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PROSPECTUS
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-73209
PURCHASESOFT, INC.
6,151,382 Shares of Common Stock
$0.90 per Share
PurchaseSoft, Inc. is distributing subscription rights in this
rights offering to persons who owned shares of our common stock on
March 22, 1999. During this rights offering, we will issue up to 6,151,382
shares of common stock.
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PROCEEDS
SUBSCRIPTION RIGHTS PRICE TO PURCHASESOFT, INC. (1)
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PER SHARE $0.90 $0.90
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TOTAL $5,536,243.80 $5,536,243.80
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(1) Before deducting expenses payable by us, estimated to be $143,539.
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THE EXERCISE OF THE SUBSCRIPTION RIGHTS INVOLVES SUBSTANTIAL RISK. YOU SHOULD
REFER TO THE DISCUSSION OF MATERIAL RISK FACTORS, BEGINNING ON PAGE 7 OF THIS
PROSPECTUS.
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You will receive 0.75 subscription rights for each share of common
stock that you owned on March 22, 1999. You will not receive any fractional
rights. Each subscription right entitles you to purchase one share of common
stock at the purchase price of $0.90 per share. If you exercise all of your
subscription rights, you may also have the opportunity to purchase additional
shares at the same purchase price.
The subscription rights are exercisable beginning on the date of
this prospectus and continuing until 5:00 p.m., Eastern Standard Time on
April 23, 1999.
The subscription rights may not be sold or transferred. The
subscription rights will not be listed for trading on any stock exchange.
L-R Global Partners, L.P., a major stockholder of PurchaseSoft,
of which two of our directors are principals, has committed to exercise at
least $2,727,000 of subscription rights in the rights offering. Also, Michael
G. Kerrison, our Chief Executive Officer and Chairman of the Board, has
committed to exercise his basic subscription and over-subscription privileges
for up to $100,000 of subscription rights in the rights offering. In
addition, if the proceeds to PurchaseSoft in the rights offering are less
than $5,000,000, L-R Global has committed to purchase, at $0.90 per share,
additional shares of common stock to make up the shortfall, but only up to a
total investment in this offering, of $3,500,000.
Shares of the our common stock are currently traded on the OTC
Bulletin Board-Registered Trademark- under the symbol "PURC." Neither the
Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
THE DATE OF THIS PROSPECTUS IS MARCH 23, 1999
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Questions and Answers About PurchaseSoft. . . . . . . . . . . 1
Questions and Answers About the Rights Offering . . . . . . . 1
A WARNING ABOUT FORWARD-LOOKING STATEMENTS. . . . . . . . . . . . . . . . 6
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PURCHASESOFT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Our History . . . . . . . . . . . . . . . . . . . . . . . . .13
Our Products. . . . . . . . . . . . . . . . . . . . . . . . .14
Future Products . . . . . . . . . . . . . . . . . . . . . . .15
Our Marketplace . . . . . . . . . . . . . . . . . . . . . . .15
Distribution Strategy . . . . . . . . . . . . . . . . . . . .16
Competition . . . . . . . . . . . . . . . . . . . . . . . . .16
Research and Product Development. . . . . . . . . . . . . . .16
Software Maintenance. . . . . . . . . . . . . . . . . . . . .17
Intellectual Property . . . . . . . . . . . . . . . . . . . .17
Employees . . . . . . . . . . . . . . . . . . . . . . . . . .17
RECENT DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Resignation of CEO and Chairman of the Board of Directors . .18
Funding by L-R Global . . . . . . . . . . . . . . . . . . . .18
Reorganization and Refocus. . . . . . . . . . . . . . . . . .18
Cash Balance, Liquidity, Finance. . . . . . . . . . . . . . .19
Marketing Efforts . . . . . . . . . . . . . . . . . . . . . .19
Board of Directors; Management Compensation . . . . . . . . .19
THE RIGHTS OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . .20
The Subscription Rights . . . . . . . . . . . . . . . . . . .20
Basic Subscription Privilege. . . . . . . . . . . . . . . . .20
Over-Subscription Privilege . . . . . . . . . . . . . . . . .20
Purchase Commitments. . . . . . . . . . . . . . . . . . . . .21
No Recommendations. . . . . . . . . . . . . . . . . . . . . .21
Expiration Date . . . . . . . . . . . . . . . . . . . . . . .21
Withdrawal Right. . . . . . . . . . . . . . . . . . . . . . .22
Determination of Subscription Price . . . . . . . . . . . . .22
Transferability of Subscription Rights. . . . . . . . . . . .22
Exercise of Subscription Rights . . . . . . . . . . . . . . .22
Method of Payment . . . . . . . . . . . . . . . . . . . . . .23
Guaranteed Delivery Procedures. . . . . . . . . . . . . . . .23
Signature Guarantees. . . . . . . . . . . . . . . . . . . . .24
Shares Held for Others. . . . . . . . . . . . . . . . . . . .24
Ambiguities in Exercise of Subscription Rights. . . . . . . .25
Regulatory Limitation . . . . . . . . . . . . . . . . . . . .25
Our Decision Binding. . . . . . . . . . . . . . . . . . . . .25
No Revocation . . . . . . . . . . . . . . . . . . . . . . . .26
Shares of Common Stock Outstanding after the
Rights Offering. . . . . . . . . . . . . . . . . . . . . .26
Fees and Expenses . . . . . . . . . . . . . . . . . . . . . .26
Subscription Agent. . . . . . . . . . . . . . . . . . . . . .26
IF YOU HAVE QUESTIONS . . . . . . . . . . . . . . . . . . . . . . . . . .27
DESCRIPTION OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . .27
PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
BY-LAWS THAT MAY HAVE ANTI-TAKEOVER EFFECTS . . . . . . . . .27
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
PRICE RANGE OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . .30
DETERMINATION OF OFFERING PRICE . . . . . . . . . . . . . . . . . . . . .30
PLAN OF DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . .31
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FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . .31
Taxation Of Stockholders. . . . . . . . . . . . . . . . . . .32
Taxation Of PurchaseSoft. . . . . . . . . . . . . . . . . . .33
Information Reporting and Backup Withholding. . . . . . . . .33
STATE AND FOREIGN SECURITIES LAWS . . . . . . . . . . . . . . . . . . . .33
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
IF YOU WOULD LIKE ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . .34
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PROSPECTUS SUMMARY
This section answers in summary form some questions you may have
about PurchaseSoft and this rights offering. The information in this section
is not complete and does not contain all of the information that you should
consider before exercising your subscription rights. You should read the
entire prospectus carefully, including the "Risk Factors" section and the
documents listed under "If You Would Like More Information."
QUESTIONS AND ANSWERS ABOUT PURCHASESOFT
WHAT IS PURCHASESOFT, INC.?
We design, develop, market and service purchasing and materials
management application specific software systems. We serve customers in a
broad range of industries, from small and mid-sized businesses to Fortune
2000 companies. Our core product, PurchaseSoft-TM-, encompasses electronic
catalogs, requisitioning, e-mail enabled authorization, request for
quotations, quotations and analyses, purchasing, receiving, inventory
management, fixed asset management, invoice management, and advanced decision
support. For more information, see "PurchaseSoft."
WHERE ARE WE LOCATED?
Our principal executive offices are located at:
PurchaseSoft, Inc.
7301 Ohms Lane, Suite 220,
Edina, Minnesota 55439
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
WHAT IS A SUBSCRIPTION RIGHT?
We are distributing to you, at no charge, 0.75 subscription
rights for every share of common stock that you owned on March 22, 1999. We
will not distribute any fractional subscription rights, but will round the
number of subscription rights you receive down to the nearest whole number.
Each subscription right entitles you to purchase one share of common stock
for $0.90. When you "exercise" a subscription right, that means that you
choose to purchase the common stock that the subscription right entitles you
to purchase. You may exercise any number of your subscription rights, or you
may choose not to exercise any subscription rights. You cannot give or sell
your subscription rights to anybody else - only you can exercise them. See
"The Rights Offering - The Subscription Rights."
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WHAT IS A RIGHTS OFFERING?
A rights offering is an opportunity for you to purchase
additional shares of common stock at a fixed price and in an amount
proportional to your existing interest, which enables you to maintain your
current percentage ownership.
WHAT IS THE BASIC SUBSCRIPTION PRIVILEGE?
The basic subscription privilege of each subscription right
entitles you to purchase one share of our common stock at a subscription
price of $0.90. See "The Rights Offering - Basic Subscription Privilege."
WHAT IS THE OVER-SUBSCRIPTION PRIVILEGE?
The over-subscription privilege of each subscription right
entitles you, if you fully exercise your basic subscription privilege, to
subscribe for additional shares of common stock at the same subscription
price of $0.90 per share. See "The Rights Offering - Over-Subscription
Privilege."
WHAT ARE THE LIMITATIONS ON THE OVER-SUBSCRIPTION PRIVILEGE?
If sufficient shares are available, we will honor the
over-subscription requests in full. If over-subscription requests exceed the
number of shares available, we will allocate all or a portion of the
available shares among stockholders who oversubscribed in proportion to the
number of shares purchased through the basic subscription privilege. See "The
Rights Offering - Over-Subscription Privilege."
WHY ARE WE ENGAGING IN A RIGHTS OFFERING?
We are offering the subscription rights to obtain additional
working capital, to invest in research and development and to expand our
sales and marketing capabilities. We believe that, if all of the
subscription rights are exercised, the proceeds from the rights offering,
together with funds on hand and anticipated operating revenues, will be
sufficient to finance our operations as projected by our business plan for at
least the next two years. Instead of selling additional shares of common
stock to outside parties, our Board of Directors has chosen to give you the
opportunity to buy more shares and provide us with additional capital. Of
course, we cannot assure you that we will not need to seek additional
financing in the future. See "Risk Factors - Capital Requirements;
Uncertainty of Additional Funding."
HOW MANY SHARES MAY I PURCHASE?
You will receive 0.75 subscription rights for each share of
common stock that you owned on March 22, 1999. We will not distribute
fractional subscription rights, but will round the number of subscription
rights you are to receive down to the nearest whole number. Each subscription
right entitles you to purchase one share of common stock for $0.90. See "The
Rights Offering - Basic Subscription Privilege." If you exercise
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all of the subscription rights that you receive, you may have the opportunity
to purchase additional shares of common stock. On the attached subscription
certificate, you may request to purchase as many additional shares as you
wish for $0.90 per share. We may honor all of the over-subscription
requests, but if not, you may not be able to purchase as many shares as you
requested on your subscription certificate. Subject to state securities laws
and regulations, we have the discretion to issue less than the total number
of shares that may be available for over-subscription requests in order to
comply with state securities laws. See "The Rights Offering -
Over-Subscription Privilege."
