U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED OCTOBER 31, 1996
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________
Commission File No. 0-25296
PLAYNET TECHNOLOGIES, INC.
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(Name of small business issuer in its charter)
Delaware 11-2706304
- - --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
152 West 57th Street, 29th Floor, New York, New York 10019
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(Address of principal executive offices) (Zip Code)
(212) 586-2400
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(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Securities Exchange Act: None
Securities registered under Section 12(g) of the Securities
Exchange Act:
Common Stock, par value $0.001 per share
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(Title of Class)
Check whether the issuer has (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $200,775.
As of February 11 , 1997, the aggregate market value of the issuer's Common
Stock (the only class of voting stock) held by non-affiliates was approximately
$73,717,609.
The number of shares of the issuer's Common Stock (the only class of common
equity) outstanding on February 11, 1997 was 14,966,755
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
PlayNet Technologies, Inc. ("PlayNet" or the "Company") designs and develops
location-based, pay-per-play electronic game and entertainment units and music
juke boxes which are networked through the Internet. The Company's products
utilize the Internet to enhance traditional video game products and juke boxes
through innovations such as linking multiple players in remote locations and
offering competitive tournament prize play. The Company intends to initially
market these products to location-based venues such as bars, restaurants as well
as other hospitality venues. The Company plans to introduce three products in
1997: the PlayNet Web(R) electronic game system, the PlayNet Music(R) juke box
and the PlayNet Team(R) electronic game system.
COMPANY BACKGROUND; RECENT EVENTS
The Company was incorporated in the state of Delaware on July 12, 1984, under
the name "The Astro-Stream Corporation." On May 3, 1995, Aristo International
Corporation, a New York corporation (the "Merging Corporation"), was merged (the
"Merger") with and into the Company, with the Company being the surviving
corporation. Pursuant to the Merger, the name of the Company was changed to
"Aristo International Corporation" and the former stockholders of the Merging
Corporation became the owners of 90% of the issued and outstanding common stock
of the Company. Prior to the Merger, the Company had no operations.
On October 29, 1996, the stockholders at their Annual Meeting approved a
resolution to amend the Company's Amended Certificate of Incorporation to change
the name of the company from Aristo International Corporation to PlayNet
Technologies, Inc., which change was effected on November 6, 1996. On November
19, 1996, the Company's Common Stock trading symbol on the NASDAQ SmallCap
Market was changed to "PLNT."
PRODUCTS
The Company's products are designed to utilize the Internet as a communications
network and an entertainment medium in a social setting, allowing users to play
networked games, compete in local or national tournaments and contests, browse
the World Wide Web, participate in chat room discussions and use credit cards to
purchase merchandise. The Company's business reflects the growing trend to
connect people via computer networks and, as a result, to create new forms of
interactive entertainment in a social setting. According to the Vending Times
1996 Census, total coin-drop revenue in the U.S. in 1995 for all amusements was
$6.3 billion, and the U.S. electronic pay-per-play video game business (which
excludes pinball and redemption machines) generated $2.0 billion of that
revenue.
The Company has designed an open, PC-based system architecture which blends
proprietary game development, secure communications protocol, and operations
software in a client/server environment. Communications take place over the
Internet utilizing standard Internet protocols. This integrated system allows
the Company to offer networked, location-based entertainment that can be
remotely updated with the latest games and entertainment content.
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The Company's initial product line is intended to consist of the following
location-based entertainment systems:
PlayNet Web(R) - A terminal engineered to sit on a counter top and
accommodate 8 to 12 different games, including trivia, parlor, strategy
and action games. PlayNet Web allows users to choose which game to play
and then to choose whether to play against the computer or against
other players through an Internet connection. In addition to playing
games and participating in contests and prize tournaments, customers
can choose to browse the Internet and participate in chat room
discussions using attached telephone handsets.
PlayNet Music(R) - A juke box which provides access to thousands of
music titles via an Internet connection, thereby providing
significantly greater choices than a standard juke box. In addition to
providing the ability to select songs from an extensive library,
PlayNet Music will allow customers to purchase CDs and merchandise
relating to their favorite music artists.
PlayNet Team(R) - An interactive system which allows two teams of up to
four players each to compete against each other in sports simulations
and other games. Both teams may be physically present in the same
location, competing on the same game system, or may be in separate
locations competing through an Internet connection. The system has been
specifically designed to support tournament play.
The Company has entered into a one year, annually renewable agreement with an
unaffiliated vendor to manufacture PlayNet Web units, production having begun in
January, 1997.
PlayNet is negotiating to acquire the digital music and related ancillary rights
to content from the libraries of several record labels and publishers for use on
its PlayNet Music system. Concurrently, the Company is negotiating to enter into
sponsorship and advertising programs for its sports games, tournaments and prize
contests with high-profile consumer goods and beverage companies. The company
has entered into a comprehensive Internet server delivery and support contract
with IBM Global Services on January 24, 1997 and intends to work with IBM Global
Services in the same manner to support the Company's global expansion
objectives. The Company also intends to establish various contractual
arrangements, joint ventures and other mutually advantageous programs with
technology providers, equipment manufacturers, distributors, major hospitality
chains, consumer products companies, music-related companies, content providers
and others, to develop broader, more efficient, more profitable and
higher-profile products and services. The Company's research and development
costs for its last two fiscal years were $5,039,337 and $314,320, respectively.
The Company's distribution strategies include the traditional location-based
game distribution channels. Further, the Company is in negotiations with major
fast food and hotel chains to provide additional venues for its products.
COMPETITION
The market for Internet-enabled, location-based entertainment products is new,
and subject to rapid technological change. The markets served by the Company are
extremely competitive. Because there are no substantial barriers to entry, an
influx of new entrants into the market is expected to
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continue in response to the growing demand for digital entertainment,
information and data communication technology products and services. The Company
expects competition to persist, intensify and increase in the future. Many of
the Company's current and potential competitors have longer operating histories,
enjoy a greater market presence and possess substantially greater technical,
financial and marketing resources than the Company. Such competition could
materially adversely affect the Company's business, operating results or
financial condition. The Company is aware that other attempts are being
undertaken to develop Internet-enabled products for the location-based
entertainment marketplace. The Company believes that it competes for
discretionary spending in the overall entertainment business which includes (i)
home-based entertainment, such as television and home video, pre-recorded music,
books and magazines, and personal computer and console based entertainment, and
(ii) location-based entertainment, such as live events, theatrical exhibitions,
video games, billiards, pinball machines and movies.
DEPENDENCE UPON SUPPLIERS, MANUFACTURERS, LICENSORS AND THIRD-PARTY FINANCING
SOURCES; LIMITED SOURCES OF SUPPLY; DEPENDENCE UPON NETWORK INFRASTRUCTURE.
The Company relies on other companies to supply certain key components of its
network infrastructure, including telecommunications services and networking
equipment, which, in the quantities and quality demanded by the Company, are
available only from sole or limited sources. The Company is also dependent upon
local exchange carriers ("LECs") to provide telecommunications services to, and
the Internet service provider ("ISP") IBM Global Services to provide Internet
connection for the Company and its customers. Any failure to obtain such
services on a timely basis at an acceptable cost would have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company is also dependent on its suppliers' ability to provide necessary
products and components that comply with various Internet and telecommunications
standards and that operate with products and components from other vendors.
PROPRIETARY RIGHTS
The Company relies on trademark, copyright, patent and trade-secret laws as well
as contractual rights to protect its proprietary technologies. The Company has
filed trademark applications to register and protect the names PlayNet Web,
PlayNet Music, PlayNet Team, PlayNet Technologies, Pay-per-Play, PlayNet and the
Company's logo design. The source codes for the Company's proprietary software
are protected as trade secrets. In accordance with the Company's policy, the
Company's key employees and all consultants have entered, and all future key
employee and all consultants are expected to enter, into agreements containing
confidentiality, nondisclosure and nonsolicitation covenants. Similarly, the
Company's agreements with customers and suppliers include provisions prohibiting
or restricting the disclosure of proprietary information and products, the use
of software in source code form and the sublicensing of licensed software.
The Company is negotiating with record labels and music publishers to acquire
the rights to music content and is negotiating with these entities regarding the
scales and rates associated with the digital transmission of music, video and
ancillary content through the PlayNet Music juke box system. The Company
believes that its proprietary encryption/decryption technology is critical to
securing the right to transmit music over the Internet. The Company also
believes that its ability to track the individual titles played by its juke
boxes will be attractive to music publishers and record
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labels, as they will, for the first time, be able to identify volumetrically the
popularity of the individual titles played on juke boxes.
GOVERNMENT REGULATION
In the United States and many other countries games of chance must be expressly
authorized by law. Once authorized, such games may be subject to extensive and
evolving federal, state, local and foreign governmental regulation. While the
Company believes that its games are based on skill and thus are exempt from such
regulation, there can be no assurance that the operation of the Company's games
will be approved by any jurisdictions.
In light of the increasing use and commercial importance of the Internet and
other wide-area information networks, various issues, including pricing and
competitive practices, service quality, user privacy and content, are drawing
the attention of Congress, regulators, and industry and consumer groups. The
adoption of any such laws or regulations could inhibit the continued growth of
the Internet or other wide-area information networks, impose additional costs on
the Company, expose the Company to greater potential liability from regulatory
actions or private legal proceedings, or otherwise adversely affect the
Company's business operations or performance.
EMPLOYEES
As of October 31, 1996, the Company had sixty-seven employees, all of whom were
full-time and based in the United States. Of these, six were executive,
forty-one were principally engaged in research and development, four were
principally engaged in engineering, four were principally engaged in sales,
marketing and customer support and twelve were principally engaged in
administration and finance. None of the Company's employees are represented by a
labor union and the Company considers its relations with its employees to be
good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executives offices occupy approximately 8,600 square feet in a
modern office building at 152 West 57th Street, New York, New York 10019-3310 at
an annual rent of $358,693 under a lease expiring on March 31, 2002. The
Company's engineering and design facility at the Loudon Technology Center in
Sterling, Virginia occupies approximately 7,000 square feet at an annual rent of
$99,354 under a lease expiring on August 31, 1998.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to the following legal proceedings (other than routine
litigation that is incidental to its business):
(a) In an action entitled Orbach, Inc. v. Aristo International Corporation,
commenced on or about October 10, 1996 in the Supreme Court of the State of New
York, plaintiff seeks to recover damages from the Company in an amount not less
than $232,500 based on the alleged breach of a finder's fee agreement and
alleged unjust enrichment.
(b) On or about December 24, 1996 MicroLeague Media Inc. filed a demand for
arbitration with the American Arbitration Association asserting claims against
the Company's subsidiary, PlayNet
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Studios, Inc. (formerly Borta, Inc.) for an unspecified amount of damages based
on the alleged breach of a licensing/co-development agreement between the
parties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the company was held on October 29, 1996.
The following matters were voted upon at the meeting:
(a) The Company's three incumbent directors were nominated and
re-elected by the following vote:
Director Votes
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For Withheld
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Shmuel Cohen 11,605,092 25,036
Joseph Ettinger 11,630,092 36
Yael Cohen 11,605,075 25,036
(b) A proposal to amend the Company's certificate of incorporation (i)
to change its name to "PlayNet Technologies, Inc." and (ii) to
increase its authorized stock to 40,000,000 shares, consisting of
1,000,000 shares of preferred stock and 39,000,000 shares of
common stock was approved by the following vote:
Abstentions and
For Against Broker Non-Votes
- - --- ------- ----------------
11,629,755 225 148
c) A proposal to adopt the Company's 1996 Stock Option Plan was
approved by the following vote:
Abstentions and
For Against Broker Non-Votes
- - --- ------- ----------------
10,562,030 83,684 213
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PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, par value $.001 per share, commenced trading on
November 19, 1996 on the Nasdaq SmallCap Market under the symbol PLNT. Prior to
that date the Company traded on the Nasdaq SmallCap Market under the symbol
ATSP. Prior to October 4, 1996, the Company's shares were quoted in the
so-called "pink sheets' in the over-the-counter market, and a market price for
the shares could not be identified. The following table sets forth for the
periods indicated the high and low sales prices for the Common Stock as reported
on the Nasdaq SmallCap Market:
High Low
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Fiscal 1995
Fourth Quarter (from October 4, 1995)........... $101/2 $7
Fiscal 1996
First Quarter................................... 91/4 63/4
Second Quarter.................................. 113/4 63/4
Third Quarter................................... 11 4
Fourth Quarter .......................................... 10 63/4
On October 31, 1996, the last reported sales price of the Common Stock on the
Nasdaq SmallCap Market was $9 per share. As of that date, there were 753 holders
of record and the Company believes its common stock is beneficially owned by
approximately 1,350 holders.
DIVIDEND POLICY
It has not been the policy of the Company to pay dividends on its Common Stock
nor does it anticipate paying dividends on its Common Stock in the foreseeable
future. The Company plans to retain any earnings to finance the development and
expansion of its business. However, pursuant to a settlement with certain
stockholders of the Astro-Stream corporation related to the Merger, a special
dividend of $0.0932 per share was paid on or about August 6, 1996 to
stockholders on the record date of May 5, 1995.
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ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Summary
Consolidated Financial data, the Consolidated Financial Statements and the Notes
thereto contained in Item 7 of this 10KSB.
OVERVIEW
The Company designs and develops location-based, pay-per-play electronic
game and entertainment units and music juke boxes which are networked through
the Internet. The Company's products utilize the Internet to enhance traditional
video game products and juke boxes through innovations such as linking multiple
players in remote locations and offering cash-prize tournament play.
The Company intends to initially target location-based venues such as
sports bars and "theme" restaurants. The Company plans to introduce three
products in the next six months: the PlayNet Music juke box and the TeamNet and
TouchNet electronic game systems.
The Company's products are designed to utilize the Internet as a
communications network and an entertainment medium in a social setting, allowing
users to play networked games, compete in local or national tournaments and
contests, browse the World Wide Web, participate in chat room discussions and
use credit cards to purchase merchandise.
On May 3, 1995, Aristo International Corporation, a New York corporation
(the "Predecessor"), was merged (the "Merger") with and into the Company, which
was previously known as "The Astro-Stream Corporation." The Company was the
surviving corporation in the Merger and, pursuant to the Merger, the name of the
Company was changed to "Aristo International Corporation." Prior to the Merger,
the Company had no operations. The Predecessor was incorporated in 1990 to
invest in licensable and patentable consumer products for the mass market. From
late 1994 until the effective date of the Merger, the Predecessor (and since the
Merger, the Company) has focused on the business described in detail in this
Prospectus. On July 31, 1995, the Company acquired 100% of the stock of Borta,
Inc., an entertainment software engineering and development company (the
"Acquisition"). See "Business."
The Company's revenues historically have been comprised of software
development fees. Salaries of the software programmers, networking specialists,
engineers and graphic artists, as well as depreciation of the fixed assets used
in the development of hardware and software, are included in research and
development. During the next twelve months, the Company expects to continue the
development of hardware and software for its networked, location-based
entertainment products. The Company intends to sell its products through a
network of over one hundred third party distributors. The Company's financial
statements do not contain a provision for income tax expense from its inception
through July 31, 1996 as the Company has incurred operating losses since
inception. As of October 31, 1995, the Company had available unused net
operating loss carry forwards of approximately $9,797,000, which may provide
future tax benefits, expiring in various years from 2006 to 2010. The Company
has fully reserved these potential future tax benefits.
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COMPARISON OF THE FISCAL YEAR ENDED OCTOBER 31, 1996 VS. OCTOBER 31, 1995
Consolidated revenues for the twelve months ended October 31, 1996 were
$200,775, an increase of approximately $43,000 as compared to the same period in
1995. Revenues from the development of software represented 96% and 94% of the
1996 and 1995 revenues, respectively. Royalties on the Company's consumer
products represented 4% of revenues in 1996 compared to 6% of revenues in 1995.
Selling, general and administrative expenses for the twelve months ended October
31, 1996 increased to $7,852,019 as compared to $3,678,823 for the twelve months
ended October 31, 1995. Of the total selling, general and administrative
expenses 54% or $2,001,000 for 1996 related to salaries and benefits as compared
to approximately $600,000 for the prior period. This increase was attributable
to an increase in personnel to 64 as of October 31, 1996 from 22 as of October
31, 1995, an increase of 42. The increase in headcount is primarily a result of
the development of the infrastructure necessary to permit the Company to achieve
its business objectives in product development and marketing.
Occupancy expense for the current period amounted to $404,762 as compared to
$251,303 for the same period in 1995. This increase is related to twelve months
of expense for the Borta facility as compared to one month for the same period
in 1995 and an engineering and design facility in California, which was occupied
beginning in April 1996. Of the total selling, general and administrative
expenses, occupancy expense represents 5% and 7% for the twelve months period in
1996 and 1995, respectively.
Amortization and depreciation expenses totaled $49,502 and $37,762,
respectively, for the twelve months ended October 31, 1996 and 1995. The
increase of approximately $11,700 resulted from the capital expenditures in
fiscal year 1996 related to the acquisition of equipment and leasehold
improvements in the development of an infrastructure necessary achieve the
Company's business objectives.
Other selling, general and administrative expenses for the 1996 period of
approximately $5,100,000 include $808,000 for legal and auditing services and
$2,660,000 paid to consultants for services related to developing business
plans, market strategies and funding of the Company. The balance of
approximately $1,632,000 is primarily attributable to increased travel
expenditures of $595,000 and certain other expenses, such as stationary and
supplies, and telephone, related to the increased headcount and corporate
activity.
In 1996 the Company recorded amortization expense of $1,155,252 related to its
Capitalized Software asset and a write down charge of $1,925,417 in connection
with a change in accounting estimates. Also in 1996 the Company recorded a
charge of $71,306 in connection with the write off of the unamortized balance of
its Patents.
Research and development costs for the twelve months ended October 31, 1996
increased to $5,039,337 as compared to $314,320 for the comparable period in
1995, which was primarily attributable to expenses related to prototypes and
final test products and the purchase of certain licenses related to a
discontinued product development. For 1996 other elements of these costs
include: salaries and related expenses of $2,261,202 (45%); travel and related
expenditures totaled $156,078 or 3%; amortization expense totaling $172,464 (3%)
related to the goodwill realized from the Borta acquisition; and depreciation
and amortization of computer and related expenses amounting to approximately
$88,558 (2%), attributable to the design and development of hardware and
software systems to support the Company's products. Also included in research
and development costs is approximately $1,000,000 related to an abandoned
business venture.
Interest expense for the twelve months ended October 31, 1996 was $244,793, an
increase of approximately $139,400 as compared to the same period in the prior
year. This increase was primarily attributable to interest paid in connection
with convertible notes.
COMPARISON OF FISCAL YEAR ENDED OCTOBER 31, 1995 VS. OCTOBER 31, 1994
Consolidated revenues for 1995 were $157,627, an increase of $141,622 as
compared to 1994. Revenues from the development of software represented 94% of
revenues in 1995. Royalties on the Company's consumer products represented 6% of
revenues in 1995 compared to 100% of revenues in 1994.
Selling, general and administrative expenses for the period ended October
31, 1995 increased to $3,678,823 from $2,141,400 for the period ended October
31, 1994. Approximately 13%, or $194,339, of the increase in selling, general
and administrative expense was due to an increase in travel and entertainment
expenses. This increase was the result of visits to potential digital
entertainment acquisition targets. An additional 43% of the increase was due to
professional and consulting fees. Accounting expenses increased $131,644,
primarily due to services relating to the Merger, including an audit for the
three fiscal years ended October 31, 1994. Consulting expenses increased
$365,505 primarily due to costs associated with designing and developing a
strategic plan for the digital entertainment market. Legal fees increased
$160,710 primarily due to services relating to the Merger as well as increased
legal services relating to transactions in the digital entertainment
marketplace. Selling, general and administrative expenses increased $99,325 and
deferred compensation expense increased $117,857 as a result of the Acquisition.
Salaries and benefits increased $219,238 as a result of hiring additional staff.
Research and development expenses increased to $603,133 for the year ended
October 31, 1995 from $47,205 for the year ended October 31, 1994. The increase
is attributable to the development of networked game technology and design of
multiplayer games.
Interest and other income (expense)--net increased to $7,872 from ($56,044)
in 1994 due to the gain on the settlement of a lawsuit recorded in 1995, in the
amount of $76,466 offset by an increase in interest expense on convertible term
loans. The gain on the lawsuit represents the judgment by the Supreme Court of
the State of New York, County of New York on January 30, 1995 in favor of the
Company and further provides that the Company be paid interest from February 6,
1992. Additionally, interest accrued through the date of the judgment of $21,425
has been recorded.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has a revolving credit facility with The Merchants Bank of New York
in an amount up to $500,000. The facility expires on May 15, 1997. As of October
31, 1996, $406,000 had been drawn upon, of which $250,000 is collateralized by a
certificate of deposit.
As of October 31, 1996, the Company had outstanding notes, issued between
December 29, 1995 and July 31, 1996, in the aggregate principal amount of
$1,590,000 of which $590,000 is due on February 28, 1997 and the balance is due
on March 31, 1997. One promissory note, in the principal amount of $260,000,
requires quarterly payments of interest each in the amount of $13,000 beginning
on April 1, 1996; two promissory notes, each in the principal amount of
$500,000, bear interest at a rate of 10% per annum and 12% per annum,
respectively; and the remaining promissory note, in the principal amount of
$330,000, bears interest at the prime rate. The holder of one promissory note is
also entitled to receive a 12.5% participation in certain license royalties
(but, to date, no amount has been paid or accrued with respect thereto), subject
to the Company's right to terminate such participation and, in lieu thereof,
issue warrants to purchase shares of Common Stock. The Company has agreed, if a
holder of any of the forgoing notes so elects, to issue shares of Common Stock
in full payment (in lieu of cash) of the principal amount of each of these notes
(based on a price of $5.50 per share). Three of such holders have given notice
to the Company of their intention to receive shares of Common Stock in payment
of the entire principal amount of the promissory note held by it, although no
such holder is legally obligated to do so by reason of such notice. The holders
of two of the promissory notes were also granted options to purchase a total of
232,717 additional shares of Common Stock at a price of $5.50. In addition, the
Company has borrowed $516,500 from certain lenders, each of whom has the right
to receive shares of Common Stock in payment of the principal amount of the loan
(based on a price of $6.50 per share or, as to $55,000 principal amount of one
note, $5.50 per share). Accordingly, the Company expects to issue 370,091 shares
of Common Stock with respect to such promissory notes and loans, although no
such holders or lenders is legally obligated to receive such shares.
Between August and October 1996, the Company sold in private placements
1,256,400 shares of Common Stock, of which 1,180,000 were sold at a price of
$5.00 per share and 76,400 were sold at a price of $5.50 per share, from which
the Company received aggregate net proceeds (after deduction of related selling
expenses, including agency commissions) of approximately $5,880,645.
Prospectively, as its primary means of financing capital needs, the Company
intends to complete its public offering of 2,000,000 shares of its Common Stock
which was initiated with the filing of a registration statement in October,
1996. For the interim period until such public offering can be completed,
subsequent to the end of its last fiscal year, the Company entered into a bridge
financing arrangement with Allen & Company Incorporated ("Allen") pursuant to
which Allen will act as the Company's placement agent in the sale of senior
secured notes and warrants for aggregate gross proceeds of up to $18,000,000,
subject to the achievement of certain prescribed operating targets. Through
February 12, 1997, based on its significant progress with respect to those
operating targets to such date, the Company has received gross proceeds of
$2,500,000 and Allen is obligated to use its best efforts to obtain a third
party purchaser for an additional $750,000 in senior secured notes on or before
the end of February, 1997.
The Company believes that the net proceeds from the bridge financing and its
public offering, together with available funds and cash flows expected to be
generated by operations, will be sufficient to meet its anticipated cash needs
for working capital and capital expenditures for at least
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the next twelve months. In the event the Company's plans change, its assumptions
change or prove to be inaccurate or if the proceeds of the bridge financing and
the public offering or cash flows prove to be insufficient to fund operations,
the Company may find it necessary or desirable to reallocate a portion of the
proceeds within the above described categories, seek additional financing or
curtail its activities. There can be no assurance that additional financing will
be available on terms favorable to the Company, or at all. If adequate funds are
not available or are not available on acceptable terms, the Company may not be
able to take advantage of unanticipated opportunities, develop new products or
otherwise respond to unanticipated competitive pressures. Such inability could
have a material effect on the Company's business, financial condition and
results of operations.
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ITEM 7 FINANCIAL STATEMENTS
Page
Report of Independent Accountants
Consolidated Balance Sheets at October 31, 1996 and 1995.....................
Consolidated Statements of Operations for the fiscal years
ended October 31, 1996, 1995 and 1994 and the cumulative
period from June 4, 1990 (inception) to October 31, 1996.....................
Consolidated Statement of Stockholders' Equity for the
fiscal years ended October 31, 1992, 1993, 1994, 1995, 1996
and the cumulative period from June 4, 1990 (inception) to
October 31, 1996.............................................................
Consolidated Statements of Cash Flows for the fiscal years
ended October 31, 1996 and 1995 and the cumulative period
from June 4, 1990 (inception) to October 31, 1996............................
Notes to the Consolidated Financial Statements...............................
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
PlayNet Technologies, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of PlayNet
Technologies, Inc. and Subsidiaries, formerly Aristo International Corporation
and Subsidiaries (a development stage enterprise) as of October 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three fiscal years in the period ended
October 31, 1996 and the cumulative period from June 4, 1990 (inception) to
October 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of PlayNet
Technologies, Inc. and Subsidiaries as of October 31, 1995 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
each of the three fiscal years in the period ended October 31, 1996 and the
cumulative period from June 4, 1990 (inception) to October 31, 1996, in
conformity with generally accepted accounting principles.
New York, New York
February 12, 1997
11
<PAGE>
PlayNet Technologies, Inc. and Subsidiaries
(Formerly Aristo International Corporation)
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
October 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,331,761 $ 540,297
Restricted cash 250,000 355,599
Marketable securities -- 1,500
Prepaid expenses and other current assets 15,200 236,319
------------ ------------
Total current assets 2,596,961 1,133,715
Equipment, net 695,784 252,456
Patents, net -- 77,034
Capitalized software, net 4,940,528 7,907,937
Goodwill, net 991,697 1,164,161
Restricted cash - noncurrent 89,039 86,831
Other assets 355,672 426,195
------------ ------------
Total assets $ 9,669,681 $ 11,048,329
============ ============
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,439,666 $ 661,045
Notes payable - bank 406,000 406,000
Convertible term loans - stockholders 776,500 375,000
Payable to stockholder 270,000 500,000
Capital leases - current 121,166 25,313
------------ ------------
Total current liabilities 4,013,332 1,967,358
Convertible term loans - stockholders 1,330,000 565,000
Capital leases - long term 151,693 59,209
Deferred rent 145,076 158,891
------------ ------------
Total liabilities 5,640,101 2,750,458
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $.001 par value; authorized
1,000,000 shares; issued and outstanding
none in 1996 and 33,350 in 1995 -- 33
Common stock, $.001 par value; authorized
39,000,000 shares; issued and outstanding
14,966,755 and 13,199,945, respectively 14,967 13,200
Additional paid in-capital 31,736,496 21,871,438
Deferred compensation expense -- (1,846,429)
Deficit accumulated during the development stage (27,721,883) (11,740,371)
------------ ------------
Total stockholders' equity 4,029,580 8,297,871
------------ ------------
Total liabilities and stockholders' equity $ 9,669,681 $ 11,048,329
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
12
<PAGE>
PlayNet Technologies, Inc. and Subsidiaries
(Formerly Aristo International Corporation)
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
For Fiscal Years ended October 31, 1996, 1995 and
1994 and for the June 4, 1990 @ 10/31/95
Cumulative period from June 4, 1990 (inception) to
October 31, 1996 (inception) to Cumulative
<TABLE>
<CAPTION>
Cumulative Since
October 31, 1996
1996 1995 1994 (See Note 1(a))
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss during development stage $(15,966,293) $ (4,116,457) $ (2,228,644) $(26,906,674)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,583,633 363,960 21,407 2,006,378
Expenses paid by issuance of common stock 699,790 185,873 70,000 1,925,663
Deferred compensation expense (117,857) 117,857 -- --
Deferred royalty income -- -- (8,333) --
Deferred rent (13,815) (13,814) 29,600 145,076
Loss on disposal of fixed asset -- -- -- 19,200
Net realized loss on sale of marketable securities -- 20,753 31,092 51,845
Net unrealized gain on marketable securities -- (1,000) (6,713) (7,713)
Write down of capitalized software 1,925,417 -- -- 1,925,417
Charges related to issuance of warrants 1,405,590 -- -- --
Impairment of Patents 71,306 -- -- 71,306
Reserve for bad debt 132,538 -- -- 132,538
Changes in assets and liabilities:
Increase in prepaid expenses and other current assets 46,187 (159,573) (16,408) (134,099)
Increase in accounts payable and accrued expenses 1,785,927 232,427 (122,091) 2,302,881
------------ ------------ ------------ ------------
Net cash used in operating activities (8,447,577) (3,369,974) (2,230,090) (18,468,182)
------------ ------------ ------------ ------------
Cash flows from investing activities:
Investment in Borta, Inc., net of cash acquired -- (238,615) -- (238,615)
Expenditures for equipment, leasehold improvements,
patents and organization costs (492,831) (71,920) (41,203) (754,556)
Purchase of marketable securities -- (1,103,085) (414,516) (1,517,601)
Sales of marketable securities 1,500 1,147,832 324,137 1,473,469
Purchase of computer software -- (110,000) -- (110,000)
Increase (decrease) in other assets -- 80,602 (232,119) (170,639)
(Increase) decrease in restricted cash 103,391 (105,599) -- (339,039)
------------ ------------ ------------ ------------
Net cash used in investing activities (387,940) (400,785) (363,701) (1,656,981)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Net proceeds (repayments) from notes payable - bank -- (46,143) (39,500) 359,857
Proceeds from notes payable - stockholders -- -- -- 793,500
Repayments of notes payable - stockholders (230,000) -- (160,000) (573,500)
Proceeds acquired in connection with the Astro-Stream merger 59,494 59,494
Proceeds from issuance of preferred stock 220,000 100,000 -- 320,050
Proceeds from issuance of common stock 9,305,700 2,759,247 1,580,000 16,860,237
Proceeds from convertible term loans 1,796,500 940,000 1,025,000 3,761,500
Repayments of convertible term loans (450,000) -- -- (450,000)
Purchase of treasury stock -- -- -- (60,000)
Dividends on preferred stock (15,219) (4,585) -- (19,804)
------------ ------------ ------------ ------------
Net cash provided by financing activities 10,626,981 3,808,063 2,405,500 21,051,334
------------ ------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents 1,791,464 37,304 (188,291) 926,171
Cash and cash equivalents, beginning of period 540,297 502,993 691,284 --
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 2,331,761 $ 540,297 $ 502,993 $ 926,171
============ ============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 244,793 $ 101,237 $ 63,629 $ 416,542
============ ============ ============ ============
Taxes $ 33,215 $ 5,178 $ 6,031 $ 52,841
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
13
<PAGE>
PlayNet Technologies, Inc. and Subsidiaries
(Formerly Aristo International Corporation)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Years ended October 31, 1996, 1995 and 1994
and for the Cumulative Period from June 4, 1990 (inception)
to October 31, 1996
<TABLE>
<CAPTION>
Cumulative Since
June 4, 1990
(inception) to
October 31, 1996
1996 1995 1994 (See Note 1(a))
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Royalty revenue $ 8,428 $ 9,327 $ 16,005 $ 125,427
Production revenue 192,347 148,300 -- 340,647
------------ ------------ ------------ ------------
Total revenue 200,775 157,627 16,005 466,074
Selling, general and administrative expense (7,852,019) (3,678,823) (2,141,400) (17,309,450)
Research and development expenses (5,039,337) (314,320) (47,205) (6,373,377)
Interest expense (245,144) (101,237) (46,525) (479,289)
Amortization of capitalized software costs
(including 1996 write down) (3,080,669) (288,813) -- (3,369,482)
Interest and other income (expense) 50,101 109,109 (9,519) 158,850
------------ ------------ ------------ ------------
Net loss (15,981,512) (4,116,457) (2,228,644) (26,906,674)
Dividends on preferred stock (15,219) (4,585) -- (19,804)
------------ ------------ ------------ ------------
Net loss per common share $(15,981,512) $ (4,121,042) $ (2,228,644) $(26,926,478)
============ ============ ============ ============
Weighted average number of common
shares outstanding 13,517,920 10,388,926 9,244,593
============ ============ ============
Net loss per share $ (1.18) $ (0.40) $ (0.24)
============ ============ ============
</TABLE>
14
<PAGE>
ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Supplemental schedule of noncash investing and financing activities:
The Company, on June 4, 1990, issued 3,334,780 shares of common stock in
exchange for technical know-how and patents valued at $600,000.
During October 1993, the Company issued 39,184 shares of common stock in
exchange for the rights to a patent valued at $50,000.
During 1994, notes payable of $250,000 and $12,064 of accrued interest thereon
were converted into 171,741 shares of common stock.
During 1994, a note payable of $200,000 was converted into 159,236 shares of
commmon stock.
During 1994, the Company retired 1,667,390 shares of treasury stock valued at
$60,000.
During 1995, convertible term loans of $1,025,000 were converted into 834,529
shares of common stock.
During 1995, the Company issued 115,050 shares of common stock in exchange for
original graphic illustrations valued at $255,555.
In connection with the Merger with Astro-Stream, the Company assumed
liabilities of $47,595 and acquired cash of $59,494.
The Company purchased all of the capital stock of Borta, Inc. The details of
the business acquired are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of current assets acquired $ 67,418
Fair value of fixed assets acquired 43,258
Intangible assets of business acquired:
Capitalized software 8,086,750
Excess of cost over net assets acquired (goodwill) 5,008,049
Deferred tax liability (3,800,772)
Liabilities assumed (104,703)
Intercompany payable to the Company (50,000)
-----------
Total purchase price consideration 9,250,000
Common stock issued 8,500,000
-----------
Total cash to be paid to sellers 750,000
Liabilities to former stockholder 500,000
-----------
Cash paid to sellers at closing of the acquisition 250,000
Less, cash acquired 11,385
-----------
Net cash payment at closing of the acquisition $ 238,615
===========
</TABLE>
In connection with the purchase of Borta, the Company issued 357,143 shares of
restricted common stock valued at $1,964,286 to the President of Borta as
deferred compensation. These shares are subject to forfeiture (see note 3).
The accompanying notes are an integral part of these
consolidated financial statements.
15
<PAGE>
ARISTO INTERNATIONAL CORPORATION and SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
During 1995, the Company issued 25,000 shares of common stock in exchange for
consulting services valued at $162,500.
During 1995, the Company issued 4,082 shares of common stock in exchange for
consulting services valued at $23,372.
During December 1995, convertible term loans of $200,000 were converted into
66,667 shares of common stock.
During 1996, the Company issued 14,921 shares of common stock in exchange for
consulting services valued at $81,977.
During 1996, the Company issued 58,191 shares of common stock in exchange for
the 73,350 outstanding shares of preferred stock.
During 1996, the Company issued 30,000 shares of common stock in exchange for
product rights valued at $150,000.
The accompanying notes are an integral part of these
consolidated financial statements.
16
<PAGE>
PlayNet Technologies, Inc. and Subsidiaries
(Formerly Aristo International Corporation)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Fiscal Years Ended October 31, 1992, 1993, 1994,
1995 and 1996 and for the period from June 4,1990
(inception) to October 31, 1996
[PART 1 OF 3]
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
------------------ ------------------ Paid in
Shares Amount Shares Amount Capital
---------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of common stock for initial capitalization ($0.18 per share) 3,334,780 $ 3,335 $ 596,665
Sale of common stock during November for cash ($0.12 per share) 1,764,099 1,764 218,526
Sale of common stock during October for cash ($1.29 per share) 155,067 155 199,845
Exchange of common stock during October for services at
estimated value ($1.28 per share) 78,367 78 99,922
Net loss for the year ended October 31, 1991
---------------------------------------------------------
Balance, October 31, 1991 5,332,313 5,332 1,114,958
---------------------------------------------------------
Sale of common stock during the year for cash ($0.85 per share) 1,589,023 1,589 1,348,411
Sale of common stock during the year for cash ($1.17 per share) 235,102 235 274,765
Exchange of common stock during August for services at estimated value
($1.28 per share) 78,367 78 99,921
Net loss for the year ended October 31, 1992
---------------------------------------------------------
Balance, October 31, 1992 7,234,805 7,235 2,838,055
---------------------------------------------------------
Sale of common stock during the year for cash ($1.63 per share) 611,932 612 999,388
Sale of common stock during the year for cash ($1.28 per share) 195,085 195 249,805
Exchange of common stock during May for services at estimated value
($1.29 per share) 116,717 117 149,883
Exchange of common stock during October for services at estimated value
($1.33 per share) 15,006 15 19,985
Exchange of common stock during October for patent rights at estimated
value ($1.28 per share) 39,184 39 49,961
Purchase of treasury stock for cash ($0.04 per share)
Net loss for the year ended October 31, 1993
---------------------------------------------------------
Balance, October 31, 1993 8,212,729 8,213 4,307,077
---------------------------------------------------------
Sale of common stock during the year for cash ($1.46 per share) 1,030,447 1,030 1,498,970
Exchange of common stock during January for services at estimated
value ($1.33 per share) 15,007 15 19,985
Exchange of common stock during January for services at estimated
value ($1.46 per share) 34,181 34 49,966
Conversion of note payable and accrued interest into common
stock ($1.53 per share) 171,741 172 261,892
Conversion of note payable into common stock ($1.26 per share) 159,236 159 199,841
Repayment of stock subscription receivable
Retirement of treasury stock during October (1,667,390) (1,667) (58,333)
Net loss for the year ended October 31, 1994
---------------------------------------------------------
Balance, October 31, 1994 7,955,951 7,956 6,279,398
---------------------------------------------------------
Conversion of notes payable into common stock ($1.23 per share) 834,529 835 1,024,165
Sale of common stock during November for cash ($1.53 per share) 235,936 236 359,764
Sale of common stock during March for cash ($2.22 per share) 450,195 450 999,550
Exchange of common stock in March for graphic illustrations
($2.22 per share) 115,050 115 255,440
Issuance of common stock per anti-dilution provision 38,350 38 (38)
Sale of preferred stock in May for cash ($3.00 per share) 33,350 $ 33 100,017 -- 100,050
Equity acquired from the reverse acquisition with Astro-Stream 1,098,997 1,099 806,205
Issuance of common stock as a result of the acquisition of Borta, Inc.
($4.67 per share) 1,818,182 1,818 8,498,182
Grant of common stock ($5.50 per share) 357,143 357 1,963,929
Sale of common stock during August for cash ($4.50 per share) 66,666 67 299,933
Sale of common stock during August for cash ($5.50 per share) 93,500 94 514,156
Exchange of common stock in August for consulting services
($6.50 per share) 25,000 25 162,475
Exchange of common stock in August for consulting services
($5.75 per share) 3,687 4 21,196
Exchange of common stock in August for consulting services
($5.50 per share) 395 -- 2,172
Sale of common stock during September for cash ($5.50 per share) 96,364 96 529,904
Sale of common stock during October for cash ($5.50 per share) 10,000 10 54,990
Amortization of deferred compensation expense
</TABLE>
[PART 2 OF 3]
<TABLE>
<CAPTION>
Deficit
Accumulated Common Stock Held
During the Deferred in Treasury
Development Compensation -------------------
Stage Expense Shares Amount
---------------------------------------------------------
<S> <C>
Issuance of common stock for initial capitalization ($0.18 per share)
Sale of common stock during November for cash ($0.12 per share)
Sale of common stock during October for cash ($1.29 per share)
Exchange of common stock during October for services at
estimated value ($1.28 per share)
Net loss for the year ended October 31, 1991 $ (1,478,158)
---------------------------------------------------------
Balance, October 31, 1991 (1,478,158)
---------------------------------------------------------
Sale of common stock during the year for cash ($0.85 per share)
Sale of common stock during the year for cash ($1.17 per share)
Exchange of common stock during August for services at estimated value
($1.28 per share)
Net loss for the year ended October 31, 1992 (1,480,812)
---------------------------------------------------------
Balance, October 31, 1992 (2,958,970)
---------------------------------------------------------
Sale of common stock during the year for cash ($1.63 per share)
Sale of common stock during the year for cash ($1.28 per share)
Exchange of common stock during May for services at estimated value
($1.29 per share)
Exchange of common stock during October for services at estimated value
($1.33 per share)
Exchange of common stock during October for patent rights at estimated
value ($1.28 per share)
Purchase of treasury stock for cash ($0.04 per share) (1,667,390) $ (60,000)
Net loss for the year ended October 31, 1993 (1,636,310)
---------------------------------------------------------
Balance, October 31, 1993 (4,595,280) (1,667,390) (60,000)
---------------------------------------------------------
Sale of common stock during the year for cash ($1.46 per share)
Exchange of common stock during January for services at estimated
value ($1.33 per share)
Exchange of common stock during January for services at estimated
value ($1.46 per share)
Conversion of note payable and accrued interest into common
stock ($1.53 per share)
Conversion of note payable into common stock ($1.26 per share)
Repayment of stock subscription receivable
Retirement of treasury stock during October 1,667,390 60,000
Net loss for the year ended October 31, 1994 (2,228,644)
---------------------------------------------------------
Balance, October 31, 1994 (6,823,924) 0 0
---------------------------------------------------------
Conversion of notes payable into common stock ($1.23 per share)
Sale of common stock during November for cash ($1.53 per share)
Sale of common stock during March for cash ($2.22 per share)
Exchange of common stock in March for graphic illustrations
($2.22 per share)
Issuance of common stock per anti-dilution provision
Sale of preferred stock in May for cash ($3.00 per share)
Equity acquired from the reverse acquisition with Astro-Stream (795,405)
Issuance of common stock as a result of the acquisition of Borta, Inc.
($4.67 per share)
Grant of common stock ($5.50 per share) $ (1,964,286)
Sale of common stock during August for cash ($4.50 per share)
Sale of common stock during August for cash ($5.50 per share)
Exchange of common stock in August for consulting services
($6.50 per share)
Exchange of common stock in August for consulting services
($5.75 per share)
Exchange of common stock in August for consulting services
($5.50 per share)
Sale of common stock during September for cash ($5.50 per share)
Sale of common stock during October for cash ($5.50 per share)
Amortization of deferred compensation expense 117,857
</TABLE>
[PART 3 OF 3]
<TABLE>
<CAPTION>
Stock
Subscription
Receivable Total
----------------------------
<S> <C> <C>
Issuance of common stock for initial capitalization ($0.18 per share) $ 600,000
Sale of common stock during November for cash ($0.12 per share) 220,290
Sale of common stock during October for cash ($1.29 per share) 200,000
Exchange of common stock during October for services at
estimated value ($1.28 per share) 100,000
Net loss for the year ended October 31, 1991 (1,478,158)
----------------------------
Balance, October 31, 1991 (357,868)
----------------------------
Sale of common stock during the year for cash ($0.85 per share) 1,350,000
Sale of common stock during the year for cash ($1.17 per share) 275,000
Exchange of common stock during August for services at estimated value
($1.28 per share) 99,999
Net loss for the year ended October 31, 1992 (1,480,812)
----------------------------
Balance, October 31, 1992 (113,680)
----------------------------
Sale of common stock during the year for cash ($1.63 per share) $ (80,000) 920,000
Sale of common stock during the year for cash ($1.28 per share) 250,000
Exchange of common stock during May for services at estimated value
($1.29 per share) 150,000
Exchange of common stock during October for services at estimated value
($1.33 per share) 20,000
Exchange of common stock during October for patent rights at estimated
value ($1.28 per share) 50,000
Purchase of treasury stock for cash ($0.04 per share) (60,000)
Net loss for the year ended October 31, 1993 (1,636,310)
----------------------------
Balance, October 31, 1993 (80,000) (419,990)
----------------------------
Sale of common stock during the year for cash ($1.46 per share) 1,500,000
Exchange of common stock during January for services at estimated
value ($1.33 per share) 20,000
Exchange of common stock during January for services at estimated
value ($1.46 per share) 50,000
Conversion of note payable and accrued interest into common
stock ($1.53 per share) 262,064
Conversion of note payable into common stock ($1.26 per share) 200,000
Repayment of stock subscription receivable 80,000 80,000
Retirement of treasury stock during October --
Net loss for the year ended October 31, 1994 (2,228,644)
----------------------------
Balance, October 31, 1994 0 (536,570)
----------------------------
Conversion of notes payable into common stock ($1.23 per share) 1,025,000
Sale of common stock during November for cash ($1.53 per share) 360,000
Sale of common stock during March for cash ($2.22 per share) 1,000,000
Exchange of common stock in March for graphic illustrations
($2.22 per share) 255,555
Issuance of common stock per anti-dilution provision --
Sale of preferred stock in May for cash ($3.00 per share)
Equity acquired from the reverse acquisition with Astro-Stream 11,899
Issuance of common stock as a result of the acquisition of Borta, Inc.
