securities Act; (ii) may
issue shares of Common Stock which are issued in connection with a bona fide
transaction involving the acquisition of another business entity or segment of
any such entity by the Company by merger,
10
<PAGE>
asset purchase, stock purchase or otherwise; (iii) may issue shares of common
stock to directors, officers, employees or consultants of the Company for the
primary purpose of soliciting or retaining their services in an aggregate
amount, together with any New Options (as defined below) vesting or becoming
exercisable during the Lock-Up Period, not to exceed 150,000 shares; (iv) may
issue shares of Common Stock upon the exercise or conversion of currently
outstanding options, warrants and other convertible securities and up to 150,000
shares of Common Stock underlying New Options as provided in clause (v) below;
(v) may issue options to purchase shares of its Common Stock to its directors,
officers, employees and consultants in connection with its existing stock option
plans ("New Options"); provided, that, during the Lock-Up Period, New Options to
purchase not more than 150,000 shares of Common Stock shall vest or become
exercisable; and (vi) may issue Common Stock in connection with a stock split,
stock dividend or similar recapitalization of the Company which affects all
holders of the Company's Common Stock on an equivalent basis, in each case,
without the prior written consent of the Purchaser. In addition, the Company
agrees that it will not cause any shares of its capital stock that are issued in
connection with a transaction of the type contemplated by clause (ii) (or upon
the conversion or exercise of other securities that are issued in connection
with such transaction) or that were issued in connection with any financing,
acquisition or other transaction that occurred prior or subsequent to the date
of this Agreement to be covered by a registration statement that is filed with
the Commission or declared effective by the Commission prior to the time that
the Debentures and the Warrants and Common Stock issuable upon conversion or
exercise thereof are covered by a registration statement filed by the Company
pursuant to its obligations under the Registration Rights Agreement has been
effective under the Securities Act for a period of at least one hundred eighty
(180) days during which one hundred eighty (180) day period the Company has not
notified the Purchaser that such registration statement or the prospectus
included in such registration statement includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
j. Right of First Refusal. Subject to Section 4(i), if during the
twelve (12) month period following the date hereof the Company shall desire to
sell, offer to sell, contract to sell or otherwise dispose of any securities or
any security or other instrument convertible into or exchangeable for shares of
Common Stock (collectively, the "Offered Securities") to a prospective investor
(the "Prospective Investor"), the Company shall notify (the "Offer Notice") the
Purchaser in accordance with Section 10 hereof of the terms (the "Third Party
Terms") on which the Company proposes to sell, contract to sell or otherwise
dispose of the Offered Securities to the Prospective Investor. If, within the
five (5) day period following the Purchaser's receipt of the Offer Notice, the
Purchaser delivers a written notice (the "Acceptance Notice") to the Company
stating its desire to purchase all or any portion of the Offered Securities on
the Third Party Terms, the Company shall be required to sell the Offered
Securities (or any portion thereof so desired by the Purchaser) to the Purchaser
at the price and on the terms set forth in the Offer Notice and the Company
shall not be permitted to sell such Offered Securities to the Prospective
Investor. If the Purchaser does not deliver an Acceptance Notice to the Company
in such five (5) day period, then for a period of sixty (60) days following the
date of the Offer Notice the Company may sell the Offered Securities to the
Prospective Investor on the terms set forth in the Offer Notice.
11
<PAGE>
k. Additional Registration Statements. At any time during the period
beginning on the date hereof and ending on the first date that follows a period
of one hundred eighty (180) consecutive days following the effectiveness of the
Registration Statement (as defined in the Registration Rights Agreement) during
which there has been no Blackout Event (as defined in the Registration Rights
Agreement) relating to such Registration Statement, the Company agrees that it
will not cause any registration statement (other than the Registration
Statement) to be declared effective by the Commission.
l. Stockholder Approval. If required in accordance with Nasdaq Rule
4310 or 4460, the Company agrees to use its best efforts (including obtaining
any vote of its stockholders required by applicable law or Nasdaq rules) to
authorize and approve the issuance of the Common Stock issuable upon conversion
of the Debentures and exercise of Warrants, to the extent that such conversion
or issuance results in the issuance of 20% or more of the Company's outstanding
Common Stock.
