U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1999
Commission file number: 33-37751-D
SOFTLOCK.COM, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 84-1130229
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization )
5 Clock Tower Place Suite 440 Maynard, MA 01754
(Address of principal executive offices)
(978) 461-5944
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the Company was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes -X- No ---
As of July 31, 1999, 10,913,730 shares of common stock, par value $0.01 per
share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes --- No -X-
<PAGE>
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited) June 30, 1999 1
Consolidated Statements of Operations (Unaudited)
for the six months ended June 30, 1999 and 1998 2
Consolidated Statements of Cash Flows (Unaudited)
for the six months ended June 30, 1999 and 1998 3
Notes to financial statements 4
Item 2. Management's Discussion and Analysis of
Financial Position and Results of Operations 5-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 12-13
Item 4. Submission of Matters to a Vote of Security
Holders 13-14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
Item 1.
SoftLock.com, Inc.
CONSOLIDATED BALANCE SHEET
June 30, 1999
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $1,966,092
Accounts receivable and other 4,000
Other current assets 107,681
---------
Total current assets 2,077,773
PROPERTY AND EQUIPMENT, NET 69,855
OTHER ASSETS 810
---------
TOTAL ASSETS $2,148,438
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $175,723
Accrued compensation 66,778
Other accrued liabilities 98,506
---------
Total current liabilities 341,007
OTHER LIABILITIES 25,686
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000 shares
authorized, 10,913,730 shares issued and outstanding 109,137
Additional paid-in capital 5,426,874
Retained earnings deficit (3,485,386)
Less- Note receivable-exercise of options (268,880)
---------
Total stockholders' equity 1,781,745
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,148,438
=========
The accompanying notes are an integral part of the financial statements.
1
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SoftLock.com, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1999 and 1998
(unaudited)
For the three For the six
months ended June 30, months ended June 30,
1999 1998 1999 1998
REVENUES $18,014 $49,610 $66,112 $61,619
COST OF REVENUES: 6,439 5,969 12,976 10,443
-------- -------- -------- --------
Gross profit 11,575 43,641 53,136 51,176
OPERATING EXPENSES: 1,187,511 202,536 1,577,383 332,456
-------- -------- -------- --------
Loss from
Operations (1,175,936) (158,895) (1,524,247) (281,280)
OTHER INCOME: 17,907 14,700 31,444 19,358
-------- -------- -------- --------
Loss before income
Taxes (1,158,029) (144,195) (1,492,803) (261,922)
INCOME TAX EXPENSE - (53) 733 513
-------- -------- -------- --------
NET LOSS $(1,158,029) $(144,142) $(1,493,536) $(262,435)
========= ======= ========= =======
NET LOSS PER SHARE:
Basic $(0.11) $(0.02) $(0.15) $(0.04)
======== ======== ======== ========
Wtd. average
shares outstanding 10,664,193 6,455,168 9,671,299 6,455,168
========== ========= ========= =========
The accompanying notes are an integral part of the financial statements.
2
SoftLock.com, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1999 and 1998
(unaudited)
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES: $(1,206,738) $(167,952)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (20,414) -
--------- --------
(20,414) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 3,037,478 500,000
Lease payments (5,075) (1,440)
--------- --------
3,032,403 498,560
--------- --------
NET INCREASE IN CASH 1,805,251 330,608
CASH, beginning of period 160,841 119,563
--------- --------
CASH, end of period $1,966,092 $450,171
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $1,344 $167
========= ========
Income taxes $733 $513
========= ========
SUPPLEMENTAL DISCLOSURE OF NONCASHINVESTING AND FINANCING ACTIVITIES:
Capital lease $41,675 $4,735
========= ========
The accompanying notes are an integral part of the financial statements.
3
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SoftLock.com, Inc.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
1. Management's Representation of Interim Financial Information
The accompanying financial statements have been prepared by SoftLock.com, Inc.
(the "Company") without audit pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted as
allowed by such rules and regulations, and management believes that the
disclosures are adequate to make the information presented not misleading.