($4.67 per share) 8,500,000
Grant of common stock ($5.50 per share) --
Sale of common stock during August for cash ($4.50 per share) 300,000
Sale of common stock during August for cash ($5.50 per share) 514,250
Exchange of common stock in August for consulting services
($6.50 per share) 162,500
Exchange of common stock in August for consulting services
($5.75 per share) 21,200
Exchange of common stock in August for consulting services
($5.50 per share) 2,172
Sale of common stock during September for cash ($5.50 per share) 530,000
Sale of common stock during October for cash ($5.50 per share) 55,000
Amortization of deferred compensation expense 117,857
</TABLE>
17
<PAGE>
PlayNet Technologies, Inc. and Subsidiaries
(Formerly Aristo International Corporation)
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Fiscal Years Ended October 31, 1992, 1993, 1994,
1995 and 1996 and for the period from June 4,1990
(inception) to October 31, 1996
[PART 1 OF 3]
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
------------------ ------------------ Paid in
Shares Amount Shares Amount Capital
---------------------------------------------------------
<S> <C> <C>
Dividend on preferred stock
Net loss for the year ended October 31, 1995 -
---------------------------------------------------------
Balance, October 31, 1995 33,350 33 13,199,945 13,200 21,871,43
---------------------------------------------------------
Sale of common stock during November for cash ($5.50 per share) 60,000 60 329,940
Sale of common stock during December for cash ($5.50 per share) 164,000 164 901,836
Conversion of notes payable into common stock in December
($3.00 per share) 66,667 67 199,933
Sale of preferred stock during January for cash ($5.50 per share) 40,000 40 219,960
Exchange of common stock in January for consulting services
($5.50 per share) 500 1 2,749
Sale of common stock during February for cash ($5.50 per share) 10,000 10 54,990
Sale of common stock during March for cash ($5.50 per share) 60,000 60 329,940
Sale of common stock during April for cash ($5.50 per share) 56,363 56 309,944
Reversal of prior year deferred compensation expense
Write-off of deferred compensation expense (357,143) (357) (1,963,929)
Sale of common stock during May for cash ($5.50 per share) 59,362 59 326,432
Exchange of common stock in May for consulting services
($5.76 per share) 421 -- 2,423
Exchange of common stock in May for consulting services
($4.82 per share) 1,100 1 5,302
Conversion of preferred stock into common stock in May (73,350) (73) 58,191 58 15
Sale of common stock during June for cash ($5.50 per share) 57,638 58 316,951
Exchange of common stock in June for consulting services
($5.50 per share) 1,000 1 5,499
Sale of common stock during July for cash ($5.50 per share) 152,000 152 835,848
Exchange of common stock in July for consulting services
($5.50 per share) 12,000 12 65,988
Exchange of common stock in August for product rights
($5.00 per share) 30,000 30 149,970
Sale of common stock in August for cash ($5.00 per share) 700,000 700 3,254,300
Sale of common stock in August for cash ($5.50 per share) 23,636 24 129,976
Sale of common stock in September for cash ($5.00 per share) 80,000 80 371,920
Sale of common stock in September for cash ($5.50 per share) 46,000 46 252,954
Exchange of common stock in September for consulting services
($5.50 per share) 15,625 16 85,921
Exchange of common stock in September for goods ($5.50 per share) 11,800 12 99,988
Grant of common stock as signing bonuses ($5.50 per share) 51,250 51 281,824
Sale of common stock in October for cash ($5.00 per share) 400,000 400 1,853,600
Sale of common stock in October for cash ($5.50 per share) 6,400 6 35,194
Issuance of warrants in exchange for consulting services
($8.25 per share) 1,183,942
Issuance of warrants in exchange for consulting services
($5.50 per share) 221,648
Dividend on preferred stock
Net loss for the fiscal year ended October 31, 1996
---------------------------------------------------------
Balance, October 31, 1996 $ -- 14,966,755 $ 14,967 $31,736,496
=========================================================
</TABLE>
[PART 2 OF 3]
<TABLE>
<CAPTION>
Deficit
Accumulated Common Stock Held
During the Deferred in Treasury
Development Compensation -------------------
Stage Expense Shares Amount
-----------------------------------------------------------
<S> <C> <C> <C>
Dividend on preferred stock (4,585)
Net loss for the year ended October 31, 1995 (4,116,457)
-----------------------------------------------------------
Balance, October 31, 1995 (11,740,371) (1,846,429)
-----------------------------------------------------------
Sale of common stock during November for cash ($5.50 per share)
Sale of common stock during December for cash ($5.50 per share)
Conversion of notes payable into common stock in December
($3.00 per share)
Sale of preferred stock during January for cash ($5.50 per share)
Exchange of common stock in January for consulting services
($5.50 per share)
Sale of common stock during February for cash ($5.50 per share)
Sale of common stock during March for cash ($5.50 per share)
Sale of common stock during April for cash ($5.50 per share)
Reversal of prior year deferred compensation expense (117,857)
Write-off of deferred compensation expense 1,964,286
Sale of common stock during May for cash ($5.50 per share)
Exchange of common stock in May for consulting services
($5.76 per share)
Exchange of common stock in May for consulting services
($4.82 per share)
Conversion of preferred stock into common stock in May
Sale of common stock during June for cash ($5.50 per share)
Exchange of common stock in June for consulting services
($5.50 per share)
Sale of common stock during July for cash ($5.50 per share)
Exchange of common stock in July for consulting services
($5.50 per share)
Exchange of common stock in August for product rights
($5.00 per share)
Sale of common stock in August for cash ($5.00 per share)
Sale of common stock in August for cash ($5.50 per share)
Sale of common stock in September for cash ($5.00 per share)
Sale of common stock in September for cash ($5.50 per share)
Exchange of common stock in September for consulting services
($5.50 per share)
Exchange of common stock in September for goods ($5.50 per share)
Grant of common stock as signing bonuses ($5.50 per share)
Sale of common stock in October for cash ($5.00 per share)
Sale of common stock in October for cash ($5.50 per share)
Issuance of warrants in exchange for consulting services
($8.25 per share)
Issuance of warrants in exchange for consulting services
($5.50 per share)
Dividend on preferred stock (15,219)
Net loss for the fiscal year ended October 31, 1996 (15,966,292)
-----------------------------------------------------------
Balance, October 31, 1996 $(27,721,883) $ $ $
===========================================================
</TABLE>
[PART 3 OF 3]
<TABLE>
<CAPTION>
Stock
Subscription
Receivable Total
---------------------------
<S> <C>
Dividend on preferred stock (4,585)
Net loss for the year ended October 31, 1995 (4,116,457)
---------------------------
Balance, October 31, 1995 8,297,871
---------------------------
Sale of common stock during November for cash ($5.50 per share) 330,000
Sale of common stock during December for cash ($5.50 per share) 902,000
Conversion of notes payable into common stock in December
($3.00 per share) 200,000
Sale of preferred stock during January for cash ($5.50 per share) 220,000
Exchange of common stock in January for consulting services
($5.50 per share) 2,750
Sale of common stock during February for cash ($5.50 per share) 55,000
Sale of common stock during March for cash ($5.50 per share) 330,000
Sale of common stock during April for cash ($5.50 per share) 310,000
Reversal of prior year deferred compensation expense (117,857)
Write-off of deferred compensation expense --
Sale of common stock during May for cash ($5.50 per share) 326,491
Exchange of common stock in May for consulting services
($5.76 per share) 2,423
Exchange of common stock in May for consulting services
($4.82 per share) 5,303
Conversion of preferred stock into common stock in May --
Sale of common stock during June for cash ($5.50 per share) 317,009
Exchange of common stock in June for consulting services
($5.50 per share) 5,500
Sale of common stock during July for cash ($5.50 per share) 836,000
Exchange of common stock in July for consulting services
($5.50 per share) 66,000
Exchange of common stock in August for product rights
($5.00 per share) 150,000
Sale of common stock in August for cash ($5.00 per share) 3,255,000
Sale of common stock in August for cash ($5.50 per share) 130,000
Sale of common stock in September for cash ($5.00 per share) 372,000
Sale of common stock in September for cash ($5.50 per share) 253,000
Exchange of common stock in September for consulting services
($5.50 per share) 85,937
Exchange of common stock in September for goods ($5.50 per share) 100,000
Grant of common stock as signing bonuses ($5.50 per share) 281,875
Sale of common stock in October for cash ($5.00 per share) 1,854,000
Sale of common stock in October for cash ($5.50 per share) 35,200
Issuance of warrants in exchange for consulting services
($8.25 per share) 1,183,942
Issuance of warrants in exchange for consulting services
($5.50 per share) 221,648
Dividend on preferred stock (15,219)
Net loss for the fiscal year ended October 31, 1996 (15,966,292)
---------------------------
Balance, October 31, 1996 $ $ 4,029,580
===========================
</TABLE>
Note 1. All common shares information has been restated since inception to
reflect conversion of the outstanding shares of Aristo's common stock into 90%
of the common stock of Astro-Stream pursuant to the Merger agreement.
18
<PAGE>
NOTE 1. ORGANIZATION AND BUSINESS
(a) Organization and Business -
Pursuant to a resolution approved by the stockholders at its Annual Meeting held
on October 29, 1996, Aristo International Corporation ("Aristo" or the
"Company") amended its Certificate of Incorporation (i) to change the name of
the Company to PlayNet Technologies, Inc. ("PlayNet"), which was effective on
November 6, 1996, and (ii) to increase the number of shares of stock that the
Company is authorized to issue to 40,000,000, consisting of 1,000,000 shares of
Preferred Stock and 39,000,000 shares of Common Stock. Further, effective
January 22, 1997, the names of Aristo Games, Inc. and Borta, Inc., both wholly
owned subsidiaries of Aristo, were also changed to PlayNet Productions, Inc. and
PlayNet Studios, Inc., respectively.
Aristo International Corporation, incorporated in New York on June 4, 1990, was
formed to invest in licensable and patentable consumer products for the mass
market.
On May 3, 1995, the Astro-Stream Corporation ("Astro-Stream") acquired all of
the outstanding common stock of Aristo through the issuance of 9,889,477 shares
of Astro-Stream's common stock, par value $.001, constituting 90% of
Astro-Stream's issued and outstanding common stock immediately following the
merger of Aristo into Astro-Stream (the "Merger"). Prior to the Merger,
Astro-Stream was an inactive company engaged in seeking out a suitable business
for acquisition or merger. Astro-Stream, a Delaware corporation, was the
surviving corporation in the Merger. Pursuant to the Merger agreement,
Astro-Stream changed its name to Aristo International Corporation. The New York
corporation was dissolved.
For accounting purposes, the Merger was treated as a recapitalization of Aristo
with Aristo as the acquirer (reverse acquisition). All common stock of Aristo
was retroactively restated to reflect the equivalent number of Astro-Stream
shares that were deemed to be issued by Aristo in the transaction. The
cumulative loss of Astro-Stream at the time of the merger amounted to $795,405
and is included in the deficit accumulated during the development stage of the
Company.
Pursuant to the Merger, the Company committed to obtain NASDAQ SmallCap listing
for the surviving corporation. The SmallCap listing was obtained on September
29, 1995. (See Note 6(c).)
These consolidated financial statements include the accounts of PlayNet and its
wholly-owned subsidiaries (collectively, the "Company"). As a development stage
enterprise, the Company has devoted all of its efforts through October 31, 1996
to research and development, raising capital, acquiring equipment, financial
planning, opening new markets and finding strategic partners. Since late 1994
the Company has focused on the design and development of location-based,
pay-per-play electronic entertainment products and music juke boxes which are
networked through the Internet. In September 1996, the Company introduced
prototypes of its products at a significant industry trade exposition, and since
that time has moved towards a commercial launch.
(b) Acquisition -
On July 31, 1995, the Company, through its newly formed wholly owned subsidiary
BAIC Acquisition Corp., purchased all of the outstanding stock of Borta, Inc.
("Borta"), an entertainment software engineering and development company, for
consideration aggregating $9,250,000 (the "Acquisition"). The consideration
consisted of $8,500,000 (1,818,182 shares) of newly issued common stock and
$750,000 in cash. Of the $750,000 in cash payments, $480,000 had been paid
19
<PAGE>
as of October 31, 1996 and the remaining $270,000 was paid on December 31, 1996
(see Note 9(a)).
The Acquisition was accounted for using the purchase method of accounting and,
accordingly, the results of operations of Borta are included in these financial
statements from the date of the Acquisition. The Acquisition cost has been
allocated to the assets acquired and liabilities assumed, based upon their fair
value at the acquisition date, including $87,285 to net current liabilities,
$43,258 to fixed assets, $8,086,750 to capitalized software and $1,207,277 to
excess of cost over net assets acquired (goodwill). The value assigned to the
capitalized software was determined based upon anticipated discounted after-tax
cash flows for the period estimated to encompass the remaining life of the
technology existing at the Acquisition date. (See Notes 2(e) and 3.)
Following are the pro forma results of operations for the year ended October 31,
1995, as if the Acquisition had occurred as of the beginning of the fiscal year.
The unaudited pro forma results of operations do not purport to represent what
the Company's results of operations would have actually been if the Acquisition
had, in fact, occurred on that date. The pro forma consolidated results of
operations for the twelve months ended October 31, 1994 are not material to the
financial statements and are, therefore, not presented.
Year ended
October 31, 1995
----------------
Revenue .............................................. $ 352,391
Operating expenses ................................... 4,605,914
-----------
Net loss ............................................. $(4,253,523)
===========
Loss per share ....................................... $ (0.41)
===========
(c) Financing during the development stage-
Since its inception, the Company has been engaged primarily in product
development. As the Company's networked entertainment products are still being
developed and have not yet been marketed by the Company, no significant revenues
have been generated by the Company. The Company has incurred net losses since
inception and, as of October 31, 1996, the Company had an accumulated deficit of
$27,721,883 and a working capital deficit of $1,416,371.
The Company's ability to meet its obligations in the ordinary course of business
is dependent upon its ability to continue to obtain adequate financing and/or to
complete and distribute new commercially successful entertainment software
products. The Company intends to continue to fund its operations until the
commercial launch of its products through equity and/or debt financing. From
inception through October 31, 1995, the Company raised approximately $9,559,600
through the private placement of stock and convertible notes. From November 1,
1995 through October 31, 1996, the Company financed its operations through the
private sale of stock and convertible notes for cash aggregating approximately
$10,872,200 and in exchange for products and service totaling approximately
$699,790.
Prospectively, as its primary means of financing capital needs, the Company
intends to complete its public offering of 2,000,000 shares of its Common Stock
which was initiated with the filing of a registration statement in October 1996.
For the interim period until such public offering can be completed, subsequent
to the end of its last fiscal year, the Company entered into a bridge financing
arrangement with Allen & Company Incorporated ("Allen") pursuant to which Allen
will
20
<PAGE>
act as the Company's placement agent in the sale of senior secured notes and
warrants for aggregate gross proceeds of up to $18,000,000, subject to the
achievement of certain prescribed operating targets. Through February 12, 1997,
the Company has received gross proceeds of $2,500,000 and Allen is obligated to
use its best efforts to obtain a third party purchaser for an additional
$750,000 of senior secured notes on or before the end of February 1997. In the
event that Allen is unsuccessful in completing the bridge financing or if the
Company does not achieve its targets, the Company has received a commitment from
a principal stockholder to fund a minimum of an additional $5,750,000 of capital
and/or convertible term loans during 1997.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation-
The consolidated financial statements include the financial statements of
PlayNet and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
(b) Cash and Cash Equivalents -
Cash and cash equivalents includes cash on hand, demand deposits and short-term
investments with original maturities of three months or less.
(c) Concentration of Credit Risk-
The Company maintains its cash with high credit quality financial institutions,
the amount of which may exceed federally insured limits. The amount on deposit
in any one institution that exceeds federally insured limits is subject to
credit risk. For the fiscal year ended October 31, 1996, the Company had
$2,677,564, with a financial institution that was subject to credit risk beyond
the federally insured amount. In fiscal year 1995, the Company did not maintain
balances that were in excess of the federally insured limits. Management does
not anticipate any losses in connection with its cash deposits.
(d) Equipment and Depreciation and Amortization -
Fixed assets are stated at cost net of accumulated depreciation and
amortization. Depreciation is computed on the straight line method over the
estimated useful lives of the depreciable assets. Estimated useful lives range
from three to seven years. Assets acquired under capital leases are amortized
using the straight line method over the shorter of the term of the lease or the
estimated useful life. The cost of leasehold improvements considered significant
are capitalized and then amortized using the straight line method over the
shorter of the estimated useful life of the improvement or the remaining term of
the lease. Maintenance and repairs are charged to expense as incurred. (See Note
5.)
(e) Software Development Costs-
The Company accounts for software development costs in accordance with Statement
of Financial Accounting Standards No. 86, "Accounting for Costs of Computer
Software to be Sold, Leased, or Marketed" ("FAS 86"). FAS 86 requires that
certain software product development costs ("Capitalized Costs"), incurred after
technological feasibility has been established, be capitalized and amortized
over the economic life of the software product, commencing upon the general
release of the software product to the Company's customers. Software development
costs incurred prior to reaching technological feasibility are expensed as
incurred. The Company recorded capitalized software in connection with its
acquisition of Borta, Inc. and established an amortization policy by using the
greater of (a) the straight line method over the remaining estimated economic
life of the
21
<PAGE>
product or (b) the ratio that current gross revenues for a product bear to the
total of current and anticipated future gross revenues for that product.
Management evaluates annually the recoverability of these assets based on
projected future revenue streams and financial results for each of the products.
In connection therewith, in the fourth quarter of 1996 the Company recorded a
charge to write down the unamortized balance. Accumulated amortization amounted
to $1,444,065 and $288,813 for the years ended October 31, 1996 and 1995,
respectively. (See Note 3.)
It is reasonably possible that the estimate of anticipated future gross
revenues, and the remaining estimated economic life of the product or both will
be reduced significantly in the near term. Consequently, amortization of the
capitalized software costs may be accelerated materially in the near term.
(f) Research and Development Costs-
Research and development costs are charged to operations when incurred and
amounted to $5,039,337, $314,320 and $47,205 for fiscal years 1996, 1995 and
1994, respectively.
(g) Goodwill-
Goodwill is the excess of the cost of net assets acquired in business
combinations over their fair market value. The Company evaluates the
recoverability of goodwill at least annually to determine whether later events
or circumstances have resulted in an impairment of the asset. In completing this
evaluation, the Company compares its best estimate of future undiscounted cash
flows with the carrying value of goodwill. The Company recorded goodwill in
connection with its acquisition of Borta, Inc. on July 31, 1995 (see Note 1(b))
and estimated a useful life of seven years. Accumulated amortization at October
31, 1996 and 1995 was $215,580 and $43,116, respectively.
(h) Fair Value of Financial Instruments-
The fair value of all financial instruments approximates their carrying values
based on the interest rates for similar instruments.
(i) Royalty Income-
Royalty income is accrued on the basis of reported transactions of licensees or
the minimum payment requirements pursuant to the license agreements.
(j) Risks and Uncertainties-
In the transition from development stage to the manufacturing stage, the Company
may encounter unforeseen difficulties, some of which may be beyond the Company's
ability to control, related to marketing, product development, manufacturing,
regulation and proprietary technology (including Internet and network services).
A significant delay in the Company's ability to manufacture and/or market its
network entertainment products could have a material adverse effect on the
Company's business, operating results and financial condition in the near term.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the consolidated financial statements and related
notes to the financial statements. Changes in such estimates may affect amounts
reported in future periods. The most significant estimates and assumptions are
related to the recoverability of software costs, recoverability of goodwill and
income taxes. Actual results could differ from those estimates.
22
<PAGE>
(k) Income Taxes-
Deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities ("tax
differences") using enacted tax rates in effect for the year in which the
differences are expected to reverse. (See Note 18.)
(l) Reclassifications-
Certain reclassifications were made to prior period amounts to conform to
current period presentation.
(m) Impairment of Long-Lived Assets-
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" ("FAS 121"). FAS 121 requires that
long-lived assets and certain identifiable intangibles held and used by a
company be reviewed for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. FAS 121 also requires that assets and certain identifiable
intangibles held for sale, other than those related to discontinued operations,
be reported at the lower of the carrying amount or fair value less cost to sell.
The Company believes that the adoption of FAS 121 in fiscal 1997 will not have a
material impact on the Company's results of operations or financial position.
(n) Impact of Future Adoption of Recently Issued Accounting Standards-
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123"). This new accounting standard requires transactions in which goods or
services are acquired from non-employees in exchange for stock options or other
equity instruments to be accounted for based on the fair value of the
consideration received or the fair value of the equity instruments issued, as
calculated using certain option-pricing models, whichever is more reliably
measured. It encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options, and other equity
instruments to employees also based on a fair-value method of accounting using
option-pricing models. Companies that do not adopt the new expense recognition
rules will be required to provide pro forma disclosures of the compensation
expense as determined under the provisions of FAS 123, if material. The Company
will be required to adopt the provisions of FAS 123 effective at the beginning
of fiscal year 1997. Management has not fully evaluated the impact the adoption
of FAS 123 will have on its financial position or results of operations at that
time.
NOTE 3. CAPITALIZED SOFTWARE
In July 1995, the Company acquired Borta, Inc., a software development company,
whose existing technology included various computer software products (e.g.
games and tournament play software engines). The products, which have proven
technological feasibility, are essential elements of the interactive
entertainment products PlayNet has been developing.
In conjunction with certain developments during the fourth quarter of fiscal
year 1996, which include the recruitment of a number of key members of
management with extensive industry background and the preparation for the launch
of its products, management reviewed and revised its projected future revenues
streams and financial results for each of its core products. This evaluation
also included a review of the marketplace, competition and comparable products,
product lifecycles, and discussions with potential customers and distributors,
as well as sales
23
<PAGE>
projections based upon the presentation of the products at various trade shows
and industry events. As a result, the Company adjusted its assumptions regarding
the recoverability of its capitalized software costs at October 31, 1996, and
reduced the estimate of the asset's remaining useful economic life from seven
years to three years. In connection therewith, the Company recorded a charge of
$1,925,417 to the value of its Capitalized Software Costs asset.
Since the acquisition of Borta, the Company has focused its efforts on the
development of hardware and other software functionality that is essential to
its core products, such as Internet browsing, operating systems, interfaces,
Chat software, etc. Consequently, any additional costs related to the further
development of the existing Borta technology has been minimal and not
capitalized.
NOTE 4. MARKETABLE SECURITIES
The Company considers its marketable securities to be "available for sale" as
defined by Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Accordingly, unrealized
gains and losses are reported net of tax in a separate component of
stockholders' equity until such gains or losses are realized. The cost of
securities held at October 31, 1996 and 1995 approximated fair value. For the
years ended October 31, 1996, 1995 and 1994, respectively, net realized losses
were $38; $20,753; and $31,092.
NOTE 5. EQUIPMENT
As of October 31, 1996 and 1995, equipment consisted of:
1996 1995
--------- ---------
Furniture and fixtures ............................. $ 43,015 $ 33,874
Office equipment and computers ..................... 594,337 172,421
Leasehold improvements ............................. 24,791 22,632
Equipment under capital lease, principally
consisting of:
Furniture ...................................... 49,014 49,014
Office equipment and computers ................. 180,422 37,978
--------- ---------
891,579 315,919
Less: Accumulated depreciation and amortization ... (195,795) (63,463)
--------- ---------
Property and Equipment - Net ....................... $ 695,784 $ 252,456
========= =========
Depreciation expense for the years ended October 31, 1996, 1995 and 1994 was
$86,246, $29,146, and $12,713, respectively. Amortization expense related to
assets acquired through capital lease transactions totaled $46,086, $2,888, $-0-
for the years ended October 31, 1996, 1995 and 1994, respectively.
NOTE 6. RESTRICTED CASH
(a) Current -
A certificate of deposit in the amount of $250,000 collateralizes a line of
credit expiring on May 20, 1997 with a commercial bank. (See Note 10(a).)
24
<PAGE>
(b) Non-current-
In lieu of a cash security deposit for the leased office space in New York, a
certificate of deposit in the amount of $86,830 with a commercial bank
collateralizes a letter of credit payable to the owner of the facility. This
certificate of deposit is classified as non-current since its term is the same
as the lease for the office space, which expires on March 31, 2002. The
additional balance of $2,209 represents interest earned on the account. (See
Note 8(b).)
(c) Disposition of Certain Restricted Cash-
Pursuant to the Merger, the Company committed to obtain NASDAQ SmallCap Listing
for the surviving corporation. To secure that commitment, the Company deposited
$100,000 in an escrow account which was to be distributed to former Astro-Stream
stockholders if the listing was not obtained or released to the Company upon
achieving the listing. Both parties contested as to whether the performance by
the Company was timely and whether there was failure on the part of the former
Astro-Stream stockholders in the effort to obtain the listing. In connection
therewith, restricted cash in the amount of $100,000 was held in escrow at
October 31, 1995. In August 1996 the parties entered into a Stipulation of
Discontinuance pursuant to which the Company waived its rights to receive any of
the escrow funds. A dividend of $.0932 was paid to stockholders of record on May
5, 1995, on which date a total of 1,072,958 shares were outstanding.
Accordingly, the Company recorded a charge of $100,000 in the 1996 fiscal year.
NOTE 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
For the fiscal years ended October 31, 1996 and 1995 accounts payable and
accrued expenses consisted of:
1996 1995
---------- ----------
Accounts payable ..................... $2,037,075 $ 649,045
Accrued payroll ...................... 74,852 --
Accrued expenses ..................... 221,782 --
Interest payable ..................... 65,957 12,000
Deferred revenue ..................... 40,000 --
---------- ----------
$2,439,666 $ 661,045
========== ==========
NOTE 8. LEASE OBLIGATIONS
(a) Capital Leases -
The Company has acquired computer equipment, office equipment and furniture
under various capital lease agreements expiring at dates through 2000. The
assets and liabilities under capital leases are recorded at the lower of the
present value of the minimum lease payments or the fair value of the asset. The
assets are amortized over the lower of their related lease terms or their
estimated productive lives (see Notes 2(d) and 5). The following is a schedule
of the minimum future lease payments related to the various capital leases as of
October 31, 1996 for each of the next five years and in the aggregate.
25
<PAGE>
Fiscal year ending October 31,
1997................................................ $ 160,347
1998................................................ 127,370
1999................................................ 52,687
2000................................................ 461
2001................................................ --
---------
Total minimum lease payments .................................. 340,865
Less: amount representing interest ............................ (68,006)
Present value of net minimum lease payments ................... 272,859
Less: Capital Lease Obligations - current portion ............. (121,166)
Capital Lease Obligations - net of current portion ............ $ 151,693
=========
(b) Operating Leases -
The Company leases facilities under operating leases expiring in various years
through 2002. The Company leases 4,683 square feet of office space for its
corporate headquarters in New York under a lease agreement with an unaffiliated
third party expiring March 31, 2002. The term of the lease is for ten years and
provides for scheduled increases in base rent and escalations based on increases
in direct operating expenses and real estate taxes. The total amount of the base
rent over the ten year term of the lease aggregates $1,945,791. This amount is
being charged to expense using the straight-line method over the term of the
lease. Additionally, the Company has recorded a deferred credit to reflect the
excess of accrued rent expense over total cash payments since inception of the
lease. In addition, the Company has occupied additional 3,600 square feet of
office space at its New York office under a sublet arrangement that expires
October 31, 1997. The additional rent expense for this space amounts to $12,525
per month.
Commencing September 1, 1995 in connection with the Borta acquisition, the
Company entered into a lease agreement, expiring August 31, 1998 for a facility
in Virginia.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of 1 year as of October 31, 1996 for each of the next
five years and in the aggregate are:
Fiscal year ending October 31,
1997 $ 319,437
1998 310,283
1999 222,443
2000 222,443
2001 222,443
Subsequent to 2001 92,685
----------
Total minimum future rental payments $1,389,734
==========
Occupancy expense for the fiscal years ended October 31, 1996, 1995 and 1994 and
the cumulative period from June 4, 1990 (inception) to October 31, 1996 was
$404,762, $213,638, $198,450, and $1,458,733, respectively.
26
<PAGE>
NOTE 9. COMMITMENTS
(a) Employment Agreements -
On May 16, 1996, the Company and Borta's president and Borta's chief operating
officer ("COO") executed an agreement which provided for the resignation of both
Borta's president and the COO as officers and directors of Borta, Inc. and the
termination of their employment agreements (which were to expire on July 31,
1998). In connection therewith, Borta's president and COO surrendered all
options to purchase common stock of the Company previously granted to them under
those agreements. Further, Borta's president surrendered 357,143 of restricted
shares of common stock previously granted, together with any options, incentive
payments or rights related thereto. In connection with the severance benefits
provided for in the May 16, 1996 agreement, the Company agreed to pay Borta's
president and the COO $180,000 in additional compensation through January 15,
1997. The Company accrued this amount in the second quarter of the 1996 fiscal
year. At October 31, 1996, the remaining balance was $58,258, which has been
paid through January 15, 1997.
(b) Amendment to Employment Agreement -
On September 18, 1996, the Company and a key employee agreed to amend his
employment agreement as follows. The term of the agreement was extended from
June 30, 1997 to October 31, 1999. Additionally, the Company issued 50,000
shares of its restricted common stock with a fair market value of $5.50 per
share as a signing bonus and recorded a compensation expense of $275,000,
related thereto. The amendment further provided for the granting of the
1,000,000 stock options under the 1995 Stock Option Plan to this employee
vesting at the rate of 100,000 options per year at the end of each fiscal year
beginning October 31, 1997. The vesting schedule provides for acceleration upon
attaining certain gross revenue targets.
NOTE 10. NOTES AND LOANS PAYABLE
(a) Line of Credit -
The Company has borrowed $406,000 under two promissory notes with a commercial
bank both of which are due on May 20, 1997. One note in the amount of $250,000
is collateralized by a certificate of deposit, which bears interest at the rate
of 6.6% per annum. The second note in the amount of $156,000 bears interest at
the rate of 1.5% in excess of the prime commercial rate of the bank per annum
(9.75% and 8.75% at October 31, 1996 and 1995, respectively).
(b) Convertible Term Loans -
On December 29, 1994, the Company issued a convertible promissory note for cash,
to a stockholder for $500,000, which bears interest at 10% per annum, payable on
the last day of each month. The note is payable in one installment on March 31,
1997. The note holder shall have the option to convert the note into 90,909
shares of restricted common stock of the Company at an exercise price of $5.50
per share, in lieu of payment of the principal. On March 6, 1996 the holder of
the note indicated its intent to convert the note into 90,909 shares of the
Company's common stock. Accordingly, the Company has recorded this note as a
non-current obligation on its balance sheet.
On March 29, 1995, the Company issued a convertible promissory note for cash,
due on April 30, 1996 to a stockholder for $200,000 collateralized by certain
patents, bearing interest at 10% per annum payable quarterly. On December 29,
1995, the note holder exercised its right to convert the note into 66,667 shares
of the Company's restricted common stock in lieu of payment of the note's
principal.
On July 31, 1995, the Company issued a $240,000 convertible note ("Original
Note") maturing on December 31, 1995, with interest of $20,000 also payable at
maturity. On December 29, 1995, the Company issued a new note ("New Note") in
the amount of $260,000 (principal and interest of Original Note) that replaced
and superseded the Original Note. Under the terms of the New Note,
27
<PAGE>
the principle of $260,000 is due on February 28, 1997; and interest of $13,000
is payable quarterly.
On February 12, 1996, the Company executed a $500,000 convertible promissory
note, subsequently amended, bearing interest at 12% per annum, payable at
maturity. The holder of the note has the right and option, until the maturity
date, to convert the note into 90,909 shares of the Company's common stock. The
holder also has a continuing contractual right to receive 12.5% of the earnings
before interest and taxes from the licensing of music and video CD's. As of
October 31, 1996, there were no amounts accrued with respect to this contractual
right as the Company does not currently have nor anticipates having any projects
related to these licenses. The note has been extended to mature on March 31,
1997. On June 12, 1996, the holder of the note indicated its intent to convert
the note into 90,909 shares of common stock. Accordingly, the Company has
recorded this note as a non-current obligation on its balance sheet.
On April 12, 1996, the Company executed a $450,000 promissory note, as amended,
bearing interest at 12% per annum, payable on August 15, 1996. The holder of the
note had the right to convert the note into 81,818 shares of restricted common
stock at any time after the date of the note and prior to December 31, 1996.
However, on August 22, 1996 principal and accrued interest were paid in full. In
connection therewith, the note holder still maintains the rights to options to
purchase 81,818 shares of the Company's common stock at a price of $5.50 per
share, which expire on March 31, 1997.
On June 27, 1996, the Company issued a promissory note to a stockholder for
$330,000 in cash, bearing interest at the prime interest rate as published in
The Wall Street Journal (8.25% at October 31, 1996), and payable at maturity.
The Company shall have the right to prepay the aggregate principal amount of the
note, together with accrued interest through the date of the prepayment without
penalty or premium. The stockholder shall have the option to acquire, until
February 28, 1997, 120,000 shares of common stock of the Company for $660,000.
On September 12, 1996, the note holder indicated its intent to convert the note
into common shares.
(c) Refundable Options to Purchase Stock -
The following options to purchase stock contain provisions whereby the option
holder may through February 28, 1997 call for the return of the consideration
paid. Accordingly, these agreements are classified as "Convertible term loans -
stockholders " in the current liabilities section of the Company's balance
sheet.
On May 16, 1996, the Company issued options to purchase an aggregate of 60,000
shares of restricted common stock at $6.50 per share to three separate parties
in consideration of total cash payments of $390,000. The option exercise periods
extended from the date of issuance through February 28, 1997. In the event the
options are not exercised, the holder may call for the option consideration to
be returned at anytime during the period beginning 10 days after the maturity
date of February 28, 1997.
On May 29, 1996, the Company issued options to purchase an aggregate of 21,000
shares of restricted common stock at prices between $5.50 and $6.50 per share to
two parties in consideration for total cash payments of $126,500. The option
exercise period extended from the date of issuance through February 28, 1997. In
the event the options are not exercised, the holder may call for the option
consideration to be returned at anytime during the period beginning 10 days
after the maturity date of February 28, 1997.
28
<PAGE>
NOTE 11. CAPITAL
(a) Capital Transactions -
At its inception (June 4, 1990), the Company issued 3,334,780 shares of common
stock in exchange for technical know-how and patents related to certain consumer
products which were to be developed further by the Company. These shares were
assigned a value of $600,000, which represented the historical cost incurred by
the Company's president and chief executive officer. During the year ended
October 31, 1991, this amount was charged to operations as research and
development.
On April 20, 1994, the Company issued 171,741 shares of common stock to a
stockholder as a result of a conversion of a note payable for $250,000 plus
$12,064 in accrued interest. On September 30, 1994, the Company issued 159,236
shares of common stock to a corporate stockholder as a result of a conversion of
a $200,000 note payable. In addition, at the effective date of the Merger (see
Note 1(a)), the Company issued this stockholder an additional 38,350 shares of
common stock pursuant to an anti-dilutive provision of the convertible note
payable.
On December 12, 1994, the Company issued 834,529 shares of common stock to
stockholders as a result of the conversion of convertible term loans in the
amount of $1,025,000.
During March 1995, the Company issued 115,050 shares of common stock to its
chief executive officer in exchange for original graphic illustrations valued at
$255,555. These illustrations were to be used in a screen saver project that was
previously being considered for development by the Company.
During May 1995, the Company issued 33,350 shares of preferred stock for
$100,050 in cash. The preferred stock provides for cumulative monthly dividends,
in arrears, amounting to 10% per annum, starting on June 15, 1995. (See Note
14.) No dividends can be declared or paid on the common stock until any
dividends accrued and unpaid on the preferred stock have been paid. The
preferred shares were converted into 18,191 shares of the Company's restricted
common stock on May 15, 1996.
In connection with the Borta acquisition, the Company issued 1,818,182 shares of
common stock to the former stockholders of Borta. Additionally, the Company
issued 357,143 shares of restricted common stock, which were valued at
$1,964,286 and subject to forfeiture, to the president of Borta as deferred
compensation. On May 16,1996, these shares were canceled. (See Note 9(a).) In
the third quarter of the 1996 fiscal year, the Company reversed the total
deferred compensation, $117,857 of which had been charged to compensation
expense in a prior period. The Company had recorded deferred compensation
expense, representing the fair market value at the date of the grant, as a
separate component of stockholders' equity for the non-vested portion of the
stock granted.
During August 1995, the Company issued 25,000 shares of its common stock valued
at $162,000 as a commission on the Borta acquisition.
Also during August 1995, the Company issued 4,082 shares of its common stock in
exchange for consulting services valued at $23,372.
29
<PAGE>
During the fiscal year ended October 31, 1996, the Company sold in private
placements 1,875,400 shares of common stock, of which 1,180,000 were sold at a
price of $5.00 per share and 695,400 were sold at prices of between $5.00 and
$7.00 per share, from which the Company received net proceeds (after deduction
of related selling expenses, including agency commissions) aggregating
approximately $9,305,700. Additionally, during fiscal year 1996, the Company
issued 72,446 shares of its common stock in exchange for goods and services with
fair market values ranging from approximately $5.00 to $8.50 per share. In
connection therewith, PlayNet recorded expenses aggregating $417,915. The
Company canceled 357,143 shares of its restricted common stock pursuant to a
termination agreement with two former executives of Borta, Inc. (See Note 9(a).)
On December 29, 1995, the Company issued 66,667 shares of common stock to
stockholders as a result of a conversion of a convertible term loan in the
amount of $200,000.
During May 1996, the holders of all issued and outstanding shares of the
Company's preferred stock converted their shares of preferred stock into common
stock at a conversion price of $5.50 per share. The 73,350 preferred shares have
been converted into 58,191 shares of common stock.
In September 1996, the Company issued 51,250 shares of its common stock with a
fair market value of $5.50 per share to two executive employees as signing
bonuses. Accordingly, compensation expense in the amount of $281,875 was
recorded.
The valuation of all common stock issued in exchange for services, products and
intangibles approximates the value of the common stock sold to third parties for
cash at the time of issuance.
(b) Warrants -
On March 29, 1996, the Company issued warrants to Allen & Company, Inc. to
purchase 448,101 shares of the Company's common stock at an exercise price of
$8.25 share in connection with a retainer agreement dated February 22, 1996
whereby Allen & Company agree to act as the Company's financial advisor. The
warrants are exercisable, by the Holder, in whole or in part at any after the
first anniversary of the date of the grant and prior to the fifth anniversary of
the date of issuance. The Company has recorded a charge of $815,230 in
connection with the agreement.
On June 4, 1996, the Company entered into agreements with two parties to provide
business development services to the Company. In consideration thereof, the
Company granted warrants to purchase an aggregate of 200,000 shares of its
common stock at an exercise price of $8.25. The warrants are exercisable, by the
Holder, in whole or in part at any time and from time to time after the first
anniversary of the date of the grant and prior to the fifth anniversary of the
date of issuance. The Company has recorded a charge of $368,712 in connection
with the agreement.
At October 31, 1996, there were warrants outstanding to purchase a total of
648,101 shares of the Company's common stock.
On January 20, 1997, warrants to purchase an aggregate of 100,000 shares at a
price of $5.50 per share of the Company's common stock were issued to the same
two parties as compensation for services rendered pursuant to the aforementioned
consulting agreements. The warrants are exercisable by the holder at any time
beginning one year from the date of grant through January 20, 2002. In
connection therewith, the Company recorded a charge of $221,648 in fiscal year
1996.
30
<PAGE>
NOTE 12. STOCK OPTIONS
(a) 1994 Stock Option Plan -
On December 9, 1994, the Board of Directors adopted the Company's 1994 Stock
Option Plan (the "1994 Plan") which provides for the granting of options for the
purchase of up to an aggregate of 500,000 shares of common stock to key
employees and to consultants, advisors and directors who are not employees.
Options may either be incentive stock options ("ISO") or non-qualified.
Under the 1994 Plan, the option price shall be established by a compensation
committee of the Board of Directors. The exercise price of the ISO's granted
shall not be less than the fair market value of the shares on the effective date
of the grant or not less than 110% of the fair market value of the shares on the
effective date of the grant if the optionee owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company.
Under the 1994 Plan, 428,333 options have been granted as of October 31, 1996,
of which 120,000 options are exercisable at $2.44 per share. The remaining
348,333 options are exercisable at varying times through fiscal 1999 at prices
ranging from $2.44 to $8.00 per share. All options expire 5 years from the date
of grant.
(b) 1995 Stock Option Plan -
On July 28, 1995, the Board of Directors adopted the Company's 1995 Stock Option
Plan (the "1995 Plan") which provides for the granting of options for the
purchase of up to an aggregate of 1,000,000 shares of common stock to key
employees and to consultants, advisors and directors who are not employees.
Options may either be incentive stock options ("ISO") or non-qualified.
Under the 1995 Plan, the option price shall be established by a compensation
committee of the Board of Directors. The exercise price of the ISO's granted
shall not be less than the fair market value of the shares on the effective date
of the grant or not less than 110% of the fair market value of the shares on the
effective date of the grant if the optionee owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company.
Under the 1995 Plan 400,000 stock options were granted to the former
shareholders of Borta exercisable on October 31, 2000 at a price of $5.50 per
share. The exercise dates may be accelerated if certain earnings performance
milestones (the "Milestones") are achieved for the 1996, 1997 and 1998 fiscal
years, defined as earnings before interest and taxes. An additional 242,859
stock options at an exercise price of $1.00 per share were granted to the former
shareholders of Borta, exercisable on January 31 following the fiscal years
ending October 31, 1996, 1997, and 1998 provided that Borta achieves the
Milestones for each fiscal year, as defined. As of October 31, 1996, none of the
Milestones had been achieved nor was it probable that they would be.
All of the options granted under the 1995 Plan were subsequently canceled.
Options for 1,000,000 shares of common stock were then issued under the 1995
Plan to a key employee pursuant to an amended employment agreement.
(See Note 9(b).)
(c) 1996 Stock Option Plan -
The 1996 Stock Option Plan (the "1996 Plan") was approved by the stockholders at
the Company's Annual Meeting held on October 29, 1996. The 1996 Plan provides
for a maximum of 1,500,000 shares of the Company's common stock to be issued in
connection with stock option
31
<PAGE>
grants to key employees and to consultants, advisors and directors who are not
employees. Options may either be incentive stock options ("ISO") or
non-qualified. With respect to ISO's, the exercise price of the ISO's granted
shall not be less than the fair market value of the shares on the effective date
of the grant or not less than 110% of the fair market value of the shares on the
effective date of the grant if the optionee owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company. At
October 31, 1996, 1,230,067 options had been granted under the 1996 Plan at
prices ranging from $5.50 to $9.00 per share, of which, 67,000 are currently
exercisable.
Transactions involving stock option awards for the three fiscal years ended
October 31, 1996 are summarized below. The total number of options exercisable
at October 31, 1996 was 267,333. As of October 31, 1996, shares available for
future grants under the 1996 Plan, 1995 Plan and 1994 Plan amounted to 269,933,
none, and 71,666, respectively.
<TABLE>
<CAPTION>
1996 1995 1994 Price Per
Plan Plan Plan Share
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Options outstanding at January 1, 1994 -0- -0- -0-
Options granted -- -- 200,000 $2.44
Options canceled -- -- --
---------- ---------- ----------
Options outstanding at October 31, 1994 -0- -0- 200,000
Options granted -- -- 100,000 $8.00
Options granted -- 400,000 -- $5.50
Options granted -- 242,859 -- $1.00
Options canceled -- -- --
---------- ---------- ----------
Options outstanding at October 31, 1995 -0- 642,859 300,000
Options granted 212,000 1,000,000 128,333 $5.50
Options granted 1,018,067 -- -- $8.00 - 9.00
Options canceled -- (642,859) -- $1.00 - 5.50
---------- ---------- ----------
Options outstanding at October 31, 1996 1,230,067 1,000,000 428,333
---------- ---------- ----------
========== ========== ==========
</TABLE>
NOTE 13. OTHER EMPLOYEE BENEFIT PLANS
At the January 20,1997 meeting of the Board of Directors, PlayNet adopted a
profit-sharing/savings plan pursuant to Section 401(k) of the Internal Revenue
Code, whereby effective February 1, 1997, eligible employees may contribute on a
tax-deferred basis a percentage of compensation, but not in excess of $9,500,
the maximum allowable amount for 1997. The plan provides for a matching
contribution by the Company up to a maximum level which cannot exceed 3% of the
employees compensation. Company contributions vest over a three year period of
continuous service and employee contributions are fully vested immediately.
32
<PAGE>
NOTE 14. DIVIDENDS ON PREFERRED STOCK
In fiscal year 1996, a total of $15,219 in cash dividends was paid to
shareholders of the Company's 10% Cumulative Preferred Stock. On May 15, 1996
all preferred stock was converted into the Company's Common Stock.
NOTE 15. LOSS PER COMMON SHARE
Loss per common share amounts were computed by dividing the loss after deduction
of preferred stock dividends by the weighted average number of common shares
outstanding for the period. Shares issuable upon the exercise of outstanding
stock options and warrants and the effect of any convertible securities are
excluded from the computation because the effect on the net loss per common
share would be anti-dilutive.