HOW DID WE ARRIVE AT THE $0.90 PER SHARE PRICE?
In determining the price per share during the rights offering, a
special committee of our Board of Directors, which did not include Michael
Kerrison or our directors affiliated with L-R Global, considered several
factors including the historic and current market price of the common stock,
our business prospects, our history of losses, general conditions in the
securities market, our need for capital, alternatives available to us for
raising capital, the amount of proceeds desired, pricing of similar
transactions, the liquidity of our common stock, the level of risk to our
investors, and the need to offer shares at a price that would be attractive
to our investors relative to the current trading price of our common stock.
See "The Rights Offering - Determination of Subscription Price."
HOW DO I EXERCISE MY SUBSCRIPTION RIGHTS?
You must properly complete the attached subscription certificate
and deliver it to the Subscription Agent before 5 p.m., Eastern Standard Time
on April 23, 1999. The address for the Subscription Agent is on page 26. See
"The Rights Offering - Exercise of Subscription Rights." Your subscription
certificate must be accompanied by proper payment for each share that you
wish to purchase. See "The Rights Offering - Method of Payment."
HOW LONG WILL THE RIGHTS OFFERING LAST?
You will be able to exercise your subscription rights only during
a limited period. IF YOU DO NOT EXERCISE YOUR SUBSCRIPTION RIGHTS BEFORE 5
P.M., EASTERN STANDARD TIME, ON APRIL 23, 1999, THE SUBSCRIPTION RIGHTS WILL
EXPIRE. We may, in our discretion, decide to extend the rights offering. In
addition, if the commencement of the rights offering is delayed, the
expiration date will similarly be extended. See "The Rights Offering -
Expiration Date."
AFTER I EXERCISE MY SUBSCRIPTION RIGHTS, CAN I CHANGE MY MIND?
No. Once you send in your subscription certificate and payment,
you cannot revoke the exercise of your subscription rights, even if you later
learn information about us that you consider to be unfavorable. You should
not exercise your subscription rights unless you are certain that you wish to
purchase additional shares of common stock at a price of $0.90 per share.
See "The Rights Offering - No Revocation."
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IS EXERCISING MY SUBSCRIPTION RIGHTS RISKY?
The exercise of your subscription rights involves certain risks.
Exercising your subscription rights means buying additional shares of our
common stock, and should be carefully considered as you would view other
equity investments. Among other things, you should carefully consider the
risks described under the heading "Risk Factors," beginning on page 7.
WHAT HAPPENS IF I CHOOSE NOT TO EXERCISE MY SUBSCRIPTION RIGHTS?
You will retain your current number of shares of common stock
even if you do not exercise your subscription rights. However, if other
stockholders exercise their subscription rights and you do not, the
percentage of PurchaseSoft that you own will diminish, and your voting and
other rights will be diluted. See "Risk Factors - Dilution of Your
Percentage Ownership of PurchaseSoft."
CAN I SELL OR GIVE AWAY MY SUBSCRIPTION RIGHTS?
No.
MUST I EXERCISE ANY SUBSCRIPTION RIGHTS?
No.
WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF EXERCISING MY SUBSCRIPTION
RIGHTS?
The receipt and exercise of your subscription rights are intended
to be nontaxable. You should seek specific tax advice from your personal tax
advisor. See "Federal Income Tax Considerations - Taxation of Stockholders."
WHEN WILL I RECEIVE MY NEW SHARES?
If you purchase shares of common stock through the rights
offering, you will receive certificates representing those shares as soon as
practicable after April 23, 1999. Subject to state securities laws and
regulations, we have the discretion to delay allocation and distribution of
any shares you may have elected to purchase by exercise of your basic or
over-subscription privilege in order to comply with state securities laws.
CAN WE CANCEL THE RIGHTS OFFERING?
Yes. A committee of our disinterested directors may cancel the
rights offering at any time on or before April 23, 1999, for any reason. If
we cancel the rights offering, any money received from stockholders will be
refunded promptly. See "The Rights Offering - Withdrawal Right."
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HOW MUCH MONEY WILL PURCHASESOFT RECEIVE FROM THE RIGHTS OFFERING?
Our gross proceeds from the rights offering depend on the number
of shares that are purchased. If we sell all 6,151,382 shares offered by this
prospectus, then we will receive proceeds of $5,536,243.80.
To guarantee us a minimum of $3.6 million in proceeds after the
rights offering:
- Our largest stockholder, L-R Global Partners, L.P. ("L-R
Global"), two principals of which serve on our Board of
Directors, has committed to exercise its basic subscription
privilege in the rights offering to the extent of at least
$2,727,000.
- Michael G. Kerrison, our Chief Executive Officer and Chairman
of the Board, has committed to exercise his basic subscription
and over-subscription privileges in the rights offering for up
to $100,000, subject to availability of sufficient shares on an
over-subscription basis.
- L-R Global has also made a stand-by commitment that if the
rights offering is undersubscribed and, as a result, our
proceeds from the rights offering are less than $5,000,000,
L-R Global will purchase, at $0.90 per share, additional
shares of common stock to make up the shortfall, but only up to
a total investment in this offering, of $3,500,000.
As a result, we expect to receive minimum proceeds of $3.6 million from the
rights offering, even if no other stockholders exercise their subscription
rights. See "The Rights Offering - Purchase Commitments."
HOW WILL WE USE THE PROCEEDS FROM THE RIGHTS OFFERING?
We will use the proceeds from the rights offering for additional
working capital, to invest in research and development and to expand our
sales and marketing capabilities. See "Use of Proceeds."
HOW MANY SHARES WILL BE OUTSTANDING AFTER THE RIGHTS OFFERING?
The number of shares of common stock that will be outstanding
after the rights offering depends on the number of shares that are purchased.
If we sell all of the shares offered by this prospectus, then we will issue
6,151,382 new shares of common stock during the rights offering. In that
case, we will have approximately 14,354,000 shares of common stock
outstanding after the rights offering. Even if no other stockholders
exercise their subscription rights, L-R Global and Michael G. Kerrison have
committed to purchase a total of 4,000,000 shares of common stock from us in
the rights offering, in which case we will have approximately 12,202,000
shares of common stock outstanding after the rights offering.
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WHAT IF I HAVE MORE QUESTIONS?
If you have more questions about the rights offering, please
contact our Chief Financial Officer, Philip D. Wolf, at PurchaseSoft, Inc.,
7301 Ohms Lane, Suite 220, Edina, Minnesota 55439, Telephone: 612-941-1500.
See "If You Have Questions."
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus contains and may incorporate by reference
"forward-looking" statements, including statements regarding our
expectations, beliefs, intentions or strategies regarding the future. Such
statements can be identified by the use of forward-looking terminology such
as "may," "will," "believe," "intend," "expect," "anticipate," "estimate,"
"continue," or other similar words. Variations on those or similar words, or
the negatives of such words, also may indicate forward-looking statements.
Although we believe that the expectations reflected in this prospectus are
reasonable, we cannot assure you that our expectations will be correct. We
have included a discussion entitled "Risk Factors" in this prospectus,
highlighting important factors that could cause our actual results to differ
materially from our expectations. If in the future you hear or read any
forward-looking statements concerning us, you should refer back to the
discussion of Risk Factors. The forward-looking statements in this
prospectus are accurate only as of its date. If our expectations change, or
if new events, conditions or circumstances arise, we are not required to, and
may not, update or revise any forward-looking statement in this prospectus.
These forward-looking statements include, but are not limited to,
expressions of interest in our PurchaseSoft-TM- software product, as well as
the potential for future orders of our software product or new products we
may later introduce. Forward-looking statements are inherently uncertain.
Our actual performance and results of operations may differ materially from
those projected or suggested in the forward-looking statements due to certain
risks and uncertainties, including but not limited to, the following:
- our history of losses and accumulated deficit, inconsistent
revenues and the uncertainty of future profitability;
- the uncertainty of market acceptance of our PurchaseSoft-TM-
software product or any products introduced in the future;
- new management and the need to recruit sales, service and
implementation personnel;
- the intensity of competition in the software field;
- the rapid progress of technology in the industry in which we
participate;
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- our dependence on a single product; and
- the level of protection over our intellectual property and
proprietary rights.
In addition to the risks and uncertainties discussed below, you
can find additional information concerning risks and uncertainties that would
cause actual results to differ materially from those projected or suggested
in the forward-looking statements in our filings with the Securities and
Exchange Commission (the "SEC") and in our Annual Report on Form 10-KSB for
the year ended May 31, 1998. The forward-looking statements contained in this
prospectus represent our judgment as of the date of this prospectus, and you
should not unduly rely on such statements.
RISK FACTORS
INVESTING IN PURCHASESOFT'S COMMON STOCK IS VERY RISKY. YOU
SHOULD BE ABLE TO BEAR A COMPLETE LOSS OF YOUR INVESTMENT. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN THIS
PROSPECTUS BEFORE DECIDING TO INVEST IN, OR MAKE FURTHER INVESTMENTS IN, OUR
COMMON STOCK.
HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES; UNCERTAINTY
OF FUTURE PROFITABILITY. We had a net loss of approximately $2.3 million for
the fiscal year ended on May 31, 1998 and had an accumulated deficit of
approximately $16.9 million through May 31, 1998. We have experienced ongoing
losses from operations and expect such losses to continue until we generate
product sales in sufficient volume to offset expenses. We had revenues of
$616,639 for the fiscal year ended May 31, 1998 and $599,373 for the fiscal
year ended May 31, 1997. We do not expect to operate profitably unless and
until our sales of software products generate sufficient revenue to fund our
operations. We cannot assure you that our revenues will grow enough so that
PurchaseSoft will operate profitably.
CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING. At
February 23, 1999, we had a cash balance of approximately $2,131,000. It is
difficult to predict the costs of the ongoing development of our software
products and of the rebuilding and expansion of our sales force and other
required personnel, as well as our working capital and other capital needs.
We cannot assure you that the revenues we generate, if any, from the sale of
our software products will be adequate to successfully market our software
products and to expand our sales force. We anticipate that we may have to
raise additional capital to fund continued operations. We cannot assure you
that any additional required capital will be available on acceptable terms,
if at all. If we are unable to raise additional capital on acceptable terms,
we may have to discontinue operations and liquidate. It is highly likely
that you will lose all of your investment in the event of any liquidation of
our assets.