The accompanying consolidated financial statements as of June 30, 1999 reflect
the financial condition of the Company and its wholly owned operating
subsidiary, SoftLock Services, Inc. ("SSI").
These financial statements include all of the adjustments which, in the opinion
of management, are necessary to a fair presentation of financial position and
results of operations. All such adjustments are of a normal and recurring
nature.
These financial statements should be read in conjunction with the audited
financial statements at December 31, 1998 filed as part of the Company's Annual
Report on Form 10-KSB.
The Company has reviewed the status of its legal contingencies and believes
that there are no material changes from that disclosed in Form 10-KSB for the
year ended December 31, 1998. The results for the six month period ended June
30, 1999 are not necessarily indicative of the results for the entire year
1999.
2. Private Placement of Equity Securities
In January and February 1999, the Company issued a total of 1,540,000 shares of
common stock for net cash proceeds of $1,882,210 in a private placement of its
common stock under Section 4(2) of the Securities Act of 1933, as amended (the
"Act") and Regulation D promulgated thereunder.
Included in the June 30, 1999 financial statements, are 235,000 shares of
common stock issued for net cash proceeds of $1,155,268 in an additional
private placement of the Company's common stock under Section 4(2) of the
Securities Act of 1933, as amended (the "Act") and Regulation D promulgated
thereunder. As the net proceeds were collected and fully available to the
Company in May and June, with actual issuance of the shares occurring in early
August, these shares are issued and outstanding as of June 30, 1999.
4
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS
Forward-looking statements in this report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the Company's
plans, strategies, objectives, expectations and intentions are subject to
change at any time at the discretion of the Company, (ii) the Company's plans
and results of operations will be affected by the Company's ability to manage
its growth, accounts receivable, inventory and other factors; and (iii) other
risks and uncertainties. The Company assumes no obligation to update any
forward-looking statements contained herein or that may be made from time to
time by, or on behalf of, the Company.
Background
SoftLock.com, Inc. provides a sales and merchandising system for digital
content on the Internet and has been vending passwords to unlock secure
digital content since 1992. The SoftLock CyberSales Solution which will be
implemented in the second half of 1999 will expand the Company's offerings as
it will allow owners of electronic content to securely sell their products from
their own Web sites using the SoftLock Chain Reaction Channel(tm) and through
the SoftLock Merchandising Network(tm).
The SoftLock Chain Reaction Channel promotes the secure distribution of
digital information by taking advantage of consumers' natural tendency to
pass along relevant content to colleagues, friends and family. SoftLock.com's
patented (US #5,509,070) technology prevents electronic shoplifting (piracy)
while "SoftLocked" content is securely sampled, electronically purchased, and
redistributed.
When a prospective end-user receives a SoftLock-enabled product, the prospect
can view a portion of the final product (i.e. "demo" the product). The
prospect can then instantly purchase access to the complete product via the
World Wide Web. The end-user then has permanent access to the product for the
user's own use. The end-user is also encouraged to copy the product and
redistribute it to friends or colleagues because SoftLock-enabled products
automatically return to "demo" mode and invite another purchase when copied
from one computer to another.
The SoftLock Merchandising Network is a distribution system enabling
SoftLock's Content Providers to securely sell documents through SoftLock-
affiliated Web sites. SoftLock.com assists in merchandising content, remits
payments to content providers and affiliates, and also provides reports and
customer service.
SoftLock.com Content Providers include traditional print publishers,
web-based information services, financial/business research, magazines,
books, newspapers, and new media companies.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS (continued)
Corporate Structure
Prior to July, 1998, the Company was a public shell company organized to
locate and acquire an operating company. In July, 1998, pursuant to a Plan
and Agreement of Reorganization, the Company exchanged 7,097,266 shares of
its restricted common stock for all of the issued and outstanding shares of
SSI, and the owners of SSI became the majority owners of the Company. The
Company's only asset consists of shares of capital stock of SSI, its wholly
owned, operating subsidiary. All operations presented herein are the
consolidated operations of the Company and SSI, including results of
operations for the comparative, pre-acquisition quarter and six months ended
June 30, 1998.