NOTE 16. RELATED PARTY TRANSACTIONS
The Company has entered into an agreement with a corporate stockholder and
director to provide consulting services. In consideration for these services,
the corporate stockholder has received fees totaling approximately $130,000;
$75,000; $70,000; and $358,000 during the years ended October 31, 1996, 1995,
1994, and the cumulative period from June 4, 1990 (inception) through October
31, 1996, respectively. In addition, in 1996, this corporate stockholder also
received a cash payment of $364,000 in connection with expenses incurred for
presentations, commissions, tax advisory services and travel expenses related to
securing investments in the Company through subscription agreements and
promissory notes. This stockholder has also been issued a total of 273,451
shares of its common stock in exchange for $350,000 of services during the three
fiscal years ended October 31, 1993. On January 15, 1997 the agreement between
the Company and this corporate stockholder was extended for an additional period
to expire on June 30, 1998 and was amended to provide for reimbursement to the
stockholder for normal and customary "out-of-pocket" expenses incurred in the
performance of its obligations under the agreement
The Company obtained the services of its chief executive officer from another
company of which PlayNet's CEO is the principle stockholder. Fees paid to that
company during the years ended October 31, 1995, 1994, 1993, and the cumulative
period from June 4, 1990 (inception) through October 31, 1995, total
approximately $456,700; $626,000; $327,000; and $2,084,700, respectively. No
such payments were made in the fiscal year ended October 31, 1996.
On December 18, 1996 the Company executed a Promissory Note Receivable in the
amount of $30,000 to a key employee, bearing an interest rate of 9% per annum to
mature on March 18, 1997. The note provides for one extension up to and
including June 18, 1997, at the sole option of the Company.
NOTE 17. LEGAL PROCEEDINGS
An action entitled Ohrbach, Inc. vs. Aristo International Corporation was
commenced in the Supreme Court of the State of New York on October 10, 1996
against the Company by Ohrbach, Inc. seeking monetary damages of $232,500 based
on the alleged breach of a finder's fee agreement. The Company intends to
vigorously defend all aspects of such claim. It is not possible to ascertain at
this time what the ultimate award or settlement will be.
On December 24, 1996 the Company was served with a Demand for Arbitration in
connection with a Development and License Agreement dated August 29, 1995
between Borta, Inc., a wholly
33
<PAGE>
owned subsidiary of PlayNet, and an unaffiliated third party engaged in the
marketing of computer sports games. The relief sought under the Demand is to be
determined. The Company and the claimant have been engaged in settlement
discussions and management believes that an agreement can be reached. However,
no assurances can be given that a settlement will be completed. In the event a
settlement cannot be reached and an adverse determination is made against the
Company, payment of a material award could adversely affect the cash flow of the
Company.
NOTE 18. INCOME TAXES
There is no provision for federal, state or local income taxes for all periods
presented, since the Company has incurred operating losses since inception. The
Company has paid the minimum state and local taxes during the years, as
required. In addition, the Company has fully reserved for the potential future
tax benefits resulting from the utilization of net operating loss carry-forwards
and the realization of deferred rent.
Deferred tax assets, as of October 31, 1996, consist of the following:
Net operating loss carry-forwards $ 10,420,643
Capitalized software (2,322,048)
Other 184,515
------------
Total deferred tax assets 8,283,110
Less: valuation allowance (8,283,110)
------------
Net deferred tax assets $ -0-
============
As of October 31, 1996, the Company has available unused net operating loss
carry-forwards of approximately $22,000,000 which may provide future tax
benefits, expiring in various years from 2006 to 2011.
34
<PAGE>
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
The following table sets forth certain information concerning the present
directors and executive officers of the Company:
Name Age Position
Shmuel Cohen 38 President, Chief Executive Officer and
Chairman of the Board of Directors
Paul C. Meyer 49 Chief Operating Officer
Glenn P. Sblendorio 40 Chief Financial Officer
Nolan K. Bushnell 54 Director of Strategic Planning
Philip K. Yachmetz 39 Secretary and Director, Legal & Business Affairs
Rita Zimmerer 41 Executive Vice President--Software
Joseph Ettinger 57 Director
Yael Cohen 36 Director
All directors hold office until their respective successors are elected, or
until death, resignation or removal. Officers hold office until the meeting of
the Board of Directors following each annual meeting of stockholders and until
their successors have been chosen and qualified.
Shmuel Cohen, age 38, founded the Company in June 1990 and has been
President, Chief Executive Officer and a Director of the Company since the
Company's inception. Mr. Cohen has also been the President and Chief Executive
Officer of each of the Company's subsidiaries since their respective formation
in 1995 and 1996. From December 1987 to June 1990, Mr. Cohen served as Chief
Executive Officer of Lamia Enterprises Ltd., a corporation that developed
patented design application processes. From April 1984 to December 1987, Mr.
Cohen served as Chief Executive Officer of Arts, Ltd., a company that
researched, patented and produced Soft application technology.
35
<PAGE>
Paul C. Meyer, age 49, joined the Company as Chief Operating Officer in
October 1996 and has been an Executive Vice President and Chief Operating
Officer of the Company and each of the Company's subsidiaries since November 26,
1996. From January 1994 to September 1996, Mr. Meyer served in various executive
positions at Viacom New Media, a publisher and distributor of multimedia
products and a division of Viacom International, Inc., and his last position was
Executive Vice President and General Manager-New York. From October 1991 through
October 1994, Mr. Meyer served as President of Paul C. Meyer & Associates, Inc.,
a financial consulting firm. Mr. Meyer has also served as a financial consultant
to Automotive Industries, Inc. since September 1989. From February 1990 to
September 1991, Mr. Meyer served as President of Superior Toy & Manufacturing
Company. From December 1974 to August 1988, Mr. Meyer served in various
executive positions with Coleco Industries, Inc., the toy company, his last
position being Chief Financial Officer.
Glenn P. Sblendorio, age 40, joined the Company in September 1996 as Senior
Vice President and Chief Financial Officer and has been an Executive Vice
President, Chief Financial Officer and Treasurer of the Company and each of its
subsidiaries since November 26, 1996. From July 1993 to August 1996, Mr.
Sblendorio served as Chief Financial Officer of Sony Interactive Entertainment,
Inc., New York, an international, interactive hardware and software company.
From October 1981 to July 1993, Mr. Sblendorio served in various positions with
the international drug and bio-technology conglomerate, F. Hoffmann La Roche.
From March 1992 to July 1993, Mr. Sblendorio served as Vice President of Finance
of Roche Molecular Systems, Inc., New Jersey, a biotechnology subsidiary. From
January 1990 to March 1992, Mr. Sblendorio served as Controller Europe for F.
Hoffmann La Roche, Basel. From July 1988 to January 1990, Mr. Sblendorio served
as Vice President of Finance and MIS for Medi+Physics, Inc., a radio
pharmaceutical imaging product subsidiary of Hoffmann La Roche, Inc.
Nolan K. Bushnell, age 54, joined the Company as Director of Strategic
Planning in June 1996. Mr. Bushnell has served as a consultant to the Company
since July 1995. From June, 1981, Mr. Bushnell has served as sole proprietor of
Catalyst Technologies, a source of technical advice and venture capital for
Silicon Valley entrepreneurial ventures. From July 1977 to January 1983, Mr.
Bushnell served as Chief Executive Officer of Chuck E. Cheese, a restaurant
chain featuring electronic entertainment. From November 1972 to February 1979,
Mr. Bushnell served as Chief Executive Officer of Atari Corporation, a
manufacturer of video games.
Philip K. Yachmetz, age 39, joined the Company in October 1996 as Director,
Legal & Corporate Affairs and became Secretary of the Company and each of its
subsidiaries since November 26, 1996. From January 1989 to October 1996, Mr.
Yachmetz served as Senior Counsel of Hoffmann-La Roche Inc. the U.S. subsidiary
of the international pharmaceutical, diagnostics, chemical and bio-technology
conglomerate F. Hoffmann-La Roche Ltd. From March 1985 to December 1988, Mr.
Yachmetz served as Secretary and Counsel of Burmah LNG Shipping, Inc., and
subsidiaries, the oil and liquefied natural gas shipping and transshipment
subsidiary of Burmah Oil plc. From January 1981 to March 1985, Mr. Yachmetz was
engaged in the private practice of law as an associate with two New York City
law firms. Mr. Yachmetz is admitted to practice law in New York and New Jersey.
Rita Zimmerer, age 41, joined the Company as Executive Vice
President--Software in August 1996. From September 1995 to August 1996, Ms.
Zimmerer served as Vice President and Senior Manager at Tiger Electronics, an
interactive software company. From January 1994 to August 1995, Ms. Zimmerer
served as Vice President of Sales, Marketing and Publishing at Terraglyph
36
<PAGE>
Interactive Studios, a developer and publisher of interactive entertainment.
From September 1989 to July 1992, Ms. Zimmerer served as Vice President of Sales
and Marketing and from July 1992 to January 1994, Executive Vice President and
General Manager of Sunsoft USA, a developer and publisher of interactive
entertainment. From August 1988 to August 1989, Ms. Zimmerer served as Central
Regional manager of Enesco Imports, a giftware design company. From July 1985 to
August 1988, Ms. Zimmerer served as North Central Manager of Tonka Toys, Inc. As
of January 1, 1997, Ms. Zimmerer's employment terminated and she was engaged as
a consultant to the Company.
Joseph Ettinger, age 57, joined the Company as a Director in October 1992.
From August 1974 to June 1993, Mr. Ettinger served in various capacities for
CLAL Industries Ltd., a non-U.S., industrial, multinational conglomerate,
including Senior Vice President and General Manager (USA and Canada) from August
1986.
Yael Cohen, age 36, who is the wife of Shmuel Cohen, has been a Director of
the Company since May 1990 and served as Secretary of the Company from May 1990
until November, 1996.
The Board of Directors is responsible for the management of the Company. During
the fiscal year ended October 31, 1996, the Board of Directors held 8 meetings.
Each incumbent director attended all meetings of the Board.
Other than as described above, there are no family relationships among any of
the directors or executive officers of the Company.
The Company has obtained a key man life insurance policy covering Shmuel Cohen
in the amount of $3,000,000. The Company is the sole beneficiary under this
policy.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's executive officers and directors, and any persons who own more than
10% of any class of the Company's equity securities, to file certain reports
relating to their ownership of such securities and changes in such ownership
with the Securities and Exchange Commission and to furnish the Company with
copies of such reports. Based solely on a review of the copies of the reports
furnished to the Company to date, or written representations that no reports
were required, the Company believes that all reports required to be filed by
such persons with respect to the Company's fiscal year ending October 31, 1996
were made on a timely basis.
ITEM 10 EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE.
The following table sets forth information concerning the annual and long term
compensation paid during the Company's last two fiscal years to the Company's
CEO and any other highly compensated executive officer serving at the end of the
1996 fiscal year.
37
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long-Term Awards
---------------------------------------- ---------------------------------------
Other Securities
Year Annual Underlying Restricted All Other
Name and Compensation Options Stock Compensation($)
Principal Position Year Salary Bonus (1) (2) Awards (3)
- - ------------------ ---- ------ ----- ---------- --------- --------- ------------
<S> <C> <C> <C>
Shmuel Cohen,
President and 1996 $344,000 -- $37,190
Chief Executive
Officer
1995 $29,167 -- $456,700 200,000 --
Nolan Bushnell,
Director of 1996 $100,000
Strategic
Planning (4)
</TABLE>
- - --------------------
(1) Represents amounts paid to Artmedia Ltd., a corporation controlled by Mr.
Cohen, in consideration of the provision by Artmedia of the services of Mr.
Cohen, the chief executive officer of Artmedia, as Chief Executive Officer
of the Company. Mr. Cohen is currently under contract solely to the
Company. See "Employment Agreements".
(2) 120,000 of these options are currently exercisable.
(3) On behalf of the CEO, the Company paid $20,680 for health and related
benefits and $16,510 related to travel expenses.
(4) Mr. Bushnell became a full time employee of the Company on July 1, 1996.
Prior to that date he was engaged as a consultant by the Company and was
remunerated approximately $240,000 in fiscal 1996 for those services.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the details of options granted to the individual
listed in the Summary Compensation Table who received options during fiscal
1996.
<TABLE>
<CAPTION>
% of Total Options
Granted to
Number of Employees in Exercise Price
Name Options Garanted Fiscal Year Per Share Expiration Date
---- ---------------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Nolan Bushnell 1,000,000 42% $5.50 July 28, 2005
</TABLE>
38
<PAGE>
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
No options were exercised by any named executive officers during fiscal 1996.
The following table contains information at October 31, 1996, concerning the
number and value of unexercised options held by Mr. Cohen.
Value of Unexercised
Number of Unexercised Options In-the-Money Options Held at
Held at Fiscal Year-End Fiscal Year-End
Name (Exercisable/Unexercisable) (Exercisable/Unexercisable)(1)
---- --------------------------- -------------------------------
Shmuel Cohen 120,000 / 80,000 $787,200 / $524,800
- - ----------------
(1) Based on the fair market value of the underlying securities (the closing
bid price of Common Stock on the National Association of Securities Dealers
Automated Quotation System - SmallCap Market) at fiscal year end (October
31, 1996), minus the exercise price.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive fixed compensation for their services as
directors; however, the Board of Directors may authorize the payment of a fixed
sum to directors for their attendance at regular and special meetings of the
Board as is customary for similar companies. Directors will be reimbursed for
their reasonable out-of-pocket expenses incurred in connection with their duties
to the Company.
EMPLOYMENT AGREEMENTS
Mr. Cohen and the Company have entered into an employment agreement that
provides that Mr. Cohen will serve as Chief Executive Officer and President of
the Company for a term beginning on May 3, 1995, and ending five years
thereafter. Mr. Cohen's compensation under his employment agreement includes a
salary of $350,000 per annum and options to purchase 200,000 shares of Common
Stock. 120,000 of these options have vested on or before May 3, 1996 and are
currently exercisable. The remaining 80,000 options vest on May 3, 1997. The
exercise price of each option is $2.44. The employment agreement includes
non-solicitation, non-compete and confidentiality provisions. Mr. Cohen and the
Company have also entered into a separate agreement that provides contractual
protections against changes in or loss of employment in case of a change of
control (as such term is defined in such agreement) of the Company. Such
agreement provides for a lump sum payment equal to 2.99 times Mr. Cohen's base
amount (as such term is defined in such agreement) if a "change of control "
occurs.
Mr. Nolan Bushnell is employed as the Company's Director of Strategic Planning,
pursuant to an employment agreement dated April 19, 1996, for a two year term
ending on October 31, 1998. The agreement provides for Mr. Bushnell to be paid a
salary at the rate of $300,000 per annum, and thereafter an annual salary
determined by the Company's Board of Directors at a rate not less than the
initial rate. The Company also granted to Mr. Bushnell options to purchase up to
1,000,000 shares of stock at an exercise price of $8.00 per share, which will
vest at 100,000
39
<PAGE>
options per annum over a period of 10 years. Such vesting options may be
accelerated by an additional 400,000 options in each of the next two fiscal
years, in the event the Company achieves gross revenues from the sale and
operation of location based, PlayNet products of $35,000,000 in the fiscal year
ended October 31, 1997 and $95,000,000 in the fiscal year ended October 31,
1998. Under the employment agreement, Mr. Bushnell also received a one-time
bonus of $30,000 and was issued 50,000 shares of Common Stock as an additional
sign-on bonus.
No executive officer of the Company serves as a member of the Board of Directors
or compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board of Directors.
40
<PAGE>
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the outstanding shares of the Company's Common Stock as
of October 31, 1996 by (i) each person known by the Company to own more than
five percent (5%) of the outstanding shares of Common Stock, (ii) each director
of the Company, (iii) each of the executive officers named in the Summary
Compensation Table herein under "Executive Compensation", and (iv) all directors
and executive officers of the Company as a group.
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class(1)
- - ------------------- ----------------------- -----------
Shmuel Cohen(2) 2,342,631 (3) 15.53%
5 Cove Lane
Kings Point, New York 11024
Castellon Ltd.(2) 2,271,421 (5) 15.13%
2, Clan William Terrace
Dublin 2, Republic of Ireland
N.Y. Holdings, Ltd.(2) 895,336 (6) 5.98%
c/o Hertzog, Fox & Neeman
4 Weizman Street
Tel Aviv 64239 Israel
Joseph Ettinger (2) (5) 2,271,421 (5) 15.13%
c/o Castellon Ltd.
2, Clan William Terrace
Dublin 2, Republic of Ireland
Yael Cohen 0 (4) 0.00%
5 Cove Lane
Kings Point, New York 11024
Ron Borta 1,127,273 (7) 7.53%
14 Oak Lane
Sterling, Virginia 20165
Directors and executive officers as
a group (4 persons) 4,614,052 (8) 30.49%
- - ----------------------------------------------
(1) Based on 14,966,755 shares outstanding.
(2) Pursuant to a ten year proxy agreement dated June 30, 1992, Mr. Cohen,
Castellon Limited and NY Holdings Ltd. have agreed that for so long as each
party is a stockholder of the Company, each party will vote his or their
shares of common stock, currently constituting approximately 36.04% of the
Company's Common Stock, for the election of three directors to be
designated by Mr. Cohen, two directors to be designated by Castellon
Limited and one director to be designated by NY Holdings, Ltd. The sole
beneficial owner of Castellon Limited is Mr. Joseph Ettinger.
(3) Includes 120,000 shares issuable upon exercise of currently exercisable
stock options.
(4) Shmuel Cohen and Yael Cohen are husband and wife and each may be deemed to
be the beneficial owner of the shares owned by Mr. Cohen. Mrs. Cohen
disclaims beneficial ownership of such shares.
(5) Mr. Ettinger is the President and sole beneficial owner of Castellon
Limited and may therefore be deemed to be the beneficial owner of all of
the shares of common stock of the Company owned by Castellon Ltd..
(6) Includes 47,273 shares issuable in payment, at the option of the holder, of
a $260,000 convertible promissory note.
(7) Includes 181,818 shares owned by Leslie Davis, Mr. Borta's wife.
(8) Includes 167,273 shares issuable upon the exercise of currently exercisable
stock options or in payment of a convertible promissory note held by a
corporation controlled by a director.
41
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 13, 1996, the Company, Ron Borta and Leslie Davis entered into a binding
agreement which provides for, among other things, the resignation of Ron Borta
and Leslie Davis as officers and/or directors of Borta, Inc., a company which
was acquired by Aristo on July 31, 1995. In connection therewith, Mr. Borta and
Ms. Davis surrendered all options to purchase Common Stock previously granted to
either of them, and Mr. Borta surrendered 357,143 restricted shares of Common
Stock previously granted to him, together with any other options, incentive
payments or rights related thereto. In connection with their severance, the
Company will pay them $180,000 in the aggregate over the period ending on
January 15, 1997. In addition, of the $425,000 remaining to be paid to Ron Borta
pursuant to his signing bonus with the Company, $5,000 was paid upon the
execution of definitive agreements relating to the resignations, $150,000 was
paid on August 30, 1996, and the balance is payable on December 31, 1996.
On September 30, 1994, the Company issued 159,236 shares of Common Stock to
Castellon Limited as a result of the conversion of a $200,000 promissory note.
In addition, on May 3, 1995, as a result of the Merger, the Company issued to
Castellon 38,350 shares of Common Stock pursuant to an anti-dilution provision
of this promissory note. Mr. Joseph Ettinger, a director of the Company, is the
President of Castellon Limited.
On July 1, 1995, the Company entered into a consulting agreement with Castellon
Limited, a stockholder of the Company which presently owns approximately 15.13%
of the Company's Common Stock. Pursuant to this consulting agreement, Castellon
Limited is paid a cash fee of $10,000 per month for consulting services rendered
to the Company relating to joint ventures, strategic partnerships and investor
relations outside the United States. Prior to July 1, 1995, Castellon Limited
provided consulting services to the Company pursuant to other written
agreements. During the years ended October 31, 1996, 1995 and 1994 and during
the cumulative period from June 4, 1990 (inception) to October 31, 1995, the
Company paid to Castellon Limited fees totaling approximately $130,000, $70,000,
$75,000 and $358,000, respectively, in consideration of such consulting
services. This stockholder has also been issued a total of 273,451 shares of the
Company's common stock in exchange for $350,000 of services rendered during the
three fiscal years ended October 31, 1993. In addition, in 1996, this corporate
stockholder received a cash payment of $364,000 in connection with expenses
incurred related to securing investments in the Company through subscription
agreements and promissory notes. On January 15, 1997 the agreement between the
Company and Castellon Limited was extended for a period of one year to expire on
June 30, 1998 and was amended to provide for the reimbursement to Castellon of
normal and customary "out-of-pocket" expenses incurred in the performance of its
obligations under the agreement.
On December 29, 1995, the Company issued to Castellon Limited a promissory note
in the principal amount of $260,000, in exchange for, and in full payment of,
the principal and accrued interest on a promissory note originally issued to
Castellon Limited on August 1, 1995. Under the terms of this promissory note,
the principal amount thereof is due on February 28, 1997, and interest is due
and payable in quarterly installments, each in the amount of $13,000, beginning
on April 1, 1996. The Company has agreed to issue, at the option of the holder
of the promissory note, up to 47,273 shares of Common Stock, in lieu of cash, in
payment of the principal amount of the note (at a price of $5.50 per share).
Castellon has given written notice to the Company that it intends to receive
payment of the entire principal amount in shares of Common Stock, although
Castellon is not, by reason of this notice, legally obligated to do so.
42
<PAGE>
In May 1995, the Company sold to Castellon Limited 33,350 shares of Preferred
Stock in consideration of the payment by Castellon of $100,050 in cash. The
terms of this Preferred Stock provided for cumulative monthly dividends at a
rate per annum equal to 11% of the amount paid by Castellon Limited in
consideration of such Preferred Stock, commencing June 15, 1995. So long as any
shares of Preferred Stock were outstanding, the Company could not declare, pay,
or set apart for payment any dividend or make any other payment on account of
any of the shares of Common Stock, unless and until all accrued and unpaid
dividends on the shares of Preferred Stock had been paid in full. The shares of
Preferred Stock were redeemable at any time at the option of the Company. On May
15, 1996, all of such outstanding shares of Preferred Stock were converted to
18,191 shares of Common Stock at a conversion price of $5.50 per share.
On June 27, 1996, the Company issued to N.Y. Holdings, Ltd., which presently
owns 5.98% of the Company's common stock, a promissory note in the principal
amount of $330,000, bearing interest at the prime rate, due on October 31, 1996.
In connection therewith, the Company granted an option to N.Y. Holdings, Ltd. to
purchase, at any time before February 28, 1997, 120,000 shares of Common Stock
for an aggregate price of $660,000. N.Y. Holdings Ltd. has given written notice
to the Company that it intends to exercise the option with respect to 60,000
shares of Common Stock by applying the principal amount of the note to the
purchase price therefore (in lieu of any cash payment thereof by the Company),
although N.Y. Holdings, Ltd. is not, by reason of this notice, legally obligated
to do so.
During March 1995, the Company issued 115,050 shares of Common Stock valued at
$255,555 to Shmuel Cohen in exchange for original graphic images produced by
contemporary artists beneficially owned by Mr. Cohen together with the rights
for digital reproduction.
From June 4, 1990 through September 30, 1995, the Company obtained the services
of Shmuel Cohen, its President and Chief Executive Officer, from another company
of which Mr. Cohen is the sole stockholder. Fees paid to this company for the
services of Mr. Cohen during the fiscal years ended October 31, 1995 and 1994
and for the cumulative period from June 4, 1990 (inception) to October 31, 1995
were approximately $456,700, $626,000 and $2,084,700, respectively. On February
1, 1995, the Company entered into an employment agreement with Shmuel Cohen, its
President and Chief Executive Officer. See "Executive Compensation--Employment
Agreements." Commencing October 1995, the Company began compensating Mr. Cohen
as President and Chief Executive Officer pursuant to this employment agreement,
and since such date has not paid fees to any other person in connection with the
services of Mr. Cohen, and does not intend to do so in the future.
43
<PAGE>
ITEM 13. EXHIBIT LIST AND REPORTS ON FORM 8-K.
(a) The following Exhibits are filed as part of this Report.
<PAGE>
<TABLE>
<CAPTION>
Number Description Method of Filing
- - ------ ----------- ----------------
<S> <C> <C>
2.1 Merger Agreement between the registrant Incorporated by reference to an Exhibit
and Aristo International Corporation, to the Registrant's Current Report on
dated October 28, 1994. Form 8-K, File No. 33-1260-NY, filed on
November 16, 1994.
dated October 28, 1994.
2.2 Agreement and Plan of Merger among the Incorporated by reference to an Exhibit
registrant, BAIC Acquisition Corp., Borta, to the Registrant's Current Report on
Inc. and the shareholders of Borta, Inc., Form 8-K, File No. 33-1260-NY, filed on
dated July 28, 1995. August 15, 1995.
3.1 Restated and Amended Certificate of Incorporated by reference to Exhibit 3.1
Incorporation of the Registrant. to the Registrant's Annual Report on
Form 10-KSB for the year ended October
31, 1995, filed on January 29, 1996.
3.1A A Certificate of Amendment to the Restated Filed herewith.
and Amended Certificate of Incorporation
of the Registrant, filed on November 6,
1996.
3.2 By-Laws of the Registrant. Incorporated by reference to Exhibit 3.2
to the Registrant's Annual Report on
Form 10-KSB for the year ended
October 31, 1995, filed on January 29,
1996.
10.1 1994 Stock Option Plan of the Registrant.* Incorporated by reference to Exhibit 10.1
to the Registrant's Annual Report on
Form 10-KSB for the year ended
October 31, 1995, filed on January 29,
1996.
10.2 1995 Stock Option Plan of the Registrant.* Incorporated by reference to Exhibit 10.2
to the Registrant's Annual Report on
Form 10-KSB for the year ended
October 31, 1995, filed on January 29,
1996.
10.3 1996 Stock Option Plan of the Registrant Incorporated by reference to Exhibit 10.3
and Form of Stock Option Contract.* to the Registrant's Registration
Statement on Form S-1 (Reg. No.
333-14259), filed on October 16, 1996.
10.4 Employment Agreement between the Incorporated by reference to Exhibit 10.3
Registrant and Shmuel Cohen dated to the Registrant's Annual Report on Form
February 1, 1995.* 10-KSB for the year ended October 31,
1995, filed on January 29, 1996.
44
<PAGE>
Number Description Method of Filing
- - ------ ----------- ----------------
10.5 Change in Control Agreement, dated Incorporated by reference to Exhibit 10.6
February 1, 1995, between the registrant to the Registrant's Annual Report on Form
and Shmuel Cohen.* 10-KSB for the year ended October 31,
1995, filed on January 29, 1996
10.6 Consulting Agreement, dated July 1, 1995, Incorporated by reference to Exhibit 10.7
between the registrant and Castellon to the Registrant's Annual Report on Form
Limited.* 10-KSB for the year ended October 31,
1995, filed on January 29, 1996.
10.7 Warrant Certificate Incorporated by reference to Exhibit 10.3
to the Registrant's Registration
Statement on Form S-1 (Reg. No.
333-14259), filed on October 16, 1996.
10.8 Form of Purchase Agreement Incorporated by reference to Exhibit 10.3
to the Registrant's Registration
Statement on Form S-1 (Reg. No.
333-14259), filed on October 16, 1996.
10.9 Engagement Letter Agreement, dated Incorporated by reference to Exhibit 10.3
February 22, 1996, between the registrant to the Registrant's Registration
and Allen & Company Incorporated. Statement on Form S-1 (Reg. No.
333-14259), filed on October 16, 1996.
10.10 Placement Agency Agreement, dated July 31, Incorporated by reference to Exhibit 10.3
1996, between the registrant and Allen & to the Registrant's Registration
Company Incorporated. Statement on Form S-1 (Reg. No.
333-14259), filed on October 16, 1996.
10.11 Form of Subscription Agreement Incorporated by reference to Exhibit 10.3
to the Registrant's Registration
Statement on Form S-1 (Reg. No.
333-14259), filed on October 16, 1996.
10.12 Form of Option Agreement/Convertible Note Incorporated by reference to Exhibit 10.3
to the Registrant's Registration
Statement on Form S-1 (Reg. No.
333-14259), filed on October 16, 1996.
10.13 Employment Agreement, dated April 19, Incorporated by reference to Exhibit 10.3
1996, between the registrant and Nolan to the Registrant's Registration
Bushnell, as amended on September 1996.* Statement on Form S-1 (Reg. No.
333-14259), filed on October 16, 1996.
10.14 Termination Agreement, dated May 13, 1996, Incorporated by reference to Exhibit 10.3
among Ron Borta and Leslie Davis and the to the Registrant's Registration
registrant. Statement on Form S-1 (Reg. No.
333-14259), filed on October 16, 1996.
45
<PAGE>
Number Description Method of Filing
- - ------ ----------- ----------------
10.15 Services Letter Agreement, dated August Incorporated by reference to Exhibit 10.3
17, 1995, between the registrant and to the Registrant's Registration
Michael Katz. Statement on Form S-1 (Reg. No.
333-14259), filed on October 16, 1996.
10.16 Form of Financial Consulting Contract. Incorporated by reference to Exhibit 10.3
to the Registrant's Registration
Statement on Form S-1 (Reg. No.
333-14259), filed on October 16, 1996.
10.17 Letter Agreement, dated June 10, 1996, Incorporated by reference to Exhibit 10.3
between the registrant and P.S.G.S. to the Registrant's Registration
International Real Estate, Ltd. Statement on Form S-1 (Reg. No.
333-14259), filed on October 16, 1996.
10.18 Option Agreement, dated June 10, 1996, Incorporated by reference to Exhibit 10.3
between the registrant and P.S.G.S. to the Registrant's Registration
International Real Estate, Ltd. Statement on Form S-1 (Reg. No.
333-14259), filed on October 16, 1996.
10.19 Services Agreement, dated August 1, 1996, Incorporated by reference to Exhibit 10.3
between the registrant and Owens & to the Registrant's Registration
Associates, Inc. Statement on Form S-1 (Reg. No.
333-14259), filed on October 16, 1996.
10.20 Services Letter Agreement, dated August Incorporated by reference to Exhibit 10.3
20, 1996, between the registrant and to the Registrant's Registration
Copyright Clearinghouse, Inc. Statement on Form S-1 (Reg. No.
333-14259), filed on October 16, 1996.
10.21 Amendment, dated June 28, 1996, to the Incorporated by reference to Exhibit 10.3
Consulting Agreement, dated July 1, 1995, to the Registrant's Registration
between the registrant and Castellon Statement on Form S-1 (Reg. No.
Limited. 333-14259), filed on October 16, 1996.
10.22 AFMA International Disc Distribution Incorporated by reference to Exhibit 10.3
Agreement, dated August 22, 1996, between to the Registrant's Registration
Film Ventures International, Inc. and Statement on Form S-1 (Reg. No.
Aristo entertainment, Inc. 333-14259), filed on October 16, 1996.
10.23 Senior Secured Notes Placement Agreement Filed herewith.
dated December 30, 1996 (including
exhibits and schedule of holders.)
10.24 Warrants to Purchase Common Stock issued Filed herewith.
January 20, 1997 (with schedule of
holders.)
10.25 Amendment, dated October 30, 1996, to Filed herewith.
Common Stock Options (with schedule of
holders.)
46
<PAGE>
Number Description Method of Filing
- - ------ ----------- ----------------
10.26 Letter agreements, dated December 5, 1996, Filed herewith
with Zeller Eblagon Financial Services,
Ltd., extending options to purchase Common
Stock.
10.27A First Amendment, dated October 31, 1996, Filed herewith.
to $330,000 Promissory Note payable to NY
Holdings, Limited.
10.27B Second Amendment, dated January 10, 1997, Filed herewith.
to $330,000 Promissory Note payable to NY
Holdings, Limited.
10.29 First Amendment, dated December 5, 1996, Filed herewith.
to $500,000 Promissory Note payable to
Zeller Eblagon Leasing, Ltd.
10.30A First Amendment, dated January 1, 1997, to Filed herewith.
$260,000 Promissory Note payable to
Castellon Limited.
10.30B Second Amendment, dated January 10, 1997, Filed herewith.
payable to Castellon Limited.
21.1 Subsidiaries of the Registrant. Filed herewith.
</TABLE>
- - --------------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
None
47
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PLAYNET TECHNOLOGIES, INC.
By: /s/ Shmuel Cohen
----------------------
Shmuel Cohen
President and Chief Executive
Officer
Dated: February 13, 1997
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/Shmuel Cohen President and Chief February 13, 1997
- - ------------------------ Executive Officer
Shmuel Cohen (Principal Executive
Officer) and Director
/s/Glenn P. Sblendorio Executive Vice February 13, 1997
- - ------------------------ President, Chief
Glenn P. Sblendorio Financial Officer and
Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ Joseph Ettinger Director February 13, 1997
- - ------------------------
Joseph Ettinger
/s/ Yael Cohen Director February 13, 1997
- - ------------------------
Yael Cohen
<PAGE>
PLAYNET TECHNOLOGIES, INC.
EXHIBIT INDEX
Exhibit
Number Description
- - ------ -----------
3.1A A Certificate of Amendment to the Restated and Amended
Certificate of Incorporation of the Registrant, filed on November
6, 1996.
10.23 Senior Secured Notes Placement Agreement dated December 30, 1996
(including exhibits and schedule of holders.)
10.24 Warrants to Purchase Common Stock issued January 20, 1997 (with
schedule of holders.)
10.25 Amendment, dated October 30, 1996, to Common Stock Options (with
schedule of holders.)
10.26 Letter agreements, dated December 5, 1996, with Zeller Eblagon
Financial Services, Ltd., extending options to purchase Common
Stock.
10.27A First Amendment, dated October 31, 1996, to $330,000 Promissory
Note payable to NY Holdings, Limited.
10.27B Second Amendment, dated January 10, 1997, to $330,000 Promissory
Note payable to NY Holdings, Limited.
10.29 First Amendment, dated December 5, 1996, to $500,000 Promissory
Note payable to Zeller Eblagon Leasing, Ltd.
10.30A First Amendment, dated January 1, 1997, to $260,000 Promissory
Note payable to Castellon Limited.
10.30B Second Amendment, dated January 10, 1997, payable to Castellon
Limited.
21.1 Subsidiaries of the Registrant.
CERTIFICATE OF AMENDMENT
TO THE
RESTATED AND AMENDED CERTIFICATE OF INCORPORATION
OF
ARISTO INTERNATIONAL CORPORATION
Under Section 242 of the General Corporation Law
It is hereby certified that:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is ARISTO INTERNATIONAL CORPORATION.
SECOND: The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of the State of Delaware on July 12, 1984.
The Restated and Amended Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on the May 3, 1995.
THIRD: The Amendment to the Restated and Amended Certificate of
Incorporation, as heretofore amended and restated, effected by this Certificate
of Amendment is as follows:
(i) to change the name of the Corporation; and
(ii) to increase the number of shares of stock that the Corporation
is authorized to issue to 40,000,000.
<PAGE>
FOURTH: To accomplish the change of name of the Corporation, Article
FIRST of the Restated and Amended Certificate of Incorporation, relating to the
name of the Corporation, is hereby amended to read as follows:
"FIRST: The name of the corporation (hereinafter called the
"Corporation") is PlayNet Technologies, Inc."
FIFTH: To increase the number of shares of stock that the Corporation
is authorized to issue to 40,000,000, consisting of 1,000,000 shares of
preferred stock and 39,000,000 shares of common stock, the first paragraph of
Article FOURTH of the Restated and Amended Certificate of Incorporation of the
Corporation is amended to read as follows:
"FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 40,000,000 of
which (i) 1,000,000 shall be Preferred Stock, par value $.001 per
share; and (ii) 39,000,000 shall be Common Stock, par value $.001 per
share."
SIXTH: The foregoing Amendment of the Restated and Amended Certificate
of Incorporation of the Corporation has been duly authorized and adopted in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to the Restated and Amended Certificate of Incorporation to be
executed by its Senior Vice President as of this 1st day of November, 1996.
/s/ GLENN P. SBLENDORIO
--------------------------------
GLENN P. SBLENDORIO, Senior Vice
President
[On PlayNet Technologies, Inc. Letterhead]
Shmuel Cohen
President and
Chief Executive Officer
December 30, 1996
Confidential
- - ------------
Ms. Nancy Peretsman
Managing Director
Allen & Company Incorporated
711 Fifth Avenue
New York, New York 10022
And To All Other Investors Who Purchase
Senior Secured Notes as Listed on Schedule 1
Ladies and Gentlemen:
This letter shall confirm the terms and conditions which have been agreed
between Allen & Company Incorporated ("Allen"), PlayNet Technologies, Inc.
("PlayNet") and other investors who purchase Senior Secured Notes (as defined
herein) with respect to the purchase by Allen, Shmuel Cohen (who will purchase
either directly or indirectly) ("Cohen") and the other investors listed on
Schedule 1 hereto of certain senior secured notes in form and substance as
provided in Exhibit 2 attached hereto (the "First Stage Notes"), which First
Stage Notes are to be issued by PlayNet as part of a privately-placed bridge
financing transaction or series of such transactions raising gross proceeds of
at least $3 million to PlayNet (the "Initial Bridge Financing").
In the event that subsequent to the consummation of the Initial Bridge
Financing, PlayNet requires additional financing to continue its operations, or
fails to consummate a Qualified Public Offering or a Qualified Private
Placement, as defined herein, or fails to acquire other permanent financing
mutually agreeable to PlayNet and Allen, PlayNet agrees and covenants that it
will conduct, pursuant to the terms and conditions of this Agreement, a
second-stage bridge financing transaction or series of transactions (the "Second
Stage Bridge Financing") under which PlayNet will offer certain senior secured
notes in form and substance identical to the First Stage Notes and that the
offer of such second stage senior secured notes (the "Second Stage Notes") will
provide PlayNet with gross proceeds of at least $15 million. For purposes
hereof, the Initial Bridge Financing and the Second Stage Bridge Financing
collectively shall be referred to as the "Bridge Financing" and the First Stage
Notes and the Second Stage Notes shall be collectively referred to as the
"Senior Secured Notes".
<PAGE>
Bridge Financing Letter Agreement
December 30, 1996
Page 2
PlayNet agrees and covenants that the Bridge Financing shall be made pursuant to
one or more exemptions from registration under the Securities Act of 1933, as
amended (the "Securities Act") and any and all applicable securities laws of any
state or other jurisdiction (the "Blue Sky Laws").
1. Initial Bridge Financing
------------------------
In order to complete the currently proposed public offering of common stock of
PlayNet, par value $.001 per share ("Common Stock") raising gross proceeds of a
minimum of $15 million, which public offering is described in that certain
Registration Statement on Form S-1 filed with the U.S. Securities and Exchange
Commission (the "SEC") on October 16, 1996, as may be amended and/or
supplemented (the "Public Offering") certain operational hurdles, as set forth
on Exhibit 1 attached hereto and as may be reasonably modified from time to time
upon the agreement of PlayNet and Allen (the "Operational Hurdles") should be
attained by PlayNet on or before January 31, 1997, or such other date as may be
mutually agreed from time to time between PlayNet and the underwriter of the
Public Offering (the "Hurdle Date"). PlayNet believes that it can meet the
Operational Hurdles by the Hurdle Date. However, it is agreed by Allen and
PlayNet that if the Operational Hurdles are not achieved in their entirety by
the Hurdle Date, it will be the sole decision of PlayNet's management as to
whether it should proceed with the Public Offering.
It is currently the intention of PlayNet to consummate the Public Offering on or
before March 31, 1997. In connection therewith, Allen hereby agrees that based
upon its discussions with PlayNet of PlayNet's current and contemplated business
and financial condition, and subject to (a) PlayNet's meeting its Operational
Hurdles by the Hurdle Date, (b) the existence of market conditions favorable to
a public offering of PlayNet Common Stock pursuant to the terms of the Public
Offering, and (c) the receipt by PlayNet of all regulatory approvals required
for consummation of the Public Offering (including, but not limited to, the
receipt of the approval of the SEC), it is Allen's present intention to
diligently proceed to assemble an underwriting group in order to effect the
Public Offering.
In order to meet the operational financing needs of PlayNet until the Hurdle
Date, PlayNet will require a minimum of $3 million in temporary financing to be
raised in the Initial Bridge Financing. PlayNet covenants to use the proceeds of
the Initial Bridge Financing to finance normal business operations of PlayNet
for the period up to and including January 31, 1997.
The aggregate principal amount of First Stage Notes to be offered as part of the
Initial Bridge Financing shall be a minimum of $3 million (the "Aggregate
Principal Amount"), and of such Aggregate Principal Amount, PlayNet agrees to
offer First Stage Notes (in the form and substance of the senior secured note
provided in Exhibit 2 attached hereto) as follows:
principal amount of $750,000 to Allen
principal amount of $750,000 to Cohen
principal amount of $750,000 to a Third Party Investor, as defined below
principal amount of $750,000 to a PlayNet Third Party Investor, as defined
below
Each of Cohen and Allen hereby agree to purchase, subject to the terms and
conditions hereof, First Stage Notes in the principal amounts set forth
immediately above.
<PAGE>
Bridge Financing Letter Agreement
December 30, 1996
Page 3
As used herein, "Third Party Investor" shall mean a third party investor
identified by Allen; and "PlayNet Third Party Investor" shall mean a third party
investor identified by PlayNet and/or Shmuel Cohen. By his signature hereto,
Cohen agrees and covenants that in the event that PlayNet requires the temporary
financing provided by the sale of $750,000 principal amount of First Stage Notes
to a PlayNet Third Party Investor on or before January 31, 1997 and either a
PlayNet Third Party Investor or another third party investor identified by Allen
does not consummate the purchase of such First Stage Notes by such date, then
Cohen shall purchase such fourth First Stage Notes on or prior to such date.
Allen, Cohen and PlayNet agree and covenant that:
(i) to the extent any Third Party Investor or any PlayNet Third Party Investor
purchases more than an aggregate principal amount of $750,000 of First
Stage Notes, then the amount which is in excess of such aggregate $750,000
up to a maximum prepayment amount of $250,000 (the "Maximum Prepayment
Amount") shall be applied by PlayNet as a prepayment under any First Stage
Note held by Allen;
(ii) to the extent any Third Party Investor or any PlayNet Third Party Investor
purchases more than an aggregate principal amount of $750,000 of First
Stage Notes and any such amount in excess thereof has first been applied
toward the repayment of the Allen First Stage Notes as referred to in (i)
above, any residual excess principal amount thereof up to the Maximum
Prepayment Amount may be applied by PlayNet toward the repayment of the
Cohen First Stage Notes up to the Maximum Prepayment Amount; and
(iii)in the event that any amount remains in excess of the aggregate $750,000
principal amount of First Stage Notes to be purchased by any Third Party
Investor or any PlayNet Third Party Investor after prepayments have been
made in accordance with (i) and (ii) above, or if PlayNet elects not to
make the prepayment to Cohen permitted in accordance with (ii) above, then
any such residual amount shall remain the property of PlayNet;
provided, however, that in the event that any such Third Party Investor or
PlayNet Third Party Investor is IBM, or IBM separately makes a strategic or
other investment in PlayNet in any principal amount, any such excess or separate
investment by IBM shall remain the property of PlayNet and there shall be no
reduction in the Cohen or Allen First Stage Notes, unless PlayNet, in its sole
discretion, elects to prepay any of the First Stage Notes pursuant to the terms
of the Senior Secured Notes. In the event that PlayNet elects such prepayment,
PlayNet agrees and acknowledges that such prepayment shall be made to each of
Allen and Cohen in equal amounts and that such prepayment amount shall not be
applied in its entirety solely to the prepayment of the First Stage Notes of
either Allen or Cohen.
As a material part of the consideration for the purchase of First Stage Notes by
Allen, any Third Party Investor and any PlayNet Third Party Investor and in
order to induce Allen, any Third Party Investor and any PlayNet Third Party
Investor to purchase First Stage Notes, PlayNet shall issue at the closing of
each such purchase to Allen, any Third Party Investor and any PlayNet Third
Party Investor a warrant to purchase shares of Common Stock of PlayNet in form
and substance identical to the warrant attached hereto as Exhibit 3. As a
material part of the consideration for the purchase of First Stage Notes by
Cohen and in order to induce
<PAGE>
Bridge Financing Letter Agreement
December 30, 1996
Page 4
Cohen to purchase First Stage Notes, PlayNet shall issue at the closing of such
purchase to Cohen a warrant to purchase shares of Common Stock of PlayNet in
form and substance identical to the warrant attached hereto as Exhibit 4.
In the event that in connection with Allen's role as an underwriter of the
Public Offering, Allen is required by the National Association of Securities
Dealers, Inc. ("NASD") to modify the number or exercise price of the warrants
issued to Allen hereunder, Allen shall use its best efforts within a reasonable
period of time mutually satisfactory to PlayNet and Allen to reach agreement
with the NASD on such modification(s) so that they shall occur in such a manner
as to not effect the Public Offering or Allen's ability to act as an underwriter
of the Public Offering. Additionally, Allen shall use its best efforts in its
negotiations with the NASD to ensure that any such modification(s) shall not
have any effect on any warrant issued hereunder to Cohen, any Third Party
Investor or any PlayNet Third Party Investor.