PROVISION OF FUNDING BY L-R GLOBAL. Since April of 1997, we have
had limited sources of financing and L-R Global has been providing financial
support and funding our operations. On February 9, 1999, L-R Global lent us
$2 million in order to allow us
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to maintain liquidity and adequate levels of working capital. L-R Global has
committed to exercise its basic subscription privilege in an amount of at
least $2,727,000 in the rights offering and intends to pay for its purchase
of shares in part through the cancellation of debt to L-R Global under the $2
million note. L-R Global has also made a stand-by commitment that if the
rights offering is undersubscribed and, as a result, our proceeds from the
rights offering are less than $5,000,000, L-R Global will purchase, at $0.90
per share, additional shares of common stock to make up the shortfall, but
only up to a total investment in this offering, of $3,500,000. See "The
Rights Offering - Purchase Commitments" and "Use of Proceeds." We cannot
assure you that L-R Global will continue to render financial support should
we need additional financing for continued operations. If L-R Global were to
discontinue its financial support, we cannot assure you that alternative
sources of financing will be available or that the terms of alternative
resources will be as favorable to us.
UNCERTAINTY OF MARKET ACCEPTANCE OF PURCHASESOFT SOFTWARE. We
have invested heavily in research for, and development of, our core
purchasing and materials management software system - PurchaseSoft-TM-.
Although we feel our GT Purchase PRO product has been received favorably in
the market place, we cannot assure you that our PurchaseSoft-TM- product will
achieve market acceptance. We believe that our history of financial
performance has negatively affected our image in the marketplace and that we
may have forfeited business from potential customers who expressed concerns
about our financial status and ability to remain solvent. We believe that
the equity proceeds from the rights offering, in which we expect to raise a
minimum of $3.6 million based upon commitments we have already received, will
position us to overcome existing and potential future customers' concerns
regarding our viability. We believe our largest challenge is to gain
widespread market acceptance of our PurchaseSoft-TM- software product as well
as any future products we may introduce. Failure to obtain market acceptance
would have a material adverse effect on our business.
NEW MANAGEMENT, ABILITY TO RECRUIT SALES, SERVICE, AND
IMPLEMENTATION PERSONNEL. Although three members of our management team have
been with us for more than one year, and two of those for more than four
years, our new management has a very limited history in operating
PurchaseSoft; although our managers are experienced in managing companies
facing challenges similar to those being faced by PurchaseSoft. We cannot
assure you that our management will be successful in meeting planned
objectives for PurchaseSoft. Our ability to achieve anticipated revenues
depends substantially upon our ability to attract on a timely basis, and
retain, skilled personnel, especially key management, sales, support, and
implementation personnel. We believe that our future success will depend in
large part on our ability to attract and retain highly skilled technical,
managerial, marketing, and professional services personnel to ensure the high
quality of products and services we seek to provide to our customers.
Competition for such personnel, in particular for product development and
implementation personnel, is intense, and we compete in the market for such
personnel against numerous companies, including larger, more established
companies with significantly greater financial resources than we have. We
cannot assure you that we will
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be successful in attracting and retaining skilled personnel. Our inability
to attract and retain qualified personnel would have a material adverse
effect on our business.
INTENSE COMPETITION. The software products industry is intensely
competitive. We have numerous competitors in the United States and abroad.
Our competitors range from large ERP vendors (such as SAP, BAAN, Oracle and
PeopleSoft) to medium-sized vendors (such as QAD and Symix) to industry
specific and best of breed vendors (such as Ariba). Many of these
competitors have greater financial and other resources, larger research and
development staffs and more effective marketing organizations than we do.
These competitors all offer software products performing functions similar to
our products. The market in which we compete is undergoing tremendous growth
and we believe that this will invite new competitors. We cannot assure you
that our competitors do not have or will not offer or develop products that
are superior to our products or that achieve greater market acceptance. In
addition, suppliers of relational database management systems and companies
that develop management information software applications for large
multinational manufacturers have begun to target our potential customers and
offer applications that compete in our markets. As a result, competition
(including pricing competition) may increase, which could result in price
reductions and loss of market share. We may also face market resistance from
potential customers within the large installed base of legacy systems, which
may be reluctant to commit the time and resources necessary to convert to an
open, systems-based, client/server software product. As the client/server
computing market expands, a large number of companies, many with
significantly greater resources than we have, may enter the market or
increase their market share by acquiring or entering into alliances with
PurchaseSoft's competitors. We cannot assure you that we will be able to
compete successfully against our competitors; competitive pressures we face
may adversely affect our financial performance.
RAPID TECHNOLOGICAL CHANGE. The market for our software products
is characterized by rapid technological advances, evolving industry
standards, change in end-user requirements, and frequent new product
introductions and enhancements. The introduction of products embodying new
technologies and the emergence of new industry standards could render our
existing products and products currently under development obsolete and
unmarketable. Accordingly, our future success will depend in part upon our
ability to enhance our current products and develop and introduce new
products that keep pace with technological developments, satisfy varying
end-user requirements and achieve market acceptance. Any failure by us to
anticipate or respond adequately to technological developments or end-user
requirements, or any significant delays in product development or
introduction, could severely damage our competitive position and have a
material adverse effect on revenues. We cannot assure you that we will be
successful in developing and marketing new products or product enhancements
on a timely basis or that we will not experience significant delays in the
future which could have a material adverse effect on our results of
operations. In addition, there can be no assurance that new products or
product enhancements we develop will achieve market acceptance.
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DEPENDENCE ON A SINGLE PRODUCT. We expect to derive substantially
all of our revenues in the near term from the sale of our PurchaseSoft-TM-
software product and related support services. Accordingly, any event that
adversely affects revenue generated from the sale of software or from the
professional fees derived from the installation of our PurchaseSoft-TM-
software product, such as competition from other products, significant flaws
in the product, or incompatibility with third party hardware or software
products, negative publicity or evaluation, or obsolescence of the hardware
platforms or software environments in which the product runs, could have a
material adverse effect on our results of operations. Our future financial
performance will depend on the continued development and introduction of new
and enhanced versions of PurchaseSoft-TM- and other products and on customer
acceptance of these new enhanced products.
NEW PRODUCT DEVELOPMENT. We are in the process of designing a
new architecture for our flagship product, PurchaseSoft-TM- 5.0, which will
move the product from a two-tiered to three-tiered design. The advantage of
a three-tiered design is that it will allow our product to support more users
by concentrating network traffic, distributing network processing loads, and
also facilitate more efficient and timely maintenance and upgrading of
software applications. In addition we are developing a web-based version of
our product written in JAVA. See the discussion under "PurchaseSoft - Our
Products." Most of our working capital allocated to research and product
development is being channeled towards the design of this next generation of
products. We cannot guarantee you that our design and development of these
products will achieve the desired results, nor can we assure you that we will
be able to successfully develop the products on a timely basis. Even if
development is completed as planned, we cannot assure you that we will be
able to market new products or new versions of products successfully. The
failure of new products to gain market acceptance, or our inability to
introduce products compatible with ever-changing technology on a timely
basis, would damage our ability to compete in the marketplace and would have
an adverse effect on our business and operations.
FLUCTUATION IN QUARTERLY OPERATING RESULTS. Our revenues and
operating results can vary substantially from quarter to quarter. Sales
revenues in any quarter are largely dependent on aggregate contracting
activity and our ability to recognize revenue in that quarter in accordance
with our revenue recognition policies. Revenues may vary from quarter to
quarter due to variances in prior quarter contracting activity which impacts
revenue on a lag and may not reflect positively or adversely our future
financial performance. Our sales cycle is relatively long and variable. Our
ability to increase revenue is dependent on our ability to grow sales
activity which provides opportunities for consulting, training and subsequent
maintenance revenues. Additionally, we cannot assure you that we will be
able to recruit, hire, and train sufficient numbers of qualified consultants
to perform such services. These fluctuations make it likely that in one or
more future quarters our operating results will be below the expectations of
public securities market analysts. Performance below market analysts
expectations would likely have an adverse material effect on the price of our
common stock.
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INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. We rely on a
combination of copyright, trademark and trade secret laws, employee and third
party nondisclosure agreements, and other industry standard methods for
protecting ownership of our proprietary software. We cannot assure you,
however, that in spite of these precautions, an unauthorized third party will
not copy or reverse-engineer certain portions of our products or obtain and
use information that we regard as proprietary. In addition, the laws of some
foreign countries do not protect our proprietary rights to the same extent as
do the laws of the United States. There can be no assurance that the
mechanisms we use to protect our software will be adequate or that our
competition will not independently develop software products that are
substantially equivalent or superior to our software products. We expect
that, as the number of software products in the industry increases and the
functionality of these products further overlaps, software products will
increasingly be subject to claims of infringement on third party proprietary
rights. Any such claim, whether with or without merit, could result in
costly litigation and require us to enter into royalty or licensing
arrangements. These royalty or license arrangements, if required, may not be
available on terms acceptable to us, or at all.
SHARES ELIGIBLE FOR FUTURE SALE. Assuming that the holders of our
outstanding options and warrants exercise their respective securities, we
would have to issue a total of up to approximately 3,200,000 additional
shares of common stock. Our management is of the opinion that, if a
substantial number of such shares were offered at one time, such an offering
would likely have an adverse effect on the market price for the common stock.
In addition, if the market price were to decline because of such an offering
of shares, management is of the opinion that such a development may adversely
affect our ability to raise additional capital in the equity markets, when
and if necessary, at a price and at a time favorable to us.
ABSENCE OF DIVIDENDS. We have never declared or paid cash
dividends. We do not intend to declare or pay any cash dividends in the
foreseeable future.
YEAR 2000 COMPLIANCE. We believe that our PurchaseSoft-TM-
product is year 2000 compliant, however our customers' hardware systems on
which our product is installed may contain other software applications, some
of which are integral to the function of the system or inter-operate with our
product, that may not be year 2000 compliant. Any failure of such equipment
or its installed base of software is likely to adversely affect the operation
of our product. Our business, financial condition or results of operations
could be materially adversely affected by the failure of our saleable
software products, or those provided by other parties, to properly manage
dates beyond 1999.