Results of Operations
Total revenues for the three and six month periods ending June 30, 1999
were $18,014 and $66,112, a 64% decrease and 7% increase, respectively, as
compared with $49,610 and $61,619 earned during the same periods in 1998.
Password sales contributed $2,930 to the total decrease and $4,813 to the
increase for the three and six month periods, respectively, with the
remainder attributable to decreased revenues from licensing, custom tools,
and consulting fees.
Cost of sales increased to $6,439 and $12,976 in the three and six month
periods ended June 30, 1999 from $5,969 and $10,443 in 1998, primarily as
a result of additional incremental fees for the processing of passwords.
Gross profit for the quarter and six months was $11,575 and $53,136, or
64% and 80% of revenue in 1999, as compared with $43,641 and $51,176 (88%
and 83% of revenue, respectively) in 1998, due to higher recognized
margins on non-password related revenues.
Selling, general and administrative expenses totaled $1,187,511 and
$1,577,383 for the June 1999 quarter and six months, versus $202,536 and
$332,456 for the quarter and six months ended June 30, 1998, an increase
of $984,975 and $1,244,927. The increase relates to additional costs in
1999, primarily salaries ($202,000 and $310,000), fees to outside
consultants ($685,000 and $812,000), and miscellaneous administrative
costs. Management anticipates that the trend toward increased quarterly
operating expenses will continue as additional personnel are recruited.
Other income increased to $17,907 and $31,444 for the quarter and six
months ended June 30, 1999 from $14,700 and $19,358 for the comparable
periods in 1998. The change relates to investment earnings on the
Company's cash reserves, which increased as a result of the Company's
$2,000,000 private placement completed in the first quarter.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS (continued)
Liquidity and Capital Resources
The following is a summary of the Company's six-month cash flows:
1999 1998
Operations $ (1,206,738) $ (167,952)
Investing (20,414) -
Financing 3,032,403 498,560
The Company's primary source of liquidity continues to be proceeds from
the sale of securities in two private placements, from which $3,037,478,
after commissions and expenses of the offering, was raised in the first
six months of 1999 through the issuance of 1,775,000 common shares. These
funds will be used to finance continued operations, product development
and marketing.
Cash used in operations totaled $1,206,738 for the first two quarters of
1999 as compared with $167,952 for the first two quarters of 1998. The
increase in cash used relates to the net loss sustained during the
quarter, plus working capital changes. At June 30, 1999, working capital
(current assets minus current liabilities) totaled $1,736,766.
On April 30, 1999, the Company entered into a Master Agreement of Terms
and Conditions for Lease with TLP Leasing Programs, Inc. (the "Master
Agreement"). The Master Agreement provides the Company with a source of
financing with which to obtain certain equipment.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS (continued)
Year 2000 Readiness Disclosure
Based on the Company's assessment to date, the Company believes that the
versions of its software products and services due to be released in the
second half of 1999 will be "Year 2000 compliant" that is, they will be
capable of adequately distinguishing twenty-first century dates from
twentieth century dates. Although the Company's products have undergone,
or will undergo, the Company's normal quality testing procedures, there
can, however, be no assurance that the Company's products will contain all
necessary date code changes. Furthermore, use of the Company's products
in connection with other products which are not Year 2000 compliant,
including non-compliant hardware and software may result in the inaccurate
exchange of dates and result in performance problems or system failure.
Any failure of the Company's products to perform, including system
malfunctions associated with the onset of year 2000, could result in
claims against the Company. However, success of the Company's Year 2000
compliance efforts may depend on the success of its customers in dealing
with the Year 2000 issue.