It is agreed that Allen and Cohen will purchase their Senior Secured Notes
contemporaneously with the execution of this Agreement, will close on the Third
Party Investor Senior Secured Note, on a best efforts basis, no later than
January 17, 1997, and will close on the PlayNet Third Party Investor Senior
Secured Note, if required (as specified above), on or before January 31, 1997.
It is further agreed that in the event that any terms or conditions of the First
Stage Notes require adjustment in order to secure the purchase of a First Stage
Note by either a Third Party Investor or a PlayNet Third Party Investor, then
the terms and conditions of all Senior Secured Notes shall be so adjusted and
modified pari passu.
2. Second-Stage Bridge Financing
-----------------------------
In the event that subsequent to the consummation of the Initial Bridge
Financing, PlayNet requires additional financing to continue its operations and
none of a Qualified Public Offering or a Qualified Private Placement (each as
defined below) or the acquisition of other permanent financing mutually
agreeable to PlayNet and Allen have been consummated, PlayNet will conduct the
Second Stage Bridge Financing, through which it will offer Second Stage Notes,
and PlayNet and Allen agree to, on a best efforts basis, proceed with the Second
Stage Bridge Financing.
The Second Stage Bridge Financing will be conducted in three tranches, with each
tranche raising gross proceeds of $5 million. The Second Stage Notes shall have
terms and conditions identical to the First Stage Notes and shall be in the form
and substance of the senior secured note attached hereto as Exhibit 2.
As a material part of the consideration for the purchase of the first tranche of
Second Stage Notes by any purchaser thereof and in order to induce the purchaser
thereof to purchase such Second Stage Notes, PlayNet shall issue to such
purchaser, at the closing of the purchase of the first tranche of Second Stage
Notes, a warrant to purchase shares of Common Stock of PlayNet in form and
substance identical to the warrant attached hereto as Exhibit 5. As a material
part of the consideration for the purchase of the second tranche of Second Stage
Notes by any purchaser thereof and in order to induce the purchaser thereof to
purchase such Second Stage Notes, PlayNet shall issue to such purchaser, at the
closing of the purchase of the second tranche of Second Stage Notes, a warrant
to purchase shares of Common Stock
<PAGE>
Bridge Financing Letter Agreement
December 30, 1996
Page 5
of PlayNet in form and substance identical to the warrant attached hereto as
Exhibit 6. As a material part of the consideration for the purchase of the third
tranche of Second Stage Notes by any purchaser thereof and in order to induce
the purchaser thereof to purchase such Second Stage Notes, PlayNet shall issue
to such purchaser, at the closing of the purchase of the third tranche of Second
Stage Notes, a warrant to purchase shares of Common Stock of PlayNet in form and
substance identical to the warrant attached hereto as Exhibit 7.
PlayNet hereby covenants that, upon the closing of the first tranche of the
Second Stage Bridge Financing, all First Stage Notes will be prepaid by PlayNet.
Allen hereby agrees that upon the prepayment of its First Stage Note it will
purchase an aggregate principal amount of Second Stage Notes in the first
tranche of the Second Stage Bridge Financing equal to the aggregate principal
amount of the First Stage Note prepaid by PlayNet hereunder.
In addition, PlayNet agrees that (a) as a condition to the closing of the second
tranche of the Second-Stage Bridge Financing, the membership of the Board of
Directors of PlayNet shall consist of the current and existing directors plus
two (2) outside independent directors (a total of 5 directors), and (b) as a
condition to the closing of the third tranche of the Second-Stage Bridge
Financing, Allen shall have the right to appoint one member of the Board of
Directors, resulting in a total of 6 directors, provided, however, that the
Allen appointee shall be either Ms. Nancy Peretsman, Managing Director of Allen,
or such other outside individual selected by Allen, but reasonably satisfactory
to PlayNet and Cohen.
3. Terms of the Senior Secured Notes
---------------------------------
The Senior Secured Notes evidencing the Initial Bridge Financing and the Second
Stage Bridge Financing shall bear interest at the rate of twelve percent (12%)
per annum payable upon the Maturity Date. Each Senior Secured Note shall rank
pari passu in respect of all other Senior Secured Notes and all shall
collectively be senior to any and all future and to all pre-existing
indebtedness of PlayNet.
The Senior Secured Notes shall each mature and be due and payable on the earlier
of (a) the closing of any Qualified Public Offering or Qualified Private
Placement, each as defined below, or (b) one (1) year from the date hereof (the
"Maturity Date"). As used herein, (i) a "Qualified Public Offering" shall mean
the closing of any public offering of at least $15 million in Common Stock of
PlayNet, and (ii) a "Qualified Private Placement" shall mean the closing of any
privately arranged financing transaction or series of transactions raising
aggregate proceeds of at least $15 million.
4. Representations, Warranties and Covenants of PlayNet
----------------------------------------------------
To induce Allen, all Third Party Investors and all PlayNet Third Party Investors
and all other investors to purchase the Senior Secured Notes evidencing the
Initial Bridge Financing and the Second-Stage Bridge Financing, PlayNet hereby
makes the following representations, warranties, and covenants:
<PAGE>
Bridge Financing Letter Agreement
December 30, 1996
Page 6
A. Payment and Performance of Obligations. PlayNet shall pay all amounts
due under the Senior Secured Notes when due and shall promptly, punctually, and
faithfully perform each and all of its obligations under the Senior Secured
Notes and this Agreement.
B. Due Organization and Corporate Authorization. PlayNet is a duly
organized, validly existing corporation in good standing in the state of its
incorporation and is, and shall hereafter remain, duly qualified and in good
standing in every state in which, by reason of the nature or location of
PlayNet's assets or operation of PlayNet's business, such qualification may be
necessary and where the failure to so qualify would have a material adverse
affect on (i) the financial condition of PlayNet, and/or (ii) PlayNet's ability
to conduct its business. The execution and delivery of this Agreement and of any
other documents, instruments, and agreements executed in connection herewith
constitute representations by the individual signing this Agreement and said
instruments and by PlayNet that such execution and delivery have received all
such corporate authorization as may be necessary to permit such execution and
delivery to, and that they do, bind PlayNet, except as such enforceability may
be limited by (i) bankruptcy, insolvency, reorganization or other similar laws
and legal and equitable principles limiting or affecting the rights of creditors
generally and/or (ii) general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
C. No Conflicting Agreements. There is no provision in the Articles of
Incorporation or By-laws or other organizational documents of PlayNet, or in any
document by which PlayNet may be bound which prohibits or adversely affects the
execution and delivery of this Agreement, or of any other instrument, document
or agreement executed in connection herewith, which prohibits or adversely
affects PlayNet's carrying out of the terms hereof or thereof.
D. Statutory Compliance. To the best of its knowledge and belief, PlayNet
is in compliance with, and shall hereafter comply with and use its assets in
compliance with, all statutes, regulations and orders of every federal, state,
municipal, and other governmental authority which has or claims jurisdiction
over PlayNet, PlayNet's assets, or any person in any capacity for which PlayNet
would be responsible for the conduct of such person, which if PlayNet is not so
in compliance would have a material adverse effect upon PlayNet's financial
condition or its ability to conduct its business as such business is presently
conducted.
E. Pay Taxes. PlayNet has paid, and hereafter shall pay as they become due
and payable, all taxes and unemployment contributions and other charges of any
kind or nature levied, assessed or claimed against PlayNet by any person or
entity whose claim could result in a lien upon the assets of PlayNet or by any
governmental authority. PlayNet has, and hereafter shall, properly exercise any
trust responsibilities imposed upon PlayNet by reason of withholding from
employees' pay and has timely filed, and shall timely file, all tax and other
returns and other reports with each governmental authority to whom PlayNet is
obligated so to file.
F. Litigation. Except as set forth in the Registration Statement relating
to the Public Offering, or otherwise disclosed in writing to investors of Senior
Secured Notes hereunder, there is not presently pending or, to PlayNet's best
knowledge and belief after due inquiry, threatened by or against PlayNet any
suit, action, proceeding or investigation which, if
<PAGE>
Bridge Financing Letter Agreement
December 30, 1996
Page 7
determined adversely to PlayNet, would have a material adverse effect upon
PlayNet's financial condition or ability to conduct its business as such
business is presently conducted.
G. Dividends or Investments. Until all amounts due under the Senior Secured
Notes hereunder shall have been paid in full, PlayNet shall not, except as
otherwise provided herein:
1. pay any dividend, other than a common stock dividend of PlayNet's
own capital stock;
2. redeem, retire, purchase, or acquire any of PlayNet's capital
stock;
3. except with the consent of Allen, invest in or purchase any stock
or securities or rights to purchase any such stock or securities, of
any corporation or other entity;
4. except with the consent of Allen, merge or consolidate or be merged
or consolidated with or into any other corporation or other entity; or
5. except as contemplated by the Public Offering, a Qualified Public
Offering, and the Qualified Private Placement, make any change in its
capital structure, whether by issuance of securities or otherwise,
which results in any adverse effect on PlayNet's ability to perform
its obligations hereunder or under the Senior Secured Notes or the
warrants related thereto.
H. Corporate Loans; Capitalization. PlayNet shall not make any loans or
advances to any individual, firm, corporation, or other entity including,
without limitation, any affiliate, officer, employee, director, shareholder, or
salesperson of any of PlayNet.
I. Line of Business. PlayNet shall not engage in any business other than
the business in which it is currently engaged.
J. Adequacy of Disclosure. 1. All financial statements furnished by PlayNet
to investors of Senior Secured Notes hereunder have been prepared in accordance
with generally accepted accounting principles (except that interim financial
statements exclude statements of cash flows and notes to financial statements)
consistently applied and fairly present the condition of PlayNet at the date(s)
thereof. Except for PlayNet's need for the additional working capital to be
provided hereby, there has been no change in the financial condition of PlayNet
since the date(s) of such financial statements, other than changes in the
ordinary course of business, which changes have not had a material adverse
effect on the business of PlayNet.
2. PlayNet does not have any material contingent liabilities pursuant
to the execution of guaranties or otherwise not noted in PlayNet's financial
statements furnished to the investors.
<PAGE>
Bridge Financing Letter Agreement
December 30, 1996
Page 7
3. No document, instrument, agreement, or paper given to investors by
or on behalf of PlayNet in connection with its execution of this Agreement, when
taken together, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements therein not
misleading. There is no fact which has a material adverse effect on the
financial condition of PlayNet which has not been disclosed in writing to
investors.
K. Use of Proceeds, Budget. PlayNet confirms and warrants that all proceeds
from the purchase of Senior Secured Notes shall be used by it to finance
PlayNet's ongoing business operations in the ordinary course. PlayNet further
confirms and warrants that it will continue to update its budget forecast on a
monthly basis and provide a copy thereof to Allen for informational purposes
only.
L. Senior Indebtedness. There is no indebtedness of PlayNet currently
outstanding which would be senior to, or pari passu with, the obligation of
PlayNet to repay any and all amounts due and owing under the Senior Secured
Notes. PlayNet further covenants that for so long as any amounts are due
thereunder, no indebtedness (other than ordinary course equipment financing)
shall be incurred by PlayNet which indebtedness would be senior to, or pari
passu with, the Senior Secured Notes.
M. Other Covenants. 1. PlayNet shall not indirectly do or cause to be done
any act which, if done directly by PlayNet, would breach any covenant contained
in this Agreement.
2. The representations, warranties and covenants included herein shall
be automatically reconfirmed by PlayNet at the time of the purchase of the First
Stage Notes and Second Stage Notes unless otherwise noted in writing by PlayNet
prior to such closing.
5. Concurrent Conditions
---------------------
Concurrent with the consummation of the purchase of each of the First Stage
Notes and Second Stage Notes, there shall be delivered to investors:
a. this Agreement, duly executed and delivered by PlayNet and the
purchasing investor;
b. the Senior Secured Notes in the aggregate principal amount invested
by each investor hereunder and the warrant relating to such Senior
Secured Notes each duly executed and delivered by PlayNet;
c. a favorable opinion of counsel for PlayNet addressed to the
investors and dated the date of the Senior Secured Notes issued
hereunder in the form of the opinion included as Exhibit 8 hereof;
d. a certificate of an authorized officer of PlayNet as to such
matters as the investors of the Senior Secured Notes may reasonably
request.
<PAGE>
Bridge Financing Letter Agreement
December 30, 1996
Page 9
6. Default
-------
Upon the occurrence of any one or more of the Events of Default (as that term is
defined in the Senior Secured Notes), any and all amounts due to investors under
the Senior Secured Notes or otherwise hereunder shall become immediately due and
payable, without notice or demand.
7. Subordination
-------------
PlayNet hereby warrants and agrees that all obligations and indebtedness of
PlayNet of every kind and description whether now or hereafter existing, (the
"Subordinated Debt") shall, for so long as any amounts are due hereunder, be
subordinated to the indebtedness of PlayNet due to investors under the Senior
Secured Notes in such manner that no payment or security shall be paid by
PlayNet for or on account of the Subordinated Debt, other than trade claims and
equipment loans and leases payable in the ordinary course, until the
indebtedness owed to investors has been paid in full and the Senior Secured
Notes have been terminated or until PlayNet has obtained the specific written
consent of each holder of Senior Secured Notes.
8. Grant of Security Interest
--------------------------
To secure PlayNet's prompt, punctual, and faithful performance of all and each
of PlayNet's obligations hereunder and under the Senior Secured Notes, PlayNet
hereby grants to the holders of Senior Secured Notes a continuing first priority
security interest in and to, whether now owned or now due, or in which PlayNet
has an interest, or hereafter, at any time in the future, acquired, arising, or
to become due, or in which PlayNet obtains an interest, and all products,
proceeds, substitutions, and accessions of or to any of the following; all
accounts and accounts receivable; all inventory; all contract rights including
any of PlayNet's rights to receive any net proceeds arising out of or related to
any equity offerings of PlayNet; all general intangibles including, but not
limited to, all existing, pending and future intellectual property rights,
including but not limited to trademarks, tradenames, service marks, copyrights
and patents; all equipment; all goods; all fixtures; all chattel paper; and all
instruments, documents of title, documents, policies and certificates of
insurance, securities, deposits, deposit accounts, money, cash, or other
property (all of which, together with any other property in which the holders of
the Senior Secured Notes may in the future be granted a security interest, is
referred to herein as the "Collateral").
9. Miscellaneous
-------------
Notices. All notices and other correspondence to PlayNet in connection
with this Agreement shall be deemed effective upon mailing to PlayNet's address
as set forth herein, which address may be changed on seven (7) days written
notice given by PlayNet to holders of all Senior Secured Notes issued hereunder.
All notices and other correspondence to the holders of Senior Secured Notes by
PlayNet in connection with this Agreement shall be deemed effective upon receipt
by such holder at such holder's address as set forth on the signature page of
the Senior Secured Notes issued hereunder, or elsewhere as such holders may
specify from time to time in writing to PlayNet, and shall be sent by certified
mail, return receipt requested.
<PAGE>
Bridge Financing Letter Agreement
December 30, 1996
Page 10
Severability. Any determination that any provision of this Agreement or
any application thereof is invalid, illegal or unenforceable in any respect in
any instance shall not affect the validity, legality or enforceability of such
provision in any other instance, or the validity, legality or enforceability of
any other provision of this Agreement.
Amendments. No modification, amendment or waiver of any provision of
this Agreement or of any provision of any other agreement between the parties
hereto is effective unless executed in writing by Allen, PlayNet, Cohen and all
other investors hereunder. No failure by the holders of the Senior Secured Notes
to give notice to PlayNet of its having failed to observe and comply with any
warranty or covenant included herein shall constitute a waiver of such warranty
or covenant or the amendment of the within Agreement.
Costs and Expenses of this Agreement. PlayNet shall pay all expenses
(including reasonable fees and expenses for counsel to Allen) incurred by Allen
in connection with the preparation, negotiation and consummation of the
agreements contemplated by the Bridge Financing.
Governing Law. This Agreement and all rights and obligations
hereunder, including matters of construction, validity and performance, shall be
governed by the laws of the State of New York. Each of the parties hereto submit
themselves to the jurisdiction of the Courts of the State of New York for all
purposes with respect to this Agreement.
Indemnification. Except for claims brought or threatened against the
holders of Senior Secured Notes by shareholders of such holders, PlayNet shall
indemnify, defend, and hold such holders harmless of and from any claim brought
or threatened against such holders by PlayNet, or any other person (as well as
from attorneys' reasonable fees and expenses in connection therewith) on account
of such holder's relationship with PlayNet (each of which may be defended,
compromised, settled or pursued by such holders with counsel of such holder's
selection, but at the expense of PlayNet). The within indemnification shall
survive payment of the Senior Secured Notes issued under the Short Term Bridge
Financing or the Second Stage Bridge Financing and/or any termination, release
or discharge executed by such holders in favor of PlayNet.
Other Investors. The terms and conditions of this Agreement, and all
rights, privileges and obligations hereunder, shall apply to and bind any and
all investors who purchase Senior Secured Notes hereunder and who execute a
signature page in the form attached hereto as Schedule 2 and who receive a
Senior Secured Note. Schedule 1, attached hereto, listing all investors who
purchase Senior Secured Notes shall be automatically revised to include all such
investors who execute a signature page in the form attached hereto as Schedule
2.
Counterparts. This Agreement may be executed by the parties hereto in
several counterparts and by different parties in separate counterparts, each of
which shall be deemed to be an original and all of which shall constitute
together but one and the same Agreement.
Cooperation. PlayNet agrees to use its best efforts to co-operate with
holders of the Senior Secured Notes to take such steps as are reasonably
necessary to give effect to the transactions contemplated hereby, including
without limitation, promptly duly executing
<PAGE>
Bridge Financing Letter Agreement
December 30, 1996
Page 11
and delivering such financing statements as may be necessary to perfect the
security interests contemplated hereby.
Please confirm that the foregoing correctly sets forth our agreement by signing
where indicated.
Very truly yours,
PlayNet Technologies, Inc.
By: /s/ Shmuel Cohen
---------------------------
Shmuel Cohen
President and Chief Executive
Officer
Accepted and agreed to as of Accepted and agreed to as of
the date first written above. the date first written above by
Allen & Company Incorporated Shmuel Cohen
as an individual with respect to
personal undertakings contained
By: /s/ James W. Quinn herein.
----------------------------
James W. Quinn
Chief Financial Officer
By: /s/ Shmuel Cohen
-------------------------
Shmuel Cohen
<PAGE>
SCHEDULE 1
LIST OF INVESTORS
Allen & Company Incorporated
Cohen, indirectly through Zeller Eblagon Leasing Ltd.
Cohen, indirectly through K. F. Chemical Co. Ltd.
<PAGE>
SCHEDULE 2
Senior Secured Note Purchaser Signature Page
--------------------------------------------
By its execution and delivery of this signature page, the undersigned Purchaser
hereby joins in and agrees to be bound by the terms and conditions, and is
entitled to all rights and privileges, of the Letter Agreement, dated December
30, 1996, between Allen & Company Incorporated, PlayNet Technologies and the
investors who purchase Senior Secured Notes as provided therein, as to the
principal amount of [First Stage Notes] [Second Stage Notes] purchased by
Purchaser as set forth below.
Name of Purchaser
---------------------------------------
(herein "Purchaser")
By: ____________________________________
Name: _________________________________
Title: __________________________________
Record and Notice Address:
==================================
----------------------------------
Telephone: _________________________
Facsimile: __________________________
Principal Amount of Senior Secured Notes Purchased:
______________________________________
Agreed and Accepted this
____ day of ____________, 199__
PlayNet Technologies, Inc.
By: _______________________________
Name: ____________________________
Title: _____________________________
<PAGE>
EXHIBIT 1
OPERATIONAL HURDLES
-------------------
1. Executed agreements with a minimum of two of the following major music
publishers: Sony, Warner Brothers, Polygram, BMG, EMI and MCA.
2. Demonstrate production capacity of a minimum of 25 PlayNet units per
day, quality control tested.
3. Written orders for 5,000 PlayNet units.
4. Remote music download capability demonstrated at commercially
acceptable speed rates and quality.
5. Executed agreement with primary ISP provider. It is PlayNet's objective
to have terms generally reflective of those presented in financial
projections to date or with adjustments to unit and services pricing
that enable the maintenance of substantially similar revenue financial
projections to date.
6. Accounting Server Functionality and the ability to account for and
settle accounts demonstrated.
7. Reasonably satisfactory coin drop data results from the forty (40)
PlayNet unit test.
8. Selection of two (2) outside independent directors.
9. PlayNet unit functionality reasonably stable with breadth of functions
and robustness sufficient for commercial rollout.
10. Estimated PlayNet unit Bill of Materials for first calendar quarter
1997 at an average of approximately $2,200 per unit.
11. Viable financing plan in place to allow commercial sales.
<PAGE>
EXHIBIT 2
FORM OF SENIOR SECURED NOTE
SENIOR SECURED NOTE
$__________ New York, New York
December ____, 1996
FOR VALUE RECEIVED, PlayNet Technologies, Inc. (the "Maker") hereby
promises to pay to ___________________________ (the "Holder"), in lawful money
of the United States of America, the principal sum of _______________________
and 00/100 Dollars ($_______) (the "Principal Amount") plus accrued interest
thereon on the Maturity Date, as defined below, in accordance with the terms set
forth herein.
This Note shall bear interest payable on the Maturity Date (as defined
below) at a rate of twelve percent (12%) per annum; shall be senior to any and
all existing and future indebtedness of the Maker; and shall rank pari passu
with any and all other Senior Secured Notes which Maker enters into between
December 16, 1996 and January 31, 1997, each of which is issued as part of the
Initial Bridge Financing or Second Stage Bridge Financing conducted by the Maker
as described in that certain Letter Agreement dated December ___, 1996, by and
between the Maker and Allen & Company Incorporated (the "Letter Agreement").
This Senior Secured Note shall mature on the earlier of (a) the closing
of any Qualified Public Offering or Qualified Private Placement, each as defined
below, or (b) one (1) year from the date hereof (the "Maturity Date"). As used
herein, (i) a "Qualified Public Offering" shall mean the closing of any public
offering of common stock of the Maker, having a par value of $.001 per share,
raising aggregate gross proceeds of at least $15 million to the Maker, and (ii)
a "Qualified Private Placement" shall mean the closing of any privately arranged
financing transaction or series of transactions raising aggregate proceeds of at
least $15 million to the Maker.
The Maker shall have the right to prepay, in whole or in part, the
Principal Amount together with interest accrued thereon through the date of
prepayment, at any time without penalty or premium.
Upon the occurrence of an Event of Default, the obligations of the
Maker to the Holder arising under this Senior Secured Note, direct and indirect,
absolute or contingent, shall immediately mature and become due and payable
without demand or notice. The following shall be deemed an "Event of Default"
under this Senior Secured Note: (a) a breach of the Maker of any promise, term,
covenant, obligation, representation or warranty arising under this Senior
Secured Note or the Letter Agreement, including the failure to make any payment
of the Principal Amount or accrued interest when due; (b) the filing of a
petition seeking relief, or the granting of relief, under the Bankruptcy Code or
any similar Federal or State statute by or against the Maker, the making of a
general assignment for the benefit of creditors by Maker, or any action by the
Maker for the purpose of effecting the foregoing; (c) the appointment, or the
filing of a petition seeking the appointment, of a custodian, receiver, trustee
or liquidator for the Maker or any of its properties or the taking of possession
of any part of the properties of the Maker at the instance of any governmental
authority; (d) when Maker becomes insolvent or
<PAGE>
has suspended its transaction of its usual business; (e) the dissolution or
merger, consolidation or reorganization of Maker in violation of the terms of
the Letter Agreement; (f) the sale of substantially all of the common stock or
assets of the Maker or (g) any change in the identity, authority or
responsibilities of any person holding the management positions of President and
Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and
Senior Vice President of Sales as of the date of this Agreement.
The Maker agrees to pay all costs of collection, including, without
limitation, reasonable attorney's fees, in the event enforcement of this Senior
Secured Note or execution of any judgment upon this Senior Secured Note is
required. No amendment, modification or waiver of any provision of this Senior
Secured Note shall be effective unless the same shall be in writing and signed
by the Holder and Maker.
Presentment or other demand for payment, notice of dishonor and protest
are hereby waived by Maker
This Senior Secured Note is one of the Senior Secured Notes referred to
in the Letter Agreement and is secured by the collateral described therein and
is entitled to all the benefits of such Letter Agreement.
This Senior Secured Note shall be governed by and construed in
accordance with the laws of the State of New York and applicable Federal Law of
the United States without regard to the conflict of laws provisions thereof.
Holder and Maker hereby submit to the jurisdiction of the Courts of the State of
New York for all purposes with respect hereto.
IN ANY ACTION, SUIT OR PROCEEDING BROUGHT BY THE HOLDER AGAINST THE
MAKER WITH RESPECT TO THIS SENIOR SECURED NOTE, OR VICE VERSA, THE MAKER AND
HOLDER WAIVE A TRIAL BY JURY.
IN WITNESS WHEREOF, the Maker has caused this Senior Secured Note to be
executed by its duly authorized officer as of the day and year first written
above.
WITNESS: PLAYNET TECHNOLOGIES, INC.
______________________________ By: ____________________________________
Name: Shmuel Cohen
President & Chief Executive Officer
Address for Notice to the Holder:
______________________________________
______________________________________
______________________________________
______________________________________
<PAGE>
EXHIBITS 3 through 7
FORMS OF WARRANT
ATTACHED HERETO
<PAGE>
EXHIBIT 3 - Form of Allen and
Third Party Investors Warrants
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND NEITHER THIS WARRANT NOR ANY SUCH SHARES MAY BE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT.
PLAYNET TECHNOLOGIES, INC.
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies
that for value received Allen & Company Incorporated or registered assigns (the
"Holder") is the owner of this warrant ("Warrant") which entitles the Holder
hereof to purchase, at any time from the date which is either (i) one year from
the date of the closing on or prior to the Five Month Date of a Qualified Public
Offering or closing on or prior to the Five Month Date of a Qualified Private
Placement (all as defined below) or (ii) if no such Qualified Public Offering or
Qualified Private Placement closes on or prior to the Five Month Date, one year
from the date of issuance hereof ((i) and (ii) singularly and collectively,the
"Exercise Date") through and including the Expiration Date (hereinafter
defined), such number of fully paid and non-assessable shares of Common Stock,
$.01 par value ("Common Stock"), of PlayNet Technologies, Inc., a Delaware
corporation (the "Company") calculated as follows:
- in the event of the closing of a Qualified Public Offering on
or prior to the date which is five months from the issuance of
this Warrant (the "Five Month Date"):
100% X $750,000
-----------------------------------------------
the per share price of the
common stock offered in such
Qualified Public Offering
-- in the event that such Qualified Public Offering is not closed
on or prior to the Five Month Date but a Qualified Private
Placement is closed on or prior to the Five Month Date:
100% X $750,000
-----------------------------------------------
the lowest per share price of
the common stock offered in
such Qualified Private Placement
--- in the event that a Qualified Public Offering or Qualified
Private Placement is not closed prior to or on the Five Month
Date:
$750,000
$5.00
<PAGE>
(each formula subject to adjustment as hereinafter provided).
For purposes of this Warrant, the term "Qualified Public
Offering" shall mean the closing of any public offering of Common Stock of the
Company raising gross proceeds of at least $15 million to the Company and the
term "Qualified Private Placement" shall mean the closing of any privately
arranged financing transaction or series of transactions raising in the
aggregate gross proceeds of at least $15 million to the Company.
1. Warrant; Purchase Price
This Warrant shall entitle the Holder initially to purchase
shares of Common Stock of the Company as calculated above and the purchase price
payable upon exercise of the Warrants shall be, (i) in the event of the closing
of a Qualified Public Offering prior to or on the Five Month Date, the per share
price of the Common Stock Offered in such Qualified Public Offering, (ii) in the
event that such a Qualified Public Offering is not closed on or prior to the
Five Month Date but a Qualified Private Placement is closed on or prior to the
Five Month Date, the lowest per share price of the Common Stock offered in such
Qualified Private Placement, or (iii) in the event that such Qualified Public
Offering or Qualified Private Placement is not closed on or prior to the Five
Month Date, $5.00 per share of Common Stock (each of (i), (ii) and (iii) the
"Relevant Purchase Price" and together the "Relevant Purchase Prices"). The
Relevant Purchase Price and number of shares of Common Stock issuable upon
exercise of this Warrant are subject to adjustment as provided in Article 6. The
shares of Common Stock issuable upon exercise of this Warrant (and/or other
shares of common stock so issuable by reason of any adjustments pursuant to
Article 6) are sometimes referred to herein as the "Warrant Shares." The
aggregate purchase price for the shares of Common Stock of the Company to be
received by the Holder hereof upon exercise of this Warrant shall be payable, at
the option of the Holder, either (i) in cash in lawful money of the United
States of America or by certified or cashier's check; or (ii) if such Holder is
Allen & Company Incorporated, by cancellation, in whole or in part, of that
certain $750,000 Senior Secured Note issued to Allen & Company Incorporated on
December 30, 1996; or (iii) as otherwise provided herein.
2. Exercise; Expiration Date
2.1 This Warrant is exercisable, at the option of the Holder,
in whole or in part at any time and from time to time from the Exercise Date
through and including the Expiration Date (the "Exercise Period"), upon
surrender of this Warrant Certificate to the Company together with a duly
completed Notice of Exercise, in the form attached hereto as Exhibit A, and
payment of an amount equal to the Relevant Purchase Price times
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<PAGE>
the number of shares of Common Stock to be received upon exercise of this
Warrant. In the case the Holder hereof elects to exercise this Warrant for less
than all the shares of Common Stock of the Company represented by this Warrant
Certificate, the Company shall cancel this Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate
providing for the exercise of the balance of such shares of Common Stock.
2.2 The term "Expiration Date" shall mean 5:00 p.m. New York
time on the date which is five years from the date of the issuance of this
Warrant, or if such day shall in the State of New York be a holiday or a day on
which banks are authorized to close, then 5:00 p.m. local time in the State of
New York the next following day which in the State of New York is not a holiday
or a day on which banks are authorized to close.
3. Registration and Transfer on Company Books
3.1 The Company shall maintain books for the registration and
transfer of this Warrant and the registration and transfer of the Warrant
Shares.
3.2 Prior to due presentment for registration of transfer of
this Warrant Certificate, or the Warrant Shares, the Company may deem and treat
the registered Holder as the absolute owner thereof.
3.3 The Company shall register upon its books any transfer of
this Warrant Certificate, upon surrender of same to the Company with a written
instrument of transfer duly executed by the registered Holder or by a duly
authorized attorney. Upon any such registration of transfer, new Warrant
Certificate(s) shall be issued to the transferee(s) and the surrendered Warrant
Certificate shall be canceled by the Company. A Warrant Certificate may also be
exchanged, at the option of the Holder, for new Warrant Certificates of
different denominations representing an aggregate purchase price of $750,000.
4. Reservation of Shares
The Company covenants that it will at all times reserve and
keep available out of its authorized capital stock, solely for the purpose of
issue upon exercise of this Warrant, such number of shares as shall then be
issuable upon the exercise of this Warrant. The Company covenants that all
shares of capital stock which shall be issuable upon exercise of this Warrant
shall be duly and validly issued and fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issue thereof, and that upon
issuance such shares shall be listed on each national securities exchange, if
any, on which the other shares of such outstanding series of capital stock of
the Company are then listed.
3
<PAGE>
5. Loss or Mutilation
Upon receipt by the Company of reasonable evidence of the
ownership of and the loss, theft, destruction or mutilation of any Warrant
Certificate and, in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company, or, in the case of mutilation, upon
surrender and cancellation of the mutilated Warrant Certificate, the Company
shall execute and deliver in lieu thereof a new Warrant Certificate replacing
such Warrant Certificate.
6. Adjustment of Relevant Purchase Price and
Number of Shares Deliverable
6.1 The number of Warrant Shares purchasable upon the exercise
of each Warrant and the Relevant Purchase Price with respect to the Warrant
Shares shall be subject to adjustment as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its Common Stock payable in shares of its capital
stock, (ii) subdivide its outstanding shares of Common Stock through
stock split or otherwise, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or (iv)
issue by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation) other securities of the
Company, or (v) in case of a consolidation or merger of the Company
with or into another corporation or in case of the sale or transfer of
all or substantially all of the assets of the Company (hereinafter, a
"Reorganization Transaction"), the number and/or nature of Warrant
Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the Holder shall be entitled to
receive the kind and number of Warrant Shares or other securities of
the Company (or of any successor company) which he would have owned or
have been entitled to receive after the happening of any of the events
described above, had such Warrant been exercised immediately prior to
the happening of such event or any record date with respect thereto. An
adjustment made pursuant to this paragraph (a) shall become effective
retroactively as of the record date of such event.
(b) In case the Company shall distribute to all holders of its
shares of Common Stock, or all holders of Common Stock shall otherwise
become entitled to receive, shares of capital stock of the Company
(other than dividends or distributions on its Common Stock referred to
in paragraph (a) above), evidences of its indebtedness or rights,
4
<PAGE>
options, warrants or convertible securities providing the right to
subscribe for or purchase any shares of the Company's capital stock or
evidences of its indebtedness, then in each case the number of Warrant
Shares thereafter purchasable upon the exercise of this Warrant shall
be determined by multiplying the number of Warrant Shares theretofore
purchasable upon the exercise of this Warrant, by a fraction, of which
the numerator shall be the then Market Price Per Share of the Warrant
Shares (as determined pursuant to Section 9.2) on the record date
mentioned below in this paragraph (b), and of which the denominator
shall be the then Market Price Per Share of the Warrant Shares on such
record date less the then fair value (as determined by the Board of
Directors of the Company, in good faith) of the portion of the shares
of the Company's capital stock other than Common Stock, evidences of
indebtedness, or of such rights, options, warrants or convertible
securities, distributable with respect to each Warrant Share. Such
adjustment shall be made whenever any such distribution is made, and
shall become effective retroactively as of the record date for the
determination of shareholders entitled to receive such distribution.
(c) Whenever the number of Warrant Shares purchasable upon the
exercise of this Warrant is adjusted, as provided in this Section 6.1,
the Relevant Purchase Prices with respect to the Warrant Shares shall
be adjusted by multiplying such Relevant Purchase Prices immediately
prior to such adjustment by a fraction, of which the numerator shall be
the number of Warrant Shares purchasable upon the exercise of this
Warrant immediately prior to such adjustment, and of which the
denominator shall be the number of Warrant Shares so purchasable
immediately thereafter.
6.2 No adjustment in the number of Warrant Shares purchasable
under this Warrant, or in the Relevant Purchase Prices with respect to the
Warrant Shares, shall be required unless such adjustment would require an
increase or decrease of at least 1% in the number of Warrant Shares issuable
upon the exercise of such Warrant, or in the Relevant Purchase Prices thereof;
provided, however, that any adjustments which by reason of this Section 6.3 are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All final results of adjustments to the number of Warrant
Shares and the Relevant Purchase Prices thereof shall be rounded to the nearest
one thousandth of a share or the nearest cent, as the case may be. Anything in
this Section 6 to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the number of Warrant Shares
purchasable upon the exercise of each Warrant, or in the Relevant Purchase
Prices thereof, in addition to those required by such Section, as it in its
5
<PAGE>
discretion shall determine to be advisable in order that any dividend or
distribution in shares of Common Stock, subdivision, reclassification or
combination of shares of Common Stock, issuance of rights, warrants or options
to purchase Common Stock, or distribution of shares of stock other than Common
Stock, evidences of indebtedness or assets (other than distributions of cash out
of retained earnings) or convertible or exchangeable securities hereafter made
by the Company to the holders of its Common Stock shall not result in any tax to
the holders of its Common Stock or securities convertible into Common Stock.
6.3 Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant or the Relevant Purchase Price of such Warrant Shares
is adjusted, as herein provided, the Company shall mail to the Holder, at the
address of the Holder shown on the books of the Company, a notice of such
adjustment or adjustments, prepared and signed by the Chief Financial Officer or
Secretary of the Company, which sets forth the number of Warrant Shares
purchasable upon the exercise of this Warrant and each of the then Relevant
Purchase Prices of such Warrant Shares after such adjustment, a brief statement
of the facts requiring such adjustment and the computation by which such
adjustment was made.
6.4 In the event that at any time prior to the expiration
of this Warrant and prior to their exercise:
(a) the Company shall declare any distribution (other than a
cash dividend or a dividend payable in securities of the Company with
respect to the Common Stock); or
(b) the Company shall offer for subscription to all the
holders of the Common Stock any additional shares of stock of any class
or any other securities convertible into Common Stock or any rights to
subscribe thereto; or
(c) the Company shall declare any stock split, stock dividend,
subdivision, combination, or similar distribution with respect to the
Common Stock that shall affect the outstanding number of shares of
Common Stock; or
(d) the Company shall declare a dividend, other than a
dividend payable in shares of the Company's own Common Stock; or
(e) there shall be any capital change in the Company as set
forth in Section 6.1(a)(v); or
6
<PAGE>
(f) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company (other than in connection
with a consolidation, merger, or sale of all or substantially all of
its property, assets and business as an entity);
(each such event hereinafter being referred to as a "Notification Event"), the
Company shall cause to be mailed to the Holder, not less than 20 days prior to
the record date, if any, in connection with such Notification Event (provided,
however, that if there is no record date, 20 days prior to the effective date,
or in either case if 20 days prior notice is impracticable, as soon as
practicable) written notice specifying the nature of such event and the
effective date of, or the date on which the books of the Company shall close or
a record shall be taken with respect to, such event. Such notice shall also set
forth facts indicating the effect of such action (to the extent such effect may
be known at the date of such notice) on each of the Relevant Purchase Prices and
the kind and amount of the shares of stock or other securities or property
deliverable upon exercise of this Warrant.
6.5 The form of Warrant Certificate need not be changed
because of any change in the Relevant Purchase Prices, the number of Warrant
Shares issuable upon the exercise of a Warrant or the number of Warrants
outstanding pursuant to this Section 6, and Warrant Certificates issued before
or after such change may state the same Relevant Purchase Prices, the same
number of Warrants, and the same number of Warrant Shares issuable upon exercise
of Warrants as are stated in the Warrant Certificates theretofore issued
pursuant to this Agreement. The Company may, however, at any time, in its sole
discretion, make any change in the form of Warrant Certificate that it may deem
appropriate and that does not affect the substance thereof, and any Warrant
Certificates thereafter issued or countersigned, whether in exchange or
substitution for an outstanding Warrant Certificate or otherwise, may be in the
form as so changed.
7. Conversion Rights
7.1 After the occurrence of any Reorganization Transaction (as
such term is defined in Section 6.1(a)(v)), in lieu of exercise of any portion
of this Warrant as provided in Section 2.1 hereof, the Warrant Shares
represented by this Warrant Certificate (or any portion thereof) may, at the
election of the Holder, be converted into the nearest whole number of shares of
Common Stock of the Company (or other securities of the Company or any successor
Company underlying the Warrant) equal to: (1) the product of (a) the number of
shares of Common Stock (or such other securities) then issuable upon the
exercise of this Warrant to be so converted and (b) the excess, if any, of (i)
the Market Price Per Share (as determined pursuant to Section 9.2) with respect
7
<PAGE>
to the date of conversion over (ii) the Relevant Purchase Prices in effect on
the business day next preceding the date of conversion, divided by (2) the
Market Price Per Share with respect to the date of conversion.
7.2 The conversion rights provided under this Section 7 may be
exercised in whole or in part and at any time and from time to time while this
Warrant remain outstanding. In order to exercise the conversion privilege, the
Holder shall surrender to the Company (or any successor company), at its
offices, this Warrant Certificate accompanied by a duly completed Notice of
Conversion in the form attached hereto as Exhibit B. The Warrants (or so much
thereof as shall have been surrendered for conversion) shall be deemed to have
been converted immediately prior to the close of business on the day of
surrender of such Warrant Certificate for conversion in accordance with the
foregoing provisions. As promptly as practicable on or after the conversion
date, the Company (or the successor company) shall issue and shall deliver to
the Holder (i) a certificate or certificates representing the number of shares
of Common Stock (or such other securities) to which the Holder shall be entitled
as a result of the conversion, and (ii) if the Warrant Certificate is being
converted in part only, a new certificate of like tenor and date for the balance
of the unconverted portion of the Warrant Certificate.
8. Voluntary Adjustment by the Company
The Company may, at its option, at any time during the term of
this Warrant, reduce the then current Relevant Purchase Prices to any amount
deemed appropriate by the Board of Directors of the Company and/or extend the
date of the expiration of the Warrants.
9. Fractional Shares and Warrants; Determination of
Market Price Per Share
9.1 Anything contained herein to the contrary notwithstanding,
the Company shall not be required to issue any fraction of a share of Common
Stock in connection with the exercise of this Warrant. This Warrant may not be
exercised in such number as would result (except for the provisions of this
paragraph) in the issuance of a fraction of a share of Common Stock unless the
Holder is exercising this Warrant for all shares of Common Stock to be received
by the Holder hereunder. In such event, the Company shall, upon the exercise of
the entirety of this Warrant, issue to the Holder the largest aggregate whole
number of shares of Common Stock called for thereby upon receipt of the Relevant
Purchase Price for all shares of Common Stock to be issued upon exercise hereof
and pay a sum in cash equal to the remaining fraction of a share of Common
Stock, multiplied by its Market Price Per Share (as determined pursuant to
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<PAGE>
Section 9.2 below) as of the last business day preceding the date on which this
Warrant are presented for exercise.
9.2 As used herein, the "Market Price Per Share" with respect
to any class or series of Common Stock of the Company (or any other securities
of the Company or of any successor company) on any date shall mean the closing
price per share of such class or series of securities for the trading day
immediately preceding such date. The closing price for each such day shall be
the last sale price regular way or, in case no such sale takes place on such
day, the average of the closing bid and asked prices regular way, in either case
on the principal securities exchange on which the shares of such Common Stock of
the Company (or other securities of the Company or of such successor company)
are listed or admitted to trading or, if applicable, the last sale price, or in
case no sale takes place on such day, the average of the closing bid and asked
prices of such securities on NASDAQ or any comparable system, or if such
securities are not reported on NASDAQ, or a comparable system, the average of
the closing bid and asked prices as furnished by two members of the National
Association of Securities Dealers, Inc. selected from time to time by the
Company for that purpose. If such bid and asked prices are not available, then
"Market Price Per Share" shall be equal to the fair market value of the such
securities as determined in good faith by the Board of Directors of the Company
(or of such successor company).
10. Restrictions on Transfer; Registration Rights
10.1 No sale, transfer, assignment, hypothecation or other
disposition of this Warrant or Warrant Shares shall be made unless any such
transfer, assignment or other disposition will comply with the rules and
statutes administered by the Securities and Exchange Commission and (i) a
Registration Statement under the Securities Act of 1933, as amended (the "Act"),
including such shares is currently in effect, or (ii) in the opinion of counsel
a current Registration Statement is not required for such disposition of the
shares.
10.2 In the event of a proposed sale or transfer of this
Warrant or Warrant Shares in a transaction other than a sale pursuant to a
public offering registered under the Act, a Holder shall deliver to the Company
an opinion of counsel addressed to the Company (which shall be rendered by
counsel reasonably acceptable to the Company) to the effect that the proposed
transfer may be effected without registration or qualification under any Federal
or state securities or blue sky law. Such counsel rendering the opinion shall,
as promptly as practicable, notify the Company and the Holder of such opinion
and of the terms and conditions, if any, to be observed in such transfer,
whereupon the Holder shall be entitled to transfer this Warrant or the Warrant
Shares (or a portion thereof).
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10.3 The Company agrees that, at any time or times hereafter,
until the second anniversary of the Expiration Date of this Warrant, as and when
it intends to register any of its securities under the Act, whether for its own
account and/or on behalf of selling stockholders (except in connection with an
offering solely to its employees, an offering pursuant to an employee benefit
plan, a dividend or interest reinvestment plan, or an offering solely related to
an acquisition on a Form S-4 or any subsequent similar form) permitting a
secondary offering or distribution the Company will notify the Holder of such
intention and, upon request from the Holder, will use its best efforts to cause
the Warrant Shares designated by the Holder to be registered under the
Securities Act. The number of Warrant Shares to be included in such offering may
be reduced if and to the extent that the underwriter of securities included in
the registration statement and offered by the Company shall be of the opinion
that such inclusion would adversely affect the marketing of the securities to be
sold by the Company therein; provided, however, that the percentage of the
reduction of such Warrant Shares shall be no greater than the percentage
reduction of securities of other selling stockholders, as such percentage
reductions are determined in the good faith judgment of the Company. The Company
will use its best efforts to keep each such Registration Statement current for
such period of time as is not otherwise burdensome to the Company.
10.4 Any registration statement referred to in subsection 10.3
hereof shall be prepared and processed in accordance with the following terms
and conditions:
(i) the Holder will cooperate in furnishing promptly to the
Company in writing any information requested by the Company in
connection with the preparation, filing and processing of such
registration statement.