We are conducting a comprehensive review of the year 2000
compliance of our significant internal information systems. To date, we
believe that the significant business, accounting and operations software we
use internally are either compliant or can be remediated without material
impact on our business operations. However, we cannot assure you that we
will not experience difficulties with any necessary conversion of these
systems. Our business, financial condition or results of operations could be
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materially adversely affected by the failure of our internal systems and
internal software applications to properly manage dates beyond 1999.
DILUTION OF YOUR PERCENTAGE OWNERSHIP OF PURCHASESOFT. If you do
not exercise all of your subscription rights, you may suffer significant
dilution of your percentage ownership of PurchaseSoft relative to
stockholders who exercise their subscription rights. For example, if you own
100,000 shares of common stock before the rights offering, or 1.22% of the
equity of PurchaseSoft, and you exercise none of your subscription rights
while all other subscription rights are exercised through the basic
subscription privilege or over-subscription privilege, then your percentage
ownership will be reduced to 0.70%.
RISKS ASSOCIATED WITH EXERCISING SUBSCRIPTION RIGHTS. We cannot
assure you that the public trading market price of our common stock will not
decline before the subscription rights expire. If you exercise your
subscription rights and then the public trading market price of the common
stock decreases below $0.90, then you will have committed to buy shares of
common stock at a price above the prevailing market price. Moreover, we
cannot assure you that following the exercise of subscription rights you will
be able to sell your shares of common stock at a price equal to or greater
than the subscription price. Until certificates are delivered upon
expiration of the rights offering, you may not be able to sell the shares of
our common stock you purchase in the rights offering. Certificates
representing shares of PurchaseSoft common stock purchased will be delivered
as soon as practicable after expiration of the rights offering. We will not
pay you interest on funds delivered to the Subscription Agent pursuant to the
exercise of rights.
NO REVOCATION OF EXERCISE OF SUBSCRIPTION RIGHTS; CANCELLATION OF
RIGHTS OFFERING. Once you exercise your subscription rights, you may not
revoke the exercise. If we elect to withdraw or terminate the rights
offering, neither we nor the Subscription Agent will have any obligation with
respect to the subscription rights except to return, without interest, any
subscription payments.
DETERMINATION OF THE SUBSCRIPTION PRICE. The subscription price
was set by a special committee of our Board of Directors, which did not
include Michael Kerrison or any directors affiliated with L-R Global. The
subscription price does not necessarily bear any relationship to the book
value of our assets, past operations, cash flows, losses, financial condition
or any other established criteria for value. You should not consider the
subscription price as an indication of the value of PurchaseSoft. See "The
Rights Offering - Determination of Subscription Price."
VOLATILITY OF STOCK PRICE. Based on the trading history of our
common stock, we believe that certain factors cause the market price of the
our stock to fluctuate significantly. These factors include, without
limitation:
- quarterly fluctuations in our financial results;
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- announcements of technological innovations or new products by
us or our competitors;
- market conditions in the software industry, and in the
industries that purchase our products;
- changes in relationships with our customers; and
- the size of the public float of the our common stock (which
will depend, in part, on the number of shares of common stock
purchased or acquired by you and other stockholders in the
rights offering).
LIMITED MARKET FOR COMMON STOCK. Trading in our common stock is
presently conducted in the over-the-counter market. As a result, an investor
may find it difficult to dispose of, or to obtain accurate quotations as to
the price of, the common stock. Although our common stock is quoted on the
OTC Bulletin Board-Registered Trademark-, we cannot assure you that a
developed regular trading market will be sustained. The OTC Bulletin
Board-Registered Trademark-is an inter-dealer, over-the-counter market which
provides significantly less liquidity than a national stock exchange or
NASDAQ and quotes for stocks included on the OTC Bulletin Board-Registered
Trademark- are not listed in the financial sections of newspapers as are
those for a national securities exchange or NASDAQ. Therefore, the prices
for shares of common stock traded solely on the OTC Bulletin Board-Registered
Trademark- may be difficult to obtain, and purchasers of our common stock may
be unable to resell their common stock at or near its original offering
price, or at any price.
CONTROL BY MAJOR STOCKHOLDER. As of February 23, 1999, L-R Global
and two principals of L-R Global who serve on our Board of Directors in the
aggregate owned approximately 51.3% of our voting stock. L-R Global also
holds warrants presently exercisable for an aggregate of approximately
204,000 shares of common stock that if exercised prior to the rights offering
would increase its ownership of our voting stock by approximately 1.2%. The
rights offering could, and in fact is likely to, result in L-R Global owning
an even greater percentage of our common stock. L-R Global has enough votes
to approve or disapprove any matters that are determined by a majority vote
of our stockholders, and accordingly your ability to influence PurchaseSoft
through voting your shares is limited.
PURCHASESOFT
OUR HISTORY
In 1977 we began operations as a management consulting firm
specializing in purchasing and materials management. We were initially
incorporated under the laws of the State of New York with the name Schacher,
Greentree & Co., Inc. and we later changed our name to Greentree Software,
Inc. In 1985, we introduced our first software product for purchasing and
materials management, Computer Aided Purchasing-Registered Trademark-
("CAP") for use on IBM compatible personal computers. Since 1991, all of our
revenues have been derived from
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the sales and maintenance of software products and services. In November,
1998, we reincorporated in the State of Delaware by means of a migratory
merger and in the process changed our name to PurchaseSoft, Inc. to better
reflect our focus.
In May of 1994, we released our first Microsoft Windows and
client/server based purchasing and materials management software system, GT
Purchase PRO. We released GT Purchase PRO version 5.0 in March, 1996, which
was followed by the release of our significantly enhanced version 6.0 in May,
1997. In the fall of 1997, we changed the product name from GT Purchase PRO
to PurchaseSoft 2.0 consistent with the wider "enterprise" scope of our
software solution. The latest release, PurchaseSoft-TM- 5.0, was released in
November, 1998.
OUR PRODUCTS
PURCHASESOFT-TM- 5.0. PurchaseSoft-TM- 5.0 is a suite of
software modules that provides end-to-end operational support for strategic
procurement. The suite provides a complementary solution to a company's
existing financial, enterprise requirements planning ("ERP") and supply chain
management ("SCM") packages and can also be integrated with legacy systems.
The PurchaseSoft 5.0 suite includes the following modules:
- - Requisitioning - Inventory Management
- - Purchase Order Management - Invoice Matching
- - Receiving - Asset Tracking
- - Request for Quotations ("RFQ"s) - Advanced Analysis and Reporting
- - Quotations and Bid Analysis - Accounts Payable Interface
- - Data Integration and Migration - Blanket Orders
All of the modules are integrated, but some can also be purchased
separately to complement existing applications. The software suite routes
electronic purchase requisitions through the Internet, an intranet, corporate
local area networks (LANs), or to back-office solution processing.
Requisitions are created by making selections from online product and
services catalogs. For users requiring approval of requisitions before their
conversion into orders, the software suite has the capability of implementing
an authorization cycle established through user-defined workflow coordinated
through existing e-mail systems.
Requisitions can be converted to RFQs to support the bidding and
sourcing process, or requisitions can be turned directly into purchase
orders. All information is processed at the line item level. Buyers can
turn a single requisition into multiple purchase orders, or multiple
requisitions into a single purchase order. A blanket purchase order feature
handles routine and repetitive purchases. Purchase orders can be sent to
suppliers through various media, including paper, fax, e-mail, or exported
for electronic data interface (EDI) exchange. Contracts, product
specifications, and other documents are managed as file attachments. The
system supports robust industry standard databases
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including Microsoft SQL Server and Oracle.
We designed our system to operate through the Internet as well as
intranet networks using a TCP/IP protocol. A thin client approach is
available for purchase requisitioners through their intranet, and remote
users with no wide area network (WAN) access can create and send requisitions
through an Internet web browser. In addition, supplier web sites can be
easily launched from within the system. The supplier file maintains URLs for
quick launch of a desktop web browser.
FUTURE PRODUCTS
We hope to introduce two new versions of our product within the
next year. Our current product, PurchaseSoft-TM- 5.0, is a two-tier product.
We are in the process of converting PurchaseSoft 5.0 to a three-tier product
and plan to begin delivery, in phases, in late summer of 1999.
Concurrently, we are developing a web-based version of
PurchaseSoft-TM- 5.0 written in JAVA. This JAVA product will have similar
functionality to PurchaseSoft 5.0, but will have a flexible architecture
designed to take advantage of technological advancements in the Internet and
intranets. We hope to begin a phased delivery of this JAVA product beginning
in the summer of 1999. We believe that delivering products compatible with a
range of technologies will optimize our ability to serve our customers on the
leading-edge of technology and provide companies with the ability to remain
state-of-the-art.
OUR MARKETPLACE
Electronic procurement and strategic sourcing automation are
emerging markets within the supply chain segment of software applications.
With the advent of and widespread usage of Internet/intranet technologies, an
enterprise can now efficiently deploy self-service applications, such as
material requisitions and approvals, on every desktop. This streamlines an
organization's expenditure cycle by enhancing supplier relationships and
streamlining purchasing control and management. To capture this market,
software vendors need to offer implementations of client/server,
Internet/intranet, and workflow technologies which have the flexibility to
operate with existing systems and may be tailored to a company's industry and
size of operations. Optimally, the applications should integrate best
practices purchasing with supplier management.
By targeting customers within fast-growing industries, our goal
is to gain momentum and capture an early market share of this emerging
market. To reach our goal, we have retained the services of a marketing
consulting firm to assist us in defining target market industries and
developing strategic sales and marketing messages. We currently have a
significant market research project in process to help focus our efforts in
these areas.
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DISTRIBUTION STRATEGY
We believe that the enterprise-wide, client/server and browser
markets, because they are emerging markets, afford the greatest immediate
revenue opportunity. Our strategy is:
- to build a direct sales force to sell directly to mid-range and
low-end Fortune 2000 accounts, and
- to seek partnerships and alliances with system integrators,
strategic partners and other software vendors
We cannot assure you that we will be successful in developing our alliance
and partner network or in recruiting a sales staff to meet our needs.
COMPETITION
We sell our products in the highly competitive market for
purchasing and procurement software. We face competition from several
sources ranging from large ERP vendors (such as SAP, Baan, Oracle and
PeopleSoft) to medium-sized vendors (such as QAD and Symix), as well as
industry specific vendors and best of breed vendors (such as Ariba). We
believe our products compete and compare favorably to those of our
competitors on the basis of product features, performance, and price.