Although the Company has not been a party to any litigation or arbitration
proceeding to date that involves Year 2000 compliance issues with its
products or services, there can be no assurance that the Company will not
in the future be required to defend its products or services in such
proceedings, or to negotiate resolutions of claims based on Year 2000
issues. The costs of defending and resolving Year 2000-related disputes,
regardless of the merits of such disputes, and any liability of the
Company for Year 2000-related damages, including consequential damages,
could have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company's business depends on numerous systems that could potentially
be impacted by Year 2000 related problems. Those systems include, among
others, hardware and software systems used by the Company to deliver
products and services to its customers (including software supplied by
third parties), communications networks such as the world wide web upon
which the Company depends to generate product orders; the internal systems
of the Company's customers and suppliers, software products sold to
customers; the hardware and software systems used internally by the
Company in the management of its business, and non-information technology
systems and services used by the Company in the management of its
business, such as power, telephone systems and building systems.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS (continued)
The Company is currently in the process of evaluating its information
technology infrastructure in order to identify and modify any products,
services or systems that are not Year 2000 compliant. Based on its
initial analysis of the systems potentially impacted by conducting
business in the twenty-first century, the Company is applying a phased
approach to making such systems, and accordingly, the Company's
operations, ready for the year 2000. Beyond awareness of the issues and
scope of systems involved, the phases of activities in process include: an
assessment of specific underlying computer systems, programs and hardware;
renovation or replacement of Year 2000 non-compliant technology;
validation and testing of critical systems certified by third-party
suppliers to be Year 2000 compliant; and implementation of Year 2000
compliant systems. The table below describes the status and timing of
such phased activities.
IMPACTED SYSTEMS STATUS TARGETED COMPLETION
Software products
delivered to customers Design and implementation Third Quarter 1999
Hardware and software Testing and remediation Third Quarter 1999
systems used to deliver
products and services
Communication networks Assessment in process Fourth Quarter 1999
used to carry products
and provide services
Hardware and software Completed
systems used to manage
the Company's business
Non-information technology Systems upgraded or Fourth Quarter 1999
systems and services replaced, as appropriate,
testing and implementation
In the event that any of the Company's significant suppliers or
customers does not successfully and timely achieve Year 2000 compliance,
the Company's business or operations could be adversely affected. This
could result in system failures or generation of erroneous information
and could cause significant disruption to business activities. The
Company is reviewing what further actions are required to make all
software systems used internally Year 2000 compliant as well as actions
needed to mitigate vulnerability to problems with suppliers and other
third parties' systems. Such actions include a review of vendor
contracts and formal communication with suppliers to request
certification that products are Year 2000 compliant.
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS (continued)
COSTS TO ADDRESS YEAR 2000 ISSUES
The total incremental cost of these Year 2000 compliance activities on
system design and implementation that is in process for other reasons
has not been, and is not anticipated to be, material to the Company's
business, results of operations and financial condition. These costs and
the timing in which the Company plans to complete its Year 2000
modification and testing processes are based on management's estimates.
However, there can be no assurance that the Company will timely identify
and remedy all significant Year 2000 problems, that remediation efforts
will not involve significant time and expense or that such problems will
not have a material adverse effect on the Company's business, results of
operations and financial condition.
10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Other than as set forth below, the Company is not a party to any legal
proceedings which management believes to be material, and there are no
such proceedings which are known to be contemplated for which the Company
anticipates a material risk of loss.
SSI is one of approximately 18 defendants named in an action in the United
States District Court for the Southern District of New York entitled E-
Data Corp. v. CompuServe Inc. et al, filed August 23, 1995 and dismissed
by a final judgment entered March 12, 1999 in favor of SSI and the other
defendants.
The action alleged infringement of the so-called Freeny patent, U.S.
Patent No. 4,528,643. The plaintiff sought judgment declaring the
validity of its patent and further declaring that each of the defendants
had infringed the plaintiff's patent, enjoining further infringement, and
seeking treble damages plus attorneys fees, costs and disbursements. SSI
answered the plaintiff's complaint and counterclaimed for a declaratory
judgment that the plaintiff's patent is invalid, unenforceable and is not
infringed by SSI.