(ii) to the extent requested by an underwriter of securities
included in the registration statement and offered by the Company, the
Holder will defer the sale of Warrant Shares for a period commencing
twenty (20) days prior and terminating sixty (60) days after the
effective date of the registration statement, provided that any
principal shareholders of the Company who also have shares included in
the registration statement will also defer their sales for a similar
period, except for sales pursuant to registrations on Form S-8 or S-4
or any similar or successor forms thereto.
(iii) The Company will furnish to the Holder such number of
prospectuses or other documents incident to such registration as may
from time to time be reasonably requested, and cause its shares to be
qualified under the blue-sky laws of those states reasonably requested
by the Holder.
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(iv) The Company will indemnify the Holder (and any officer,
director or controlling person of the Holder) and any underwriters
acting on behalf of the Holder against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement of any material
facts contained in any registration statement filed pursuant hereto, or
any document relating thereto, including all amendments and
supplements, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein contained not misleading,
and will reimburse the Holder (or such other aforementioned parties) or
such underwriters for any legal and all other expenses reasonably
incurred in accordance with investigating or defending any such claim,
loss, damage, liability or action; provided, however, that the Company
will not be liable where the untrue or alleged untrue statement or
omission or alleged omission is based upon information furnished in
writing to the Company by the Holder or any underwriter obtained by the
Holder expressly for use therein, or as a result of the Holder's or any
such underwriter's failure to furnish to the Company information duly
requested in writing by counsel for the Company specifically for use
therein; provided that with respect to any untrue statement or omission
or alleged untrue statement or omission made in any preliminary
prospectus, the indemnity agreement contained in this paragraph shall
not inure to the benefit of any underwriter from whom the person
asserting such losses, claims, damages or liability purchased the
securities concerned, to the extent that any such loss, claim, damage
or liability of such underwriter results from the fact that a copy of
the prospectus was not sent or given to such person at or prior to the
written confirmation of the sale of such securities to such person.
This indemnity agreement shall be in addition to any other liability
the Company may have. The indemnity agreement of the Company contained
in this paragraph (iv) shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the
Warrant Shares.
(v) The Holder will indemnify the Company (and any officer,
director or controlling person of the Company) and any underwriters
acting on behalf of the Company against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
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<PAGE>
may become subject under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement filed pursuant
hereto, or any document relating thereto, including all amendments, and
supplements, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein contained not misleading,
and, will reimburse the Company (or such other aforementioned parties)
or such underwriters for any legal and other expenses reasonably
incurred in connection with investigating or defending any such claim,
loss, damage, liability, or action; provided, however, that the Holder
will be liable as aforesaid only to the extent that such untrue or
alleged untrue statement or omission or alleged omission is based upon
information furnished in writing to the Company by the Holder or any
underwriter obtained by the Holder expressly for use therein, or as a
result of its or such underwriter's failure to furnish the Company with
information duly requested in writing by counsel for the Company
specifically for use therein. This indemnity agreement contained in
this paragraph (v) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Warrant
Shares.
(vi) Promptly after receipt by an indemnified party under this
subsection 10.4 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party, promptly notify the indemnifying party
of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under this subsection
10.4. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the
extent that it may wish jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this subsection 10.4 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation or
out-of-pocket expenses or losses or cost incurred in collaborating in
the defense.
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(vii) Except as set forth in subsection 10.4(viii), the Company
shall bear all costs and expenses incident to any registration pursuant
to this Section 10.
(viii) The Holder shall pay any and all underwriters' discounts,
brokerage fees and transfer taxes incident to the sale of any
securities sold by such Holder pursuant to this Section 10, and shall
pay the fees and expenses of any special attorneys or accountants
retained by it.
(ix) If the filing of any registration statement pursuant to
subsection 10.4 would require the Company to obtain audited financial
statements other than its normal year end audit required for the filing
of its reports required under the Securities Exchange Act of 1934 (the
"Exchange Act"), the Company may defer the filing of such registration
statement until the necessary audited financial statements are
available, unless the Holder arranges for the payment of the expense of
such audit to the extent that such expense would exceed the amount
which the Company would otherwise be required to bear in connection
with its normal audit schedule for reporting under the Exchange Act.
10.5 If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages, liabilities, expenses or actions in respect thereof
referred to herein, then each indemnifying party shall in lieu of indemnifying
such indemnified party contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities,
expenses or actions in such proportion as is appropriate to reflect the relative
fault of the Company, on the one hand, and the seller of such Warrant Shares, on
the other, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities, expenses or actions as well as any other
relevant equitable considerations, including the failure to give the notice
required hereunder. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact relates to information supplied by the Company, on the one hand, or the
sellers of such Warrant Shares, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the holder hereof agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation (even if all of the sellers of such Warrant
Shares were treated as one entity for such purpose) or by any other method of
allocation which did not take account of the equitable considerations referred
to above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or actions in respect thereof referred to
above shall be deemed to include any legal or other expenses which reasonably
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<PAGE>
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the contribution provisions of this
Section, in no event shall the amount contributed by any seller from the sale of
Warrant Shares to which such contribution claim relates. No person guilty of
fraudulent misrepresentations (within the meaning of section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. Each Holder of this Warrant and each Holder of
Warrant Shares bearing the legend required by Section 10.6, by acceptance hereof
or thereof, as the case may be, agrees to the indemnification and contribution
provisions of this Section 10.5.
10.6 Legend. In case any shares are issued upon the exercise
in whole or in part of this Warrant or are thereafter transferred, in either
case under such circumstances that no registration under the Act is required or
effective, each certificate representing such shares shall bear on the face
thereof the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and any
transfer thereof is subject to the conditions specified in the Warrant
dated as of [Include Date] originally issued by PlayNet Technologies,
Inc. (the "Company") to [Include Name of Holder] to purchase shares of
Common Stock, $.001 par value, of the Company. A copy of the form of
such Warrant is on file with the Secretary of the Company in New York,
New York, and will be furnished without charge by the Company to the
holder of this certificate upon written request to the Secretary of the
Company at such address."
11. Miscellaneous
11.1 Governing Law. This Warrant Certificate shall be governed
by and construed in accordance with the laws of the State of New York.
11.2 Holder Not a Stockholder. Prior to the exercise of this
Warrant, the holder hereof shall not be entitled to any of the rights of a
stockholder of the Company including, without limitation, the right as a
stockholder to (a) vote on or consent to any proposed action of the Company or
(b) receive (i) dividends or any distributions made to stockholders, (ii) notice
of or attend any meetings of stockholders of the Company or (iii) notice of any
other proceedings of the Company.
11.3 Notices. Any notice, demand or delivery to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if sent by first class mail, postage
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prepaid, addressed to (a) the holder of this Warrant or issued Warrant Shares at
its last known address appearing on the books at the Company maintained for such
purposes or (b) the Company at its principal offices at 152 West 57th Street,
New York, New York 10019, Attention: General Counsel. The Holder of this Warrant
and the Company may each designate a different address by notice to the other
pursuant to this Section 11.3.
11.4 Investment Representation. The Holder represents that it
is purchasing the Warrant and all shares issuable upon exercise of this Warrant
for its own account and not as nominee or agent for any other person and not
with a view to, or for offer or sale in connection with any distribution thereof
(within the meaning of the Act) that would be in violation of the applicable
securities laws; provided, however, that subject to the restrictions contained
in Section 10, that the disposition of all or any part of such shares shall at
all times be within the Holder's exclusive control.
11.5 Confidentiality of Information. The Holder of this
Warrant (and any affiliates of the Holder) and any permitted transferee of this
Warrant will treat all documents, financial statements, reports and other
information delivered pursuant to this Warrant on a confidential basis with the
same degree of care it treats similar information of other companies of which it
holds securities and has investment banking relationships.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed by its officers thereunto duly authorized and
its corporate seal to be affixed hereon, as of this 30th day of December, 1996.
PLAYNET TECHNOLOGIES, INC.
By: ___________________________
Name:
Title:
15
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE FORM
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warrant
irrevocably exercises the within Warrant for and purchases shares of Common
Stock of PlayNet Technologies, Inc. (the "Company") and herewith makes payment
therefor in the amount of $_________, all on the terms and conditions specified
in the within Warrant, and requests that a certificate (or ______ certificates
in denominations of ______ shares) for the shares of Common Stock of the Company
hereby purchased be issued in the name of and delivered to (choose one) (a) the
undersigned or (b) ________, whose address is _______________ and, if such
shares of Common Stock shall not include all the shares of Common Stock issuable
as provided in the within Warrant, that a new Warrant of like tenor for that
portion of the Warrant not exercised hereby be issued in the name of and
delivered to (choose one) (a) the undersigned or (b) ______________, whose
address is _______________________.
The undersigned represents that it is purchasing the
securities described above for its own account and not as a nominee or agent for
any other person and not with a view to, or for offer of sale in connection
with, any distribution thereof (within the meaning of the Securities Act of
1933) that would be in violation of the applicable securities laws; provided,
however, that subject to the restrictions contained in Section 10 of the Warrant
that the disposition of all or any part of such shares shall at all times be
within the undersigned's exclusive control.
Dated: __________________
By:________________________________
(signature of Registered Holder)
Signature Guaranteed:
___________________________
By:_____________________
Title:
NOTICE: The signature to this Notice must correspond with the name as
written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
The signature to this Notice must be guaranteed by a
commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
16
<PAGE>
EXHIBIT B
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert, pursuant
to Section 7 of the Warrant Certificate accompanying this Notice of Conversion,
that number of shares of Common Stock issuable upon exercise of the Warrant for
an aggregate purchase price of $_______ into that number of shares of Common
Stock of the Company to be received by the undersigned pursuant to the
provisions of Section 7.1 of the accompanying Warrant Certificate.
Dated: _______________ ___________________________
Name of Holder
___________________________
Signature
Address:
___________________________
___________________________
___________________________
Signature Guaranteed:
___________________________
By:_____________________
Title:
17
<PAGE>
ASSIGNMENT FORM
(To be executed only upon the
assignment of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the
within Warrant hereby sells, assigns and transfers unto _____________________,
whose address is ________________________, all of the rights of the undersigned
under the within Warrant, with respect to the receipt of shares of Common Stock
of PlayNet Technologies, Inc. and, if such sale, assignment or transfer is for
less than the right to the receipt of all shares of Common Stock to which the
Holder is entitled upon exercise of such Warrant, that a new Warrant of like
tenor for that portion of the Warrant not being transferred hereunder be issued
in the name of and delivered to the undersigned, and does hereby irrevocably
constitute and appoint ______________ Attorney to register such transfer on the
books of the Company maintained for the purpose, with full power of substitution
in the premises.
Dated: _____________, 19__.
By:________________________________
(Signature of Registered Holder)
Signature Guaranteed:
__________________________
By:_______________________
Title:
NOTICE: The signature to this Assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
The signature to this Assignment must be guaranteed by a
commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
<PAGE>
<PAGE>
EXHIBIT 4 - Form of
"Cohen Investor" Warrants
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND NEITHER THIS WARRANT NOR ANY SUCH SHARES MAY BE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT.
PLAYNET TECHNOLOGIES, INC.
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies
that for value received Zeller Eblagon Financial Services Ltd. or registered
assigns (the "Holder") is the owner of this warrant ("Warrant") which entitles
the Holder hereof to purchase, at any time from the date which is either (i) one
year from the date of the closing on or prior to the Five Month Date of a
Qualified Public Offering or closing on or prior to the Five Month Date of a
Qualified Private Placement (all as defined below) or (ii) if no such Qualified
Public Offering or Qualified Private Placement closes on or prior to the Five
Month Date, one year from the date of issuance hereof ((i) and (ii) singularly
and collectively, the "Exercise Date") through and including the Expiration Date
(hereinafter defined), such number of fully paid and non-assessable shares of
Common Stock, $.01 par value ("Common Stock"), of PlayNet Technologies, Inc., a
Delaware corporation (the "Company") calculated as follows:
- in the event of the closing of a Qualified Public Offering on
or prior to the date which is five months from the issuance of
this Warrant (the "Five Month Date"):
50% X $500,000
------------------------------------
the per share price of the
common stock offered in such
Qualified Public Offering
-- in the event that such Qualified Public Offering is not closed
on or prior to the Five Month Date but a Qualified Private
Placement is closed on or prior to the Five Month Date:
<PAGE>
50% X $500,000
------------------------------------
the lowest per share price of
the common stock offered in
such Qualified Private Placement
--- in the event that a Qualified Public Offering or Qualified
Private Placement is not completed on or prior to the Five
Month Date:
50% X $500,000
------------------------------------
$5.00
(each formula subject to adjustment as hereinafter provided).
For purposes of this Warrant, the term "Qualified Public
Offering" shall mean the closing of any public offering of Common Stock of the
Company raising gross proceeds of at least $15 million to the Company and the
term "Qualified Private Placement" shall mean the closing of any privately
arranged financing transaction or series of transactions raising in the
aggregate gross proceeds of at least $15 million to the Company.
1. Warrant; Purchase Price
This Warrant shall entitle the Holder initially to purchase
shares of Common Stock of the Company as calculated above and the purchase price
payable upon exercise of the Warrants shall be, (i) in the event of the closing
of a Qualified Public Offering on or prior to the Five Month Date, the per share
price of the Common Stock Offered in such Qualified Public Offering, (ii) in the
event that such a Qualified Public Offering is not closed on or prior to the
Five Month Date but a Qualified Private Placement is closed on or prior to the
Five Month Date, the lowest per share price of the Common Stock offered in such
Qualified Private Placement, or (iii) in the event that such Qualified Public
Offering or Qualified Private Placement is not closed on or prior to the Five
Month Date, $5.00 per share of Common Stock (each of (i), (ii) and (iii) the
"Relevant Purchase Price" and together the "Relevant Purchase Prices"). The
Relevant Purchase Price and number of shares of Common Stock issuable upon
exercise of this Warrant are subject to adjustment as provided in Article 6. The
shares of Common Stock issuable upon exercise of this Warrant (and/or other
shares of common stock so issuable by reason of any adjustments pursuant to
Article 6) are sometimes referred to herein as the "Warrant Shares." The
aggregate purchase price for the shares of Common Stock of the Company to be
received by the Holder hereof upon exercise of this Warrant shall be payable, at
the option of the Holder, either (i) in cash in lawful money of the United
States of America or by certified or cashier's check; or (ii) if such Holder is
Zeller Eblagon Leasing Ltd., by cancellation, in whole or in part, of that
certain $500,000 Senior Secured Note issued to Zeller Eblagon Leasing Ltd. on ,
1996; or (iii) as otherwise provided herein.
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<PAGE>
2. Exercise; Expiration Date
2.1 This Warrant is exercisable, at the option of the Holder,
in whole or in part at any time and from time to time from the Exercise Date
through and including the Expiration Date (the "Exercise Period"), upon
surrender of this Warrant Certificate to the Company together with a duly
completed Notice of Exercise, in the form attached hereto as Exhibit A, and
payment of an amount equal to the Relevant Purchase Price times the number of
shares of Common Stock to be received upon exercise of this Warrant. In the case
the Holder hereof elects to exercise this Warrant for less than all the shares
of Common Stock of the Company represented by this Warrant Certificate, the
Company shall cancel this Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate providing for the exercise
of the balance of such shares of Common Stock.
2.2 The term "Expiration Date" shall mean 5:00 p.m. New York
time on the date which is five years from the date of the issuance of this
Warrant, or if such day shall in the State of New York be a holiday or a day on
which banks are authorized to close, then 5:00 p.m. local time in the State of
New York the next following day which in the State of New York is not a holiday
or a day on which banks are authorized to close.
3. Registration and Transfer on Company Books
3.1 The Company shall maintain books for the registration and
transfer of this Warrant and the registration and transfer of the Warrant
Shares.
3.2 Prior to due presentment for registration of transfer of
this Warrant Certificate, or the Warrant Shares, the Company may deem and treat
the registered Holder as the absolute owner thereof.
3.3 The Company shall register upon its books any transfer of
this Warrant Certificate, upon surrender of same to the Company with a written
instrument of transfer duly executed by the registered Holder or by a duly
authorized attorney. Upon any such registration of transfer, new Warrant
Certificate(s) shall be issued to the transferee(s) and the surrendered Warrant
Certificate shall be canceled by the Company. A Warrant Certificate may also be
exchanged, at the option of the Holder, for new Warrant Certificates of
different denominations representing an aggregate purchase price of $500,000.
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<PAGE>
4. Reservation of Shares
The Company covenants that it will at all times reserve and
keep available out of its authorized capital stock, solely for the purpose of
issue upon exercise of this Warrant, such number of shares as shall then be
issuable upon the exercise of this Warrant. The Company covenants that all
shares of capital stock which shall be issuable upon exercise of this Warrant
shall be duly and validly issued and fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issue thereof, and that upon
issuance such shares shall be listed on each national securities exchange, if
any, on which the other shares of such outstanding series of capital stock of
the Company are then listed.
5. Loss or Mutilation
Upon receipt by the Company of reasonable evidence of the
ownership of and the loss, theft, destruction or mutilation of any Warrant
Certificate and, in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company, or, in the case of mutilation, upon
surrender and cancellation of the mutilated Warrant Certificate, the Company
shall execute and deliver in lieu thereof a new Warrant Certificate replacing
such Warrant Certificate.
6. Adjustment of Relevant Purchase Price and Number of
Shares Deliverable
6.1 The number of Warrant Shares purchasable upon the exercise
of each Warrant and the Relevant Purchase Price with respect to the Warrant
Shares shall be subject to adjustment as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its Common Stock payable in shares of its capital
stock, (ii) subdivide its outstanding shares of Common Stock through
stock split or otherwise, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or (iv)
issue by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation) other securities of the
Company, or (v) in case of a consolidation or merger of the Company
with or into another corporation or in case of the sale or transfer of
all or substantially all of the assets of the Company (hereinafter, a
"Reorganization Transaction"), the number and/or nature of Warrant
Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the Holder shall be entitled to
receive the kind and number of Warrant Shares or other securities of
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<PAGE>
the Company (or of any successor company) which he would have owned or
have been entitled to receive after the happening of any of the events
described above, had such Warrant been exercised immediately prior to
the happening of such event or any record date with respect thereto. An
adjustment made pursuant to this paragraph (a) shall become effective
retroactively as of the record date of such event.
(b) In case the Company shall distribute to all holders of its
shares of Common Stock, or all holders of Common Stock shall otherwise
become entitled to receive, shares of capital stock of the Company
(other than dividends or distributions on its Common Stock referred to
in paragraph (a) above), evidences of its indebtedness or rights,
options, warrants or convertible securities providing the right to
subscribe for or purchase any shares of the Company's capital stock or
evidences of its indebtedness, then in each case the number of Warrant
Shares thereafter purchasable upon the exercise of this Warrant shall
be determined by multiplying the number of Warrant Shares theretofore
purchasable upon the exercise of this Warrant, by a fraction, of which
the numerator shall be the then Market Price Per Share of the Warrant
Shares (as determined pursuant to Section 9.2) on the record date
mentioned below in this paragraph (b), and of which the denominator
shall be the then Market Price Per Share of the Warrant Shares on such
record date less the then fair value (as determined by the Board of
Directors of the Company, in good faith) of the portion of the shares
of the Company's capital stock other than Common Stock, evidences of
indebtedness, or of such rights, options, warrants or convertible
securities, distributable with respect to each Warrant Share. Such
adjustment shall be made whenever any such distribution is made, and
shall become effective retroactively as of the record date for the
determination of shareholders entitled to receive such distribution.
(c) Whenever the number of Warrant Shares purchasable upon the
exercise of this Warrant is adjusted, as provided in this Section 6.1,
the Relevant Purchase Prices with respect to the Warrant Shares shall
be adjusted by multiplying such Relevant Purchase Prices immediately
prior to such adjustment by a fraction, of which the numerator shall be
the number of Warrant Shares purchasable upon the exercise of this
Warrant immediately prior to such adjustment, and of which the
denominator shall be the number of Warrant Shares so purchasable
immediately thereafter.
6.2 No adjustment in the number of Warrant Shares purchasable
under this Warrant, or in the Relevant Purchase Prices with respect to the
Warrant Shares, shall be required unless such adjustment would require an
5
<PAGE>
increase or decrease of at least 1% in the number of Warrant Shares issuable
upon the exercise of such Warrant, or in the Relevant Purchase Prices thereof;
provided, however, that any adjustments which by reason of this Section 6.3 are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All final results of adjustments to the number of Warrant
Shares and the Relevant Purchase Prices thereof shall be rounded to the nearest
one thousandth of a share or the nearest cent, as the case may be. Anything in
this Section 6 to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the number of Warrant Shares
purchasable upon the exercise of each Warrant, or in the Relevant Purchase
Prices thereof, in addition to those required by such Section, as it in its
discretion shall determine to be advisable in order that any dividend or
distribution in shares of Common Stock, subdivision, reclassification or
combination of shares of Common Stock, issuance of rights, warrants or options
to purchase Common Stock, or distribution of shares of stock other than Common
Stock, evidences of indebtedness or assets (other than distributions of cash out
of retained earnings) or convertible or exchangeable securities hereafter made
by the Company to the holders of its Common Stock shall not result in any tax to
the holders of its Common Stock or securities convertible into Common Stock.
6.3 Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant or the Relevant Purchase Price of such Warrant Shares
is adjusted, as herein provided, the Company shall mail to the Holder, at the
address of the Holder shown on the books of the Company, a notice of such
adjustment or adjustments, prepared and signed by the Chief Financial Officer or
Secretary of the Company, which sets forth the number of Warrant Shares
purchasable upon the exercise of this Warrant and each of the then Relevant
Purchase Prices of such Warrant Shares after such adjustment, a brief statement
of the facts requiring such adjustment and the computation by which such
adjustment was made.
6.4 In the event that at any time prior to the expiration of
this Warrant and prior to their exercise:
(a) the Company shall declare any distribution (other than a
cash dividend or a dividend payable in securities of the Company with
respect to the Common Stock); or
(b) the Company shall offer for subscription to all the
holders of the Common Stock any additional shares of stock of any class
or any other securities convertible into Common Stock or any rights to
subscribe thereto; or
6
<PAGE>
(c) the Company shall declare any stock split, stock dividend,
subdivision, combination, or similar distribution with respect to the
Common Stock that shall affect the outstanding number of shares of
Common Stock; or
(d) the Company shall declare a dividend, other than a
dividend payable in shares of the Company's own Common Stock; or
(e) there shall be any capital change in the Company as set
forth in Section 6.1(a)(v); or
(f) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company (other than in connection
with a consolidation, merger, or sale of all or substantially all of
its property, assets and business as an entity);
(each such event hereinafter being referred to as a "Notification Event"), the
Company shall cause to be mailed to the Holder, not less than 20 days prior to
the record date, if any, in connection with such Notification Event (provided,
however, that if there is no record date, 20 days prior to the effective date,
or in either case if 20 days prior notice is impracticable, as soon as
practicable) written notice specifying the nature of such event and the
effective date of, or the date on which the books of the Company shall close or
a record shall be taken with respect to, such event. Such notice shall also set
forth facts indicating the effect of such action (to the extent such effect may
be known at the date of such notice) on each of the Relevant Purchase Prices and
the kind and amount of the shares of stock or other securities or property
deliverable upon exercise of this Warrant.
6.5 The form of Warrant Certificate need not be changed
because of any change in the Relevant Purchase Prices, the number of Warrant
Shares issuable upon the exercise of a Warrant or the number of Warrants
outstanding pursuant to this Section 6, and Warrant Certificates issued before
or after such change may state the same Relevant Purchase Prices, the same
number of Warrants, and the same number of Warrant Shares issuable upon exercise
of Warrants as are stated in the Warrant Certificates theretofore issued
pursuant to this Agreement. The Company may, however, at any time, in its sole
discretion, make any change in the form of Warrant Certificate that it may deem
appropriate and that does not affect the substance thereof, and any Warrant
Certificates thereafter issued or countersigned, whether in exchange or
substitution for an outstanding Warrant Certificate or otherwise, may be in the
form as so changed.
7
<PAGE>
7. Conversion Rights
7.1 After the occurrence of any Reorganization Transaction (as
such term is defined in Section 6.1(a)(v)), in lieu of exercise of any portion
of this Warrant as provided in Section 2.1 hereof, the Warrant Shares
represented by this Warrant Certificate (or any portion thereof) may, at the
election of the Holder, be converted into the nearest whole number of shares of
Common Stock of the Company (or other securities of the Company or any successor
Company underlying the Warrant) equal to: (1) the product of (a) the number of
shares of Common Stock (or such other securities) then issuable upon the
exercise of this Warrant to be so converted and (b) the excess, if any, of (i)
the Market Price Per Share (as determined pursuant to Section 9.2) with respect
to the date of conversion over (ii) the Relevant Purchase Prices in effect on
the business day next preceding the date of conversion, divided by (2) the
Market Price Per Share with respect to the date of conversion.
7.2 The conversion rights provided under this Section 7 may be
exercised in whole or in part and at any time and from time to time while this
Warrant remain outstanding. In order to exercise the conversion privilege, the
Holder shall surrender to the Company (or any successor company), at its
offices, this Warrant Certificate accompanied by a duly completed Notice of
Conversion in the form attached hereto as Exhibit B. The Warrants (or so much
thereof as shall have been surrendered for conversion) shall be deemed to have
been converted immediately prior to the close of business on the day of
surrender of such Warrant Certificate for conversion in accordance with the
foregoing provisions. As promptly as practicable on or after the conversion
date, the Company (or the successor company) shall issue and shall deliver to
the Holder (i) a certificate or certificates representing the number of shares
of Common Stock (or such other securities) to which the Holder shall be entitled
as a result of the conversion, and (ii) if the Warrant Certificate is being
converted in part only, a new certificate of like tenor and date for the balance
of the unconverted portion of the Warrant Certificate.
8. Voluntary Adjustment by the Company
The Company may, at its option, at any time during the term of
this Warrant, reduce the then current Relevant Purchase Prices to any amount
deemed appropriate by the Board of Directors of the Company and/or extend the
date of the expiration of the Warrants.
8
<PAGE>
9. Fractional Shares and Warrants; Determination of
Market Price Per Share
9.1 Anything contained herein to the contrary notwithstanding,
the Company shall not be required to issue any fraction of a share of Common
Stock in connection with the exercise of this Warrant. This Warrant may not be
exercised in such number as would result (except for the provisions of this
paragraph) in the issuance of a fraction of a share of Common Stock unless the
Holder is exercising this Warrant for all shares of Common Stock to be received
by the Holder hereunder. In such event, the Company shall, upon the exercise of
the entirety of this Warrant, issue to the Holder the largest aggregate whole
number of shares of Common Stock called for thereby upon receipt of the Relevant
Purchase Price for all shares of Common Stock to be issued upon exercise hereof
and pay a sum in cash equal to the remaining fraction of a share of Common
Stock, multiplied by its Market Price Per Share (as determined pursuant to
Section 9.2 below) as of the last business day preceding the date on which this
Warrant are presented for exercise.
9.2 As used herein, the "Market Price Per Share" with respect
to any class or series of Common Stock of the Company (or any other securities
of the Company or of any successor company) on any date shall mean the closing
price per share of such class or series of securities for the trading day
immediately preceding such date. The closing price for each such day shall be
the last sale price regular way or, in case no such sale takes place on such
day, the average of the closing bid and asked prices regular way, in either case
on the principal securities exchange on which the shares of such Common Stock of
the Company (or other securities of the Company or of such successor company)
are listed or admitted to trading or, if applicable, the last sale price, or in
case no sale takes place on such day, the average of the closing bid and asked
prices of such securities on NASDAQ or any comparable system, or if such
securities are not reported on NASDAQ, or a comparable system, the average of
the closing bid and asked prices as furnished by two members of the National
Association of Securities Dealers, Inc. selected from time to time by the
Company for that purpose. If such bid and asked prices are not available, then
"Market Price Per Share" shall be equal to the fair market value of the such
securities as determined in good faith by the Board of Directors of the Company
(or of such successor company).
10. Restrictions on Transfer; Registration Rights
10.1 No sale, transfer, assignment, hypothecation or other
disposition of this Warrant or Warrant Shares shall be made unless any such
transfer, assignment or other disposition will comply with the rules and
statutes administered by the Securities and Exchange Commission and (i) a
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Registration Statement under the Securities Act of 1933, as amended (the "Act"),
including such shares is currently in effect, or (ii) in the opinion of counsel
a current Registration Statement is not required for such disposition of the
shares.
10.2 In the event of a proposed sale or transfer of this
Warrant or Warrant Shares in a transaction other than a sale pursuant to a
public offering registered under the Act, a Holder shall deliver to the Company
an opinion of counsel addressed to the Company (which shall be rendered by
counsel reasonably acceptable to the Company) to the effect that the proposed
transfer may be effected without registration or qualification under any Federal
or state securities or blue sky law. Such counsel rendering the opinion shall,
as promptly as practicable, notify the Company and the Holder of such opinion
and of the terms and conditions, if any, to be observed in such transfer,
whereupon the Holder shall be entitled to transfer this Warrant or the Warrant
Shares (or a portion thereof).
10.3 The Company agrees that, at any time or times hereafter,
until the second anniversary of the Expiration Date of this Warrant, as and when
it intends to register any of its securities under the Act, whether for its own
account and/or on behalf of selling stockholders (except in connection with an
offering solely to its employees, an offering pursuant to an employee benefit
plan, a dividend or interest reinvestment plan, or an offering solely related to
an acquisition on a Form S-4 or any subsequent similar form) permitting a
secondary offering or distribution the Company will notify the Holder of such
intention and, upon request from the Holder, will use its best efforts to cause
the Warrant Shares designated by the Holder to be registered under the
Securities Act. The number of Warrant Shares to be included in such offering may
be reduced if and to the extent that the underwriter of securities included in
the registration statement and offered by the Company shall be of the opinion
that such inclusion would adversely affect the marketing of the securities to be
sold by the Company therein; provided, however, that the percentage of the
reduction of such Warrant Shares shall be no greater than the percentage
reduction of securities of other selling stockholders, as such percentage
reductions are determined in the good faith judgment of the Company. The Company
will use its best efforts to keep each such Registration Statement current for
such period of time as is not otherwise burdensome to the Company.
10.4 Any registration statement referred to in subsection 10.3
hereof shall be prepared and processed in accordance with the following terms
and conditions:
(i) the Holder will cooperate in furnishing promptly to the
Company in writing any information requested by the Company in
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connection with the preparation, filing and processing of such
registration statement.
(ii) to the extent requested by an underwriter of securities
included in the registration statement and offered by the Company, the
Holder will defer the sale of Warrant Shares for a period commencing
twenty (20) days prior and terminating sixty (60) days after the
effective date of the registration statement, provided that any
principal shareholders of the Company who also have shares included in
the registration statement will also defer their sales for a similar
period, except for sales pursuant to registrations on Form S-8 or S-4
or any similar or successor forms thereto.
(iii) The Company will furnish to the Holder such number of
prospectuses or other documents incident to such registration as may
from time to time be reasonably requested, and cause its shares to be
qualified under the blue-sky laws of those states reasonably requested
by the Holder.
(iv) The Company will indemnify the Holder (and any officer,
director or controlling person of the Holder) and any underwriters
acting on behalf of the Holder against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement of any material
facts contained in any registration statement filed pursuant hereto, or
any document relating thereto, including all amendments and
supplements, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein contained not misleading,
and will reimburse the Holder (or such other aforementioned parties) or
such underwriters for any legal and all other expenses reasonably
incurred in accordance with investigating or defending any such claim,
loss, damage, liability or action; provided, however, that the Company
will not be liable where the untrue or alleged untrue statement or
omission or alleged omission is based upon information furnished in
writing to the Company by the Holder or any underwriter obtained by the
Holder expressly for use therein, or as a result of the Holder's or any
such underwriter's failure to furnish to the Company information duly
requested in writing by counsel for the Company specifically for use
therein; provided that with respect to any untrue statement or omission
or alleged untrue statement or omission made in any preliminary
prospectus, the indemnity agreement contained in this paragraph shall
not inure to the benefit of any underwriter from whom the person
asserting such losses, claims, damages or liability purchased the
securities concerned, to the extent that any such loss, claim, damage
or liability of such underwriter results from the fact that a copy of
the prospectus was not sent or given to such person at or prior to the
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written confirmation of the sale of such securities to such person.
This indemnity agreement shall be in addition to any other liability
the Company may have. The indemnity agreement of the Company contained
in this paragraph (iv) shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the
Warrant Shares.
(v) The Holder will indemnify the Company (and any officer,
director or controlling person of the Company) and any underwriters
acting on behalf of the Company against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement filed pursuant
hereto, or any document relating thereto, including all amendments, and
supplements, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein contained not misleading,
and, will reimburse the Company (or such other aforementioned parties)
or such underwriters for any legal and other expenses reasonably
incurred in connection with investigating or defending any such claim,
loss, damage, liability, or action; provided, however, that the Holder
will be liable as aforesaid only to the extent that such untrue or
alleged untrue statement or omission or alleged omission is based upon
information furnished in writing to the Company by the Holder or any
underwriter obtained by the Holder expressly for use therein, or as a
result of its or such underwriter's failure to furnish the Company with
information duly requested in writing by counsel for the Company
specifically for use therein. This indemnity agreement contained in
this paragraph (v) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Warrant
Shares.
(vi) Promptly after receipt by an indemnified party under this
subsection 10.4 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party, promptly notify the indemnifying party
of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
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have to any indemnified party otherwise than under this subsection
10.4. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the
extent that it may wish jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this subsection 10.4 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation or
out-of-pocket expenses or losses or cost incurred in collaborating in
the defense.
(vii) Except as set forth in subsection 10.4(viii), the Company
shall bear all costs and expenses incident to any registration pursuant
to this Section 10.
(viii) The Holder shall pay any and all underwriters' discounts,
brokerage fees and transfer taxes incident to the sale of any
securities sold by such Holder pursuant to this Section 10, and shall
pay the fees and expenses of any special attorneys or accountants
retained by it.
(ix) If the filing of any registration statement pursuant to
subsection 10.4 would require the Company to obtain audited financial
statements other than its normal year end audit required for the filing
of its reports required under the Securities Exchange Act of 1934 (the
"Exchange Act"), the Company may defer the filing of such registration
statement until the necessary audited financial statements are
available, unless the Holder arranges for the payment of the expense of
such audit to the extent that such expense would exceed the amount
which the Company would otherwise be required to bear in connection
with its normal audit schedule for reporting under the Exchange Act.
10.5 If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages, liabilities, expenses or actions in respect thereof
referred to herein, then each indemnifying party shall in lieu of indemnifying
such indemnified party contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities,
expenses or actions in such proportion as is appropriate to reflect the relative
fault of the Company, on the one hand, and the seller of such Warrant Shares, on
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<PAGE>
the other, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities, expenses or actions as well as any other
relevant equitable considerations, including the failure to give the notice
required hereunder. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact relates to information supplied by the Company, on the one hand, or the
sellers of such Warrant Shares, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the holder hereof agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation (even if all of the sellers of such Warrant
Shares were treated as one entity for such purpose) or by any other method of
allocation which did not take account of the equitable considerations referred
to above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or actions in respect thereof referred to
above shall be deemed to include any legal or other expenses which reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the contribution provisions of this
Section, in no event shall the amount contributed by any seller from the sale of
Warrant Shares to which such contribution claim relates. No person guilty of
fraudulent misrepresentations (within the meaning of section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. Each Holder of this Warrant and each Holder of
Warrant Shares bearing the legend required by Section 10.6, by acceptance hereof
or thereof, as the case may be, agrees to the indemnification and contribution
provisions of this Section 10.5.
10.6 Legend. In case any shares are issued upon the exercise
in whole or in part of this Warrant or are thereafter transferred, in either
case under such circumstances that no registration under the Act is required or
effective, each certificate representing such shares shall bear on the face
thereof the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and any
transfer thereof is subject to the conditions specified in the Warrant
dated as of _______________, 1996 originally issued by PlayNet
Technologies, Inc. (the "Company") to Zeller Eblagon Leasing Ltd. to
purchase shares of Common Stock, $.001 par value, of the Company. A
copy of the form of such Warrant is on file with the Secretary of the
Company in New York, New York, and will be furnished without charge by
the Company to the holder of this certificate upon written request to
the Secretary of the Company at such address."
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11. Miscellaneous
11.1 Governing Law. This Warrant Certificate shall be governed
by and construed in accordance with the laws of the State of New York.
11.2 Holder Not a Stockholder. Prior to the exercise of this
Warrant, the holder hereof shall not be entitled to any of the rights of a
stockholder of the Company including, without limitation, the right as a
stockholder to (a) vote on or consent to any proposed action of the Company or
(b) receive (i) dividends or any distributions made to stockholders, (ii) notice
of or attend any meetings of stockholders of the Company or (iii) notice of any
other proceedings of the Company.
11.3 Notices. Any notice, demand or delivery to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if sent by first class mail, postage prepaid, addressed to (a) the holder of
this Warrant or issued Warrant Shares at its last known address appearing on the
books at the Company maintained for such purposes or (b) the Company at its
principal offices at 152 West 57th Street, New York, New York 10019, Attention:
General Counsel. The Holder of this Warrant and the Company may each designate a
different address by notice to the other pursuant to this Section 11.3.
11.4 Investment Representation. The Holder represents that it
is purchasing the Warrant and all shares issuable upon exercise of this Warrant
for its own account and not as nominee or agent for any other person and not
with a view to, or for offer or sale in connection with any distribution thereof
(within the meaning of the Act) that would be in violation of the applicable
securities laws; provided, however, that subject to the restrictions contained
in Section 10, that the disposition of all or any part of such shares shall at
all times be within the Holder's exclusive control.
11.5 Confidentiality of Information. The Holder of this
Warrant (and any affiliates of the Holder) and any permitted transferee of this
Warrant will treat all documents, financial statements, reports and other
information delivered pursuant to this Warrant on a confidential basis with the
same degree of care it treats similar information of other companies of which it
holds securities and has investment banking relationships.
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IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed by its officers thereunto duly authorized and
its corporate seal to be affixed hereon, as of this ____ day of _________, 1996.
PLAYNET TECHNOLOGIES, INC.
By:________________________
Name:
Title:
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EXHIBIT A
NOTICE OF EXERCISE FORM
-----------------------
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warrant
irrevocably exercises the within Warrant for and purchases shares of Common
Stock of PlayNet Technologies, Inc. (the "Company") and herewith makes payment
therefor in the amount of $_________, all on the terms and conditions specified
in the within Warrant, and requests that a certificate (or ______ certificates
in denominations of ______ shares) for the shares of Common Stock of the Company
hereby purchased be issued in the name of and delivered to (choose one) (a) the
undersigned or (b) ________, whose address is _______________ and, if such
shares of Common Stock shall not include all the shares of Common Stock issuable
as provided in the within Warrant, that a new Warrant of like tenor for that
portion of the Warrant not exercised hereby be issued in the name of and
delivered to (choose one) (a) the undersigned or (b) ______________, whose
address is _______________________.
The undersigned represents that it is purchasing the
securities described above for its own account and not as a nominee or agent for
any other person and not with a view to, or for offer of sale in connection
with, any distribution thereof (within the meaning of the Securities Act of
1933) that would be in violation of the applicable securities laws; provided,
however, that subject to the restrictions contained in Section 10 of the Warrant
that the disposition of all or any part of such shares shall at all times be
within the undersigned's exclusive control.
Dated: __________________
By:________________________________
(signature of Registered Holder)
Signature Guaranteed:
________________________
By:_____________________
Title:
NOTICE: The signature to this Notice must correspond with the name as
written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
The signature to this Notice must be guaranteed by a
commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
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EXHIBIT B
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert, pursuant
to Section 7 of the Warrant Certificate accompanying this Notice of Conversion,
that number of shares of Common Stock issuable upon exercise of the Warrant for
an aggregate purchase price of $_______ into that number of shares of Common
Stock of the Company to be received by the undersigned pursuant to the
provisions of Section 7.1 of the accompanying Warrant Certificate.
Dated: _______________ ____________________________
Name of Holder
____________________________
Signature
Address:
____________________________
____________________________
____________________________
Signature Guaranteed:
________________________
By:_____________________
Title:
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<PAGE>
ASSIGNMENT FORM
---------------
(To be executed only upon the
assignment of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the
within Warrant hereby sells, assigns and transfers unto _____________________,
whose address is ________________________, all of the rights of the undersigned
under the within Warrant, with respect to the receipt of shares of Common Stock
of PlayNet Technologies, Inc. and, if such sale, assignment or transfer is for
less than the right to the receipt of all shares of Common Stock to which the
Holder is entitled upon exercise of such Warrant, that a new Warrant of like
tenor for that portion of the Warrant not being transferred hereunder be issued
in the name of and delivered to the undersigned, and does hereby irrevocably
constitute and appoint ______________ Attorney to register such transfer on the
books of the Company maintained for the purpose, with full power of substitution
in the premises.
Dated: _____________, 19__.
By:________________________________
(Signature of Registered Holder)
Signature Guaranteed:
__________________________
By:_______________________
Title:
NOTICE: The signature to this Assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
The signature to this Assignment must be guaranteed by a
commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
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<PAGE>
EXHIBIT 5 - Form of
Tranche 1 Warrant
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND NEITHER THIS WARRANT NOR ANY SUCH SHARES MAY BE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT.
PLAYNET TECHNOLOGIES, INC.
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies
that for value received ____________________ or registered assigns (the
"Holder") is the owner of this warrant ("Warrant") which entitles the Holder
hereof to purchase, at any time from the date which is either (i) one year from
the date of the closing on or prior to the Five Month Date of a Qualified Public
Offering or closing on or prior to the Five Month Date of a Qualified Private
Placement (all as defined below) or (ii) if no such Qualified Public Offering or
Qualified Private Placement closes on or prior to the Five Month Date, one year
from the date of issuance hereof ((i) and (ii) singularly and collectively,the
"Exercise Date") through and including the Expiration Date (hereinafter
defined), such number of fully paid and non-assessable shares of Common Stock,
$.01 par value ("Common Stock"), of PlayNet Technologies, Inc., a Delaware
corporation (the "Company") calculated as follows:
- in the event of the closing of a Qualified Public Offering on
or prior to the date which is five months from the issuance of
this Warrant (the "Five Month Date"):
$[fill in principal amount of Senior Note]
75% X --------------------------------------------
the per share price of the common stock
offered in such Qualified Public Offering
<PAGE>
-- in the event that such Qualified Public Offering is not closed
on or prior to the Five Month Date but a Qualified Private
Placement is closed on or prior to the Five Month Date:
$[fill in principal amount of Senior Note]
75% X --------------------------------------------
the lowest per share price of the
common stock offered in such
Qualified Private Placement
--- in the event that a Qualified Public Offering or Qualified
Private Placement is not closed on or prior to the Five Month
Date:
$[fill in principal amount of Senior Note]
75% X --------------------------------------------
$5.00
(each formula subject to adjustment as hereinafter provided).
For purposes of this Warrant, the term "Qualified Public
Offering" shall mean the closing of any public offering of Common Stock of the
Company raising gross proceeds of at least $15 million to the Company and the
term "Qualified Private Placement" shall mean the closing of any privately
arranged financing transaction or series of transactions raising in the
aggregate gross proceeds of at least $15 million to the Company.
1. Warrant; Purchase Price
This Warrant shall entitle the Holder initially to purchase
shares of Common Stock of the Company as calculated above and the purchase price
payable upon exercise of the Warrants shall be, (i) in the event of the closing
of a Qualified Public Offering on or prior to the Five Month Date, the per share
price of the Common Stock Offered in such Qualified Public Offering, (ii) in the
event that such a Qualified Public Offering is not closed on or prior to the
Five Month Date but a Qualified Private Placement is closed on or prior to the
Five Month Date, the lowest per share price of the Common Stock offered in such
Qualified Private Placement, or (iii) in the event that such Qualified Public
Offering or Qualified Private Placement is not closed on or prior to the Five
Month Date, $5.00 per share of Common Stock (each of (i), (ii) and (iii) the
"Relevant Purchase Price" and together the "Relevant Purchase Prices"). The
Relevant Purchase Price and number of shares of Common Stock issuable upon
exercise of this Warrant are subject to adjustment as provided in Article 6. The
shares of Common Stock issuable upon exercise of this Warrant (and/or other
shares of common stock so issuable by reason of any adjustments pursuant to
Article 6) are sometimes referred to herein as the "Warrant Shares." The
aggregate purchase price for the shares of Common Stock of the Company to be
received by the Holder hereof upon exercise of this Warrant shall be payable, at
the option of the Holder, either (i) in cash in lawful money of the United
States of America or by certified or cashier's check; or (ii) if such Holder is
[Name of Holder], by cancellation, in whole or in part, of that certain
$[Principal Amount of Note] Senior Secured Note issued to [Name of Holder] on
[Month, Day] , 199_; or (iii) as otherwise provided herein.