However, we believe that our history of financial performance has negatively
affected our image in the marketplace and that we may have forfeited business
from potential customers who have expressed concerns about our financial
status and ability to remain solvent. We believe that the equity proceeds
raised in the rights offering, which we expect to raise a minimum of $3.6
million based upon commitments we have already received, will position us to
overcome existing and potential future customers' concerns regarding our
viability. However, it is difficult to predict what effect these issues may
have on our future market image, overall competitiveness, and ability to
market our products. We cannot assure you that we will be able to grow
sufficiently to enable us to compete effectively.
RESEARCH AND PRODUCT DEVELOPMENT
Since inception, we have made substantial investments in research
and development. In fiscal 1998, we spent approximately $227,000 on research
and development activities. We believe that timely development of new
software product enhancements to existing software products is essential to
build our position in the marketplace. We are also seeking to expand our
line of products in the marketplace, leveraging relationships with existing
customers and aggressively increasing market share.
As with any new software product, certain software "bugs" have
been identified in PurchaseSoft-TM- 5.0. We believe all of these have been
addressed and corrected; however, bugs may continue to be discovered in the
future. We have a formal quality
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assurance program, as well as beta testing by select customers and/or
prospects to identify those bugs which are considered significant and need to
be corrected prior to general release of the product/module to the market.
We believe that all significant bugs with respect to the modules released to
date have been identified and corrected or are being corrected; however, it
is impossible for us to test every permutation our products may be subject
to, and future bugs may be identified.
SOFTWARE MAINTENANCE
We have generally sold software maintenance packages to our
customers in connection with sales of our products. These contracts
generally entitle participating customers to telephone support and upgrades,
as they become available. The proportion of our revenues arising from
maintenance arrangements has been increasing, and we intend to continue to
rely on the provision of support services as a means of generating revenue
and cash flow.
INTELLECTUAL PROPERTY
We have applied to register with the United States Patent and
Trademark Office the trademark "PurchaseSoft" for our purchasing and
materials management software product. We have sought, and will continue to
seek, the protection of all of our software and documentation through a
combination of contract, copyright, trademark and trade secret laws, as
appropriate. Existing copyright laws afford only limited protection. We
cannot assure you that these protections will be adequate or that our
competitors will not independently develop technologies that are superior to
our technology. We cannot assure you that third parties will not assert
infringement claims against us in the future. We intend to aggressively
protect our trademark, copyright and proprietary rights against any attempt
by a competitor to infringe or interfere with such rights. However,
litigation in this area is expensive and we may not wish to commit funds to
commence or pursue such litigation, especially because the high costs could
adversely affect our operational results. Even if we commence litigation,
there is no assurance that we would prevail, or have adequate resources to
fully pursue any claims we may have or vigorously defend our position.
EMPLOYEES
As of February 23, 1999, we had twenty full-time employees
consisting of three executive officers, seven sales and marketing personnel,
seven development and support employees, and three administrative personnel.
In addition, we engage three independent contractors. None of these employees
or contractors is subject to a collective bargaining agreement. We believe
relations with our employees are good.
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RECENT DEVELOPMENTS
RESIGNATION OF CEO AND CHAIRMAN OF THE BOARD OF DIRECTORS
On January 31, 1999, Joseph D. Mooney resigned as Chief Executive
Officer, Chairman of the Board of Directors and a director of PurchaseSoft.
Michael G. Kerrison, a director, was elected to replace Mr. Mooney as Chief
Executive Officer and Chairman of the Board of Directors.
Mr. Kerrison, who formerly served as a consultant to PurchaseSoft
assisting principally with sales and marketing strategy, has been a member of
the Board of Directors since October 1998. From 1995 to 1998, Mr. Kerrison
was the Chief Executive Officer and an owner of North Central Consulting,
Inc., a company he founded specializing in information technology services
for the midrange market. Between 1984 and 1996, Mr. Kerrison founded and
successfully ran two other companies, Computer Options, Inc. and Maintenance
Innovators, Inc.
FUNDING BY L-R GLOBAL
In order to obtain working capital to implement our
reorganization and restructuring plans (described below), on February 9,
1999, we borrowed $2 million from L-R Global, and signed a demand promissory
note in return. Under the terms of this note, we must repay the principal
and interest due at any time upon the demand of L-R Global. L-R Global has
agreed to exercise its basic subscription privilege in the rights offering
for at least $2,727,000 and cancel the debt represented by the note as part
of the purchase price for shares purchased in the rights offering. L-R Global
has also made a stand-by commitment that if the rights offering is
undersubscribed and, as a result, our proceeds from the rights offering are
less than $5,000,000, L-R Global will purchase, at $0.90 per share,
additional shares of common stock to make up the shortfall, but only up to
a total investment in this offering, of $3,500,000.
REORGANIZATION AND REFOCUS
On February 3, 1999, we announced our plans to reorganize and
refocus on our core competencies, specifically our deep domain expertise in
end-to-end organizational procurement. We will be targeting what we perceive
to be the growing electronic procurement market in mid-range companies and
low-end Fortune 2000 companies. We seek to exploit market opportunities by
providing business-to-business strategic procurement software and service
solutions that deliver rapid results and are designed to provide significant
returns on investment for companies implementing them.
As a part of our restructuring and refocus, we terminated several
employees across various departments whose function or skill set was
inconsistent with the focus on our current business strategy. In connection
with this restructuring and reorganization,
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we expect to take a one-time charge of approximately $610,000 in the third
quarter ending February 28, 1999 for severance pay and other restructuring
costs.
CASH BALANCE, LIQUIDITY, FINANCING
We currently have a cash balance of approximately $2,131,000 as
of February 23, 1999. Since April of 1998, L-R Global has been principally
responsible for providing financial support and funding our operations in
order to allow us to maintain liquidity and adequate levels of working
capital. Prior to obtaining funding from L-R Global, we had an insufficient
level of liquidity to maintain operations at their current levels. As has
been the case during previous periods, our levels of liquidity and capital
resources have impeded our pursuit of new initiatives.
MARKETING EFFORTS
For the fiscal year ended May 31, 1998, we generated total
revenues of $616,639. For the six months ended November 30, 1998, we
generated total revenues of $240,299 compared with $188,752 for the same
period in 1997. We intend to continue to apply efforts toward improving our
sales force and sales methods as an integral component of our marketing
strategy.
Based upon numerous meetings with current and prospective
customers, we believe that our new product initiatives, if successfully
brought to the market on a timely basis, will meet or exceed our targeted
market's needs in a cost-effective manner. We currently estimate a
phased-introduction of our next generation products beginning in the summer
of 1999. For more information, see "PurchaseSoft - Future Products."
BOARD OF DIRECTORS; MANAGEMENT COMPENSATION
Our board of directors currently consists of Brad Markowitz,
Jeffrey Pinkerton, Michael G. Kerrison, J. Murray Logan and Donald S.
LaGuardia. Joseph D. Mooney resigned as a director of PurchaseSoft on
January 31, 1999, and at the same time resigned as Chief Executive Officer
and Chairman of the Board of Directors.
We have agreed to pay Michael G. Kerrison an annual base salary
of $200,000, including $150,000 payable in cash and $50,000 payable in the
form of shares of common stock. In addition, Mr. Kerrison has been granted an
incentive stock option exercisable for an aggregate of up to 625,000 shares
of common stock of which 250,000 shares vest immediately. The remaining
375,000 share balance of the option to Mr. Kerrison will vest on an
accelerated basis if certain business plan milestones are exceeded, but in
any event such balance will vest by the end of the 57th month following the
date of grant.
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THE RIGHTS OFFERING
BEFORE EXERCISING OR SELLING ANY SUBSCRIPTION RIGHTS, YOU SHOULD
READ CAREFULLY THE INFORMATION SET FORTH UNDER "RISK FACTORS" BEGINNING ON
PAGE 7.
THE SUBSCRIPTION RIGHTS.
We are distributing non-transferable subscription rights to
stockholders who owned shares of our common stock on March 22, 1999, at no
cost to the stockholders. We will give you 0.75 subscription rights for each
share of common stock that you owned on March 22, 1999. You will not receive
fractional subscription rights during the rights offering, but instead we
will round your number of subscription rights down to the nearest whole
number. Each subscription right will entitle you to purchase one share of
common stock for $0.90. If you wish to exercise your subscription rights, you
must do so before 5 p.m., Eastern Standard Time, on April 23, 1999. After
that date, the subscription rights will expire and will no longer be
exercisable.
BASIC SUBSCRIPTION PRIVILEGE.
Each subscription right will entitle you to receive, upon payment
of $0.90, one share of common stock. You will receive certificates
representing the shares that you purchase pursuant to your basic subscription
privilege as soon as practicable after April 23, 1999, whether you exercise
your subscription rights immediately prior to that date or earlier.
OVER-SUBSCRIPTION PRIVILEGE.
Subject to the allocation described below, each subscription
right also grants you an over-subscription privilege to purchase additional
shares of common stock that are not purchased by other stockholders. You are
entitled to exercise your over-subscription privilege only if you exercise
your basic subscription privilege in full. If you wish to exercise your
over-subscription privilege, you should indicate the number of additional
shares that you would like to purchase in the space provided on your
subscription certificate. When you send in your subscription certificate, you
must also send the full purchase price for the number of additional shares
that you have requested to purchase (in addition to the payment due for
shares purchased through your basic subscription privilege). If the number of
shares remaining after the exercise of all basic subscription privileges is
not sufficient to satisfy all over-subscription privileges, you will be
allocated shares pro rata (subject to elimination of fractional shares), in
proportion to the number of shares you purchased through your basic
subscription privilege. However, if your pro rata allocation exceeds the
number of shares you requested on your subscription certificate, then you
will receive only the number of shares that you requested, and the remaining
shares from your pro rata allocation will be divided among other stockholders
exercising their over-subscription privileges. Subject to state securities
laws and regulations, we have the discretion to issue less than the total
number of shares that may be available for over-subscription requests in
order to comply with state securities laws.