m. Ownership. At no time shall the Purchaser (including its
officers, directors and affiliates) maintain in the aggregate beneficial
ownership (as defined for purposes of Section 16 of the Securities Exchange Act
of 1934, as amended) of shares of Common Stock in excess of 4.999% of the
Company's outstanding Common Stock unless the Purchaser gives the Company at
least sixty-one days notice that it intends to increase its ownership position.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company warrants that no instruction, other than the
instructions referred to in this Section 5 and stop transfer instructions to
give effect to Sections 4(a) and 4(b) hereof prior to the registration and sale
of the Securities in the manner contemplated by the Registration Rights
Agreement, will be given by the Company to the transfer agent and that the
shares of Common Stock issuable upon conversion of, or in lieu of interest
payments on the Debentures or upon exercise of the Warrants shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement and applicable
law. Nothing in this Section shall affect in any way the Purchaser's
obligations and agreement to comply with all applicable securities laws upon
resale of the Securities. If the Purchaser provides the Company with an opinion
of counsel reasonably satisfactory (as to both the identity of such counsel and
the content of such opinion) to the Company and its counsel that registration of
a resale by the Purchaser of any of the Securities in accordance with clause
(1)(B) of Section 4(a) of this Agreement is not required under the Securities
Act, the Company shall permit the transfer of the Securities and, in the case of
the Common Stock, promptly instruct the Company's transfer agent to issue one or
more certificates for Common Stock without legend in such names and in such
denominations as specified by the Purchaser.
b. The Company will permit the Purchaser to exercise its right to
convert the Debentures or to exercise the Warrants by faxing an executed and
completed Notice of Conversion or Form of Election to Purchase, as applicable,
to the Company, and delivering within three (3) business days thereafter, the
original Notice of Conversion (and the related original Debentures) or Form of
Election to Purchase (and the related original Warrants) to the Company by hand
delivery or by express courier, duly endorsed. Each date on which a Notice of
Conversion or Form of Election to Purchase is faxed to the Company in accordance
with the
12
<PAGE>
provisions hereof shall be deemed a "Conversion Date." The Company will transmit
the certificates representing the Common Stock issuable upon conversion of any
Debenture or upon exercise of any Warrants (together with the Debentures not so
converted, or the Warrants not so exercised) or upon conversion of the
Debentures and exercise of the Warrants to the Purchaser via express courier as
soon as practicable, but in all events no later than five (5) business days in
the case of conversion of the Debentures, or five (5) business days in the case
of the exercise of any Warrant after the Conversion Date (the "Delivery Date").
For purposes of this Agreement, such conversion of the Debentures or the
exercise of the Warrants shall be deemed to have been made immediately prior to
the close of business on the Conversion Date.
c. In lieu of delivering physical certificates representing the
Common Stock issuable upon the conversion of the Debentures or the exercise of
the Warrants, provided the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, on
the written request of the Purchaser, who shall have previously instructed the
Purchaser's prime broker to confirm such request to the Company's transfer
agent, the Company shall cause its transfer agent to electronically transmit
such Common Stock to the Purchaser by crediting the account of the Purchaser's
prime broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC")
system no later than the applicable Delivery Date.
d. The Company understands that a delay in the issuance of Common
Stock beyond the applicable Delivery Date could result in an economic loss to
the Purchaser. As compensation to the Purchaser for such loss, the Company
agrees to pay to the Purchaser for late issuance of Common Stock upon conversion
of or in lieu of interest payments on, the Debentures or upon exercise of the
Warrants the sum of $1,500 per day for each $100,000 in aggregate principal
amount of Debentures that are being converted or for any or all shares of Common
Stock purchased upon the exercise of the Warrants. The Company shall pay any
payments that are payable to the Purchaser pursuant to this Section 5 in
immediately available funds upon demand. Nothing herein shall limit the
Purchaser's right to pursue actual damages for the Company's failure to so issue
and deliver Common Stock to the Purchaser. Furthermore, in addition to any
other remedies which may be available to the Purchaser, in the event that the
Company fails for any reason to effect delivery of such Common Stock within five
(5) business days after the relevant Delivery Date, the Purchaser will be
entitled to revoke the relevant Notice of Conversion or Form of Election to
Purchase by delivering a notice to such effect to the Company, whereupon the
Company and the Purchaser shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion or Form of Election
to Purchase. For purposes of this Section 5, "business day" shall mean any day
in which the financial markets of New York are officially open for the conduct
of business therein.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE SECURITIES.