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2. Exercise; Expiration Date
2.1 This Warrant is exercisable, at the option of the Holder,
in whole or in part at any time and from time to time from the Exercise Date
through and including the Expiration Date (the "Exercise Period"), upon
surrender of this Warrant Certificate to the Company together with a duly
completed Notice of Exercise, in the form attached hereto as Exhibit A, and
payment of an amount equal to the Relevant Purchase Price times the number of
shares of Common Stock to be received upon exercise of this Warrant. In the case
the Holder hereof elects to exercise this Warrant for less than all the shares
of Common Stock of the Company represented by this Warrant Certificate, the
Company shall cancel this Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate providing for the exercise
of the balance of such shares of Common Stock.
2.2 The term "Expiration Date" shall mean 5:00 p.m. New York
time on the date which is five years from the date of the issuance of this
Warrant, or if such day shall in the State of New York be a holiday or a day on
which banks are authorized to close, then 5:00 p.m. local time in the State of
New York the next following day which in the State of New York is not a holiday
or a day on which banks are authorized to close.
3. Registration and Transfer on Company Books
3.1 The Company shall maintain books for the registration and
transfer of this Warrant and the registration and transfer of the Warrant
Shares.
3.2 Prior to due presentment for registration of transfer of
this Warrant Certificate, or the Warrant Shares, the Company may deem and treat
the registered Holder as the absolute owner thereof.
3.3 The Company shall register upon its books any transfer of
this Warrant Certificate, upon surrender of same to the Company with a written
instrument of transfer duly executed by the registered Holder or by a duly
authorized attorney. Upon any such registration of transfer, new Warrant
Certificate(s) shall be issued to the transferee(s) and the surrendered Warrant
Certificate shall be canceled by the Company. A Warrant Certificate may also be
exchanged, at the option of the Holder, for new Warrant Certificates of
different denominations representing an aggregate purchase price of $ .
4. Reservation of Shares
The Company covenants that it will at all times reserve and
keep available out of its authorized capital stock, solely for the purpose of
issue upon exercise of this Warrant, such number of shares as shall then be
issuable upon the exercise of this Warrant. The Company covenants that all
shares of capital stock which shall be issuable upon exercise of this Warrant
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shall be duly and validly issued and fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issue thereof, and that upon
issuance such shares shall be listed on each national securities exchange, if
any, on which the other shares of such outstanding series of capital stock of
the Company are then listed.
5. Loss or Mutilation
Upon receipt by the Company of reasonable evidence of the
ownership of and the loss, theft, destruction or mutilation of any Warrant
Certificate and, in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company, or, in the case of mutilation, upon
surrender and cancellation of the mutilated Warrant Certificate, the Company
shall execute and deliver in lieu thereof a new Warrant Certificate replacing
such Warrant Certificate.
6. Adjustment of Relevant Purchase Price and Number of
Shares Deliverable
6.1 The number of Warrant Shares purchasable upon the exercise
of each Warrant and the Relevant Purchase Price with respect to the Warrant
Shares shall be subject to adjustment as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its Common Stock payable in shares of its capital
stock, (ii) subdivide its outstanding shares of Common Stock through
stock split or otherwise, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or (iv)
issue by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation) other securities of the
Company, or (v) in case of a consolidation or merger of the Company
with or into another corporation or in case of the sale or transfer of
all or substantially all of the assets of the Company (hereinafter, a
"Reorganization Transaction"), the number and/or nature of Warrant
Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the Holder shall be entitled to
receive the kind and number of Warrant Shares or other securities of
the Company (or of any successor company) which he would have owned or
have been entitled to receive after the happening of any of the events
described above, had such Warrant been exercised immediately prior to
the happening of such event or any record date with respect thereto. An
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adjustment made pursuant to this paragraph (a) shall become effective
retroactively as of the record date of such event.
(b) In case the Company shall distribute to all holders of its
shares of Common Stock, or all holders of Common Stock shall otherwise
become entitled to receive, shares of capital stock of the Company
(other than dividends or distributions on its Common Stock referred to
in paragraph (a) above), evidences of its indebtedness or rights,
options, warrants or convertible securities providing the right to
subscribe for or purchase any shares of the Company's capital stock or
evidences of its indebtedness, then in each case the number of Warrant
Shares thereafter purchasable upon the exercise of this Warrant shall
be determined by multiplying the number of Warrant Shares theretofore
purchasable upon the exercise of this Warrant, by a fraction, of which
the numerator shall be the then Market Price Per Share of the Warrant
Shares (as determined pursuant to Section 9.2) on the record date
mentioned below in this paragraph (b), and of which the denominator
shall be the then Market Price Per Share of the Warrant Shares on such
record date less the then fair value (as determined by the Board of
Directors of the Company, in good faith) of the portion of the shares
of the Company's capital stock other than Common Stock, evidences of
indebtedness, or of such rights, options, warrants or convertible
securities, distributable with respect to each Warrant Share. Such
adjustment shall be made whenever any such distribution is made, and
shall become effective retroactively as of the record date for the
determination of shareholders entitled to receive such distribution.
(c) Whenever the number of Warrant Shares purchasable upon the
exercise of this Warrant is adjusted, as provided in this Section 6.1,
the Relevant Purchase Prices with respect to the Warrant Shares shall
be adjusted by multiplying such Relevant Purchase Prices immediately
prior to such adjustment by a fraction, of which the numerator shall be
the number of Warrant Shares purchasable upon the exercise of this
Warrant immediately prior to such adjustment, and of which the
denominator shall be the number of Warrant Shares so purchasable
immediately thereafter.
6.2 No adjustment in the number of Warrant Shares purchasable
under this Warrant, or in the Relevant Purchase Prices with respect to the
Warrant Shares, shall be required unless such adjustment would require an
increase or decrease of at least 1% in the number of Warrant Shares issuable
upon the exercise of such Warrant, or in the Relevant Purchase Prices thereof;
provided, however, that any adjustments which by reason of this Section 6.3 are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All final results of adjustments to the number of Warrant
Shares and the Relevant Purchase Prices thereof shall be rounded to the nearest
one thousandth of a share or the nearest cent, as the case may be. Anything in
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<PAGE>
this Section 6 to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the number of Warrant Shares
purchasable upon the exercise of each Warrant, or in the Relevant Purchase
Prices thereof, in addition to those required by such Section, as it in its
discretion shall determine to be advisable in order that any dividend or
distribution in shares of Common Stock, subdivision, reclassification or
combination of shares of Common Stock, issuance of rights, warrants or options
to purchase Common Stock, or distribution of shares of stock other than Common
Stock, evidences of indebtedness or assets (other than distributions of cash out
of retained earnings) or convertible or exchangeable securities hereafter made
by the Company to the holders of its Common Stock shall not result in any tax to
the holders of its Common Stock or securities convertible into Common Stock.
6.3 Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant or the Relevant Purchase Price of such Warrant Shares
is adjusted, as herein provided, the Company shall mail to the Holder, at the
address of the Holder shown on the books of the Company, a notice of such
adjustment or adjustments, prepared and signed by the Chief Financial Officer or
Secretary of the Company, which sets forth the number of Warrant Shares
purchasable upon the exercise of this Warrant and each of the then Relevant
Purchase Prices of such Warrant Shares after such adjustment, a brief statement
of the facts requiring such adjustment and the computation by which such
adjustment was made.
6.4 In the event that at any time prior to the expiration of
this Warrant and prior to their exercise:
(a) the Company shall declare any distribution (other than a
cash dividend or a dividend payable in securities of the Company with
respect to the Common Stock); or
(b) the Company shall offer for subscription to all the
holders of the Common Stock any additional shares of stock of any class
or any other securities convertible into Common Stock or any rights to
subscribe thereto; or
(c) the Company shall declare any stock split, stock dividend,
subdivision, combination, or similar distribution with respect to the
Common Stock that shall affect the outstanding number of shares of
Common Stock; or
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<PAGE>
(d) the Company shall declare a dividend, other than a
dividend payable in shares of the Company's own Common Stock; or
(e) there shall be any capital change in the Company as set
forth in Section 6.1(a)(v); or
(f) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company (other than in connection
with a consolidation, merger, or sale of all or substantially all of
its property, assets and business as an entity);
(each such event hereinafter being referred to as a "Notification Event"), the
Company shall cause to be mailed to the Holder, not less than 20 days prior to
the record date, if any, in connection with such Notification Event (provided,
however, that if there is no record date, 20 days prior to the effective date,
or in either case if 20 days prior notice is impracticable, as soon as
practicable) written notice specifying the nature of such event and the
effective date of, or the date on which the books of the Company shall close or
a record shall be taken with respect to, such event. Such notice shall also set
forth facts indicating the effect of such action (to the extent such effect may
be known at the date of such notice) on each of the Relevant Purchase Prices and
the kind and amount of the shares of stock or other securities or property
deliverable upon exercise of this Warrant.
6.5 The form of Warrant Certificate need not be changed
because of any change in the Relevant Purchase Prices, the number of Warrant
Shares issuable upon the exercise of a Warrant or the number of Warrants
outstanding pursuant to this Section 6, and Warrant Certificates issued before
or after such change may state the same Relevant Purchase Prices, the same
number of Warrants, and the same number of Warrant Shares issuable upon exercise
of Warrants as are stated in the Warrant Certificates theretofore issued
pursuant to this Agreement. The Company may, however, at any time, in its sole
discretion, make any change in the form of Warrant Certificate that it may deem
appropriate and that does not affect the substance thereof, and any Warrant
Certificates thereafter issued or countersigned, whether in exchange or
substitution for an outstanding Warrant Certificate or otherwise, may be in the
form as so changed.
7. Conversion Rights
7.1 After the occurrence of any Reorganization Transaction (as
such term is defined in Section 6.1(a)(v)), in lieu of exercise of any portion
of this Warrant as provided in Section 2.1 hereof, the Warrant Shares
represented by this Warrant Certificate (or any portion thereof) may, at the
election of the Holder, be converted into the nearest whole number of shares of
Common Stock of the Company (or other securities of the Company or any successor
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<PAGE>
Company underlying the Warrant) equal to: (1) the product of (a) the number of
shares of Common Stock (or such other securities) then issuable upon the
exercise of this Warrant to be so converted and (b) the excess, if any, of (i)
the Market Price Per Share (as determined pursuant to Section 9.2) with respect
to the date of conversion over (ii) the Relevant Purchase Prices in effect on
the business day next preceding the date of conversion, divided by (2) the
Market Price Per Share with respect to the date of conversion.
7.2 The conversion rights provided under this Section 7 may be
exercised in whole or in part and at any time and from time to time while this
Warrant remain outstanding. In order to exercise the conversion privilege, the
Holder shall surrender to the Company (or any successor company), at its
offices, this Warrant Certificate accompanied by a duly completed Notice of
Conversion in the form attached hereto as Exhibit B. The Warrants (or so much
thereof as shall have been surrendered for conversion) shall be deemed to have
been converted immediately prior to the close of business on the day of
surrender of such Warrant Certificate for conversion in accordance with the
foregoing provisions. As promptly as practicable on or after the conversion
date, the Company (or the successor company) shall issue and shall deliver to
the Holder (i) a certificate or certificates representing the number of shares
of Common Stock (or such other securities) to which the Holder shall be entitled
as a result of the conversion, and (ii) if the Warrant Certificate is being
converted in part only, a new certificate of like tenor and date for the balance
of the unconverted portion of the Warrant Certificate.
8. Voluntary Adjustment by the Company
The Company may, at its option, at any time during the term of
this Warrant, reduce the then current Relevant Purchase Prices to any amount
deemed appropriate by the Board of Directors of the Company and/or extend the
date of the expiration of the Warrants.
9. Fractional Shares and Warrants; Determination of
Market Price Per Share
9.1 Anything contained herein to the contrary notwithstanding,
the Company shall not be required to issue any fraction of a share of Common
Stock in connection with the exercise of this Warrant. This Warrant may not be
exercised in such number as would result (except for the provisions of this
paragraph) in the issuance of a fraction of a share of Common Stock unless the
Holder is exercising this Warrant for all shares of Common Stock to be received
by the Holder hereunder. In such event, the Company shall, upon the exercise of
the entirety of this Warrant, issue to the Holder the largest aggregate whole
8
<PAGE>
number of shares of Common Stock called for thereby upon receipt of the Relevant
Purchase Price for all shares of Common Stock to be issued upon exercise hereof
and pay a sum in cash equal to the remaining fraction of a share of Common
Stock, multiplied by its Market Price Per Share (as determined pursuant to
Section 9.2 below) as of the last business day preceding the date on which this
Warrant are presented for exercise.
9.2 As used herein, the "Market Price Per Share" with respect
to any class or series of Common Stock of the Company (or any other securities
of the Company or of any successor company) on any date shall mean the closing
price per share of such class or series of securities for the trading day
immediately preceding such date. The closing price for each such day shall be
the last sale price regular way or, in case no such sale takes place on such
day, the average of the closing bid and asked prices regular way, in either case
on the principal securities exchange on which the shares of such Common Stock of
the Company (or other securities of the Company or of such successor company)
are listed or admitted to trading or, if applicable, the last sale price, or in
case no sale takes place on such day, the average of the closing bid and asked
prices of such securities on NASDAQ or any comparable system, or if such
securities are not reported on NASDAQ, or a comparable system, the average of
the closing bid and asked prices as furnished by two members of the National
Association of Securities Dealers, Inc. selected from time to time by the
Company for that purpose. If such bid and asked prices are not available, then
"Market Price Per Share" shall be equal to the fair market value of the such
securities as determined in good faith by the Board of Directors of the Company
(or of such successor company).
10. Restrictions on Transfer; Registration Rights
10.1 No sale, transfer, assignment, hypothecation or other
disposition of this Warrant or Warrant Shares shall be made unless any such
transfer, assignment or other disposition will comply with the rules and
statutes administered by the Securities and Exchange Commission and (i) a
Registration Statement under the Securities Act of 1933, as amended (the "Act"),
including such shares is currently in effect, or (ii) in the opinion of counsel
a current Registration Statement is not required for such disposition of the
shares.
10.2 In the event of a proposed sale or transfer of this
Warrant or Warrant Shares in a transaction other than a sale pursuant to a
public offering registered under the Act, a Holder shall deliver to the Company
an opinion of counsel addressed to the Company (which shall be rendered by
counsel reasonably acceptable to the Company) to the effect that the proposed
transfer may be effected without registration or qualification under any Federal
9
<PAGE>
or state securities or blue sky law. Such counsel rendering the opinion shall,
as promptly as practicable, notify the Company and the Holder of such opinion
and of the terms and conditions, if any, to be observed in such transfer,
whereupon the Holder shall be entitled to transfer this Warrant or the Warrant
Shares (or a portion thereof).
10.3 The Company agrees that, at any time or times hereafter,
until the second anniversary of the Expiration Date of this Warrant, as and when
it intends to register any of its securities under the Act, whether for its own
account and/or on behalf of selling stockholders (except in connection with an
offering solely to its employees, an offering pursuant to an employee benefit
plan, a dividend or interest reinvestment plan, or an offering solely related to
an acquisition on a Form S-4 or any subsequent similar form) permitting a
secondary offering or distribution the Company will notify the Holder of such
intention and, upon request from the Holder, will use its best efforts to cause
the Warrant Shares designated by the Holder to be registered under the
Securities Act. The number of Warrant Shares to be included in such offering may
be reduced if and to the extent that the underwriter of securities included in
the registration statement and offered by the Company shall be of the opinion
that such inclusion would adversely affect the marketing of the securities to be
sold by the Company therein; provided, however, that the percentage of the
reduction of such Warrant Shares shall be no greater than the percentage
reduction of securities of other selling stockholders, as such percentage
reductions are determined in the good faith judgment of the Company. The Company
will use its best efforts to keep each such Registration Statement current for
such period of time as is not otherwise burdensome to the Company.
10.4 Any registration statement referred to in subsection 10.3
hereof shall be prepared and processed in accordance with the following terms
and conditions:
(i) the Holder will cooperate in furnishing promptly to the
Company in writing any information requested by the Company in
connection with the preparation, filing and processing of such
registration statement.
(ii) to the extent requested by an underwriter of securities
included in the registration statement and offered by the Company, the
Holder will defer the sale of Warrant Shares for a period commencing
twenty (20) days prior and terminating sixty (60) days after the
effective date of the registration statement, provided that any
principal shareholders of the Company who also have shares included in
the registration statement will also defer their sales for a similar
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<PAGE>
period, except for sales pursuant to registrations on Form S-8 or S-4
or any similar or successor forms thereto.
(iii) The Company will furnish to the Holder such number of
prospectuses or other documents incident to such registration as may
from time to time be reasonably requested, and cause its shares to be
qualified under the blue-sky laws of those states reasonably requested
by the Holder.
(iv) The Company will indemnify the Holder (and any officer,
director or controlling person of the Holder) and any underwriters
acting on behalf of the Holder against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement of any material
facts contained in any registration statement filed pursuant hereto, or
any document relating thereto, including all amendments and
supplements, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein contained not misleading,
and will reimburse the Holder (or such other aforementioned parties) or
such underwriters for any legal and all other expenses reasonably
incurred in accordance with investigating or defending any such claim,
loss, damage, liability or action; provided, however, that the Company
will not be liable where the untrue or alleged untrue statement or
omission or alleged omission is based upon information furnished in
writing to the Company by the Holder or any underwriter obtained by the
Holder expressly for use therein, or as a result of the Holder's or any
such underwriter's failure to furnish to the Company information duly
requested in writing by counsel for the Company specifically for use
therein; provided that with respect to any untrue statement or omission
or alleged untrue statement or omission made in any preliminary
prospectus, the indemnity agreement contained in this paragraph shall
not inure to the benefit of any underwriter from whom the person
asserting such losses, claims, damages or liability purchased the
securities concerned, to the extent that any such loss, claim, damage
or liability of such underwriter results from the fact that a copy of
the prospectus was not sent or given to such person at or prior to the
written confirmation of the sale of such securities to such person.
This indemnity agreement shall be in addition to any other liability
the Company may have. The indemnity agreement of the Company contained
in this paragraph (iv) shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any
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<PAGE>
indemnified party and shall survive the delivery of and payment for the
Warrant Shares.
(v) The Holder will indemnify the Company (and any officer,
director or controlling person of the Company) and any underwriters
acting on behalf of the Company against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement filed pursuant
hereto, or any document relating thereto, including all amendments, and
supplements, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein contained not misleading,
and, will reimburse the Company (or such other aforementioned parties)
or such underwriters for any legal and other expenses reasonably
incurred in connection with investigating or defending any such claim,
loss, damage, liability, or action; provided, however, that the Holder
will be liable as aforesaid only to the extent that such untrue or
alleged untrue statement or omission or alleged omission is based upon
information furnished in writing to the Company by the Holder or any
underwriter obtained by the Holder expressly for use therein, or as a
result of its or such underwriter's failure to furnish the Company with
information duly requested in writing by counsel for the Company
specifically for use therein. This indemnity agreement contained in
this paragraph (v) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Warrant
Shares.
(vi) Promptly after receipt by an indemnified party under this
subsection 10.4 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party, promptly notify the indemnifying party
of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under this subsection
10.4. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the
extent that it may wish jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this subsection 10.4 for any legal or other expenses
12
<PAGE>
subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation or
out-of-pocket expenses or losses or cost incurred in collaborating in
the defense.
(vii) Except as set forth in subsection 10.4(viii), the Company
shall bear all costs and expenses incident to any registration pursuant
to this Section 10.
(viii) The Holder shall pay any and all underwriters' discounts,
brokerage fees and transfer taxes incident to the sale of any
securities sold by such Holder pursuant to this Section 10, and shall
pay the fees and expenses of any special attorneys or accountants
retained by it.
(ix) If the filing of any registration statement pursuant to
subsection 10.4 would require the Company to obtain audited financial
statements other than its normal year end audit required for the filing
of its reports required under the Securities Exchange Act of 1934 (the
"Exchange Act"), the Company may defer the filing of such registration
statement until the necessary audited financial statements are
available, unless the Holder arranges for the payment of the expense of
such audit to the extent that such expense would exceed the amount
which the Company would otherwise be required to bear in connection
with its normal audit schedule for reporting under the Exchange Act.
10.5 If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages, liabilities, expenses or actions in respect thereof
referred to herein, then each indemnifying party shall in lieu of indemnifying
such indemnified party contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities,
expenses or actions in such proportion as is appropriate to reflect the relative
fault of the Company, on the one hand, and the seller of such Warrant Shares, on
the other, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities, expenses or actions as well as any other
relevant equitable considerations, including the failure to give the notice
required hereunder. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact relates to information supplied by the Company, on the one hand, or the
sellers of such Warrant Shares, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the holder hereof agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation (even if all of the sellers of such Warrant
Shares were treated as one entity for such purpose) or by any other method of
allocation which did not take account of the equitable considerations referred
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<PAGE>
to above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or actions in respect thereof referred to
above shall be deemed to include any legal or other expenses which reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the contribution provisions of this
Section, in no event shall the amount contributed by any seller from the sale of
Warrant Shares to which such contribution claim relates. No person guilty of
fraudulent misrepresentations (within the meaning of section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. Each Holder of this Warrant and each Holder of
Warrant Shares bearing the legend required by Section 10.6, by acceptance hereof
or thereof, as the case may be, agrees to the indemnification and contribution
provisions of this Section 10.5.
10.6 Legend. In case any shares are issued upon the exercise
in whole or in part of this Warrant or are thereafter transferred, in either
case under such circumstances that no registration under the Act is required or
effective, each certificate representing such shares shall bear on the face
thereof the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and any
transfer thereof is subject to the conditions specified in the Warrant
dated as of [Include Date] originally issued by PlayNet Technologies,
Inc. (the "Company") to [Include Name of Holder] to purchase shares of
Common Stock, $.001 par value, of the Company. A copy of the form of
such Warrant is on file with the Secretary of the Company in New York,
New York, and will be furnished without charge by the Company to the
holder of this certificate upon written request to the Secretary of the
Company at such address."
11. Miscellaneous
11.1 Governing Law. This Warrant Certificate shall be governed
by and construed in accordance with the laws of the State of New York.
11.2 Holder Not a Stockholder. Prior to the exercise of this
Warrant, the holder hereof shall not be entitled to any of the rights of a
stockholder of the Company including, without limitation, the right as a
stockholder to (a) vote on or consent to any proposed action of the Company or
(b) receive (i) dividends or any distributions made to stockholders, (ii) notice
14
<PAGE>
of or attend any meetings of stockholders of the Company or (iii) notice of any
other proceedings of the Company.
11.3 Notices. Any notice, demand or delivery to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if sent by first class mail, postage prepaid, addressed to (a) the holder of
this Warrant or issued Warrant Shares at its last known address appearing on the
books at the Company maintained for such purposes or (b) the Company at its
principal offices at 152 West 57th Street, New York, New York 10019, Attention:
General Counsel. The Holder of this Warrant and the Company may each designate a
different address by notice to the other pursuant to this Section 11.3.
11.4 Investment Representation. The Holder represents that it
is purchasing the Warrant and all shares issuable upon exercise of this Warrant
for its own account and not as nominee or agent for any other person and not
with a view to, or for offer or sale in connection with any distribution thereof
(within the meaning of the Act) that would be in violation of the applicable
securities laws; provided, however, that subject to the restrictions contained
in Section 10, that the disposition of all or any part of such shares shall at
all times be within the Holder's exclusive control.
11.5 Confidentiality of Information. The Holder of this
Warrant (and any affiliates of the Holder) and any permitted transferee of this
Warrant will treat all documents, financial statements, reports and other
information delivered pursuant to this Warrant on a confidential basis with the
same degree of care it treats similar information of other companies of which it
holds securities and has investment banking relationships.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed by its officers thereunto duly authorized and
its corporate seal to be affixed hereon, as of this ____ day of _________, 199_.
PLAYNET TECHNOLOGIES, INC.
By:_____________________
Name:
Title:
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<PAGE>
EXHIBIT A
NOTICE OF EXERCISE FORM
-----------------------
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warrant
irrevocably exercises the within Warrant for and purchases shares of Common
Stock of PlayNet Technologies, Inc. (the "Company") and herewith makes payment
therefor in the amount of $_________, all on the terms and conditions specified
in the within Warrant, and requests that a certificate (or ______ certificates
in denominations of ______ shares) for the shares of Common Stock of the Company
hereby purchased be issued in the name of and delivered to (choose one) (a) the
undersigned or (b) ________, whose address is _______________ and, if such
shares of Common Stock shall not include all the shares of Common Stock issuable
as provided in the within Warrant, that a new Warrant of like tenor for that
portion of the Warrant not exercised hereby be issued in the name of and
delivered to (choose one) (a) the undersigned or (b) ______________, whose
address is _______________________.
The undersigned represents that it is purchasing the
securities described above for its own account and not as a nominee or agent for
any other person and not with a view to, or for offer of sale in connection
with, any distribution thereof (within the meaning of the Securities Act of
1933) that would be in violation of the applicable securities laws; provided,
however, that subject to the restrictions contained in Section 10 of the Warrant
that the disposition of all or any part of such shares shall at all times be
within the undersigned's exclusive control.
Dated: __________________
By:________________________________
(signature of Registered Holder)
Signature Guaranteed:
________________________
By:_____________________
Title:
NOTICE: The signature to this Notice must correspond with the name as
written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
The signature to this Notice must be guaranteed by a
commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
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EXHIBIT B
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert, pursuant
to Section 7 of the Warrant Certificate accompanying this Notice of Conversion,
that number of shares of Common Stock issuable upon exercise of the Warrant for
an aggregate purchase price of $_______ into that number of shares of Common
Stock of the Company to be received by the undersigned pursuant to the
provisions of Section 7.1 of the accompanying Warrant Certificate.
Dated: _______________ ____________________________
Name of Holder
____________________________
Signature
Address:
____________________________
____________________________
____________________________
Signature Guaranteed:
________________________
By:_____________________
Title:
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<PAGE>
ASSIGNMENT FORM
---------------
(To be executed only upon the
assignment of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the
within Warrant hereby sells, assigns and transfers unto _____________________,
whose address is ________________________, all of the rights of the undersigned
under the within Warrant, with respect to the receipt of shares of Common Stock
of PlayNet Technologies, Inc. and, if such sale, assignment or transfer is for
less than the right to the receipt of all shares of Common Stock to which the
Holder is entitled upon exercise of such Warrant, that a new Warrant of like
tenor for that portion of the Warrant not being transferred hereunder be issued
in the name of and delivered to the undersigned, and does hereby irrevocably
constitute and appoint ______________ Attorney to register such transfer on the
books of the Company maintained for the purpose, with full power of substitution
in the premises.
Dated: _____________, 19__.
By:________________________________
(Signature of Registered Holder)
Signature Guaranteed:
___________________________
By:_______________________
Title:
NOTICE: The signature to this Assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
The signature to this Assignment must be guaranteed by a
commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
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EXHIBIT 6 -
Form of Tranche 2 Warrant
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND NEITHER THIS WARRANT NOR ANY SUCH SHARES MAY BE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT.
PLAYNET TECHNOLOGIES, INC.
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies
that for value received _____________________or registered assigns (the
"Holder") is the owner of this warrant ("Warrant") which entitles the Holder
hereof to purchase, at any time from the date which is either (i) one year from
the date of the closing on or prior to the Five Month Date of a Qualified Public
Offering or closing on or prior to the Five Month Date of a Qualified Private
Placement (all as defined below) or (ii) if no such Qualified Public Offering or
Qualified Private Placement closes on or prior to the Five Month Date, one year
from the date of issuance hereof ((i) and (ii) singularly and collectively,the
"Exercise Date") through and including the Expiration Date (hereinafter
defined), such number of fully paid and non-assessable shares of Common Stock,
$.01 par value ("Common Stock"), of PlayNet Technologies, Inc., a Delaware
corporation (the "Company") calculated as follows:
- in the event of the closing of a Qualified Public Offering on
or prior to the date which is five months from the issuance of
this Warrant (the "Five Month Date"):
$[fill in principal amount of Senior Note]
100% X----------------------------------------------
the per share price of the common stock
offered in such Qualified Public Offering
<PAGE>
-- in the event that such Qualified Public Offering is not closed
on or prior to the Five Month Date but a Qualified Private
Placement is closed on or prior to the Five Month Date:
$[fill in principal amount of Senior Note]
100% X----------------------------------------------
the lowest per share price of the
common stock offered in such
Qualified Private Placement
--- in the event that a Qualified Public Offering or Qualified
Private Placement is not closed on or prior to the Five Month
Date:
$[fill in principal amount of Senior Note]
100% X----------------------------------------------
$3.50
(each formula subject to adjustment as hereinafter provided).
For purposes of this Warrant, the term "Qualified Public
Offering" shall mean the closing of any public offering of Common Stock of the
Company raising gross proceeds of at least $15 million to the Company and the
term "Qualified Private Placement" shall mean the closing of any privately
arranged financing transaction or series of transactions raising in the
aggregate gross proceeds of at least $15 million to the Company.
1. Warrant; Purchase Price
This Warrant shall entitle the Holder initially to purchase
shares of Common Stock of the Company as calculated above and the purchase price
payable upon exercise of the Warrants shall be, (i) in the event of the closing
of a Qualified Public Offering on or prior to the Five Month Date, the per share
price of the Common Stock Offered in such Qualified Public Offering, (ii) in the
event that such a Qualified Public Offering is not closed on or prior to the
Five Month Date but a Qualified Private Placement is closed on or prior to the
Five Month Date, the lowest per share price of the Common Stock offered in such
Qualified Private Placement, or (iii) in the event that such Qualified Public
Offering or Qualified Private Placement is not closed on or prior to the Five
Month Date, $3.50 per share of Common Stock (each of (i), (ii) and (iii) the
"Relevant Purchase Price" and together the "Relevant Purchase Prices"). The
Relevant Purchase Price and number of shares of Common Stock issuable upon
exercise of this Warrant are subject to adjustment as provided in Article 6. The
shares of Common Stock issuable upon exercise of this Warrant (and/or other
shares of common stock so issuable by reason of any adjustments pursuant to
Article 6) are sometimes referred to herein as the "Warrant Shares." The
aggregate purchase price for the shares of Common Stock of the Company to be
received by the Holder hereof upon exercise of this Warrant shall be payable, at
the option of the Holder, either (i) in cash in lawful money of the United
States of America or by certified or cashier's check; or (ii) if such Holder is
[Name of Holder], by cancellation, in whole or in part, of that certain
$[Principal Amount of Note] Senior Secured Note issued to [Name of Holder] on
[Month, Day], 199_; or (iii) as otherwise provided herein.
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2. Exercise; Expiration Date
2.1 This Warrant is exercisable, at the option of the Holder,
in whole or in part at any time and from time to time from the Exercise Date
through and including the Expiration Date (the "Exercise Period"), upon
surrender of this Warrant Certificate to the Company together with a duly
completed Notice of Exercise, in the form attached hereto as Exhibit A, and
payment of an amount equal to the Relevant Purchase Price times the number of
shares of Common Stock to be received upon exercise of this Warrant. In the case
the Holder hereof elects to exercise this Warrant for less than all the shares
of Common Stock of the Company represented by this Warrant Certificate, the
Company shall cancel this Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate providing for the exercise
of the balance of such shares of Common Stock.
2.2 The term "Expiration Date" shall mean 5:00 p.m. New York
time on the date which is five years from the date of the issuance of this
Warrant, or if such day shall in the State of New York be a holiday or a day on
which banks are authorized to close, then 5:00 p.m. local time in the State of
New York the next following day which in the State of New York is not a holiday
or a day on which banks are authorized to close.
3. Registration and Transfer on Company Books
3.1 The Company shall maintain books for the registration and
transfer of this Warrant and the registration and transfer of the Warrant
Shares.
3.2 Prior to due presentment for registration of transfer of
this Warrant Certificate, or the Warrant Shares, the Company may deem and treat
the registered Holder as the absolute owner thereof.
3.3 The Company shall register upon its books any transfer of
this Warrant Certificate, upon surrender of same to the Company with a written
instrument of transfer duly executed by the registered Holder or by a duly
authorized attorney. Upon any such registration of transfer, new Warrant
Certificate(s) shall be issued to the transferee(s) and the surrendered Warrant
Certificate shall be canceled by the Company. A Warrant Certificate may also be
exchanged, at the option of the Holder, for new Warrant Certificates of
different denominations representing an aggregate purchase price of $ .
4. Reservation of Shares
The Company covenants that it will at all times reserve and
keep available out of its authorized capital stock, solely for the purpose of
issue upon exercise of this Warrant, such number of shares as shall then be
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<PAGE>
issuable upon the exercise of this Warrant. The Company covenants that all
shares of capital stock which shall be issuable upon exercise of this Warrant
shall be duly and validly issued and fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issue thereof, and that upon
issuance such shares shall be listed on each national securities exchange, if
any, on which the other shares of such outstanding series of capital stock of
the Company are then listed.
5. Loss or Mutilation
Upon receipt by the Company of reasonable evidence of the
ownership of and the loss, theft, destruction or mutilation of any Warrant
Certificate and, in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company, or, in the case of mutilation, upon
surrender and cancellation of the mutilated Warrant Certificate, the Company
shall execute and deliver in lieu thereof a new Warrant Certificate replacing
such Warrant Certificate.
6. Adjustment of Relevant Purchase Price and Number of
Shares Deliverable
6.1 The number of Warrant Shares purchasable upon the exercise
of each Warrant and the Relevant Purchase Price with respect to the Warrant
Shares shall be subject to adjustment as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its Common Stock payable in shares of its capital
stock, (ii) subdivide its outstanding shares of Common Stock through
stock split or otherwise, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or (iv)
issue by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation) other securities of the
Company, or (v) in case of a consolidation or merger of the Company
with or into another corporation or in case of the sale or transfer of
all or substantially all of the assets of the Company (hereinafter, a
"Reorganization Transaction"), the number and/or nature of Warrant
Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the Holder shall be entitled to
receive the kind and number of Warrant Shares or other securities of
the Company (or of any successor company) which he would have owned or
have been entitled to receive after the happening of any of the events
described above, had such Warrant been exercised immediately prior to
4
<PAGE>
the happening of such event or any record date with respect thereto. An
adjustment made pursuant to this paragraph (a) shall become effective
retroactively as of the record date of such event.
(b) In case the Company shall distribute to all holders of its
shares of Common Stock, or all holders of Common Stock shall otherwise
become entitled to receive, shares of capital stock of the Company
(other than dividends or distributions on its Common Stock referred to
in paragraph (a) above), evidences of its indebtedness or rights,
options, warrants or convertible securities providing the right to
subscribe for or purchase any shares of the Company's capital stock or
evidences of its indebtedness, then in each case the number of Warrant
Shares thereafter purchasable upon the exercise of this Warrant shall
be determined by multiplying the number of Warrant Shares theretofore
purchasable upon the exercise of this Warrant, by a fraction, of which
the numerator shall be the then Market Price Per Share of the Warrant
Shares (as determined pursuant to Section 9.2) on the record date
mentioned below in this paragraph (b), and of which the denominator
shall be the then Market Price Per Share of the Warrant Shares on such
record date less the then fair value (as determined by the Board of
Directors of the Company, in good faith) of the portion of the shares
of the Company's capital stock other than Common Stock, evidences of
indebtedness, or of such rights, options, warrants or convertible
securities, distributable with respect to each Warrant Share. Such
adjustment shall be made whenever any such distribution is made, and
shall become effective retroactively as of the record date for the
determination of shareholders entitled to receive such distribution.
(c) Whenever the number of Warrant Shares purchasable upon the
exercise of this Warrant is adjusted, as provided in this Section 6.1,
the Relevant Purchase Prices with respect to the Warrant Shares shall
be adjusted by multiplying such Relevant Purchase Prices immediately
prior to such adjustment by a fraction, of which the numerator shall be
the number of Warrant Shares purchasable upon the exercise of this
Warrant immediately prior to such adjustment, and of which the
denominator shall be the number of Warrant Shares so purchasable
immediately thereafter.
6.2 No adjustment in the number of Warrant Shares purchasable
under this Warrant, or in the Relevant Purchase Prices with respect to the
Warrant Shares, shall be required unless such adjustment would require an
increase or decrease of at least 1% in the number of Warrant Shares issuable
upon the exercise of such Warrant, or in the Relevant Purchase Prices thereof;
provided, however, that any adjustments which by reason of this Section 6.3 are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All final results of adjustments to the number of Warrant
Shares and the Relevant Purchase Prices thereof shall be rounded to the nearest
one thousandth of a share or the nearest cent, as the case may be. Anything in
this Section 6 to the contrary notwithstanding, the Company shall be entitled,
5
<PAGE>
but shall not be required, to make such changes in the number of Warrant Shares
purchasable upon the exercise of each Warrant, or in the Relevant Purchase
Prices thereof, in addition to those required by such Section, as it in its
discretion shall determine to be advisable in order that any dividend or
distribution in shares of Common Stock, subdivision, reclassification or
combination of shares of Common Stock, issuance of rights, warrants or options
to purchase Common Stock, or distribution of shares of stock other than Common
Stock, evidences of indebtedness or assets (other than distributions of cash out
of retained earnings) or convertible or exchangeable securities hereafter made
by the Company to the holders of its Common Stock shall not result in any tax to
the holders of its Common Stock or securities convertible into Common Stock.
6.3 Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant or the Relevant Purchase Price of such Warrant Shares
is adjusted, as herein provided, the Company shall mail to the Holder, at the
address of the Holder shown on the books of the Company, a notice of such
adjustment or adjustments, prepared and signed by the Chief Financial Officer or
Secretary of the Company, which sets forth the number of Warrant Shares
purchasable upon the exercise of this Warrant and each of the then Relevant
Purchase Prices of such Warrant Shares after such adjustment, a brief statement
of the facts requiring such adjustment and the computation by which such
adjustment was made.
6.4 In the event that at any time prior to the expiration of
this Warrant and prior to their exercise:
(a) the Company shall declare any distribution (other than a
cash dividend or a dividend payable in securities of the Company with
respect to the Common Stock); or
(b) the Company shall offer for subscription to all the
holders of the Common Stock any additional shares of stock of any class
or any other securities convertible into Common Stock or any rights to
subscribe thereto; or
(c) the Company shall declare any stock split, stock dividend,
subdivision, combination, or similar distribution with respect to the
Common Stock that shall affect the outstanding number of shares of
Common Stock; or
6
<PAGE>
(d) the Company shall declare a dividend, other than a
dividend payable in shares of the Company's own Common Stock; or
(e) there shall be any capital change in the Company as set
forth in Section 6.1(a)(v); or
(f) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company (other than in connection
with a consolidation, merger, or sale of all or substantially all of
its property, assets and business as an entity);
(each such event hereinafter being referred to as a "Notification Event"), the
Company shall cause to be mailed to the Holder, not less than 20 days prior to
the record date, if any, in connection with such Notification Event (provided,
however, that if there is no record date, 20 days prior to the effective date,
or in either case if 20 days prior notice is impracticable, as soon as
practicable) written notice specifying the nature of such event and the
effective date of, or the date on which the books of the Company shall close or
a record shall be taken with respect to, such event. Such notice shall also set
forth facts indicating the effect of such action (to the extent such effect may
be known at the date of such notice) on each of the Relevant Purchase Prices and
the kind and amount of the shares of stock or other securities or property
deliverable upon exercise of this Warrant.
6.5 The form of Warrant Certificate need not be changed
because of any change in the Relevant Purchase Prices, the number of Warrant
Shares issuable upon the exercise of a Warrant or the number of Warrants
outstanding pursuant to this Section 6, and Warrant Certificates issued before
or after such change may state the same Relevant Purchase Prices, the same
number of Warrants, and the same number of Warrant Shares issuable upon exercise
of Warrants as are stated in the Warrant Certificates theretofore issued
pursuant to this Agreement. The Company may, however, at any time, in its sole
discretion, make any change in the form of Warrant Certificate that it may deem
appropriate and that does not affect the substance thereof, and any Warrant
Certificates thereafter issued or countersigned, whether in exchange or
substitution for an outstanding Warrant Certificate or otherwise, may be in the
form as so changed.
7. Conversion Rights
7.1 After the occurrence of any Reorganization Transaction (as
such term is defined in Section 6.1(a)(v)), in lieu of exercise of any portion
of this Warrant as provided in Section 2.1 hereof, the Warrant Shares
represented by this Warrant Certificate (or any portion thereof) may, at the
election of the Holder, be converted into the nearest whole number of shares of
Common Stock of the Company (or other securities of the Company or any successor
Company underlying the Warrant) equal to: (1) the product of (a) the number of
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<PAGE>
shares of Common Stock (or such other securities) then issuable upon the
exercise of this Warrant to be so converted and (b) the excess, if any, of (i)
the Market Price Per Share (as determined pursuant to Section 9.2) with respect
to the date of conversion over (ii) the Relevant Purchase Prices in effect on
the business day next preceding the date of conversion, divided by (2) the
Market Price Per Share with respect to the date of conversion.
7.2 The conversion rights provided under this Section 7 may be
exercised in whole or in part and at any time and from time to time while this
Warrant remain outstanding. In order to exercise the conversion privilege, the
Holder shall surrender to the Company (or any successor company), at its
offices, this Warrant Certificate accompanied by a duly completed Notice of
Conversion in the form attached hereto as Exhibit B. The Warrants (or so much
thereof as shall have been surrendered for conversion) shall be deemed to have
been converted immediately prior to the close of business on the day of
surrender of such Warrant Certificate for conversion in accordance with the
foregoing provisions. As promptly as practicable on or after the conversion
date, the Company (or the successor company) shall issue and shall deliver to
the Holder (i) a certificate or certificates representing the number of shares
of Common Stock (or such other securities) to which the Holder shall be entitled
as a result of the conversion, and (ii) if the Warrant Certificate is being
converted in part only, a new certificate of like tenor and date for the balance
of the unconverted portion of the Warrant Certificate.
8. Voluntary Adjustment by the Company
The Company may, at its option, at any time during the term of
this Warrant, reduce the then current Relevant Purchase Prices to any amount
deemed appropriate by the Board of Directors of the Company and/or extend the
date of the expiration of the Warrants.
9. Fractional Shares and Warrants; Determination of
Market Price Per Share
9.1 Anything contained herein to the contrary notwithstanding,
the Company shall not be required to issue any fraction of a share of Common
Stock in connection with the exercise of this Warrant. This Warrant may not be
exercised in such number as would result (except for the provisions of this
paragraph) in the issuance of a fraction of a share of Common Stock unless the
Holder is exercising this Warrant for all shares of Common Stock to be received
by the Holder hereunder. In such event, the Company shall, upon the exercise of
8
<PAGE>
the entirety of this Warrant, issue to the Holder the largest aggregate whole
number of shares of Common Stock called for thereby upon receipt of the Relevant
Purchase Price for all shares of Common Stock to be issued upon exercise hereof
and pay a sum in cash equal to the remaining fraction of a share of Common
Stock, multiplied by its Market Price Per Share (as determined pursuant to
Section 9.2 below) as of the last business day preceding the date on which this
Warrant are presented for exercise.
9.2 As used herein, the "Market Price Per Share" with respect
to any class or series of Common Stock of the Company (or any other securities
of the Company or of any successor company) on any date shall mean the closing
price per share of such class or series of securities for the trading day
immediately preceding such date. The closing price for each such day shall be
the last sale price regular way or, in case no such sale takes place on such
day, the average of the closing bid and asked prices regular way, in either case
on the principal securities exchange on which the shares of such Common Stock of
the Company (or other securities of the Company or of such successor company)
are listed or admitted to trading or, if applicable, the last sale price, or in
case no sale takes place on such day, the average of the closing bid and asked
prices of such securities on NASDAQ or any comparable system, or if such
securities are not reported on NASDAQ, or a comparable system, the average of
the closing bid and asked prices as furnished by two members of the National
Association of Securities Dealers, Inc. selected from time to time by the
Company for that purpose. If such bid and asked prices are not available, then
"Market Price Per Share" shall be equal to the fair market value of the such
securities as determined in good faith by the Board of Directors of the Company
(or of such successor company).
10. Restrictions on Transfer; Registration Rights
10.1 No sale, transfer, assignment, hypothecation or other
disposition of this Warrant or Warrant Shares shall be made unless any such
transfer, assignment or other disposition will comply with the rules and
statutes administered by the Securities and Exchange Commission and (i) a
Registration Statement under the Securities Act of 1933, as amended (the "Act"),
including such shares is currently in effect, or (ii) in the opinion of counsel
a current Registration Statement is not required for such disposition of the
shares.
10.2 In the event of a proposed sale or transfer of this
Warrant or Warrant Shares in a transaction other than a sale pursuant to a
public offering registered under the Act, a Holder shall deliver to the Company
an opinion of counsel addressed to the Company (which shall be rendered by
counsel reasonably acceptable to the Company) to the effect that the proposed
transfer may be effected without registration or qualification under any Federal
9
<PAGE>
or state securities or blue sky law. Such counsel rendering the opinion shall,
as promptly as practicable, notify the Company and the Holder of such opinion
and of the terms and conditions, if any, to be observed in such transfer,
whereupon the Holder shall be entitled to transfer this Warrant or the Warrant
Shares (or a portion thereof).