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As soon as practicable after April 23, 1999, American Stock
Transfer & Trust Company, the "Subscription Agent," will determine the number
of shares of common stock that you may purchase pursuant to the
over-subscription privilege. You will receive certificates representing these
shares as soon as practicable after April 23, 1999. Subject to state
securities laws and regulations, we have the discretion to delay allocation
and distribution of any and all shares to stockholders affected by such
regulations, who elect to participate in the rights offering, including
shares that we issue with respect to your basic or over-subscription
privilege in order to comply with state securities laws. If you request and
pay for more shares than are allocated to you, we will refund that
overpayment, without interest. In connection with the exercise of the
over-subscription privilege, banks, brokers and other nominee holders of
subscription rights who act on behalf of beneficial owners will be required
to certify to the Subscription Agent and PurchaseSoft as to the aggregate
number of subscription rights that have been exercised, and the number of
shares of common stock that are being requested through the over-subscription
privilege, by each beneficial owner on whose behalf such nominee holder is
acting.
PURCHASE COMMITMENTS.
In order to obtain working capital, on February 9, 1999, we
borrowed $2 million from L-R Global, and signed a demand promissory note in
return. Under the terms of this note, we must repay the principal and
interest due at any time upon the demand of L-R Global. L-R Global has
agreed to exercise its basic subscription privilege in the rights offering
for at least $2,727,000 and cancel the debt represented by the note as part
of the purchase price for shares purchased in the rights offering. See
"Recent Developments - Funding by L-R Global."
Michael G. Kerrison, our Chief Executive Officer and Chairman of
the Board, has committed to exercise his basic subscription and
over-subscription privileges in the rights offering for up to $100,000,
subject to the availability of sufficient shares on an over-subscription
basis.
L-R Global has also made a stand-by commitment that if the rights
offering is undersubscribed and, as a result, our proceeds from the rights
offering are less than $5,000,000, L-R Global will purchase, at $0.90 per
share, additional shares of common stock to make up the shortfall, but only
up to a total investment in this offering, of $3,500,000. Accordingly, we
expect to receive at least $3.6 million as a result of the rights offering.
If all subscription rights are exercised in the rights offering, our gross
proceeds of the rights offering will be $5,536,243.80.
NO RECOMMENDATIONS.
We are not making any recommendation as to whether or not you
should exercise your subscription rights. You should make your decision
based on your own assessment of your best interests.
EXPIRATION DATE.
The rights will expire at 5 p.m., Eastern Standard Time, on April
23, 1999, unless we decide to extend the rights offering. If this
commencement of the rights offering is delayed, the expiration date will be
similarly extended. If you do not exercise your basic subscription privilege
and over-subscription privilege
<PAGE>
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prior to that time, YOUR SUBSCRIPTION RIGHTS WILL BE NULL AND VOID. We will
not be required to issue shares of common stock to you if the Subscription
Agent receives your subscription certificate or your payment after that time,
regardless of when you sent the subscription certificate and payment, unless
you send the documents in compliance with the guaranteed delivery procedures
described below.
WITHDRAWAL RIGHT.
A committee of our disinterested directors may withdraw the
rights offering in its sole discretion at any time prior to or on
April 23, 1999, for any reason (including, without limitation, a change
in the market price of the common stock). If we withdraw the rights offering,
any funds you paid will be promptly refunded, without interest or penalty.
DETERMINATION OF SUBSCRIPTION PRICE.
A special committee of our Board of Directors, which did not
include Michael Kerrison or any directors affiliated with L-R Global, decided
to charge the $0.90 per share subscription price after considering a variety
of factors including the historic and current market price of the common
stock, our business prospects, our history of losses, general conditions in
the securities market, our need for capital, alternatives available to us for
raising capital, the amount of proceeds desired, pricing of similar
transactions, the liquidity of our common stock, the level of risk to our
investors, and the need to offer shares at a price that would be attractive
to our investors relative to the current trading price of our common stock.
The $0.90 per share subscription price should not be considered an indication
of the actual value of PurchaseSoft or our common stock. We cannot assure you
that the market price of the common stock will not decline during the rights
offering. We also cannot assure you that you will be able to sell shares of
common stock purchased during the rights offering at a price equal to or
greater than $0.90 per share. See "Determination of Offering Price."
TRANSFERABILITY OF SUBSCRIPTION RIGHTS.
Only you may exercise the basic subscription privilege and the
over-subscription privilege. You may not sell, give away or otherwise
transfer the basic subscription privilege or the over-subscription privilege.
EXERCISE OF SUBSCRIPTION RIGHTS.
You may exercise your subscription rights by delivering to the
Subscription Agent on or prior to April 23, 1999:
- A properly completed and duly executed subscription certificate;
- Any required signature guarantees; and
<PAGE>
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- Payment in full of $0.90 per share of common stock to be
purchased through the basic subscription privilege and the
over-subscription privilege.
You should deliver your subscription certificate and payment to the
Subscription Agent at the address shown under the heading "Subscription
Agent." We will not pay you interest on funds delivered to the Subscription
Agent pursuant to the exercise of rights.
METHOD OF PAYMENT.
Payment for the shares must be made by check or bank draft
(cashier's check) drawn upon a United States bank or a postal, telegraphic or
express money order payable to "AMERICAN STOCK TRANSFER & TRUST COMPANY, AS
SUBSCRIPTION AGENT" or by wire transfer of immediately available funds. If
you are purchasing an aggregate number of shares of common stock totaling
$500,000 or more, we may agree to an alternative payment method, which may
include, for example, cancellation of debt. If you use an alternative payment
method, the Subscription Agent must receive the full amount of your payment
in currently available funds within one over-the-counter ("OTC") trading day
prior to April 23, 1999. Payment will be deemed to have been received by the
Subscription Agent only upon:
(A) clearance of any uncertified check;
(B) receipt by the Subscription Agent of any certified check or
bank draft drawn upon U.S. bank, any postal, telegraphic or express money
order or any funds transferred by wire transfers; or
(C) receipt of funds by the Subscription Agent through an
alternative payment method.
Please note that funds paid by uncertified personal check may
take at least five business days to clear. Accordingly, if you wish to pay
by means of an uncertified personal check, we urge you to make payment
sufficiently in advance of April 23, 1999, to ensure that the payment is
received and clears before that date. We also urge you to consider payment
by means of a certified or cashier's check or money order.
GUARANTEED DELIVERY PROCEDURES.
If you want to exercise your subscription rights, but time will
not permit your subscription certificate to reach the Subscription Agent on
or prior April 23, 1999, you may exercise your subscription rights if you
satisfy the following guaranteed delivery procedures:
(1) You send, and the Subscription Agent receives, payment in
full for each share of common stock being subscribed for through the basic
subscription privilege and the over-subscription privilege, on or prior to
April 23, 1999;
(2) You send, and the Subscription Agent receives, on or prior to
April 23, 1999, a notice of guaranteed delivery, substantially in the form
provided
<PAGE>
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with the attached instructions, from a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States. The notice of guaranteed delivery must
state your name, the number of subscription rights that you hold, the number
of shares of common stock that you wish to purchase pursuant to the basic
subscription privilege and the number of shares, if any, you wish to purchase
pursuant to the over-subscription privilege. The notice of guaranteed
delivery must guarantee the delivery of your subscription certificate to the
Subscription Agent within three OTC trading days following the date of the
notice of guaranteed delivery; and
(3) You send, and the Subscription Agent receives, your properly
completed and duly executed subscription certificate, including any required
signature guarantees, within three OTC trading days following the date of
your notice of guaranteed delivery. The notice of guaranteed delivery may be
delivered to the Subscription Agent in the same manner as your subscription
certificate at the addresses set forth under the heading "Subscription
Agent," or may be transmitted to the Subscription Agent by facsimile
transmission, to facsimile number (718) 236-2641. You can obtain additional
copies of the form of notice of guaranteed delivery by requesting them from
the Subscription Agent at the address set forth under the heading
"Subscription Agent."
SIGNATURE GUARANTEES.
Signatures on the subscription certificate must be guaranteed by
an Eligible Guarantor Institution, as defined in Rule 17Ad-15 of the
Securities Exchange Act of 1934, as amended, subject to the standards and
procedures adopted by the Subscription Agent. Eligible Guarantor Institutions
include banks, brokers, dealers, credit unions, national securities exchanges
and savings associations. Signatures on the subscription certificate do not
need to be guaranteed if either the subscription certificate provides that
the shares of common stock to be purchased are to be delivered directly to
the record owner of such subscription rights, or the subscription certificate
is submitted for the account of a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
SHARES HELD FOR OTHERS.
If you are a broker, a trustee or a depository for securities, or
you otherwise hold shares of common stock for the account of a beneficial
owner of common stock, you should notify the beneficial owner of such shares
as soon as possible to obtain instructions with respect to their subscription
rights. If you are a beneficial owner of common stock held by a holder of
record, such as a broker, trustee or a depository for securities, you should
contact the holder and ask him or her to effect transactions in accordance
with your instructions.
<PAGE>
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AMBIGUITIES IN EXERCISE OF SUBSCRIPTION RIGHTS.
If you do not specify the number of subscription rights being
exercised on your subscription certificate, or if your payment is not
sufficient to pay the total purchase price for all of the shares that you
indicated you wished to purchase, you will be deemed to have exercised the
maximum number of subscription rights that could be exercised for the amount
of the payment that the Subscription Agent receives from you. If your payment
exceeds the total purchase price for all of the subscription rights shown on
your subscription certificate, your payment will be applied, until depleted,
to subscribe for shares of common stock in the following order:
(1) to subscribe for the number of shares, if any, that you
indicated on the subscription certificate that you wished to purchase through
your basic subscription privilege;
(2) to subscribe for shares of common stock until your basic
subscription privilege has been fully exercised;
(3) to subscribe for additional shares of common stock pursuant
to the over-subscription privilege (subject to any applicable proration). Any
excess payment remaining after the foregoing allocation will be returned to
you as soon as practicable by mail, without interest or deduction.
REGULATORY LIMITATION
We will not be required to issue you shares of common stock
pursuant to the rights offering if, in our opinion, you would be required to
obtain prior clearance or approval from any state or federal regulatory
authorities to own or control such shares if, at the time the subscription
rights expire, you have not obtained such clearance or approval.
OUR DECISION BINDING.
All questions concerning the timeliness, validity, form and
eligibility of any exercise of subscription rights will be determined by us,
and our determinations will be final and binding. In our sole discretion, we
may waive any defect or irregularity, or permit a defect or irregularity to
be corrected within such time as we may determine, or reject the purported
exercise of any subscription right by reason of any defect or irregularity in
such exercise. Subscriptions will not be deemed to have been received or
accepted until all irregularities have been waived or cured within such time
as we determine in our sole discretion. Neither PurchaseSoft nor the
Subscription Agent will be under any duty to notify you of any defect or
irregularity in connection with the submission of a subscription certificate
or incur any liability for failure to give such notification.