Purchaser understands that the Company's obligation to issue the Securities
on the Closing Date to Purchaser pursuant to this Agreement is conditioned upon:
a. The accuracy on the Closing Date of the representations and
warranties of Purchaser contained in this Agreement as if made on the Closing
Date and the performance by Purchaser on or before the Closing Date of all
covenants and agreements of Purchaser required
13
<PAGE>
to be performed on or before the Closing Date;
b. The absence or inapplicability of any and all laws, rules or
regulations prohibiting or restricting the transactions contemplated hereby, or
requiring any consent or approval which shall not have been obtained.
7. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE THE SECURITIES.
The Company understands that Purchaser's obligation to purchase the
Debentures and the Warrants on the Closing Date is conditioned upon:
a. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date, and the performance by the Company on or before the Closing Date of all
covenants and agreements of the Company required to be performed on or before
the Closing Date;
b. On the Closing Date, the Purchaser shall have received (I) the
Debentures, in substantially the form of Exhibit A hereto, and (ii) the
Warrants, in substantially the form of Exhibit B hereto;
c. On the Closing Date, the Purchaser shall have received an opinion
of counsel for the Company, dated the Initial Closing Date, in form, scope and
substance reasonably satisfactory to Purchaser, in substantially the form of
Exhibit C attached hereto;
d. On the Closing Date the Company shall have executed and delivered
a signed counterpart to the Registration Rights Agreement, in form, scope and
substance reasonably satisfactory to Purchaser, to the effect set forth in
Exhibit D attached hereto;
e. On Closing Date, the Purchaser shall have received a certificate
executed by (i) the President or the Chairman of the Company and (ii) the Chief
Financial Officer of the Company, stating that all of the representations and
warranties of the Company set forth in this Agreement are accurate as of the
Closing Date and that the Company has performed all of its covenants and
agreements required to be performed under this Agreement on or before the
Closing Date;
f. On the Closing Date, the Purchaser shall have received from the
Company such other certificates and documents as it or its representative, if
applicable, shall reasonably request, and all proceedings taken by the Company
in connection with the Primary Documents contemplated by this Agreement and the
other Primary Documents and all documents and papers relating to such Primary
Documents shall be satisfactory to the Purchaser;
g. On or prior to the Closing Date, there shall not have occurred any
of the following: (i) a suspension or material limitation in the trading of
securities generally on the New York Stock Exchange, Nasdaq National Market,
Nasdaq SmallCap or OTC Bulletin Board; (ii) a general moratorium on commercial
banking activities in New York declared by the applicable banking authorities;
(iii) the outbreak or escalation of hostilities involving the United States, or
the declaration by the United States of a national emergency or war; or (iv) a
change in
14
<PAGE>
international, political, financial or economic conditions, if the effect of any
such event, in the reasonable judgment of the Purchaser, makes it impracticable
or inadvisable to proceed with the purchase of the Securities on the terms and
in the manner contemplated in this Agreement and in the other Primary Documents.
h. The Company shall have delivered to the Purchaser reimbursement of
the Purchaser's out-of-pocket costs and expenses incurred in connection with the
transactions contemplated by this Agreement (including fees and disbursements of
the Purchaser's legal counsel) up to a maximum of twenty thousand dollars
($20,000).
8. EXPENSES.
The Company covenants and agrees with the Purchaser that the Company will
pay or cause to be paid the following: (a) the fees, disbursements and expenses
of the Purchaser and Purchaser's counsel in connection with the issuance of the
Securities payable on the Closing Date up to a maximum of twenty thousand
dollars ($20,000), (b) all expenses in connection with registration or
qualification of the Securities for offering and sale under state securities
laws as provided in Section 4(f) hereof, and (c) all other costs and expenses
incident to the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section, including the fees and disbursements
of the Company's counsel, accountants and other professional advisors, if any.
If the Company fails to satisfy its obligations or to satisfy any condition set
forth in this Agreement, as a result of which the Securities are not delivered
to the Purchaser on the terms and conditions set forth herein, the Company shall
reimburse the Purchaser for any out-of-pocket expenses reasonably incurred in
making preparations for the purchase, sale and delivery of the Securities not so
delivered.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company and the Purchaser shall
survive the execution and delivery of this Agreement and the delivery of the
Debentures and the Warrants.
10. GOVERNING LAW; MISCELLANEOUS
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York, without regard to principles of conflict of laws.