On May 13, 1998, Judge Barbara S. Jones signed a 44-page Opinion & Order
in the action. The Opinion and Order provides the Court's determination
of the claim scope under Markham v. Westview Instruments, Inc. On March
12, 1999, the Court entered a Stipulated Order and Judgment that, based on
the interpretation of the claims of the Freeny patent as determined by the
Court, SSI has not in the past infringed, nor is it now infringing, any
claim of the Freeny patent because no method, system, or apparatus of SSI
includes any of five specific limitations set forth in the Court's May 13,
1998 Order. Judgment has been entered in the Company's favor and the
patent owner's claims have been dismissed on the merits.
The patent owner has filed a Notice of Appeal to the Court of Appeals for
the Federal Circuit. The outcome of an appeal cannot be predicted with
certainty, and if there were a remand to the District Court the results of
the remand could not presently be predicted with certainty. It is
expected, however, that the defendants will vigorously oppose the appeal.
The terms of the stipulated order and judgment are such that the patent
owner appellant would have to prevail on several distinct issues on appeal
to disturb the judgment in favor of the defendants including SSI.
11
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Item 2. Changes in Securities.
Beginning in November, 1998, the Company commenced a private placement
offering of up to 1,600,000 shares of its common stock at an offering
price of $1.25 per share, pursuant to Section 4(2) of the Act and
Regulation D promulgated under the Act. From January 4, 1999 to February
22, 1999, the Company sold 1,540,000 shares of its common stock resulting
in net proceeds of $1,882,210.
The Company offered the shares on a "best efforts" basis through officers
and directors of the Company and through selected members of the National
Association of Securities Dealers, Inc. ("NASD"). A total of $40,520 in
commissions was paid to NASD members in connection with the offering.
Beginning in May 1999, the Company commenced a private placement offering
of up to 1,200,000 shares of its common stock at an offering price of $5
per share, pursuant to Section 4(2) of the Act and Regulation D
promulgated under the Act. From May 1999 to June 1999, the Company sold
235,000 shares of its common stock resulting in net proceeds of
$1,155,268.
The Company offered the shares on a "best efforts" basis through officers
and directors of the Company and through selected members of the National
Association of Securities Dealers, Inc. ("NASD").
The shares were offered for sale to accredited investors only, pursuant to
the exemptions from registration contained in Section 4(2) of the Act and
Regulation D promulgated under the Act. All of the certificates evidencing
the shares of the Company's Common Stock received as a result of the
Agreement were impressed with the form of restrictive legend utilized by
the Company, and stop transfer instructions have been noted against the
transfer of such certificates.
In addition to the issuance of common stock described above, during the
quarter ended March 31, 1999, the Company issued 1,111,962 shares of its
common stock pursuant to exemptions from registration. These shares were
issued in transactions exempt from registration pursuant to Section 4(2)
of the Act.
On March 15, 1999, 192,629 shares were issued to Fletcher Spaght, Inc.
pursuant to an option previously issued for services rendered. The total
amount paid on exercise of the option was $15,000.
12
<PAGE>
Item 2. Changes in Securities (continued)
On March 30, 1999, 919,333 shares were issued to Maurice LaFlamme pursuant
to an option purchased by Mr. LaFlamme in 1996. The total amount paid on
exercise of the option was 91,974 shares of common stock withheld from the
exercise and valued at $183,000.
On April 5, 1999, 38,461 shares were issued to Shawn Alexander at a market
value of $1.30 per share pursuant to an agreement for services rendered.
The total amount of services was valued at $50,000.
On May 3, 1999, 31,040 shares were issued to McGuire, Woods, Battle &
Boothe LLP and DiaLogos, Inc. at a market value of $7.94 and $5 per share
pursuant to an agreement for services rendered. The total amount of
services was valued at $162,600.
On June 2, 1999, 1,688 shares were issued to BCL Computers at a market
value of $10 per share pursuant to an agreement for services rendered.