<PAGE>
-26-
NO REVOCATION.
After you have exercised your basic subscription privilege or
over-subscription privilege, YOU MAY NOT REVOKE THAT EXERCISE. You should not
exercise your subscription rights unless you are certain that you wish to
purchase additional shares of common stock.
SHARES OF COMMON STOCK OUTSTANDING AFTER THE RIGHTS OFFERING.
Assuming we issue all of the shares of common stock offered in the
rights offering, approximately 14,354,000 shares of common stock will be
issued and outstanding. This would represent a 75% increase in the number of
outstanding shares of common stock. IF YOU DO NOT EXERCISE YOUR BASIC
SUBSCRIPTION PRIVILEGE, THE PERCENTAGE OF COMMON STOCK THAT YOU HOLD WILL
DECREASE.
FEES AND EXPENSES.
We will pay all fees charged by the Subscription Agent. You are
responsible for paying any other commissions, fees, taxes or other expenses
incurred in connection with the exercise of the subscription rights. Neither
PurchaseSoft nor the Subscription Agent will pay such expenses.
SUBSCRIPTION AGENT.
We have appointed American Stock Transfer & Trust Company as
Subscription Agent for the rights offering. The Subscription Agent's address
for packages sent by mail or overnight delivery is:
American Stock Transfer & Trust Company
Attention: Rights Agent
6201 Fifteenth Avenue, 3rd Floor
Brooklyn, NY 11219
The Subscription Agent's telephone number is 800-937-5449 (or
718-921-8200) and its facsimile number is 718-236-2641. You should deliver
your subscription certificate, payment of the subscription price and notice
of guaranteed delivery (if any) to the Subscription Agent. We will pay the
fees and certain expenses of the Subscription Agent, which we estimate will
total $15,000. We have also agreed to indemnify the Subscription Agent
from any liability which it may incur in connection with the rights offering.
IMPORTANT
PLEASE CAREFULLY READ THE INSTRUCTIONS ACCOMPANYING THE SUBSCRIPTION
CERTIFICATE AND FOLLOW THOSE INSTRUCTIONS IN DETAIL. DO NOT SEND SUBSCRIPTION
CERTIFICATES DIRECTLY TO US. YOU ARE RESPONSIBLE FOR CHOOSING THE PAYMENT AND
DELIVERY METHOD FOR YOUR
<PAGE>
-27-
SUBSCRIPTION CERTIFICATE, AND YOU BEAR THE RISKS ASSOCIATED WITH SUCH
DELIVERY. IF YOU CHOOSE TO DELIVER YOUR SUBSCRIPTION CERTIFICATE AND PAYMENT
BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED. WE ALSO RECOMMEND THAT YOU ALLOW A SUFFICIENT
NUMBER OF DAYS TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF
PAYMENT PRIOR TO APRIL 23, 1999. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY
TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, WE STRONGLY URGE YOU TO PAY, OR
ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
IF YOU HAVE QUESTIONS
If you have questions or need assistance concerning the procedure for
exercising subscription rights, or if you would like additional copies of
this prospectus, the Instructions, or the Notice of Guaranteed Delivery, you
should contact us at:
PurchaseSoft, Inc.
7301 Ohms Lane, Suite 220
Edina, Minnesota 55439
Attention: Philip D. Wolf, Chief Financial Officer
Telephone: 612-941-1500
DESCRIPTION OF COMMON STOCK
As a holder of common stock, you are entitled to one vote for each share
held of record on all matters submitted to a vote of our stockholders. You
are entitled to receive dividends, if any, declared by our Board of
Directors. If we liquidate PurchaseSoft, you will be entitled to share
ratably with the other stockholders in the distribution of all assets that we
have left after we pay all of our liabilities. You have no preemptive rights
to subscribe for additional shares of common stock and no right to convert
your common stock into any other securities. In addition, you do not have
the benefit of a sinking fund for your shares of common stock. Your common
stock is not redeemable by PurchaseSoft.
PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
THAT MAY HAVE ANTI-TAKEOVER EFFECTS
Certain provisions of our Certificate of Incorporation and by-laws may
have an anti-takeover effect. These provisions may delay, defer or impede a
takeover attempt of PurchaseSoft even if it would be in your best interest.
However, because L-R Global can currently (and after the rights offering will
continue to be able to) elect all members of our Board of Directors and
control the outcome of most matters submitted to a vote of stockholders, such
provisions currently have limited significance to you. See "Risk Factors -
Control by Major Stockholder."
<PAGE>
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The Certificate of Incorporation provides that you and the other
stockholders may not take action by written consent but only by conducting an
annual or special meeting of stockholders. Our by-laws provide that special
meetings of stockholders may be called only upon the request of holders of
more than one third of the outstanding PurchaseSoft common stock, by the
Chairman of the Board or by a majority of the Board of Directors (calculated
as if there were no vacancies on the Board of Directors).
As of November 20, 1998, we became a Delaware corporation. Section 203
of the Delaware General Corporation Law prohibits certain transactions
between a Delaware corporation and an "interested stockholder." An
interested stockholder is defined as a person who, together with any
affiliates or associates of such person, beneficially owns, directly or
indirectly, 15% or more of the outstanding voting shares of a Delaware
corporation. This provision prohibits certain business combinations between
an interested stockholder and a corporation for a period of three years after
the date the interested stockholder becomes and interested stockholder. The
term "business combination" is broadly defined to include mergers,
consolidations, sales or other dispositions of assets having a total value in
excess of 10% of the consolidated assets of the corporation, and certain
transactions that would increase the interested stockholder's proportionate
share ownership in the corporation.
This prohibition is effective unless:
- The business combination is approved by the corporation's board of
directors prior to the time the interested stockholder becomes an
interested stockholder;
- The interested stockholder acquired at least 85% of the voting
stock of the corporation (other than stock held by directors who
are also officers or by certain employee stock plans) in the
transaction in which it becomes an interested stockholder; or
- The business combination is approved by a majority of the board of
directors and by the affirmative vote of 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
In general, the prohibitions do not apply to business combinations with
persons who were stockholders prior to the corporation becoming subject to
Section 203. L-R Global is not subject to the restrictions on "business
combinations" under Section 203.
USE OF PROCEEDS
We will apply the net proceeds from the rights offering to finance our
working capital, to invest in research and development, to expand our
sales and marketing capabilities and for other capital requirements. On
February 9, 1999, we borrowed $2 million from L-R Global, and signed a demand
promissory note in return. Under the terms of this note, we must repay the
principal and interest due at any time upon the demand of L-R Global. L-R
Global has agreed to exercise its basic subscription privilege in the
<PAGE>
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rights offering to the extent of at least $2,727,000 and cancel the debt
represented by the note as part of the purchase price for shares purchased in
the rights offering.
Assuming that stockholders exercise all of the subscription rights
offered, we will receive gross proceeds from the rights offering of
$5,536,243.80. We expect to receive minimum proceeds of approximately $3.6
million, in light of the stand-by commitment of L-R Global, as well as the
commitment by Michael G. Kerrison to exercise his basic subscription and
over-subscription privileges for up to $100,000 of subscription rights, in
each case to the extent that available shares are not fully subscribed for by
other stockholders.
If we receive only the minimum proceeds of $3.6 million as committed by
L-R Global and Michael G. Kerrison, or if we fail to attain sufficient
revenue levels, we may require additional capital. We cannot assure you that
such capital will be available on satisfactory terms.
<PAGE>
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PRICE RANGE OF COMMON STOCK
Our common stock is listed for quotation under the symbol "PURC" on the
National Association of Securities Dealers OTC Bulletin Board-Registered
Trademark-. The following table sets forth the range of high and low bid
quotations of the common stock for each quarterly period during the current
fiscal year ending May 31, 1999 and the two fiscal years ended May 31, 1998
and May 31, 1997 as reported by OTC Bulletin Board-Registered Trademark-.
<TABLE>
<CAPTION>
BID
--------------------
PERIOD HIGH LOW
------ ------- -------
<S> <C> <C>
FISCAL YEAR ENDING MAY 31, 1999
First Quarter $2.6250 $1.0310
Second Quarter $1.7500 $0.6870
Third Quarter $1.5000 $0.6870
Fourth Quarter N/A N/A
FISCAL YEAR ENDED MAY 31, 1998
First Quarter $3.3000 $1.0000
Second Quarter $1.9370 $1.1250
Third Quarter $1.6250 $0.9370
Fourth Quarter $3.7500 $0.9060
FISCAL YEAR ENDED MAY 31, 1997
First Quarter $6.0000 $2.6220
Second Quarter $4.8750 $2.2500
Third Quarter $6.3750 $2.2500
Fourth Quarter $4.3125 $2.7000
</TABLE>
Note: All information in the table above reflects the one-for-six reverse
stock split of our common stock which took place on July 22, 1997.
As of January 31, 1999, there were approximately 400 holders of record
of our common stock. We believe, based on the number of proxy materials
distributed in connection with our 1999 Annual Meeting of Shareholders, that
the number of beneficial owners as of September, 1998 was approximately
2,000.
DETERMINATION OF OFFERING PRICE
A special committee of our Board of Directors, which did not include
Michael Kerrison or directors affiliated with L-R Global, decided to charge a
$0.90 per share subscription price after considering a variety of factors,
including the historic and current market price of the common stock, our
business prospects, our history of losses, general conditions in the
securities market, our need for capital, alternatives available to us for
raising capital, the amount of proceeds desired, pricing of similar
transactions, the liquidity of our common stock, the level of risk to our
investors, and the need to offer
<PAGE>
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shares at a price that would be attractive to our investors relative to the
current trading price of our common stock. The $0.90 per share price should
not be considered an indication of the actual value of PurchaseSoft or our
common stock. We cannot assure you that the market price of the common stock
will not decline during the rights offering. We also cannot assure you that
you will be able to sell shares of common stock purchased during the rights
offering at a price equal to or greater than $0.90 per share.
PLAN OF DISTRIBUTION
On or about March 25, 1999, we will distribute the subscription rights
and copies of this prospectus to individuals who owned shares of common stock
on March 22. If you wish to exercise your subscription rights and
purchase shares of common stock, you should complete the subscription
certificate and return it, with payment for the shares, to the Subscription
Agent, American Stock Transfer & Trust Company, at the address on page 26.