Each of the parties consents to the jurisdiction of the federal courts whose
districts encompass any part of the City of New York or the state courts of the
State of New York sitting in the City of New York in connection with any dispute
arising under this Agreement or any of the transactions contemplated hereby, and
hereby waives, to the maximum extent permitted by law, any objection, including
any objections based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference only and shall not form part of, or
affect the interpretation of this Agreement. This Agreement and each of the
Primary Documents have been entered into freely by each of the parties,
following consultation with their respective counsel, and shall be interpreted
fairly in accordance with its respective terms, without any construction in
favor of or against either party. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
15
<PAGE>
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or unenforceability of this
Agreement in any other jurisdiction. This Agreement shall inure to the benefit
of, and be binding upon the successors and assigns of each of the parties
hereto, including any transferees of the Securities. This Agreement may be
amended only by an instrument in writing signed by the party to be charged with
enforcement. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
11. NOTICES.
Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free
transmission) or two business days following deposit of such notice with an
internationally recognized courier service, with postage prepaid and addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by five days advance written
notice to each of the other parties hereto.
Company: Information Highway.com., Inc.
#185-10751 Shellbridge Way
Richmond, British Columbia V6X 2W8
Attention: John G. Robertson
Tel: (604) 278-5996
Fax: (604) 278-3409
With a copy to:
Ogden Murphy Wallace P.L.L.C.
2100 Westlake Center Tower
1601 Fifth Avenue
Seattle, Washington 98101-1686
Attention: James L. Vandeberg, Esq.
Tel: (206) 447-7000
Fax: (206) 407-0215
Purchaser: Senasqua Investors LLC
c\o WEC Asset Management LLC
110 Colabaugh Pond Road
Croton-on-Hudson, New York 10520
Attention: Daniel J. Saks
Tel: (914) 271-2211
Fax: (914) 271-0889
16
<PAGE>
With a copy to:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Mark Saks, Esq.
Tel: (212) 326-0140
Fax: (212) 326-0806
12. INDEMNIFICATION
The Company agrees to indemnify the Purchaser and each officer, director,
employee, agent, partner, stockholder, member and affiliate of the Purchaser
(collectively, the "Indemnified Parties") for, and hold each Indemnified Party
harmless from and against: (i) any and all damages, losses, claims and other
liabilities of any and every kind, including, without limitation, judgments and
costs of settlement, and (ii) any and all reasonable out-of-pocket costs and
expenses of any and every kind, including, without limitation, reasonable fees
and disbursements of counsel for such Indemnified Parties (all of which expenses
periodically shall be reimbursed as incurred), in each case, arising out of or
suffered or incurred in connection with any of the following: (a) any
misrepresentation or any breach of any warranty made by the Company herein or in
any of the other Primary Documents, (b) any breach or non-fulfillment of any
covenant or agreement made by the Company herein or in any of the other Primary
Documents and (c) any claim relating to or arising out of a violation of
applicable federal or state securities laws by the Company in connection with
the sale or issuance of the Initial Shares, Additional Shares, Initial Warrants,
Additional Warrants or Conditional Warrant by the Company to the Purchaser
(collectively, the "Indemnified Liabilities"). To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK, SIGNATURE PAGE TO FOLLOW]
17
<PAGE>
IN WITNESS WHEREOF, this Securities Purchase Agreement has been duly
executed by each of the undersigned.
INFORMATION HIGHWAY.COM, INC.