The total amount of services was valued at $16,875.
Item 4. Submission of Matters to a Vote of Securities Holders
At the Company's annual meeting of stockholders held on June 30, 1999 (the
"Annual Meeting"), the stockholders considered the following matters, with
results as indicated below: (i) amending the Company's Certificate of
Incorporation to provide that the number of shares of common stock the
Company is authorized to issue be increased from twenty-five million
(25,000,000) shares to fifty million (50,000,000) shares, that the number
of shares of preferred stock the Company is authorized to issue be
increased from two million (2,000,000) shares to five million (5,000,000)
shares, that indemnification of the Company's directors and officers to
the maximum extent permitted by Delaware law be required, and that the
shareholders right to act by consent be eliminated; (ii) amending the
Company's Bylaws to create three (3) classes of directors with staggered
terms and requiring the indemnification of the Company's directors and
officers to the maximum extent permitted by Delaware law; (iii) electing
Rodney J. Conard as a Class I Director, Geoffrey DeLesseps and Jonathan
Schull as Class II Directors. Finally, and Keith Loris and Francis J.
Knott as Class III Directors; and (iv) amending the Company's 1998 Stock
Option Plan to increase the number of shares of the Company's common stock
authorized for issuance to the Company's directors, consultants, officers,
and other key employees from three million (3,000,000) shares to five
million (5,000,000) shares of common stock.
13
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Item 4. Submission of Matters to a Vote of Securities Holders (continued)
Item (i) Amendment of Certificate of Incorporation
For Against Abstentions
6,685,947 66,641 0
Item (ii) Amendment of Bylaws
For Against Abstentions
6,537,564 215,024 0
Item (iii) Election of Directors:
Nominee For Against Abstentions
Rodney J. Conard 6,667,137 500 84,951
Geoffrey DeLesseps 6,708,938 500 43,150
Jonathan Schull 6,708,938 500 43,150
Keith Loris 6,708,938 500 43,150
Francis J. Knott 6,708,938 500 43,150
Item (iv) Amendment to Stock Option Plan
For Against Abstentions
6,403,396 349,192 0
14
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit (3)(i) Amended and Restated Certificate of Incorporation.
Exhibit (3)(ii) Amended By-Laws
Exhibit (4) Subscription Agreement between the Company and certain
investors pursuant to a Private Placement Memorandum
dated May 10, 1999.
Exhibit (27) - Financial Data Schedule, filed herewith electronically
(b) Reports on Form 8-K:
None
15
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Company caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: August 12, 1999 SoftLock.com, Inc.
BY: /s/ Douglas R. Johnson
Douglas R. Johnson
Executive Vice President, CFO
16
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Exhibit 3(i)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SOFTLOCK.COM, INC.
Article 1.
Name
The name of this corporation is SoftLock.com, Inc.
Article 2.
Registered Office; Registered Agent
The address of the registered office of the Corporation in the State of
Delaware is The Company Corporation, 1013 Centre Road, Wilmington,
Delaware 19805, County of New Castle. The name of the registered agent
of the Corporation in the State of Delaware at such address is The
Company Corporation.
Article 3.
Purpose
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware.
Article 4.
Capital Stock
4.1. General Authorization. The Corporation is authorized to
issue two classes of stock to be designated, respectively, "Common
Stock" and "Preferred Stock." The total
<PAGE>
number of shares of all
classes of stock which the Corporation shall have the authority to
issue shall be Fifty-Five Million (55,000,000) shares. Fifty Million
(50,000,000) shares shall be Common Stock, each having a par value of
$.01 per share. Five Million (5,000,000) shares shall be Preferred
Stock, each having a par value of $.01 per share.
4.2. Common Stock. The Common Stock of the Corporation shall
have such designations, voting powers, preferences, and such other
special rights and qualifications, limitations and restrictions thereon
as are provided by Delaware General Corporation Law.