10.3 The Company agrees that, at any time or times hereafter,
until the second anniversary of the Expiration Date of this Warrant, as and when
it intends to register any of its securities under the Act, whether for its own
account and/or on behalf of selling stockholders (except in connection with an
offering solely to its employees, an offering pursuant to an employee benefit
plan, a dividend or interest reinvestment plan, or an offering solely related to
an acquisition on a Form S-4 or any subsequent similar form) permitting a
secondary offering or distribution the Company will notify the Holder of such
intention and, upon request from the Holder, will use its best efforts to cause
the Warrant Shares designated by the Holder to be registered under the
Securities Act. The number of Warrant Shares to be included in such offering may
be reduced if and to the extent that the underwriter of securities included in
the registration statement and offered by the Company shall be of the opinion
that such inclusion would adversely affect the marketing of the securities to be
sold by the Company therein; provided, however, that the percentage of the
reduction of such Warrant Shares shall be no greater than the percentage
reduction of securities of other selling stockholders, as such percentage
reductions are determined in the good faith judgment of the Company. The Company
will use its best efforts to keep each such Registration Statement current for
such period of time as is not otherwise burdensome to the Company.
10.4 Any registration statement referred to in subsection 10.3
hereof shall be prepared and processed in accordance with the following terms
and conditions:
(i) the Holder will cooperate in furnishing promptly to the
Company in writing any information requested by the Company in
connection with the preparation, filing and processing of such
registration statement.
(ii) to the extent requested by an underwriter of securities
included in the registration statement and offered by the Company, the
Holder will defer the sale of Warrant Shares for a period commencing
twenty (20) days prior and terminating sixty (60) days after the
effective date of the registration statement, provided that any
principal shareholders of the Company who also have shares included in
the registration statement will also defer their sales for a similar
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<PAGE>
period, except for sales pursuant to registrations on Form S-8 or S-4
or any similar or successor forms thereto.
(iii) The Company will furnish to the Holder such number of
prospectuses or other documents incident to such registration as may
from time to time be reasonably requested, and cause its shares to be
qualified under the blue-sky laws of those states reasonably requested
by the Holder.
(iv) The Company will indemnify the Holder (and any officer,
director or controlling person of the Holder) and any underwriters
acting on behalf of the Holder against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement of any material
facts contained in any registration statement filed pursuant hereto, or
any document relating thereto, including all amendments and
supplements, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein contained not misleading,
and will reimburse the Holder (or such other aforementioned parties) or
such underwriters for any legal and all other expenses reasonably
incurred in accordance with investigating or defending any such claim,
loss, damage, liability or action; provided, however, that the Company
will not be liable where the untrue or alleged untrue statement or
omission or alleged omission is based upon information furnished in
writing to the Company by the Holder or any underwriter obtained by the
Holder expressly for use therein, or as a result of the Holder's or any
such underwriter's failure to furnish to the Company information duly
requested in writing by counsel for the Company specifically for use
therein; provided that with respect to any untrue statement or omission
or alleged untrue statement or omission made in any preliminary
prospectus, the indemnity agreement contained in this paragraph shall
not inure to the benefit of any underwriter from whom the person
asserting such losses, claims, damages or liability purchased the
securities concerned, to the extent that any such loss, claim, damage
or liability of such underwriter results from the fact that a copy of
the prospectus was not sent or given to such person at or prior to the
written confirmation of the sale of such securities to such person.
This indemnity agreement shall be in addition to any other liability
the Company may have. The indemnity agreement of the Company contained
in this paragraph (iv) shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any
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<PAGE>
indemnified party and shall survive the delivery of and payment for the
Warrant Shares.
(v) The Holder will indemnify the Company (and any officer,
director or controlling person of the Company) and any underwriters
acting on behalf of the Company against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement filed pursuant
hereto, or any document relating thereto, including all amendments, and
supplements, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein contained not misleading,
and, will reimburse the Company (or such other aforementioned parties)
or such underwriters for any legal and other expenses reasonably
incurred in connection with investigating or defending any such claim,
loss, damage, liability, or action; provided, however, that the Holder
will be liable as aforesaid only to the extent that such untrue or
alleged untrue statement or omission or alleged omission is based upon
information furnished in writing to the Company by the Holder or any
underwriter obtained by the Holder expressly for use therein, or as a
result of its or such underwriter's failure to furnish the Company with
information duly requested in writing by counsel for the Company
specifically for use therein. This indemnity agreement contained in
this paragraph (v) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Warrant
Shares.
(vi) Promptly after receipt by an indemnified party under this
subsection 10.4 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party, promptly notify the indemnifying party
of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under this subsection
10.4. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the
extent that it may wish jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this subsection 10.4 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
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<PAGE>
defense thereof, other than reasonable costs of investigation or
out-of-pocket expenses or losses or cost incurred in collaborating in
the defense.
(vii) Except as set forth in subsection 10.4(viii), the
Company shall bear all costs and expenses incident to any registration
pursuant to this Section 10.
(viii) The Holder shall pay any and all underwriters'
discounts, brokerage fees and transfer taxes incident to the sale of
any securities sold by such Holder pursuant to this Section 10, and
shall pay the fees and expenses of any special attorneys or accountants
retained by it.
(ix) If the filing of any registration statement pursuant to
subsection 10.4 would require the Company to obtain audited financial
statements other than its normal year end audit required for the filing
of its reports required under the Securities Exchange Act of 1934 (the
"Exchange Act"), the Company may defer the filing of such registration
statement until the necessary audited financial statements are
available, unless the Holder arranges for the payment of the expense of
such audit to the extent that such expense would exceed the amount
which the Company would otherwise be required to bear in connection
with its normal audit schedule for reporting under the Exchange Act.
10.5 If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages, liabilities, expenses or actions in respect thereof
referred to herein, then each indemnifying party shall in lieu of indemnifying
such indemnified party contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities,
expenses or actions in such proportion as is appropriate to reflect the relative
fault of the Company, on the one hand, and the seller of such Warrant Shares, on
the other, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities, expenses or actions as well as any other
relevant equitable considerations, including the failure to give the notice
required hereunder. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact relates to information supplied by the Company, on the one hand, or the
sellers of such Warrant Shares, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the holder hereof agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation (even if all of the sellers of such Warrant
Shares were treated as one entity for such purpose) or by any other method of
allocation which did not take account of the equitable considerations referred
to above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or actions in respect thereof referred to
above shall be deemed to include any legal or other expenses which reasonably
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<PAGE>
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the contribution provisions of this
Section, in no event shall the amount contributed by any seller from the sale of
Warrant Shares to which such contribution claim relates. No person guilty of
fraudulent misrepresentations (within the meaning of section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. Each Holder of this Warrant and each Holder of
Warrant Shares bearing the legend required by Section 10.6, by acceptance hereof
or thereof, as the case may be, agrees to the indemnification and contribution
provisions of this Section 10.5.
10.6 Legend. In case any shares are issued upon the exercise
in whole or in part of this Warrant or are thereafter transferred, in either
case under such circumstances that no registration under the Act is required or
effective, each certificate representing such shares shall bear on the face
thereof the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and any
transfer thereof is subject to the conditions specified in the Warrant
dated as of [Include Date] originally issued by PlayNet Technologies,
Inc. (the "Company") to [Include Name of Holder] to purchase shares of
Common Stock, $.001 par value, of the Company. A copy of the form of
such Warrant is on file with the Secretary of the Company in New York,
New York, and will be furnished without charge by the Company to the
holder of this certificate upon written request to the Secretary of the
Company at such address."
11. Miscellaneous
11.1 Governing Law. This Warrant Certificate shall be governed
by and construed in accordance with the laws of the State of New York.
11.2 Holder Not a Stockholder. Prior to the exercise of this
Warrant, the holder hereof shall not be entitled to any of the rights of a
stockholder of the Company including, without limitation, the right as a
stockholder to (a) vote on or consent to any proposed action of the Company or
(b) receive (i) dividends or any distributions made to stockholders, (ii) notice
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of or attend any meetings of stockholders of the Company or (iii) notice of any
other proceedings of the Company.
11.3 Notices. Any notice, demand or delivery to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if sent by first class mail, postage prepaid, addressed to (a) the holder of
this Warrant or issued Warrant Shares at its last known address appearing on the
books at the Company maintained for such purposes or (b) the Company at its
principal offices at 152 West 57th Street, New York, New York 10019, Attention:
General Counsel. The Holder of this Warrant and the Company may each designate a
different address by notice to the other pursuant to this Section 11.3.
11.4 Investment Representation. The Holder represents that it
is purchasing the Warrant and all shares issuable upon exercise of this Warrant
for its own account and not as nominee or agent for any other person and not
with a view to, or for offer or sale in connection with any distribution thereof
(within the meaning of the Act) that would be in violation of the applicable
securities laws; provided, however, that subject to the restrictions contained
in Section 10, that the disposition of all or any part of such shares shall at
all times be within the Holder's exclusive control.
11.5 Confidentiality of Information. The Holder of this
Warrant (and any affiliates of the Holder) and any permitted transferee of this
Warrant will treat all documents, financial statements, reports and other
information delivered pursuant to this Warrant on a confidential basis with the
same degree of care it treats similar information of other companies of which it
holds securities and has investment banking relationships.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed by its officers thereunto duly authorized and
its corporate seal to be affixed hereon, as of this ____ day of _________, 199_.
PLAYNET TECHNOLOGIES, INC.
By: _________________________
Name:
Title:
15
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EXHIBIT A
NOTICE OF EXERCISE FORM
-----------------------
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warrant
irrevocably exercises the within Warrant for and purchases shares of Common
Stock of PlayNet Technologies, Inc. (the "Company") and herewith makes payment
therefor in the amount of $_________, all on the terms and conditions specified
in the within Warrant, and requests that a certificate (or ______ certificates
in denominations of ______ shares) for the shares of Common Stock of the Company
hereby purchased be issued in the name of and delivered to (choose one) (a) the
undersigned or (b) ________, whose address is _______________ and, if such
shares of Common Stock shall not include all the shares of Common Stock issuable
as provided in the within Warrant, that a new Warrant of like tenor for that
portion of the Warrant not exercised hereby be issued in the name of and
delivered to (choose one) (a) the undersigned or (b) ______________, whose
address is _______________________.
The undersigned represents that it is purchasing the
securities described above for its own account and not as a nominee or agent for
any other person and not with a view to, or for offer of sale in connection
with, any distribution thereof (within the meaning of the Securities Act of
1933) that would be in violation of the applicable securities laws; provided,
however, that subject to the restrictions contained in Section 10 of the Warrant
that the disposition of all or any part of such shares shall at all times be
within the undersigned's exclusive control.
Dated: __________________
By:________________________________
(signature of Registered Holder)
Signature Guaranteed:
________________________
By:_____________________
Title:
NOTICE: The signature to this Notice must correspond with the name as
written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
The signature to this Notice must be guaranteed by a
commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
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EXHIBIT B
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert, pursuant
to Section 7 of the Warrant Certificate accompanying this Notice of Conversion,
that number of shares of Common Stock issuable upon exercise of the Warrant for
an aggregate purchase price of $_______ into that number of shares of Common
Stock of the Company to be received by the undersigned pursuant to the
provisions of Section 7.1 of the accompanying Warrant Certificate.
Dated: _______________ ____________________________
Name of Holder
____________________________
Signature
Address:
____________________________
____________________________
____________________________
Signature Guaranteed:
________________________
By:_____________________
Title:
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<PAGE>
ASSIGNMENT FORM
---------------
(To be executed only upon the
assignment of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the
within Warrant hereby sells, assigns and transfers unto _____________________,
whose address is ________________________, all of the rights of the undersigned
under the within Warrant, with respect to the receipt of shares of Common Stock
of PlayNet Technologies, Inc. and, if such sale, assignment or transfer is for
less than the right to the receipt of all shares of Common Stock to which the
Holder is entitled upon exercise of such Warrant, that a new Warrant of like
tenor for that portion of the Warrant not being transferred hereunder be issued
in the name of and delivered to the undersigned, and does hereby irrevocably
constitute and appoint ______________ Attorney to register such transfer on the
books of the Company maintained for the purpose, with full power of substitution
in the premises.
Dated: _____________, 19__.
By:________________________________
(Signature of Registered Holder)
Signature Guaranteed:
___________________________
By:_______________________
Title:
NOTICE: The signature to this Assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
The signature to this Assignment must be guaranteed by a
commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
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EXHIBIT 7 -
Form of Tranche 3 Warrant
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND NEITHER THIS WARRANT NOR ANY SUCH SHARES MAY BE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT.
PLAYNET TECHNOLOGIES, INC.
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies
that for value received _____________________ or registered assigns (the
"Holder") is the owner of this warrant ("Warrant") which entitles the Holder
hereof to purchase, at any time from the date which is either (i) one year from
the date of the closing on or prior to the Five Month Date of a Qualified Public
Offering or closing on or prior to the Five Month Date of a Qualified Private
Placement (all as defined below) and (ii) if no such Qualified Public Offering
or Qualified Private Placement closes on or prior to the Five Month Date, one
year from the date of issuance hereof ((i) and (ii) singularly and
collectively,the "Exercise Date") through and including the Expiration Date
(hereinafter defined), such number of fully paid and non-assessable shares of
Common Stock, $.01 par value ("Common Stock"), of PlayNet Technologies, Inc., a
Delaware corporation (the "Company") calculated as follows:
- in the event of the closing of a Qualified Public Offering on
or prior to the date which is five months from the issuance of
this Warrant (the "Five Month Date"):
$[fill in principal amount of Senior Note]
125% X--------------------------------------------
the per share price of the common stock
offered in such Qualified Public Offering
<PAGE>
-- in the event that such Qualified Public Offering is not closed
on or prior to the Five Month Date but a Qualified Private
Placement is closed on or prior to the Five Month Date:
$[fill in principal amount of Senior Note]
125% X--------------------------------------------
the lowest per share price of the
common stock offered in such
Qualified Private Placement
--- in the event that a Qualified Public Offering or Qualified
Private Placement is not closed on or prior to the Five Month
Date:
$[fill in principal amount of Senior Note]
125% X--------------------------------------------
$3.00
(each formula subject to adjustment as hereinafter provided).
For purposes of this Warrant, the term "Qualified Public
Offering" shall mean the closing of any public offering of Common Stock of the
Company raising gross proceeds of at least $15 million to the Company and the
term "Qualified Private Placement" shall mean the closing of any privately
arranged financing transaction or series of transactions raising in the
aggregate gross proceeds of at least $15 million to the Company.
1. Warrant; Purchase Price
This Warrant shall entitle the Holder initially to purchase
shares of Common Stock of the Company as calculated above and the purchase price
payable upon exercise of the Warrants shall be, (i) in the event of the closing
of a Qualified Public Offering on or prior to the Five Month Date, the per share
price of the Common Stock Offered in such Qualified Public Offering, (ii) in the
event that such a Qualified Public Offering is not closed on or prior to the
Five Month Date but a Qualified Private Placement is closed on or prior to the
Five Month Date, the lowest per share price of the Common Stock offered in such
Qualified Private Placement, or (iii) in the event that such Qualified Public
Offering or Qualified Private Placement is not closed on or prior to the Five
Month Date, $3.00 per share of Common Stock (each of (i), (ii) and (iii) the
"Relevant Purchase Price" and together the "Relevant Purchase Prices"). The
Relevant Purchase Price and number of shares of Common Stock issuable upon
exercise of this Warrant are subject to adjustment as provided in Article 6. The
shares of Common Stock issuable upon exercise of this Warrant (and/or other
shares of common stock so issuable by reason of any adjustments pursuant to
Article 6) are sometimes referred to herein as the "Warrant Shares." The
aggregate purchase price for the shares of Common Stock of the Company to be
received by the Holder hereof upon exercise of this Warrant shall be payable, at
the option of the Holder, either (i) in cash in lawful money of the United
States of America or by certified or cashier's check; or (ii) if such Holder is
[Name of Holder], by cancellation, in whole or in part, of that certain
$[Principal Amount of Note] Senior Secured Note issued to [Name of Holder] on
[Month, Day], 199_; or (iii) as otherwise provided herein.
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2. Exercise; Expiration Date
2.1 This Warrant is exercisable, at the option of the Holder,
in whole or in part at any time and from time to time from the Exercise Date
through and including the Expiration Date (the "Exercise Period"), upon
surrender of this Warrant Certificate to the Company together with a duly
completed Notice of Exercise, in the form attached hereto as Exhibit A, and
payment of an amount equal to the Relevant Purchase Price times the number of
shares of Common Stock to be received upon exercise of this Warrant. In the case
the Holder hereof elects to exercise this Warrant for less than all the shares
of Common Stock of the Company represented by this Warrant Certificate, the
Company shall cancel this Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate providing for the exercise
of the balance of such shares of Common Stock.
2.2 The term "Expiration Date" shall mean 5:00 p.m. New York
time on the date which is five years from the date of the issuance of this
Warrant, or if such day shall in the State of New York be a holiday or a day on
which banks are authorized to close, then 5:00 p.m. local time in the State of
New York the next following day which in the State of New York is not a holiday
or a day on which banks are authorized to close.
3. Registration and Transfer on Company Books
3.1 The Company shall maintain books for the registration and
transfer of this Warrant and the registration and transfer of the Warrant
Shares.
3.2 Prior to due presentment for registration of transfer of
this Warrant Certificate, or the Warrant Shares, the Company may deem and treat
the registered Holder as the absolute owner thereof.
3.3 The Company shall register upon its books any transfer of
this Warrant Certificate, upon surrender of same to the Company with a written
instrument of transfer duly executed by the registered Holder or by a duly
authorized attorney. Upon any such registration of transfer, new Warrant
Certificate(s) shall be issued to the transferee(s) and the surrendered Warrant
Certificate shall be canceled by the Company. A Warrant Certificate may also be
exchanged, at the option of the Holder, for new Warrant Certificates of
different denominations representing an aggregate purchase price of $ .
4. Reservation of Shares
The Company covenants that it will at all times reserve and
keep available out of its authorized capital stock, solely for the purpose of
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<PAGE>
issue upon exercise of this Warrant, such number of shares as shall then be
issuable upon the exercise of this Warrant. The Company covenants that all
shares of capital stock which shall be issuable upon exercise of this Warrant
shall be duly and validly issued and fully paid and non-assessable and free from
all taxes, liens and charges with respect to the issue thereof, and that upon
issuance such shares shall be listed on each national securities exchange, if
any, on which the other shares of such outstanding series of capital stock of
the Company are then listed.
5. Loss or Mutilation
Upon receipt by the Company of reasonable evidence of the
ownership of and the loss, theft, destruction or mutilation of any Warrant
Certificate and, in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company, or, in the case of mutilation, upon
surrender and cancellation of the mutilated Warrant Certificate, the Company
shall execute and deliver in lieu thereof a new Warrant Certificate replacing
such Warrant Certificate.
6. Adjustment of Relevant Purchase Price and Number of
Shares Deliverable
6.1 The number of Warrant Shares purchasable upon the exercise
of each Warrant and the Relevant Purchase Price with respect to the Warrant
Shares shall be subject to adjustment as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its Common Stock payable in shares of its capital
stock, (ii) subdivide its outstanding shares of Common Stock through
stock split or otherwise, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or (iv)
issue by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation) other securities of the
Company, or (v) in case of a consolidation or merger of the Company
with or into another corporation or in case of the sale or transfer of
all or substantially all of the assets of the Company (hereinafter, a
"Reorganization Transaction"), the number and/or nature of Warrant
Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the Holder shall be entitled to
receive the kind and number of Warrant Shares or other securities of
the Company (or of any successor company) which he would have owned or
have been entitled to receive after the happening of any of the events
4
<PAGE>
described above, had such Warrant been exercised immediately prior to
the happening of such event or any record date with respect thereto. An
adjustment made pursuant to this paragraph (a) shall become effective
retroactively as of the record date of such event.
(b) In case the Company shall distribute to all holders of its
shares of Common Stock, or all holders of Common Stock shall otherwise
become entitled to receive, shares of capital stock of the Company
(other than dividends or distributions on its Common Stock referred to
in paragraph (a) above), evidences of its indebtedness or rights,
options, warrants or convertible securities providing the right to
subscribe for or purchase any shares of the Company's capital stock or
evidences of its indebtedness, then in each case the number of Warrant
Shares thereafter purchasable upon the exercise of this Warrant shall
be determined by multiplying the number of Warrant Shares theretofore
purchasable upon the exercise of this Warrant, by a fraction, of which
the numerator shall be the then Market Price Per Share of the Warrant
Shares (as determined pursuant to Section 9.2) on the record date
mentioned below in this paragraph (b), and of which the denominator
shall be the then Market Price Per Share of the Warrant Shares on such
record date less the then fair value (as determined by the Board of
Directors of the Company, in good faith) of the portion of the shares
of the Company's capital stock other than Common Stock, evidences of
indebtedness, or of such rights, options, warrants or convertible
securities, distributable with respect to each Warrant Share. Such
adjustment shall be made whenever any such distribution is made, and
shall become effective retroactively as of the record date for the
determination of shareholders entitled to receive such distribution.
(c) Whenever the number of Warrant Shares purchasable upon the
exercise of this Warrant is adjusted, as provided in this Section 6.1,
the Relevant Purchase Prices with respect to the Warrant Shares shall
be adjusted by multiplying such Relevant Purchase Prices immediately
prior to such adjustment by a fraction, of which the numerator shall be
the number of Warrant Shares purchasable upon the exercise of this
Warrant immediately prior to such adjustment, and of which the
denominator shall be the number of Warrant Shares so purchasable
immediately thereafter.
6.2 No adjustment in the number of Warrant Shares purchasable
under this Warrant, or in the Relevant Purchase Prices with respect to the
Warrant Shares, shall be required unless such adjustment would require an
increase or decrease of at least 1% in the number of Warrant Shares issuable
upon the exercise of such Warrant, or in the Relevant Purchase Prices thereof;
provided, however, that any adjustments which by reason of this Section 6.3 are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All final results of adjustments to the number of Warrant
Shares and the Relevant Purchase Prices thereof shall be rounded to the nearest
one thousandth of a share or the nearest cent, as the case may be. Anything in
this Section 6 to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the number of Warrant Shares
5
<PAGE>
purchasable upon the exercise of each Warrant, or in the Relevant Purchase
Prices thereof, in addition to those required by such Section, as it in its
discretion shall determine to be advisable in order that any dividend or
distribution in shares of Common Stock, subdivision, reclassification or
combination of shares of Common Stock, issuance of rights, warrants or options
to purchase Common Stock, or distribution of shares of stock other than Common
Stock, evidences of indebtedness or assets (other than distributions of cash out
of retained earnings) or convertible or exchangeable securities hereafter made
by the Company to the holders of its Common Stock shall not result in any tax to
the holders of its Common Stock or securities convertible into Common Stock.
6.3 Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant or the Relevant Purchase Price of such Warrant Shares
is adjusted, as herein provided, the Company shall mail to the Holder, at the
address of the Holder shown on the books of the Company, a notice of such
adjustment or adjustments, prepared and signed by the Chief Financial Officer or
Secretary of the Company, which sets forth the number of Warrant Shares
purchasable upon the exercise of this Warrant and each of the then Relevant
Purchase Prices of such Warrant Shares after such adjustment, a brief statement
of the facts requiring such adjustment and the computation by which such
adjustment was made.
6.4 In the event that at any time prior to the expiration of
this Warrant and prior to their exercise:
(a) the Company shall declare any distribution (other than a
cash dividend or a dividend payable in securities of the Company with
respect to the Common Stock); or
(b) the Company shall offer for subscription to all the
holders of the Common Stock any additional shares of stock of any class
or any other securities convertible into Common Stock or any rights to
subscribe thereto; or
(c) the Company shall declare any stock split, stock dividend,
subdivision, combination, or similar distribution with respect to the
Common Stock that shall affect the outstanding number of shares of
Common Stock; or
6
<PAGE>
(d) the Company shall declare a dividend, other than a
dividend payable in shares of the Company's own Common Stock; or
(e) there shall be any capital change in the Company as set
forth in Section 6.1(a)(v); or
(f) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company (other than in connection
with a consolidation, merger, or sale of all or substantially all of
its property, assets and business as an entity);
(each such event hereinafter being referred to as a "Notification Event"), the
Company shall cause to be mailed to the Holder, not less than 20 days prior to
the record date, if any, in connection with such Notification Event (provided,
however, that if there is no record date, 20 days prior to the effective date,
or in either case if 20 days prior notice is impracticable, as soon as
practicable) written notice specifying the nature of such event and the
effective date of, or the date on which the books of the Company shall close or
a record shall be taken with respect to, such event. Such notice shall also set
forth facts indicating the effect of such action (to the extent such effect may
be known at the date of such notice) on each of the Relevant Purchase Prices and
the kind and amount of the shares of stock or other securities or property
deliverable upon exercise of this Warrant.
6.5 The form of Warrant Certificate need not be changed
because of any change in the Relevant Purchase Prices, the number of Warrant
Shares issuable upon the exercise of a Warrant or the number of Warrants
outstanding pursuant to this Section 6, and Warrant Certificates issued before
or after such change may state the same Relevant Purchase Prices, the same
number of Warrants, and the same number of Warrant Shares issuable upon exercise
of Warrants as are stated in the Warrant Certificates theretofore issued
pursuant to this Agreement. The Company may, however, at any time, in its sole
discretion, make any change in the form of Warrant Certificate that it may deem
appropriate and that does not affect the substance thereof, and any Warrant
Certificates thereafter issued or countersigned, whether in exchange or
substitution for an outstanding Warrant Certificate or otherwise, may be in the
form as so changed.
7. Conversion Rights
7.1 After the occurrence of any Reorganization Transaction (as
such term is defined in Section 6.1(a)(v)), in lieu of exercise of any portion
of this Warrant as provided in Section 2.1 hereof, the Warrant Shares
represented by this Warrant Certificate (or any portion thereof) may, at the
election of the Holder, be converted into the nearest whole number of shares of
Common Stock of the Company (or other securities of the Company or any successor
7
<PAGE>
Company underlying the Warrant) equal to: (1) the product of (a) the number of
shares of Common Stock (or such other securities) then issuable upon the
exercise of this Warrant to be so converted and (b) the excess, if any, of (i)
the Market Price Per Share (as determined pursuant to Section 9.2) with respect
to the date of conversion over (ii) the Relevant Purchase Prices in effect on
the business day next preceding the date of conversion, divided by (2) the
Market Price Per Share with respect to the date of conversion.
7.2 The conversion rights provided under this Section 7 may be
exercised in whole or in part and at any time and from time to time while this
Warrant remain outstanding. In order to exercise the conversion privilege, the
Holder shall surrender to the Company (or any successor company), at its
offices, this Warrant Certificate accompanied by a duly completed Notice of
Conversion in the form attached hereto as Exhibit B. The Warrants (or so much
thereof as shall have been surrendered for conversion) shall be deemed to have
been converted immediately prior to the close of business on the day of
surrender of such Warrant Certificate for conversion in accordance with the
foregoing provisions. As promptly as practicable on or after the conversion
date, the Company (or the successor company) shall issue and shall deliver to
the Holder (i) a certificate or certificates representing the number of shares
of Common Stock (or such other securities) to which the Holder shall be entitled
as a result of the conversion, and (ii) if the Warrant Certificate is being
converted in part only, a new certificate of like tenor and date for the balance
of the unconverted portion of the Warrant Certificate.
8. Voluntary Adjustment by the Company
The Company may, at its option, at any time during the term of
this Warrant, reduce the then current Relevant Purchase Prices to any amount
deemed appropriate by the Board of Directors of the Company and/or extend the
date of the expiration of the Warrants.
9. Fractional Shares and Warrants; Determination of
Market Price Per Share
9.1 Anything contained herein to the contrary notwithstanding,
the Company shall not be required to issue any fraction of a share of Common
Stock in connection with the exercise of this Warrant. This Warrant may not be
exercised in such number as would result (except for the provisions of this
paragraph) in the issuance of a fraction of a share of Common Stock unless the
Holder is exercising this Warrant for all shares of Common Stock to be received
by the Holder hereunder. In such event, the Company shall, upon the exercise of
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<PAGE>
the entirety of this Warrant, issue to the Holder the largest aggregate whole
number of shares of Common Stock called for thereby upon receipt of the Relevant
Purchase Price for all shares of Common Stock to be issued upon exercise hereof
and pay a sum in cash equal to the remaining fraction of a share of Common
Stock, multiplied by its Market Price Per Share (as determined pursuant to
Section 9.2 below) as of the last business day preceding the date on which this
Warrant are presented for exercise.
9.2 As used herein, the "Market Price Per Share" with respect
to any class or series of Common Stock of the Company (or any other securities
of the Company or of any successor company) on any date shall mean the closing
price per share of such class or series of securities for the trading day
immediately preceding such date. The closing price for each such day shall be
the last sale price regular way or, in case no such sale takes place on such
day, the average of the closing bid and asked prices regular way, in either case
on the principal securities exchange on which the shares of such Common Stock of
the Company (or other securities of the Company or of such successor company)
are listed or admitted to trading or, if applicable, the last sale price, or in
case no sale takes place on such day, the average of the closing bid and asked
prices of such securities on NASDAQ or any comparable system, or if such
securities are not reported on NASDAQ, or a comparable system, the average of
the closing bid and asked prices as furnished by two members of the National
Association of Securities Dealers, Inc. selected from time to time by the
Company for that purpose. If such bid and asked prices are not available, then
"Market Price Per Share" shall be equal to the fair market value of the such
securities as determined in good faith by the Board of Directors of the Company
(or of such successor company).
10. Restrictions on Transfer; Registration Rights
10.1 No sale, transfer, assignment, hypothecation or other
disposition of this Warrant or Warrant Shares shall be made unless any such
transfer, assignment or other disposition will comply with the rules and
statutes administered by the Securities and Exchange Commission and (i) a
Registration Statement under the Securities Act of 1933, as amended (the "Act"),
including such shares is currently in effect, or (ii) in the opinion of counsel
a current Registration Statement is not required for such disposition of the
shares.
10.2 In the event of a proposed sale or transfer of this
Warrant or Warrant Shares in a transaction other than a sale pursuant to a
public offering registered under the Act, a Holder shall deliver to the Company
an opinion of counsel addressed to the Company (which shall be rendered by
counsel reasonably acceptable to the Company) to the effect that the proposed
transfer may be effected without registration or qualification under any Federal
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or state securities or blue sky law. Such counsel rendering the opinion shall,
as promptly as practicable, notify the Company and the Holder of such opinion
and of the terms and conditions, if any, to be observed in such transfer,
whereupon the Holder shall be entitled to transfer this Warrant or the Warrant
Shares (or a portion thereof).
10.3 The Company agrees that, at any time or times hereafter,
until the second anniversary of the Expiration Date of this Warrant, as and when
it intends to register any of its securities under the Act, whether for its own
account and/or on behalf of selling stockholders (except in connection with an
offering solely to its employees, an offering pursuant to an employee benefit
plan, a dividend or interest reinvestment plan, or an offering solely related to
an acquisition on a Form S-4 or any subsequent similar form) permitting a
secondary offering or distribution the Company will notify the Holder of such
intention and, upon request from the Holder, will use its best efforts to cause
the Warrant Shares designated by the Holder to be registered under the
Securities Act. The number of Warrant Shares to be included in such offering may
be reduced if and to the extent that the underwriter of securities included in
the registration statement and offered by the Company shall be of the opinion
that such inclusion would adversely affect the marketing of the securities to be
sold by the Company therein; provided, however, that the percentage of the
reduction of such Warrant Shares shall be no greater than the percentage
reduction of securities of other selling stockholders, as such percentage
reductions are determined in the good faith judgment of the Company. The Company
will use its best efforts to keep each such Registration Statement current for
such period of time as is not otherwise burdensome to the Company.
10.4 Any registration statement referred to in subsection 10.3
hereof shall be prepared and processed in accordance with the following terms
and conditions:
(i) the Holder will cooperate in furnishing promptly to the
Company in writing any information requested by the Company in
connection with the preparation, filing and processing of such
registration statement.
(ii) to the extent requested by an underwriter of securities
included in the registration statement and offered by the Company, the
Holder will defer the sale of Warrant Shares for a period commencing
twenty (20) days prior and terminating sixty (60) days after the
effective date of the registration statement, provided that any
principal shareholders of the Company who also have shares included in
the registration statement will also defer their sales for a similar
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period, except for sales pursuant to registrations on Form S-8 or S-4
or any similar or successor forms thereto.
(iii) The Company will furnish to the Holder such number of
prospectuses or other documents incident to such registration as may
from time to time be reasonably requested, and cause its shares to be
qualified under the blue-sky laws of those states reasonably requested
by the Holder.
(iv) The Company will indemnify the Holder (and any officer,
director or controlling person of the Holder) and any underwriters
acting on behalf of the Holder against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement of any material
facts contained in any registration statement filed pursuant hereto, or
any document relating thereto, including all amendments and
supplements, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein contained not misleading,
and will reimburse the Holder (or such other aforementioned parties) or
such underwriters for any legal and all other expenses reasonably
incurred in accordance with investigating or defending any such claim,
loss, damage, liability or action; provided, however, that the Company
will not be liable where the untrue or alleged untrue statement or
omission or alleged omission is based upon information furnished in
writing to the Company by the Holder or any underwriter obtained by the
Holder expressly for use therein, or as a result of the Holder's or any
such underwriter's failure to furnish to the Company information duly
requested in writing by counsel for the Company specifically for use
therein; provided that with respect to any untrue statement or omission
or alleged untrue statement or omission made in any preliminary
prospectus, the indemnity agreement contained in this paragraph shall
not inure to the benefit of any underwriter from whom the person
asserting such losses, claims, damages or liability purchased the
securities concerned, to the extent that any such loss, claim, damage
or liability of such underwriter results from the fact that a copy of
the prospectus was not sent or given to such person at or prior to the
written confirmation of the sale of such securities to such person.
This indemnity agreement shall be in addition to any other liability
the Company may have. The indemnity agreement of the Company contained
in this paragraph (iv) shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any
11
<PAGE>
indemnified party and shall survive the delivery of and payment for the
Warrant Shares.
(v) The Holder will indemnify the Company (and any officer,
director or controlling person of the Company) and any underwriters
acting on behalf of the Company against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement filed pursuant
hereto, or any document relating thereto, including all amendments, and
supplements, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein contained not misleading,
and, will reimburse the Company (or such other aforementioned parties)
or such underwriters for any legal and other expenses reasonably
incurred in connection with investigating or defending any such claim,
loss, damage, liability, or action; provided, however, that the Holder
will be liable as aforesaid only to the extent that such untrue or
alleged untrue statement or omission or alleged omission is based upon
information furnished in writing to the Company by the Holder or any
underwriter obtained by the Holder expressly for use therein, or as a
result of its or such underwriter's failure to furnish the Company with
information duly requested in writing by counsel for the Company
specifically for use therein. This indemnity agreement contained in
this paragraph (v) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Warrant
Shares.
(vi) Promptly after receipt by an indemnified party under this
subsection 10.4 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party, promptly notify the indemnifying party
of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under this subsection
10.4. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the
extent that it may wish jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this subsection 10.4 for any legal or other expenses
12
<PAGE>
subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation or
out-of-pocket expenses or losses or cost incurred in collaborating in
the defense.
(vii) Except as set forth in subsection 10.4(viii), the
Company shall bear all costs and expenses incident to any registration
pursuant to this Section 10.
(viii) The Holder shall pay any and all underwriters'
discounts, brokerage fees and transfer taxes incident to the sale of
any securities sold by such Holder pursuant to this Section 10, and
shall pay the fees and expenses of any special attorneys or accountants
retained by it.
(ix) If the filing of any registration statement pursuant to
subsection 10.4 would require the Company to obtain audited financial
statements other than its normal year end audit required for the filing
of its reports required under the Securities Exchange Act of 1934 (the
"Exchange Act"), the Company may defer the filing of such registration
statement until the necessary audited financial statements are
available, unless the Holder arranges for the payment of the expense of
such audit to the extent that such expense would exceed the amount
which the Company would otherwise be required to bear in connection
with its normal audit schedule for reporting under the Exchange Act.
10.5 If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages, liabilities, expenses or actions in respect thereof
referred to herein, then each indemnifying party shall in lieu of indemnifying
such indemnified party contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities,
expenses or actions in such proportion as is appropriate to reflect the relative
fault of the Company, on the one hand, and the seller of such Warrant Shares, on
the other, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities, expenses or actions as well as any other
relevant equitable considerations, including the failure to give the notice
required hereunder. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact relates to information supplied by the Company, on the one hand, or the
sellers of such Warrant Shares, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the holder hereof agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation (even if all of the sellers of such Warrant
Shares were treated as one entity for such purpose) or by any other method of
allocation which did not take account of the equitable considerations referred
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<PAGE>
to above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or actions in respect thereof referred to
above shall be deemed to include any legal or other expenses which reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the contribution provisions of this
Section, in no event shall the amount contributed by any seller from the sale of
Warrant Shares to which such contribution claim relates. No person guilty of
fraudulent misrepresentations (within the meaning of section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. Each Holder of this Warrant and each Holder of
Warrant Shares bearing the legend required by Section 10.6, by acceptance hereof
or thereof, as the case may be, agrees to the indemnification and contribution
provisions of this Section 10.5.
10.6 Legend. In case any shares are issued upon the exercise
in whole or in part of this Warrant or are thereafter transferred, in either
case under such circumstances that no registration under the Act is required or
effective, each certificate representing such shares shall bear on the face
thereof the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and any
transfer thereof is subject to the conditions specified in the Warrant
dated as of [Include Date] originally issued by PlayNet Technologies,
Inc. (the "Company") to [Include Name of Holder] to purchase shares of
Common Stock, $.001 par value, of the Company. A copy of the form of
such Warrant is on file with the Secretary of the Company in New York,
New York, and will be furnished without charge by the Company to the
holder of this certificate upon written request to the Secretary of the
Company at such address."
11. Miscellaneous
11.1 Governing Law. This Warrant Certificate shall be governed
by and construed in accordance with the laws of the State of New York.
11.2 Holder Not a Stockholder. Prior to the exercise of this
Warrant, the holder hereof shall not be entitled to any of the rights of a
stockholder of the Company including, without limitation, the right as a
stockholder to (a) vote on or consent to any proposed action of the Company or
(b) receive (i) dividends or any distributions made to stockholders, (ii) notice
14
<PAGE>
of or attend any meetings of stockholders of the Company or (iii) notice of any
other proceedings of the Company.
11.3 Notices. Any notice, demand or delivery to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if sent by first class mail, postage prepaid, addressed to (a) the holder of
this Warrant or issued Warrant Shares at its last known address appearing on the
books at the Company maintained for such purposes or (b) the Company at its
principal offices at 152 West 57th Street, New York, New York 10019, Attention:
General Counsel. The Holder of this Warrant and the Company may each designate a
different address by notice to the other pursuant to this Section 11.3.
11.4 Investment Representation. The Holder represents that it
is purchasing the Warrant and all shares issuable upon exercise of this Warrant
for its own account and not as nominee or agent for any other person and not
with a view to, or for offer or sale in connection with any distribution thereof
(within the meaning of the Act) that would be in violation of the applicable
securities laws; provided, however, that subject to the restrictions contained
in Section 10, that the disposition of all or any part of such shares shall at
all times be within the Holder's exclusive control.
11.5 Confidentiality of Information. The Holder of this
Warrant (and any affiliates of the Holder) and any permitted transferee of this
Warrant will treat all documents, financial statements, reports and other
information delivered pursuant to this Warrant on a confidential basis with the
same degree of care it treats similar information of other companies of which it
holds securities and has investment banking relationships.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed by its officers thereunto duly authorized and
its corporate seal to be affixed hereon, as of this ____ day of _________, 199_.
PLAYNET TECHNOLOGIES, INC.
By:__________________________
Name:
Title:
15
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE FORM
-----------------------
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warrant
irrevocably exercises the within Warrant for and purchases shares of Common
Stock of PlayNet Technologies, Inc. (the "Company") and herewith makes payment
therefor in the amount of $_________, all on the terms and conditions specified
in the within Warrant, and requests that a certificate (or ______ certificates
in denominations of ______ shares) for the shares of Common Stock of the Company
hereby purchased be issued in the name of and delivered to (choose one) (a) the
undersigned or (b) ________, whose address is _______________ and, if such
shares of Common Stock shall not include all the shares of Common Stock issuable
as provided in the within Warrant, that a new Warrant of like tenor for that
portion of the Warrant not exercised hereby be issued in the name of and
delivered to (choose one) (a) the undersigned or (b) ______________, whose
address is _______________________.
The undersigned represents that it is purchasing the
securities described above for its own account and not as a nominee or agent for
any other person and not with a view to, or for offer of sale in connection
with, any distribution thereof (within the meaning of the Securities Act of
1933) that would be in violation of the applicable securities laws; provided,
however, that subject to the restrictions contained in Section 10 of the Warrant
that the disposition of all or any part of such shares shall at all times be
within the undersigned's exclusive control.
Dated: __________________
By:________________________________
(signature of Registered Holder)
Signature Guaranteed:
________________________
By:_____________________
Title:
NOTICE: The signature to this Notice must correspond with the name as
written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
The signature to this Notice must be guaranteed by a
commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
16
<PAGE>
EXHIBIT B
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert, pursuant
to Section 7 of the Warrant Certificate accompanying this Notice of Conversion,
that number of shares of Common Stock issuable upon exercise of the Warrant for
an aggregate purchase price of $_______ into that number of shares of Common
Stock of the Company to be received by the undersigned pursuant to the
provisions of Section 7.1 of the accompanying Warrant Certificate.
Dated: _______________ _____________________________
Name of Holder
_____________________________
Signature
Address:
_____________________________
_____________________________
_____________________________
___________________________
Signature Guaranteed:
________________________
By:_____________________
Title:
17
<PAGE>
ASSIGNMENT FORM
---------------
(To be executed only upon the
assignment of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the
within Warrant hereby sells, assigns and transfers unto _____________________,
whose address is ________________________, all of the rights of the undersigned
under the within Warrant, with respect to the receipt of shares of Common Stock
of PlayNet Technologies, Inc. and, if such sale, assignment or transfer is for
less than the right to the receipt of all shares of Common Stock to which the
Holder is entitled upon exercise of such Warrant, that a new Warrant of like
tenor for that portion of the Warrant not being transferred hereunder be issued
in the name of and delivered to the undersigned, and does hereby irrevocably
constitute and appoint ______________ Attorney to register such transfer on the
books of the Company maintained for the purpose, with full power of substitution
in the premises.
Dated: _____________, 19__.
By:________________________________
(Signature of Registered Holder)
Signature Guaranteed:
___________________________
By:_______________________
Title:
NOTICE: The signature to this Assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
The signature to this Assignment must be guaranteed by a
commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
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<PAGE>
EXHIBIT 8
FORM OF OPINION OF COUNSEL
Dated: Date of Closing
Name
Address 1
Address 2
Re: Senior Secured Notes
Ladies and Gentlemen:
1. PlayNet is duly organized, validly existing and in good standing
under the laws of the State of its incorporation and has the requisite corporate
power and corporate authority to own, lease and operate its properties and to
carry on its business.
2. PlayNet is duly qualified and in good standing in every state in
which, by reason of the nature or location of PlayNet's assets or operation of
PlayNet's business, such qualification may be necessary and where the failure to
so qualify would have a material adverse affect on (i) the financial condition
of PlayNet, and/or (ii) PlayNet's ability to conduct its business.
3. PlayNet has the requisite corporate power and corporate authority to
execute and deliver, and to perform its obligations under the Agreement dated
December __, 1996 by and between PlayNet and the investors identified therein
and all agreements, documents or instruments executed in connection therewith,
including, but not limited to the [First Stage Notes] [Second Stage Notes] and
the warrants related thereto (the "Agreement"). The execution and delivery of
the Agreement and the performance by PlayNet of its obligations thereunder, has
been duly authorized by all necessary corporate action of PlayNet, and the
Agreement has been duly executed and delivered by an authorized officer of
PlayNet and constitutes the valid and binding obligation of PlayNet enforceable
against PlayNet in accordance with its terms, except to the extent that
enforceability of PlayNet's obligations under the Agreement is subject to and
affected by applicable bankruptcy, insolvency, reorganization, arrangement or
other laws affecting the enforcement of creditors' rights and general principles
of equity (whether enforcement is considered in a proceeding in equity or at
law).
4. The execution, delivery, performance and compliance by PlayNet with
the terms of the Agreement do not violate (i) to the best knowledge of counsel
after due inquiry, any provision of any judgment, writ, decree or order binding
upon PlayNet, the violation of which would have a material adverse effect on
PlayNet, or (ii) any provision of PlayNet's Articles of Incorporation, or
<PAGE>
By-Laws. The execution, delivery, performance and compliance by PlayNet with the
terms of the Agreement do not conflict with or constitute a default under the
provisions of any material agreement, document or instrument to which PlayNet is
a party or by which PlayNet is bound and the violation of which would have a
material adverse effect on PlayNet.
5. No action, proceeding or investigation is pending or, to the best of
knowledge of counsel after due inquiry, threatened against PlayNet which
questions the validity of the Agreement, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of PlayNet.