See "The Rights Offering - Exercise of Subscription Rights." If you have any
questions, you should contact our Chief Financial Officer, Philip D. Wolf, at
the telephone number and address on page 27.
L-R Global has made a stand-by commitment that if the rights offering
is undersubscribed and, as a result, our proceeds from the rights offering
are less than $5,000,000, L-R Global will purchase, at $0.90 per share,
additional shares of common stock to make up the shortfall, but only up to
a total investment in this offering of $3,500,000.
We have agreed to pay the Subscription Agent a fee of $12,500 plus
certain expenses. We estimate that our total expenses in connection with the
rights offering will be $143,539.
FEDERAL INCOME TAX CONSIDERATIONS
The following summarizes the material federal income tax considerations
of the rights offering to you and PurchaseSoft. This summary is based on
current law, which is subject to change at any time, possibly with
retroactive effect. This summary is not a complete discussion of all federal
income tax consequences of the rights offering, and, in particular may not
address federal income tax consequences applicable to stockholders subject to
special treatment under federal income tax law. In addition, this summary
does not address the tax consequences of the rights offering under applicable
state, local or foreign tax laws. This discussion assumes that your shares of
common stock and the subscription rights and shares issued to you during the
rights offering constitute capital assets.
Receipt and exercise of the subscription rights distributed pursuant to
the rights offering is intended to be nontaxable to stockholders, and the
following summary assumes you will qualify for such nontaxable treatment. If,
however, the rights offering does not qualify as nontaxable, you would be
treated as receiving a taxable distribution
<PAGE>
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equal to the fair market value of the subscription rights on their
distribution date. The distribution would be taxed as a dividend to the
extent made out of PurchaseSoft's current or accumulated earnings and
profits; any excess would be treated first as a return of your basis
(investment) in your PurchaseSoft stock and then as a capital gain.
Expiration of the subscription rights would result in a capital loss.
THIS DISCUSSION IS INCLUDED FOR YOUR GENERAL INFORMATION ONLY. YOU
SHOULD CONSULT YOUR TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO YOU OF
THE RIGHTS OFFERING IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES, INCLUDING ANY
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.
TAXATION OF STOCKHOLDERS
RECEIPT OF A SUBSCRIPTION RIGHT. You will not recognize any gain or
other income upon receipt of a subscription right.
TAX BASIS AND HOLDING PERIOD OF SUBSCRIPTION RIGHTS. Your tax basis in
each subscription right will effectively depend on whether you exercise the
subscription right or allow the subscription right to expire.
If you exercise a subscription right, your tax basis in the subscription
right will be determined by allocating the tax basis of your common stock on
which the subscription right is distributed between the common stock and the
subscription right, in proportion to their relative fair market values on the
date of distribution of the subscription right. However, if the fair market
value of your subscription rights is less than 15 percent of the fair market
value of your existing shares of common stock, then the tax basis of each
subscription right will be deemed to be zero, unless you elect, by attaching
an election statement to your federal income tax return for 1999, to allocate
tax basis to your subscription rights.
If you allow a subscription right to expire, it will be treated as
having no tax basis.
Your holding period for a subscription right will include your holding
period for the shares of common stock upon which the subscription right is
issued.
EXPIRATION OF SUBSCRIPTION RIGHTS. You will not recognize any loss upon
the expiration of a subscription right.
EXERCISE OF SUBSCRIPTION RIGHTS. You generally will not recognize a gain
or loss on the exercise of a subscription right. The tax basis of any share
of common stock that you purchase through the rights offering will be equal
to the sum of your tax basis (if any) in the subscription right exercised and
the price paid for the share. The holding period of the shares of common
stock purchased through the rights offering will begin on the date that you
exercise your subscription rights.
<PAGE>
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Taxation of PurchaseSoft
We will not recognize any gain, other income or loss upon the issuance
of the subscription rights, the lapse of the subscription rights, or the
receipt of payment for shares of common stock upon exercise of the
subscription rights.
Information Reporting and Backup Withholding
Under the backup withholding rules of the Internal Revenue Code, you may
be subject to 31% backup withholding with respect to any reportable payments
made to you pursuant to the rights offering. You will not be subject to
backup withholding if you:
- are a corporation or fall within certain other exempt categories
and, when required, demonstrate that fact; or
- provide a correct taxpayer identification number and certify under
penalty of perjury that your taxpayer identification number is
correct and that you are not subject to backup withholding because
you previously failed to report all dividends and interest income.
Any amount withheld under these rules will be credited against your
federal income tax liability. We may require you to establish your exemption
from backup withholding or make other arrangements with respect to the
payment of backup withholding.
STATE AND FOREIGN SECURITIES LAWS
The rights offering is not being made in any state or other jurisdiction
in which it is unlawful to do so, nor are we selling or accepting any offers
to purchase any shares of common stock to you if you are a resident of any
such state or other jurisdiction. We may delay the commencement of the rights
offering in certain states or other jurisdictions in order to comply with the
securities law requirements of such states or other jurisdictions. It is not
anticipated that there will be any changes in the terms of the rights
offering. In our sole discretion, we may decline to make modifications to the
terms of the rights offering requested by certain states or other
jurisdictions, in which case stockholders who live in those states or
jurisdictions will not be eligible to participate in the rights offering.
INDEMNIFICATION
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons
in certain instances.
Our Certificate of Incorporation and by-laws provide for advancement of
expenses and indemnification of our officers and directors and certain other
persons
<PAGE>
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against liabilities and expenses incurred by any of them in certain
proceedings and under certain conditions to the fullest extent allowed under
Delaware law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of PurchaseSoft pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus
will be passed upon for us by Bingham Dana LLP, Boston, Massachusetts.
EXPERTS
The financial statements incorporated in this prospectus by reference to
the Annual Report on Form 10-KSB for the year ended May 31, 1998, have been
so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
IF YOU WOULD LIKE MORE INFORMATION
PurchaseSoft files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy this
information at the SEC's public reference rooms, which are located at:
450 Fifth Street, NW
Washington, DC 20549
7 World Trade Center, Suite 1300
New York, NY 10048
500 West Madison Street, Suite 1400
Chicago, IL 60661-2511
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. This information is also available online through the SEC's
Electronic Data Gathering, Analysis, and Retrieval System (EDGAR), located on
the SEC's web site (http://www.sec.gov).
<PAGE>
-35-
Also, we will provide (free of charge) any of our documents filed with
the SEC as you may reasonably may request. To get your free copies, please
call or write to:
Philip D. Wolf,
Chief Financial Officer
PurchaseSoft, Inc.
7301 Ohms Lane, Suite 220
Edina, Minnesota 55439
Telephone: 612-941-1500
We have filed a registration statement with the SEC on Form S-3 with
respect to the rights offering. This prospectus is a part of the registration
statement, but the prospectus does not repeat important information that you
can find in the registration statement, reports and other documents that we
filed with the SEC. The SEC allows us to "incorporate by reference" those
documents, which means that we can disclose important information to you by
referring you to other documents. The documents that are incorporated by
reference are legally considered to be a part of this prospectus. The
documents incorporated by reference are:
(1) our Annual Report on Form 10-KSB for the year ended May 31, 1998;
(2) our Quarterly Report on Form 10-QSB for the period ended August 31,
1998 and our Quarterly Report on Form 10-QSB for the period ended November
30, 1998;
(3) our Current Report on Form 8-K filed June 10, 1998 and our Current
Report on Form 8-K filed November 25, 1998;
(4) the description of our common stock contained in our Registration
Statement on Form 8-A filed with the SEC pursuant to Section 12(g) of the
Exchange Act; and
(5) any filings with the SEC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act of 1934 between the date of this prospectus and the
expiration of the rights offering.
As you read the above documents, you may find some inconsistencies in
information from one document to another. If you find inconsistencies between
the documents, or between a document and this prospectus, you should rely on
the statements made in the most recent document.
You should rely only on the information in this prospectus or
incorporated by reference. We have not authorized anyone to provide you with
any different information.
This prospectus is not an offer to sell nor is it seeking an offer to
buy these securities in any state where the offer or sale is not permitted.
This prospectus is not an
<PAGE>
-36-
offer to sell nor is it seeking an offer to buy securities other than the
shares of common stock to be issued pursuant to the rights offering. The
information contained in this prospectus is correct only as of the date of
this prospectus, regardless of the time of the delivery of this prospectus or
any sale of these securities.
------------
No action is being taken in any jurisdiction outside the United States
to permit a public offering of the common stock or possession or distribution
of this prospectus in any such jurisdiction. Persons who come into possession
of this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering
and the distribution of this prospectus applicable in the jurisdiction.
<PAGE>
PURCHASESOFT, INC. HAS NOT
AUTHORIZED ANY PERSON TO GIVE
YOU INFORMATION THAT DIFFERS
FROM THE INFORMATION IN THIS
PROSPECTUS. YOU SHOULD RELY
SOLELY ON THE INFORMATION
CONTAINED IN THIS PROSPECTUS.
THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE
SECURITIES, AND WE ARE NOT
SOLICITING OFFERS TO BUY 6,151,382 Shares
THESE SECURITIES IN ANY STATE of
WHERE THE OFFER OR SALE OF Common Stock
THESE SECURITIES IS NOT
PERMITTED. THE INFORMATION
IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE
OF THIS PROSPECTUS, EVEN IF
THE PROSPECTUS IS DELIVERED
TO YOU AFTER THE PROSPECTUS ------------
DATE, OR YOU BUY PURCHASESOFT PROSPECTUS
COMMON STOCK AFTER THE ------------
PROSPECTUS DATE.
March 23, 1999
- ------------------------------
TABLE OF CONTENTS
- ------------------------------
<TABLE>
<S> <C>
Prospectus Summary ........... 1
A Warning About Forward-
Looking Statements ......... 6
Risk Factors ................. 7
PurchaseSoft ................. 13
Recent Developments .......... 18
The Rights Offering .......... 20
If You Have Questions ........ 27
Description of Common Stock .. 27
Provisions of the Certificate
of Incorporation and
By-Laws that May Have
Anti-Takeover Effects ...... 27
Use of Proceeds .............. 28
Price Range of Common Stock .. 30
Determination of Offering
Price ...................... 30
Plan of Distribution ......... 31
Federal Income Tax
Considerations ............. 31
State and Foreign Securities
Laws ....................... 33
Indemnification .............. 33
Legal Matters ................ 34
Experts ...................... 34
If You Would Like
Additional Information ..... 34
</TABLE>