4.3. Preferred Stock. The Preferred Stock may be issued from
time to time in one or more series. The Board of Directors is hereby
authorized, by filing a certificate pursuant to the Delaware General
Corporation Law, to fix or alter from time to time the designation,
powers, preferences and rights of the shares of each such series and
the qualifications, limitations or restrictions thereof, including,
without limitation, the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including
sinking fund provisions), redemption price or prices, and the
liquidation preferences of any wholly unissued series of Preferred
Stock, and to establish from time to time the number of shares
constituting any such series and the designation thereof, or any of
them (a "Preferred Stock Designation"), and to increase or decrease the
number of shares of any series subsequent to the issuance of shares of
that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be the
decreased in accordance with the foregoing sentence, the shares
constituting such decrease shall resume the status that they had prior
to the adoption of the resolution originally fixing the number of
shares of such series. Different series of Preferred Stock shall not
be considered to constitute different classes of shares for the purpose
of voting by class (except as otherwise fixed by the Board of Directors
with respect to any series at the time of the creation thereof).
4.4. Negation of Preemptive Rights. Except as set forth in a
duly adopted resolution of the Board of Directors or pursuant to a
written agreement duly authorized by the Board of Directors, the
holders of the capital stock of the Corporation shall have no
preemptive rights to subscribe for any shares of any class of stock of
the Corporation whether now or hereafter authorized.
Article 5.
Board of Directors and Stockholders
For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and
regulation of the powers of the Corporation, of its directors and of
its stockholders or any class thereof, as the case may be, it is
further provided that:
<PAGE>
5.1. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors.
The number of directors which shall constitute the whole Board of
Directors shall be fixed exclusively by one or more resolutions adopted
from time to time by the Board of Directors.
5.2. From and after the closing of the Corporation's annual
meeting on June 30, 1999 (the "Annual Meeting"), the directors of the
Corporation shall be divided into three (3) classes designated as Class
I, Class II and Class III, respectively. Directors shall be assigned
to each class in accordance with a resolution or resolutions adopted by
the Board of Directors prior to the Annual Meeting. At the first
annual meeting of stockholders following the Annual Meeting, the term
of office of the Class I directors shall expire and Class I directors
shall shall be elected for a full term of three (3) years. At the
second annual meeting of stockholders following the closing of the
Annual Meeting, the term of the Class II directors shall expire and
Class II directors shall be elected for a full term of three (3) years.
At the third annual meeting of stockholders following the closing of
the Annual Meeting, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of
three (3) years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three (3) years to
succeed the directors of each class whose terms expire at such annual
meeting. Notwithstanding the foregoing provisions of this Article,
each director shall serve until his successor is duly elected and
qualified or until his death, resignation or removal. No decrease in
the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
5.3. The Board of Directors is expressly authorized to alter,
amend, or repeal or adopt new Bylaws by the affirmative vote of a
majority of directors present and voting at a meeting of the directors
duly called and noticed at which a quorum of directors is present.
5.4. The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
5.5. From and after the Annual Meeting, any director, or the
entire Board of Directors, may be removed from office only (i) for
cause, and (ii) by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all
of the then-outstanding shares of the voting stock.
Article 6.
Alteration, Amendment or Repeal of Certain Articles
From and after the Annual Meeting and notwithstanding any other
provisions of this Certificate of Incorporation or any provisions of
law which might otherwise permit a lessor vote or no vote, but in
addition to any affirmative vote of the holders of any
<PAGE>
particular class
or series of the voting stock required by law, this Certificate of
Incorporation or any Preferred Stock Designation, the affirmative vote
of the holders of at least sixty-six and two-thirds percent (66-2/3%)
of the voting power of all of the then-outstanding shares of the voting
stock, voting together as a single class, shall be required to alter,
amend or repeal Article 5, Article 6, Article 8 or Article 9 hereof.
Article 7.