By:
-----------------------------------------------
Name: John G. Robertson
Title: President
SENASQUA INVESTORS LLC
By: WEC Asset Management LLC, Manager
By:
-----------------------------------------------
Name: Daniel J. Saks
Title: Managing Director
18
<PAGE>
EXHIBIT INDEX
EXHIBIT A FORM OF DEBENTURE
EXHIBIT B FORM OF WARRANT
EXHIBIT C FORM OF OPINION OF COUNSEL TO COMPANY
EXHIBIT D FORM OF REGISTRATION RIGHTS AGREEMENT
SCHEDULE INDEX
SCHEDULE 3(a) SUBSIDIARIES
SCHEDULE 3(b) CAPITALIZATION, DERIVATIVE SECURITIES AND
REGISTRATION RIGHTS
19
<PAGE>
SCHEDULE 3(a)
LIST OF SUBSIDIARIES
Information Highway, Inc. (of which Information Highway.com, Inc. owns
approximately a 98% interest, which is expected to ultimately be a 100%
interest)
YesIC Communications Inc. - 100% interest
World Tel-Internet (Toronto) Ltd. - 100% interest
Blue Crow Internet Co. Ltd. - 100% interest
20
<PAGE>
SCHEDULE 3(b)
CAPITALIZATION, DERIVATIVE SECURITIES AND REGISTRATION RIGHTS
<TABLE>
<CAPTION>
Name of Shareholder Name and Issue Date Number of Conversion or Expiration Registration
Class of Common Stock Exercise Date Rights
Derivative Into which Price
Securities Derivative
Securities are
Convertible
<S> <C> <C> <C> <C> <C> <C>
Tammy Del Santo 7,000 01/26/98 7,000 $0.50 01/26/03 Form S-8
Jack Wasserman 75,000 01/25/98 75,000 $0.50 01/26/03 Form S-8
Gordon Friesen 25,000 01/26/98 25,000 $0.50 01/26/03 Form SB-2
Ismael Rodriguez 12,500 01/26/98 12,500 $0.50 01/26/03 Form S-8
Jason Roth 18,750 01/26/98 18,750 $0.50 01/26/03 Form S-8
Jack Bal 37,500 08/14/98 37,500 $0.75 08/14/03 Form S-8
Felicity Pook 7,500 02/23/99 7,500 $0.75 02/23/04 Form S-8
Gordon Friesen 50,000 01/18/99 50,000 $0.75 01/18/04 Form SB-2
David Sass 100,000 05/19/99 100,000 $4.00 05/19/04 Form SB-2
John Robertson 300,000 05/21/99 300,000 $4.00 05/21/04 Form S-8
David Sass 200,000 05/21/99 200,000 $4.00 05/21/04 Form SB-2
Russ Gallagher 100,000 06/23/99 100,000 $4.00 06/23/04 Form SB-2
IP Equity Inc. 125,000 06/23/99 125,000 $5.00 06/23/04 Form SB-2
Anna Wallace 17,400 11/01/99 17,400 $5.00 11/01/04 Form S-8
Voga Wallace 17,500 11/01/99 17,500 $5.00 11/01/04 Form S-8
Richard Butler 15,000 11/01/99 15,000 $5.00 11/01/04 Form S-8
Kelly Robertson 100,000 11/01/99 100,000 $5.00 11/01/04 Form S-8
James Vandeberg 100,000 11/05/99 100,000 $4.00 11/05/04 Form S-8
Jennifer Lorette 100,000 11/05/99 100,000 $4.00 11/05/04 Form S-8
Donna Moroney 50,000 11/05/99 50,000 $4.00 11/05/04 Form S-8
Cheryl Kelemen 25,000 11/05/99 25,000 $4.00 11/05/04 Form S-8
Carol Coleman 25,000 11/12/99 25,000 $4.00 11/12/04 Form S-8
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Name of Shareholder Name and Issue Date Number of Conversion or Expiration Registration
Class of Common Stock Exercise Date Rights
Derivative Into which Price
Securities Derivative
Securities are
Convertible
<S> <C> <C> <C> <C> <C> <C>
Cristian Rodriguez 25,000 11/12/99 25,000 $4.00 11/12/04 Form S-8
Jason Roth 25,000 11/12/99 25,000 $4.00 11/12/04 Form S-8
Iouri Savenkov 10,000 11/12/99 10,000 $4.00 11/12/04 Form S-8
Grigori Efimov 10,000 11/12/99 10,000 $4.00 11/12/04 Form S-8
Chelsea Schwab 10,000 11/12/99 10,000 $4.00 11/12/04 Form S-8
Jennifer Will 5,000 11/12/99 5,000 $4.00 11/12/04 Form S-8
Michael Kuiack 15,000 11/12/99 15,000 $4.00 11/12/04 Form S-8
Alexandra Kanezaki 10,000 11/12/99 10,000 $4.00 11/12/04 Form S-8
Voga Wallace 12,500 11/29/99 12,500 $5.00 11/29/04 Form S-8
Anna Wallace 12,500 11/29/99 12,500 $5.00 11/29/04 Form S-8
Mallory M. Parmerlee Trust Share 5,000 07/26/99 5,000 $4.00 04/30/00 N/A
5,000 07/26/99 5,000 $6.00 04/30/01 Form SB-2
Shawn Lampman 12,500 07/26/99 12,500 $4.00 04/30/00 N/A
12,500 07/26/99 12,500 $6.00 04/30/01 Form SB-2
Joe Ebner 25,000 07/26/99 25,000 $4.00 04/30/00 N/A
25,000 07/26/99 25,000 $6.00 04/30/01 Form SB-2
Dave A. Hanson 5,000 07/26/99 5,000 $4.00 04/30/00 N/A