6. To the best knowledge of counsel after due inquiry, PlayNet is not
in violation of any provision of its Articles of Incorporation or Bylaws.
7. The offer, sale and issuance of the [First Stage Notes] [Second
Stage Notes] constitute transactions exempt from registration requirements of
Section 5 of the Securities Act of 1933, as amended.
PlayNet Technologies, Inc.
By: _____________________________
Philip K. Yachmetz
Secretary and
Director, Legal & Corporate Affairs
<PAGE>
================================================================================
Bridge Financing Senior Secured Note Holders - Initial Financing
- - --------------------------------------------------------------------------------
Name Amount Warrant Ex. Date of Closing
================================================================================
Allen & Company Incorporated $750,000 Exhibit 3 December 30, 1996
- - --------------------------------------------------------------------------------
Zeller Eblagon Financial Services Ltd. $500,000 Exhibit 4 December 19, 1996
- - --------------------------------------------------------------------------------
K.F. Chemical Ltd. $250,000 Exhibit 4 December 19, 1996
- - --------------------------------------------------------------------------------
Ceres Advisors Ltd. $500,000 Exhibit 3 January 30, 1997
- - --------------------------------------------------------------------------------
Ehud Guth $250,000 Exhibit 3 January 30, 1997
- - --------------------------------------------------------------------------------
Ceres Advisors Ltd. $250,000 Exhibit 3 February 10, 1997
================================================================================
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR THE LAWS OF ANY STATE. THEY MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNLESS THEY ARE REGISTERED UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
[2] Warrants
PLAYNET TECHNOLOGIES, INC.
WARRANT CERTIFICATE
This warrant certificate ("Warrant Certificate") certifies
that for value received [1] or registered assigns (the "Holder") is the owner of
the number of warrants ("Warrants") specified above, each of which entitles the
Holder thereof to purchase, at any time after one year from the date hereof
through and including the Expiration Date (hereinafter defined), one fully paid
and non-assessable share of Common Stock, $.01 par value ("Common Stock"), of
PlayNet technologies, Inc., a Delaware corporation (the "Company"), at a
purchase price of $[3] per share of Common Stock in lawful money of the United
States of America in cash or by certified or cashier's check or a combination of
cash and certified or cashier's check (subject to adjustment as hereinafter
provided).
1. Warrant; Purchase Price
Each Warrant shall entitle the Holder initially to purchase
one share of Common Stock of the Company and the purchase price payable upon
exercise of the Warrants (the "Purchase Price") shall initially be $ [3] per
share of Common Stock payable in cash. The Purchase Price and number of shares
of Common Stock issuable upon exercise of each Warrant are subject to adjustment
as provided in Article 6. The shares of Common Stock issuable upon exercise of
the Warrants (and/or other shares of common stock so issuable by reason of any
adjustments pursuant to Article 6) are sometimes referred to herein as the
"Warrant Shares."
2. Exercise; Expiration Date
2.1 The Warrants are exercisable, at the option of the Holder,
in whole or in part at any time and from time to time after the date which is
one year from the date hereof through and including the Expiration Date (the
"Exercise Period"), upon surrender of this Warrant Certificate to the Company
together with a duly completed Notice of Exercise, in the form attached hereto
as Exhibit A, and payment of an amount equal to the Purchase Price times the
number of Warrants to be exercised. In the case of exercise of less than all the
Warrants represented by this Warrant Certificate, the Company shall cancel the
<PAGE>
Warrant Certificate upon the surrender thereof and shall execute and deliver a
new Warrant Certificate for the balance of such Warrants.
2.2 The term "Expiration Date" shall mean 5:00 p.m. New York
time on January 20, 2002, or if such day shall in the State of New York be a
holiday or a day on which banks are authorized to close, then 5:00 p.m. local
time in the State of New York the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.
3. Registration and Transfer on Company Books
3.1 The Company shall maintain books for the registration and
transfer of the Warrants and the registration and transfer of the Warrant
Shares.
3.2 Prior to due presentment for registration of transfer of
this Warrant Certificate, or the Warrant Shares, the Company may deem and treat
the registered Holder as the absolute owner thereof.
3.3 The Company shall register upon its books any transfer of
a Warrant Certificate, upon surrender of same to the Company with a written
instrument of transfer duly executed by the registered Holder or by a duly
authorized attorney. Upon any such registration of transfer, new Warrant
Certificate(s) shall be issued to the transferee(s) and the surrendered Warrant
Certificate shall be canceled by the Company. A Warrant Certificate may also be
exchanged, at the option of the Holder, for new Warrant Certificates of
different denominations representing in the aggregate the number of Warrants
evidenced by the Warrant Certificate surrendered.
4. Reservation of Shares
The Company covenants that it will at all times reserve and
keep available out of its authorized capital stock, solely for the purpose of
issue upon exercise of the Warrants, such number of shares as shall then be
issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of capital stock which shall be issuable upon exercise of the
Warrants shall be duly and validly issued and fully paid and non-assessable and
free from all taxes, liens and charges with respect to the issue thereof, and
that upon issuance such shares shall be listed on each national securities
exchange, if any, on which the other shares of such outstanding series of
capital stock of the Company are then listed.
5. Loss or Mutilation
Upon receipt by the Company of reasonable evidence of the
ownership of and the loss, theft, destruction or mutilation of any Warrant
Certificate and, in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company, or, in the case of mutilation, upon
surrender and cancellation of the mutilated Warrant Certificate, the Company
shall execute and deliver in lieu thereof a new Warrant Certificate representing
an equal number of Warrants.
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<PAGE>
6. Adjustment of Purchase Price and Number of Shares Deliverable
6.1 The number of Warrant Shares purchasable upon the exercise
of each Warrant and the Purchase Price with respect to the Warrant Shares shall
be subject to adjustment as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its Common Stock payable in shares of its capital
stock, (ii) subdivide its outstanding shares of Common Stock through
stock split or otherwise, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or (iv)
issue by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation) other securities of the
Company, or (v) in case of a consolidation or merger of the Company
with or into another corporation or in case of the sale or transfer of
all or substantially all of the assets of the Company (hereinafter, a
"Reorganization Transaction"), the number and/or nature of Warrant
Shares purchasable upon exercise of each Warrant immediately prior
thereto shall be adjusted so that the Holder shall be entitled to
receive the kind and number of Warrant Shares or other securities of
the Company (or of any successor company) which he would have owned or
have been entitled to receive after the happening of any of the events
described above, had such Warrant been exercised immediately prior to
the happening of such event or any record date with respect thereto. An
adjustment made pursuant to this paragraph (a) shall become effective
retroactively as of the record date of such event.
(b) In case the Company shall distribute to all holders of its
shares of Common Stock, or all holders of Common Stock shall otherwise
become entitled to receive, shares of capital stock of the Company
(other than dividends or distributions on its Common Stock referred to
in paragraph (a) above), evidences of its indebtedness or rights,
options, warrants or convertible securities providing the right to
subscribe for or purchase any shares of the Company's capital stock or
evidences of its indebtedness, then in each case the number of Warrant
Shares thereafter purchasable upon the exercise of each Warrant shall
be determined by multiplying the number of Warrant Shares theretofore
purchasable upon the exercise of each Warrant, by a fraction, of which
the numerator shall be the then Market Price Per Share of the Warrant
Shares (as determined pursuant to Section 9.2) on the record date
mentioned below in this paragraph (b), and of which the denominator
shall be the then Market Price Per Share of the Warrant Shares on such
record date, less the then fair value (as determined by the Board of
Directors of the Company, in good faith) of the portion of the shares
of the Company's capital stock other than Common Stock, evidences of
indebtedness, or of such rights, options, warrants or convertible
securities, distributable with respect to each Warrant Share. Such
adjustment shall be made whenever any such distribution is made, and
shall become effective retroactively as of the record date for the
determination of shareholders entitled to receive such distribution.
3
<PAGE>
(c) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as provided in this Section 6.1,
the Purchase Price with respect to the Warrant Shares shall be adjusted
by multiplying such Purchase Price immediately prior to such adjustment
by a fraction, of which the numerator shall be the number of Warrant
Shares purchasable upon the exercise of each Warrant immediately prior
to such adjustment, and of which the denominator shall be the number of
Warrant Shares so purchasable immediately thereafter.
6.2 No adjustment in the number of Warrant Shares purchasable
under the Warrants, or in the Purchase Price with respect to the Warrant Shares,
shall be required unless such adjustment would require an increase or decrease
of at least 1% in the number of Warrant Shares issuable upon the exercise of
such Warrant, or in the Purchase Price thereof; provided, however, that any
adjustments which by reason of this Section 6.3 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All final results of adjustments to the number of Warrant Shares and the
Purchase Price thereof shall be rounded to the nearest one thousandth of a share
or the nearest cent, as the case may be. Anything in this Section 6 to the
contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the number of Warrant Shares purchasable upon
the exercise of each Warrant, or in the Purchase Price thereof, in addition to
those required by such Section, as it in its discretion shall determine to be
advisable in order that any dividend or distribution in shares of Common Stock,
subdivision, reclassification or combination of shares of Common Stock, issuance
of rights, warrants or options to purchase Common Stock, or distribution of
shares of stock other than Common Stock, evidences of indebtedness or assets
(other than distributions of cash out of retained earnings) or convertible or
exchangeable securities hereafter made by the Company to the holders of its
Common Stock shall not result in any tax to the holders of its Common Stock or
securities convertible into Common Stock.
6.3 Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant or the Purchase Price of such Warrant Shares is
adjusted, as herein provided, the Company shall mail to the Holder, at the
address of the Holder shown on the books of the Company, a notice of such
adjustment or adjustments, prepared and signed by the Chief Financial Officer or
Secretary of the Company, which sets forth the number of Warrant Shares
purchasable upon the exercise of each Warrant and the Purchase Price of such
Warrant Shares after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made.
6.4 In the event that at any time prior to the expiration of
the Warrants and prior to their exercise:
(a) the Company shall declare any distribution (other than a
cash dividend or a dividend payable in securities of the Company with
respect to the Common Stock); or
(b) the Company shall offer for subscription to all the
holders of the Common Stock any additional shares of stock of any class
or any other securities convertible into Common Stock or any rights to
4
<PAGE>
subscribe thereto; or
(c) the Company shall declare any stock split, stock dividend,
subdivision, combination, or similar distribution with respect to the
Common Stock that shall affect the outstanding number of shares of
Common Stock; or
(d) the Company shall declare a dividend, other than a
dividend payable in shares of the Company's own Common Stock; or
(e) there shall be any capital change in the Company as set
forth in Section 6.1(a)(v); or
(f) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company (other than in connection
with a consolidation, merger, or sale of all or substantially all of
its property, assets and business as an entity);
(each such event hereinafter being referred to as a "Notification Event"), the
Company shall cause to be mailed to the Holder, not less than 20 days prior to
the record date, if any, in connection with such Notification Event (provided,
however, that if there is no record date, 20 days prior to the effective date,
or in either case if 20 days prior notice is impracticable, as soon as
practicable) written notice specifying the nature of such event and the
effective date of, or the date on which the books of the Company shall close or
a record shall be taken with respect to, such event. Such notice shall also set
forth facts indicating the effect of such action (to the extent such effect may
be known at the date of such notice) on the Purchase Price and the kind and
amount of the shares of stock or other securities or property deliverable upon
exercise of the Warrants.
6.5 The form of Warrant Certificate need not be changed
because of any change in the Purchase Price, the number of Warrant Shares
issuable upon the exercise of a Warrant or the number of Warrants outstanding
pursuant to this Section 6, and Warrant Certificates issued before or after such
change may state the same Purchase Price, the same number of Warrants, and the
same number of Warrant Shares issuable upon exercise of Warrants as are stated
in the Warrant Certificates theretofore issued pursuant to this Agreement. The
Company may, however, at any time, in its sole discretion, make any change in
the form of Warrant Certificate that it may deem appropriate and that does not
affect the substance thereof, and any Warrant Certificates thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant
Certificate or otherwise, may be in the form as so changed.
7. Conversion Rights
7.1 After the occurrence of any Reorganization Transaction (as
such term is defined in Section 6.1(a)(v)), in lieu of exercise of any portion
of the Warrants as provided in Section 2.1 hereof, the Warrants represented by
this Warrant Certificate (or any portion thereof) may, at the election of the
Holder, be converted into the nearest whole number of shares of Common Stock of
the Company (or other securities of the Company or any successor Company
underlying the Warrants) equal to: (1) the product of (a) the number of shares
5
<PAGE>
of Common Stock (or such other securities) then issuable upon the exercise of
each Warrant to be so converted and (b) the excess, if any, of (i) the Market
Price Per Share (as determined pursuant to Section 9.2) with respect to the date
of conversion over (ii) the Purchase Price in effect on the business day next
preceding the date of conversion, divided by (2) the Market Price Per Share with
respect to the date of conversion.
7.2 The conversion rights provided under this Section 7 may be
exercised in whole or in part and at any time and from time to time while any
Warrants remain outstanding. In order to exercise the conversion privilege, the
Holder shall surrender to the Company (or any successor company), at its
offices, this Warrant Certificate accompanied by a duly completed Notice of
Conversion in the form attached hereto as Exhibit B. The Warrants (or so much
thereof as shall have been surrendered for conversion) shall be deemed to have
been converted immediately prior to the close of business on the day of
surrender of such Warrant Certificate for conversion in accordance with the
foregoing provisions. As promptly as practicable on or after the conversion
date, the Company (or the successor company) shall issue and shall deliver to
the Holder (i) a certificate or certificates representing the number of shares
of Common Stock (or such other securities) to which the Holder shall be entitled
as a result of the conversion, and (ii) if the Warrant Certificate is being
converted in part only, a new certificate of like tenor and date for the balance
of the unconverted portion of the Warrant Certificate.
8. Voluntary Adjustment by the Company
The Company may, at its option, at any time during the term of
the Warrants, reduce the then current Purchase Price to any amount deemed
appropriate by the Board of Directors of the Company and/or extend the date of
the expiration of the Warrants.
9. Fractional Shares and Warrants; Determination of Market Price Per
Share
9.1 Anything contained herein to the contrary notwithstanding,
the Company shall not be required to issue any fraction of a share of Common
Stock in connection with the exercise of Warrants. Warrants may not be exercised
in such number as would result (except for the provisions of this paragraph) in
the issuance of a fraction of a share of Common Stock unless the Holder is
exercising all Warrants then owned by the Holder. In such event, the Company
shall, upon the exercise of all of such Warrants, issue to the Holder the
largest aggregate whole number of shares of Common Stock called for thereby upon
receipt of the Purchase Price for all of such Warrants and pay a sum in cash
equal to the remaining fraction of a share of Common Stock, multiplied by its
Market Price Per Share (as determined pursuant to Section 9.2 below) as of the
last business day preceding the date on which the Warrants are presented for
exercise.
9.2 As used herein, the "Market Price Per Share" with respect
to any class or series of Common Stock of the Company (or any other securities
of the Company or of any successor company) on any date shall mean the closing
6
<PAGE>
price per share of such class or series of securities for the trading day
immediately preceding such date. The closing price for each such day shall be
the last sale price regular way or, in case no such sale takes place on such
day, the average of the closing bid and asked prices regular way, in either case
on the principal securities exchange on which the shares of such Common Stock of
the Company (or other securities of the Company or of such successor company)
are listed or admitted to trading or, if applicable, the last sale price, or in
case no sale takes place on such day, the average of the closing bid and asked
prices of such securities on NASDAQ or any comparable system, or if such
securities are not reported on NASDAQ, or a comparable system, the average of
the closing bid and asked prices as furnished by two members of the National
Association of Securities Dealers, Inc. selected from time to time by the
Company for that purpose. If such bid and asked prices are not available, then
"Market Price Per Share" shall be equal to the fair market value of the such
securities as determined in good faith by the Board of Directors of the Company
(or of such successor company).
10. Restrictions on Transfer; Registration Rights
10.1 No sale, transfer, assignment, hypothecation or other
disposition of the Warrant or Warrant Shares shall be made unless any such
transfer, assignment or other disposition will comply with the rules and
statutes administered by the Securities and Exchange Commission and (i) a
Registration Statement under the Securities Act of 1933, as amended (the "Act"),
including such shares is currently in effect, or (ii) in the opinion of counsel
a current Registration Statement is not required for such disposition of the
shares.
10.2 In the event of a proposed sale or transfer of the
Warrant or Warrant Shares in a transaction other than a sale pursuant to a
public offering registered under the Act, a Holder shall deliver to the Company
an opinion of counsel addressed to the Company (which shall be rendered by
counsel reasonably acceptable to the Company) to the effect that the proposed
transfer may be effected without registration or qualification under any Federal
or state securities or blue sky law. Such counsel rendering the opinion shall,
as promptly as practicable, notify the Company and the Holder of such opinion
and of the terms and conditions, if any, to be observed in such transfer,
whereupon the Holder shall be entitled to transfer this Warrant or the Warrant
shares (or a portion thereof).
10.3 The Company agrees that, at any time or times hereafter,
until the second anniversary of the Expiration Date of the Warrants, as and when
it intends to register any of its securities under the Act, whether for its own
account and/or on behalf of selling stockholders (except in connection with an
offering solely to its employees, an offering pursuant to an employee benefit
plan, a dividend or interest reinvestment plan, or an offering solely related to
an acquisition on a Form S-4 or any subsequent similar form) permitting a
secondary offering or distribution the Company will notify the Holder of such
intention and, upon request from the Holder, will use its best efforts to cause
the Warrant Shares designated by the Holder to be registered under the
Securities Act. The number of Warrant Shares to be included in such offering may
be reduced if and to the extent that the underwriter of securities included in
the registration statement and offered by the Company shall be of the opinion
7
<PAGE>
that such inclusion would adversely affect the marketing of the securities to be
sold by the Company therein; provided, however, that the percentage of the
reduction of such Warrant Shares shall be no greater than the percentage
reduction of securities of other selling stockholders, as such percentage
reductions are determined in the good faith judgment of the Company. The Company
will use its best efforts to keep each such Registration Statement current for
such period of time as is not otherwise burdensome to the Company.
10.4 Any registration statement referred to in subsection 10.3
hereof shall be prepared and processed in accordance with the following terms
and conditions:
(i) the Holder will cooperate in furnishing promptly to the
Company in writing any information requested by the Company in
connection with the preparation, filing and processing of such
registration statement.
(ii) To the extent requested by an underwriter of securities
included in the registration statement and offered by the Company, the
Holder will defer the sale of Warrant Shares for a period commencing
twenty (20) days prior and terminating sixty (60) days after the
effective date of the registration statement, provided that any
principal shareholders of the Company who also have shares included in
the registration statement will also defer their sales for a similar
period, except for sales pursuant to registrations on Form S-8 or S-4
or any similar or successor forms thereto.
(iii) The Company will furnish to the Holder such number of
prospectuses or other documents incident to such registration as may
from time to time be reasonably requested, and cause its shares to be
qualified under the blue-sky laws of those states reasonably requested
by the Holder.
(iv) The Company will indemnify the Holder (and any officer,
director or controlling person of the Holder) and any underwriters
acting on behalf of the Holder against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement of any material
facts contained in any registration statement filed pursuant hereto, or
any document relating thereto, including all amendments and
supplements, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein contained not misleading,
and will reimburse the Holder (or such other aforementioned parties) or
8
<PAGE>
such underwriters for any legal and all other expenses reasonably
incurred in accordance with investigating or defending any such claim,
loss, damage, liability or action; provided, however, that the Company
will not be liable where the untrue or alleged untrue statement or
omission or alleged omission is based upon information furnished in
writing to the Company by the Holder or any underwriter obtained by the
Holder expressly for use therein, or as a result of the Holder's or any
such underwriter's failure to furnish to the Company information duly
requested in writing by counsel for the Company specifically for use
therein; provided that with respect to any untrue statement or omission
or alleged untrue statement or omission made in any preliminary
prospectus, the indemnity agreement contained in this paragraph shall
not inure to the benefit of any underwriter from whom the person
asserting such losses, claims, damages or liability purchased the
securities concerned, to the extent that any such loss, claim, damage
or liability of such underwriter results from the fact that a copy of
the prospectus was not sent or given to such person at or prior to the
written confirmation of the sale of such securities to such person.
This indemnity agreement shall be in addition to any other liability
the Company may have. The indemnity agreement of the Company contained
in this paragraph (iv) shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the
Warrant Shares.
(v) The Holder will indemnify the Company (and any officer,
director or controlling person of the Company) and any underwriters
acting on behalf of the Company against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) to which they
may become subject under the Securities Act or otherwise, arising out
of or based upon any untrue or alleged untrue statement filed pursuant
hereto, or any document relating thereto, including all amendments, and
supplements, or arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein contained not misleading,
and, will reimburse the Company (or such other aforementioned parties)
or such underwriters for any legal and other expenses reasonably
incurred in connection with investigating or defending any such claim,
loss, damage, liability, or action; provided, however, that the Holder
will be liable as aforesaid only to the extent that such untrue or
alleged untrue statement or omission or alleged omission is based upon
information furnished in writing to the Company by the Holder or any
underwriter obtained by the Holder expressly for use therein, or as a
result of its or such underwriter's failure to furnish the Company with
information duly requested in writing by counsel for the Company
specifically for use therein. This indemnity agreement contained in
this paragraph (v) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Warrant
Shares.
(vi) Promptly after receipt by an indemnified party under this
subsection 10.4 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party, promptly notify the indemnifying party
of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under this subsection
10.4. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the
extent that it may wish jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this subsection 10.4 for any legal or other expenses
9
<PAGE>
subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation or
out-of-pocket expenses or losses or cost incurred in collaborating in
the defense.
(vii) Except as set forth in subsection 10.4(viii), the
Company shall bear all costs and expenses incident to any registration
pursuant to this Section 10.
(viii) The Holder shall pay any and all underwriters'
discounts, brokerage fees and transfer taxes incident to the sale of
any securities sold by such Holder pursuant to this Section 10, and
shall pay the fees and expenses of any special attorneys or accountants
retained by it.
(ix) If the filing of any registration statement pursuant to
subsection 10.4 would require the Company to obtain audited financial
statements other than its normal year end audit required for the filing
of its reports required under the Securities Exchange Act of 1934 (the
"Exchange Act"), the Company may defer the filing of such registration
statement until the necessary audited financial statements are
available, unless the Holder arranges for the payment of the expense of
such audit to the extent that such expense would exceed the amount
which the Company would otherwise be required to bear in connection
with its normal audit schedule for reporting under the Exchange Act.
10.5 If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages, liabilities, expenses or actions in respect thereof
referred to herein, then each indemnifying party shall in lieu of indemnifying
such indemnified party contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities,
expenses or actions in such proportion as is appropriate to reflect the relative
fault of the Company, on the one hand, and the seller of such Warrant Shares, on
the other, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities, expenses or actions as well as any other
relevant equitable considerations, including the failure to give the notice
required hereunder. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact relates to information supplied by the Company, on the one hand, or the
sellers of such Warrant Shares, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the holder hereof agree that it
would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation (even if all of the sellers of such Warrant
Shares were treated as one entity for such purpose) or by any other method of
allocation which did not take account of the equitable considerations referred
to above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or actions in respect thereof referred to
above shall be deemed to include any legal or other expenses which reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the contribution provisions of this
Section, in no event shall the amount contributed by any seller from the sale of
10
<PAGE>
Warrant Shares to which such contribution claim relates. No person guilty of
fraudulent misrepresentations (within the meaning of section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. Each Holder of this Warrant and each Holder of
Warrant Shares bearing the legend required by Section 10.6, by acceptance hereof
or thereof, as the case may be, agrees to the indemnification and contribution
provisions of this Section 10.5.
10.6 Legend on Warrants and Certificates. Each Warrant shall
bear a legend in substantially the following form:
"This Warrant and any shares of Common Stock issuable upon the
exercise of this Warrant have not been registered under the Securities
Act of 1933, as amended, and neither this Warrant nor any such shares
may be transferred in the absence of such registration or an exemption
therefrom under such Act."
In case any shares are issued upon the exercise in whole or in
part of this Warrant or are thereafter transferred, in either case under such
circumstances that no registration under the Act is required or effective, each
certificate representing such shares shall bear on the face thereof the
following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and any
transfer thereof is subject to the conditions specified in the Warrant
dated as of January 20, 1997 originally issued by Aristo International
Corporation (the "Company") to [1] to purchase shares of Common Stock,
$.001 par value, of the Company. A copy of the form of such Warrant is
on file with the Secretary of the Company in New York, New York, and
will be furnished without charge by the Company to the holder of this
certificate upon written request to the Secretary of the Company at
such address."
11. Miscellaneous
11.1 Governing Law. This Warrant Certificate shall be governed
by and construed in accordance with the laws of the State of New York.
11.2 Holder Not a Stockholder. Prior to the exercise of this
Warrant, the holder hereof shall not be entitled to any of the rights of a
stockholder of the Company including, without limitation, the right as a
stockholder to (a) vote on or consent to any proposed action of the Company or
(b) receive (i) dividends or any distributions made to stockholders, (ii) notice
of or attend any meetings of stockholders of the Company or (iii) notice of any
other proceedings of the Company.
11.3 Notices. Any notice, demand or delivery to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if sent by first class mail, postage prepaid, addressed to (a) the holder of
this Warrant or issued Warrant Shares at its last known address appearing on the
books at the Company maintained for such purposes or (b) the Company at its
11
<PAGE>
principal offices at 152 West 57th Street, New York, New York 10019, Attention:
General Counsel. The Holder of this Warrant and the Company may each designate a
different address by notice to the other pursuant to this Section 11.3.
11.4 Investment Representation. The Holder represents that it
is purchasing the Warrant and all shares issuable upon exercise of this Warrant
for its own account and not as nominee or agent for any other person and not
with a view to, or for offer or sale in connection with any distribution thereof
(within the meaning of the Act) that would be in violation of the applicable
securities laws; provided, however, that subject to the restrictions contained
in Section 10, that the disposition of all or any part of such shares shall at
all times be within the Holder's exclusive control.
11.5 Confidentiality of Information. The Holder of this
Warrant (and any affiliates of the Holder) and any permitted transferee of this
Warrant will treat all documents, financial statements, reports and other
information delivered pursuant to this Warrant and that certain Consulting
Agreement between the Company and [1] dated June 4, 1996 on a confidential basis
with the same degree of care it treats similar confidential information of its
own.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed by its officers thereunto duly authorized and
its corporate seal to be affixed hereon, as of this 20th day of January, 1997.
PLAYNET TECHNOLOGIES, INC.
By: _____________________________
Shmuel Cohen
President &
Chief Executive Officer
12
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE FORM
-----------------------
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered Holder of the within Warrant
irrevocably exercises the within Warrant for and purchases shares of Common
Stock of Aristo International Corporation (the "Company") and herewith makes
payment therefor in the amount of $_________, all at the price and on the terms
and conditions specified in the within Warrant, and requests that a certificate
(or ______ certificates in denominations of ______ shares) for the shares of
Common Stock of Aristo International Corporation hereby purchased be issued in
the name of and delivered to (choose one) (a) the undersigned or (b) ________,
whose address is _______________ and, if such shares of Common Stock shall not
include all the shares of Common Stock issuable as provided in the within
Warrant, that a new Warrant of like tenor for the number of shares of Common
Stock of the Company not being purchased hereunder be issued in the name of and
delivered to (choose one) (a) the undersigned or (b) ______________, whose
address is _______________________.
The undersigned represents that it is purchasing the
securities described above for its own account and not as a nominee or agent for
any other person and not with a view to, or for offer of sale in connection
with, any distribution thereof (within the meaning of the Securities Act of
1933) that would be in violation of the applicable securities laws; provided,
however, that subject to the restrictions contained in Section 10 of the Warrant
that the disposition of all or any part of such shares shall at all times be
within the undersigned's exclusive control.
Dated: __________________
By:________________________________
(signature of Registered Holder)
Signature Guaranteed:
_________________________
By:_____________________
Title:
NOTICE: The signature to this Notice must correspond with the name as
written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
The signature to this Notice must be guaranteed by a
commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
13
<PAGE>
EXHIBIT B
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert, pursuant to Section 7 of
the Warrant Certificate accompanying this Notice of Conversion, _______ Warrants
of the total number of Warrants owned by the undersigned pursuant to the
accompanying Warrant Certificate into shares of the Common Stock of the Company
(the "Shares").
The number of Shares to be received by the undersigned shall be calculated in
accordance with the provisions of Section 7.1 of the accompanying Warrant
Certificate.
Dated: _______________ ___________________________
Name of Holder
___________________________
Signature
Address:
___________________________
___________________________
___________________________
Signature Guaranteed:
_______________________________
By:___________________________
Name:
Title:
14
<PAGE>
ASSIGNMENT FORM
---------------
(To be executed only upon the
assignment of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered Holder of the
within Warrant hereby sells, assigns and transfers unto _____________________,
whose address is ________________________, all of the rights of the undersigned
under the within Warrant, with respect to _______________ shares of Common Stock
of Aristo International Corporation (the "Company") and, if such shares of
Common stock shall not include all the shares of Common Stock issuable as
provided in the within Warrant, that a new Warrant of like tenor for the number
of shares of Common Stock of the Company not being transferred hereunder be
issued in the name of and delivered to the undersigned, and does hereby
irrevocably constitute and appoint ______________ Attorney to register such
transfer on the books of the Company maintained for the purpose, with full power
of substitution in the premises.
Dated: _____________, 19__.
By:________________________________
(Signature of Registered Holder)
Signature Guaranteed:
___________________________
By:_______________________
Title:
NOTICE: The signature to this Assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
The signature to this Assignment must be guaranteed by a
commercial bank or trust company in the United States or a
member firm of the New York Stock Exchange.
<PAGE>
================================================================================
Warrant Certificates Issued To:
- - --------------------------------------------------------------------------------
Name [1] Number of Warrants [2] Price Per Share [3] Date Issued
================================================================================
Richard Friedman 50,000 $5.50 January 20, 1997
- - --------------------------------------------------------------------------------
Jeffrey Markowitz 50,000 $5.50 January 20, 1997
================================================================================
October 30, 1996
[1]
Re: Option to Purchase Common Stock in
Aristo International Corporation ("Aristo"),
dated May 16, 1996
Dear [2]:
This letter will confirm that the exercise period for the option to purchase [3]
shares of Aristo common stock, $.001 par value per share, at an exercise price
of $[4] per share, originally granted May [5], 1996, has been extended from
December 31, 1996 to February 28, 1997 (the "Extension Date") and that such
option shall be automatically exercised upon the completion of a public offering
of shares of common stock of Aristo which occurs on or before the January 31,
1997, provided, however, that the offering price of such public offering is no
less than $9.00 per share. Upon exercise, the share certificate will be
forwarded to you at the address set forth below.
In the event a public offering of common stock of Aristo with an offering price
of no less than $9.00 per share does not occur on or before January 31, 1997,
you may still exercise the option up through and including the Extension Date,
or call for the option consideration to be returned at anytime during the period
beginning ten (10) business days after the Exercise Date.
If the foregoing conforms to your understanding of our agreement, please sign
one copy of this letter and return it to the undersigned, retaining the other
copy for your records.
Very truly yours,
ARISTO INTERNATIONAL CORPORATION
Shmuel Cohen
President & Chief Executive Officer
Accepted and Agreed:
By: _________________________________
[6]
Address to which certificate should be sent:
_________________________________
_________________________________
<PAGE>
================================================================================
Options to Purchase Extension Letters in the Form Attached
- - --------------------------------------------------------------------------------
Name Number of Shares Exercise Price Date of Original Grant
[1], [2] and [6] [3] [4] [5]
================================================================================
Nadav Henefeld 20,000 $6.50 May 16, 1996
- - --------------------------------------------------------------------------------
Mickey Berkowitz 20,000 $6.50 May 16, 1996
- - --------------------------------------------------------------------------------
Joseph Herman 20,000 $6.50 May 16, 1996
- - --------------------------------------------------------------------------------
Adi Fitterman 11,000 $6.50 May 29, 1996
- - --------------------------------------------------------------------------------
Arie & Ita Shapira 10,000 $5.50 May 29, 1996
================================================================================
[On PlayNet Technologies, Inc. Letterhead]
December 5, 1996
Zeller Eblagon Financial Services, Ltd.
Re: Option to Purchase Common Stock in PlayNet
Technologies, Inc. (formerly Aristo International
Corporation) ("PlayNet"), dated July 31, 1996
Gentlemen:
This letter will confirm that the exercise period for the option to purchase
90,909 shares of PlayNet common stock, $.001 par value per share, at an exercise
price of $5.50 per share, originally granted July 31, 1996 (replacing and
superseding the earlier option granted on April 30, 1996), has been extended
from December 31, 1996 to March 31, 1997 (the "Exercise Date").
If the foregoing conforms to your understanding of our agreement, please sign
this letter agreement where indicated and return it to the undersigned,
retaining a copy for your records.
Very truly yours,
PlayNet Technologies, Inc.
Shmuel Cohen
President & Chief Executive Officer
Accepted and Agreed:
Zeller Eblagon Financial Services, Ltd.
By: _________________________________
Name: ____________________________
Title: _____________________________
<PAGE>
[On PlayNet Technologies, Inc. Letterhead]
December 5, 1996
Zeller Eblagon Financial Services, Ltd.
Re: Option to Purchase Common Stock in PlayNet
Technologies, Inc. (formerly Aristo International
Corporation) ("PlayNet"), dated April 12, 1996
Gentlemen:
This letter will confirm that the exercise period for the option to purchase
81,818 shares of PlayNet common stock, $.001 par value per share, at an exercise
price of $5.50 per share, originally granted April 12, 1996, has been extended
from December 31, 1996 to March 31, 1997 (the "Exercise Date"). This option was
granted as a material part of the consideration for a Promissory Note between
PlayNet and Zeller Eblagon Financial Services, Ltd. affiliate, Zeller Eblagon
Leasing Ltd., dated April 12, 1996, which Promissory Note was paid in full on
August 22, 1996.
If the foregoing conforms to your understanding of our agreement, please sign
this letter agreement where indicated and return it to the undersigned,
retaining a copy for your records.
Very truly yours,
PlayNet Technologies, Inc.
Shmuel Cohen
President & Chief Executive Officer
Accepted and Agreed:
Zeller Eblagon Financial Services, Ltd.
By: _________________________________
Name: ____________________________
Title: _____________________________
ARISTO INTERNATIONAL CORPORATION
152 West 57th Street
New York, New York 10019
FIRST AMENDMENT TO
------------------
PROMISSORY NOTE
---------------
$330,000 New York, New York
October 31, 1996
Aristo International Corporation (the "Maker") entered into a
Promissory Note, dated June 27, 1996 (the "Promissory Note"), a copy of which is
attached hereto, evidencing its promise to pay to NY Holdings, Limited (the
"Holder"), in lawful money of the United States of America, the principal sum of
Three Hundred Thirty Thousand and 00/100 Dollars ($330,000) (the "Principal
Amount") on October 31, 1996 (the "Maturity Date").
The Holder has agreed, and, by the execution and delivery of this First
Amendment to Promissory Note, does hereby evidence its agreement to extend the
Maturity Date of the Promissory Note to January 31, 1997.
As a material part of the consideration for this First Amendment to
Promissory Note, Maker hereby extends the option of Holder to acquire 120,000
shares of common stock of the Maker for the cash payment of $660,000 up to and
including June 30, 1997. In the event the Holder converts the Principal Amount
to equity of the Maker, in accordance with its letter notice to Maker dated
September 12, 1996, by the partial exercise of its option on or before January
31, 1997, thereby converting the Principal Amount to 60,000 shares of common
stock of the Maker, then the remaining portion of the option of Holder to
acquire an the remaining additional 60,000 shares of common stock of the Maker
for the additional cash payment of $330,000 shall be extended up to and
including December 31, 1997.
The Holder and the Maker hereby ratify and confirm all other terms and
conditions of the Promissory Note not specifically modified herein, all of which
are incorporated herein by this reference as if stated fully herein.
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<PAGE>
IN WITNESS WHEREOF, the Holder and the Maker have caused this First
Amendment to Promissory Note to be executed by its duly authorized officer as of
the day and year first written above.
WITNESS: ARISTO INTERNATIONAL CORPORATION
______________________________ By: ______________________________________
Name: Shmuel Cohen
President & Chief Executive Officer
NY HOLDINGS, LIMITED
______________________________ By: ______________________________________
Name: Name:
Title:
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Page 2 of 2
[On PlayNet Technologies, Inc. Letterhead]
Page 1 of 2
SECOND AMENDMENT TO
-------------------
PROMISSORY NOTE
---------------
$330,000 New York, New York
January 10, 1997
PlayNet Technologies, Inc. (formerly Aristo International Corporation)
(the "Maker") entered into a Promissory Note, dated June 27, 1996, as amended on
October 31, 1996 (the "Promissory Note") evidencing its promise to pay to NY
Holdings, Limited (the "Holder"), in lawful money of the United States of
America, the principal sum of Three Hundred Thirty Thousand and 00/100 Dollars
($330,000) (the "Principal Amount") on January 31, 1997 (the "Maturity Date").
The Holder has agreed, and, by the execution and delivery of this First
Amendment to Promissory Note, does hereby evidence its agreement to extend the
Maturity Date of the Promissory Note to February 28, 1997.
As a material part of the consideration for this Second Amendment to
Promissory Note, Maker hereby reaffirms the extension of the option of Holder to
acquire 120,000 shares of common stock of the Maker for the cash payment of
$660,000 up to and including June 30, 1997, subject further to the terms set
forth below. In the event the Holder converts the Principal Amount to equity of
the Maker, in accordance with its letter notice to Maker dated September 12,
1996, by the partial exercise of its option on or before February 28, 1997,
thereby converting the Principal Amount to 60,000 shares of common stock of the
Maker, then the remaining portion of the option of Holder to acquire an the
remaining additional 60,000 shares of common stock of the Maker for the
additional cash payment of $330,000 shall be extended up to and including
December 31, 1997.
The Holder and the Maker hereby ratify and confirm all other terms and
conditions of the Promissory Note not specifically modified herein, all of which
are incorporated herein by this reference as if stated fully herein.
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<PAGE>
IN WITNESS WHEREOF, the Holder and the Maker have caused this First
Amendment to Promissory Note to be executed by its duly authorized officer as of
the day and year first written above.
WITNESS: ARISTO INTERNATIONAL CORPORATION
______________________________ By: ______________________________________
Name: Shmuel Cohen
President & Chief Executive Officer
NY HOLDINGS, LIMITED
______________________________ By: ______________________________________
Name: M. Fox
Director
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Page 2 of 2
[On PlayNet Technologies, Inc. Letterhead]
SIXTH AMENDMENT TO
------------------
PROMISSORY NOTE
---------------
$500,000 New York, New York
December 5, 1996
PlayNet Technologies, Inc. (formerly Aristo International Corporation) (the
"Maker") entered into a Promissory Note, dated February 12, 1996, a copy of
which is attached hereto (the "Promissory Note"), evidencing its promise to pay
to CERES ADVISORS, LTD. (the "Holder"), in lawful money of the United States of
America, the principal sum of Five Hundred Thousand and no/100 Dollars. The
Promissory Note's maturity has been extended, by a series of amendments, to
December 12, 1996.
The Holder notified the Maker on June 12, 1996 of its intention to convert the
principal sum of the Promissory Note into equity of the Maker in the form of
shares of common stock, par value $.001 per share, at a price of $5.50 per
share.
The Holder has agreed, and, by the execution and delivery of this Sixth
Amendment to Promissory Note, does hereby evidence its agreement to extend the
maturity of the Promissory Note to March 31, 1997 (the "Maturity Date").
The Holder and the Maker hereby ratify and confirm all other terms and
conditions of the Promissory Note, as amended by the series of amendments to
this date, all of which are incorporated herein by this reference.
IN WITNESS WHEREOF, the Holder and Maker have caused this Sixth Amendment to be
executed by its duly authorized representatives as of the day and year first
above written.
CERES ADVISORS, LTD. PLAYNET TECHNOLOGIES, INC.
By: ________________________ By: _________________________
Harry Sapir Shmuel Cohen
Director President & Chief Executive
Officer
[On PlayNet Technologies, Inc. Letterhead]
FIRST AMENDMENT TO
------------------
PROMISSORY NOTE
---------------
$500,000 New York, New York
December 5, 1996
PlayNet Technologies, Inc. (formerly Aristo International Corporation) (the
"Maker") entered into a Promissory Note, dated July 31, 1996, which superseded
and replaced entirely and earlier Promissory Note dated April 30, 1996, a copy
of which is attached hereto (the "Promissory Note"), evidencing its promise to
pay to ZELLER EBLAGON LEASING LTD. (the "Holder"), in lawful money of the United
States of America, the principal sum of Five Hundred Thousand and no/100
Dollars.
The Holder has agreed, and, by the execution and delivery of this First
Amendment to Promissory Note, does hereby evidence its agreement to extend the
maturity of the Promissory Note from December 31, 1996 to March 31, 1997 (the
"Maturity Date").
The Holder and the Maker hereby ratify and confirm all other terms and
conditions of the Promissory Note, all of which are incorporated herein by this
reference.
IN WITNESS WHEREOF, the Holder and Maker have caused this First Amendment to be
executed by its duly authorized representatives as of the day and year first
above written.
ZELLER EBLAGON LEASING LTD. PLAYNET TECHNOLOGIES, INC.
By: ________________________ By: _________________________
Shmuel Cohen
President &
Chief Executive Officer
[On PlayNet Technologies, Inc. Letterhead]
FIRST AMENDMENT TO
------------------
PROMISSORY NOTE
---------------
$260,000 New York, New York
January 1, 1997
PlayNet Technologies, Inc. (formerly Aristo International Corporation) (the
"Maker") entered into a Promissory Note, dated December 29, 1995, a copy of
which is attached hereto (the "Promissory Note"), evidencing its promise to pay
to CASTELLON LIMITED (the "Holder"), in lawful money of the United States of
America, the principal sum of Two Hundred Sixty Thousand and no/100 Dollars
($260,000) (the Principal Amount") on January 1, 1997 (the "Maturity Date")
along with quarterly interest payments of $13,000 payable on April 1, 1996, July
1, 1996, October 1, 1996 and January 1, 1997. In addition, the Holder has the
right to convert on or before January 1, 1997 (the "Conversion Date") all or a
portion of the Principal Amount into shares of common stock of the Maker at a
conversion price of $5.50 per share.
The Holder and Maker have agreed, and, by the execution and delivery of this
First Amendment to Promissory Note, do hereby evidence their agreement to extend
the Maturity Date and the Conversion Date to January 31, 1997.
The Holder and the Maker hereby ratify and confirm all other terms and
conditions of the Promissory Note not specifically amended or modified by this
First Amendment, all of which are incorporated herein by this reference.
IN WITNESS WHEREOF, the Holder and Maker have caused this First Amendment to be
executed by its duly authorized representatives as of the day and year first
above written.
CASTELLON LIMITED PLAYNET TECHNOLOGIES, INC.
By: ________________________ By: _________________________
Joseph Ettinger Shmuel Cohen
resident President &
Chief Executive Officer
[On PlayNet Technologies, Inc. Letterhead]
SECOND AMENDMENT TO
-------------------
PROMISSORY NOTE
---------------
$260,000 New York, New York
January 10, 1997
PlayNet Technologies, Inc. (formerly Aristo International Corporation) (the
"Maker") entered into a Promissory Note, dated December 29, 1995, as amended on
January 1, 1997 (the "Promissory Note"), evidencing its promise to pay to
CASTELLON LIMITED (the "Holder"), in lawful money of the United States of
America, the principal sum of Two Hundred Sixty Thousand and no/100 Dollars
($260,000) (the Principal Amount") on January 31, 1997 (the "Maturity Date"). A
final quarterly interest payment in the amount of $13,000 was due on January 1,
1997. In addition, the Holder has the right to convert on or before January 1,
1997 (the "Conversion Date") all or a portion of the Principal Amount into
shares of common stock of the Maker at a conversion price of $5.50 per share.
The Holder and Maker have agreed, and, by the execution and delivery of this
First Amendment to Promissory Note, do hereby evidence their agreement to extend
the Maturity Date and the Conversion Date to February 28, 1997.
The Holder and the Maker hereby ratify and confirm all other terms and
conditions of the Promissory Note not specifically amended or modified by this
First Amendment, all of which are incorporated herein by this reference.
IN WITNESS WHEREOF, the Holder and Maker have caused this First Amendment to be
executed by its duly authorized representatives as of the day and year first
above written.
CASTELLON LIMITED PLAYNET TECHNOLOGIES, INC.
By: ________________________ By: _________________________
Joseph Ettinger Shmuel Cohen
President President &
Chief Executive Officer
SUBSIDIARIES OF THE REGISTRANT
------------------------------
Subsidiary* State of Incorporation
PlayNet Studios, Inc.
(formerly Borta, Inc.) Delaware
PlayNet Productions, Inc.
(formerly Aristo Games, Inc.) Delaware
PlayNet, Inc. Delaware
- - -------------------------
* All subsidiaries are direct wholly-owned subsidiaries.