5,000 07/26/99 5,000 $6.00 04/30/01 Form SB-2
F.S.D.R.H. Trust 12,500 07/26/99 12,500 $4.00 04/30/00 N/A
12,500 07/26/99 12,500 $6.00 04/30/01 Form SB-2
Gene Cartwright Living Trust 25,000 07/26/99 25,000 $4.00 04/30/00 N/A
12/20/91 25,000 07/26/99 25,000 $6.00 04/30/01 Form SB-2
T. Kozub 5,000 07/26/99 5,000 $4.00 04/30/00 N/A
5,000 07/26/99 5,000 $6.00 04/30/01 Form SB-2
The Sunrise Trust 15,000 07/26/99 15,000 $4.00 04/30/00 N/A
15,000 07/26/99 15,000 $6.00 04/30/01 Form SB-2
Edward Keeney 3,000 07/26/99 3,000 $4.00 04/30/00 N/A
3,000 07/26/99 3,000 $6.00 04/30/01 Form SB-2
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Name of Shareholder Name and Issue Date Number of Conversion or Expiration Registration
Class of Common Stock Exercise Date Rights
Derivative Into which Price
Securities Derivative
Securities are
Convertible
<S> <C> <C> <C> <C> <C> <C>
T.H. Scheer 13,150 07/26/99 13,150 $4.00 04/30/00 N/A
13,150 07/26/99 13,150 $6.00 04/30/01 Form SB-2
David Fan 6,600 07/26/99 6,600 $4.00 04/30/00 N/A
6,600 07/26/99 6,600 $6.00 04/30/01 Form SB-2
Ladislav Korcek 2,000 07/26/99 2,000 $4.00 04/30/00 N/A
2,000 07/26/99 2,000 $6.00 04/30/01 Form SB-2
K & D Equities Inc. 400,000 11/15/99 400,000 $3.50 04/15/01 Form SB-2
Garry Savage 100,000 12/01/99 100,000 $4.00 12/01/02 Form SB-2
Garry Savage 150,000 12/01/99 150,000 $4.00 12/01/04 N/A
Gary Savage 150,000 12/01/99 150,000 $5.00 12/01/04 N/A
</TABLE>
23
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF OGDEN MURPHY WALLACE]
May 10, 2000
John Robertson
Information Highway.com Inc.
10751 Shellbridge Way Suite 185
Richmond, BC V6X 2W8
Canada
Ladies and Gentlemen:
Re: Information-Highway.com Registration Statement on Form SB-2
-----------------------------------------------------------
Dear Ladies and Gentlemen:
We have acted as counsel for Information-Highwaycom, Inc., a Florida
corporation (the "Company"), in connection with the preparation of the
registration statement on Form SB-2 (the "Registration Statement") filed with
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act of 1933, as amended (the "Act"), relating to the public offering
(the "Offering") of up to 4,089,750 shares (the "Shares") of the Company's
common stock, $0.0001 par value (the "Common Stock"), to be sold by the selling
stockholders. This opinion is being furnished pursuant to Item 601(b)(5) of
Regulation S-B under the Act.
In rendering the opinion set forth below, we have reviewed (a) the
Registration Statement and the exhibits thereto; (b) the Company's Articles of
Incorporation; (c) the Company's Bylaws; (d) certain records of the Company's
corporate proceedings as reflected in its minute books; and (e) such statutes,
records and other documents as we have deemed relevant. In our examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, and conformity with the originals of all
documents submitted to us as copies thereof. In addition, we have made such
other examinations of law and fact as we have deemed relevant in order to form a
basis for the opinion hereinafter expressed. Based upon the foregoing, we are of
the opinion that the Shares are validly issued, fully paid and nonassessable.
<PAGE>
John Robertson
May 10, 2000
Page 2
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to all references to this Firm under the caption
"Interests of Named Experts and Counsel" in the Registration Statement.
Very truly yours,
OGDEN MURPHY WALLACE, P.L.L.C.
James L. Vandeberg
VEO/veo
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Interests Of
Named Experts And Counsel" and the use of our report dated September 15, 1999
included in or made a part of this Registration Statement on Form SB-2 for the
registration of shares of its common stock.
ELLIOTT TULK PRYCE ANDERSON
/s/ "Elliott Tulk Pryce Anderson"
Vancouver, Canada
May 12, 2000