Section 102(b)(2) Statement
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the
application in a summary way of this Corporation or any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for this Corporation under Section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of
any receiver or receivers appointed for this Corporation under Section
279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders
of this Corporation, as the case may be, to be summoned in such manner
as the said court directs. If a majority in number representing three-
fourths (3/4) in value of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of this Corporation, as
the case may be, agree to any compromise or arrangement and to any
reorganization of this Corporation as a consequence of such compromise
or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court at which said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of
this Corporation, as the case may be, and also on this Corporation.
Article 8.
Reservation of Right to Amend, Alter,
Change or Repeal Certificate of Incorporation
Subject to Article 6 hereof, the Corporation reserves the right
at any time, and from time to time, to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, and any
other provisions authorized by the laws of the State of Delaware at the
time in force may be added or inserted, in the manner now or hereafter
prescribed by law, and all rights, preferences and privileges of
whatsoever nature conferred upon the stockholders, directors or any
other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted
subject to the rights reserved in this Article.
<PAGE>
Article 9.
Limitation of Liability and Indemnification
9.1 To the extent permitted by law, the Corporation shall fully
indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or
proceeding (whether civil, criminal, administrative or investigative)
by reason of the fact that such person is or was a director or officer
of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding.
9.2 The Corporation shall advance expenses (including attorneys' fees)
incurred by a director or officer in advance of the final disposition
of such action, suit or proceeding upon the receipt of an undertaking
by or on behalf of the director or officer to repay such amount if it
shall ultimately be determined that such director or officer is not
entitled to indemnification.
9.3 Any repeal or modification of this Article 9 shall be
prospective and shall not affect the rights under this Article 9 in
effect at the time of the alleged occurrence of any act or omission to
act giving rise to liability or indemnification.
Article 10.
Certificate Provision for
Elimination of Right to Act by Consent
No action required to be taken or which may be taken at any
annual meeting of stockholders of the Corporation may be taken without
a meeting, and the power of the stockholders to consent in writing,
without a meeting, to the taking of any action is specifically denied.
<PAGE>
Exhibit 3(ii)
BYLAWS
of
SOFTLOCK.COM, INC.
<PAGE>
BYLAWS
of
SOFTLOCK.COM, INC.
Page
ARTICLE I
SHAREHOLDER MEETINGS 3
SECTION 1.1. ANNUAL MEETING. 3
SECTION 1.2. SHAREHOLDER PROPOSALS FOR ANNUAL MEETING. 3
SECTION 1.3. SPECIAL MEETINGS. 4
SECTION 1.4. PLACE OF MEETINGS. 5
SECTION 1.5. NOTICE OF MEETINGS. 5
SECTION 1.6. RECORD DATE. 5
SECTION 1.7. QUORUM. 6
SECTION 1.8. VOTING. 6
SECTION 1.9. PROXIES. 6
SECTION 1.10. CONDUCT OF MEETING. 6
ARTICLE II
BOARD OF DIRECTORS 6
SECTION 2.1. ELECTION AND POWERS. 6
SECTION 2.2. NUMBER. 7
SECTION 2.3. VACANCIES. 7
SECTION 2.4. REMOVAL. 7
SECTION 2.5. NOMINATION OF DIRECTORS. 7
SECTION 2.6. MEETINGS. 8
SECTION 2.7. PLACE OF MEETINGS. 8
SECTION 2.8. NOTICE OF MEETINGS. 9
SECTION 2.9. WAIVER OF NOTICE. 9
SECTION 2.10. QUORUM. 9
SECTION 2.11. PRESENCE AT MEETINGS. 9
SECTION 2.12. ACTION WITHOUT A MEETING. 9
SECTION 2.13. EXECUTIVE COMMITTEE AND OTHER COMMITTEES. 9
ARTICLE III
OFFICERS 10
SECTION 3.1 OFFICERS. 10
SECTION 3.2 CHAIRMAN. 10
SECTION 3.3 VICE-CHAIRMAN. 10
SECTION 3.4 CHIEF EXECUTIVE OFFICER 11
SECTION 3.5 PRESIDENT. 11
SECTION 3.5 EXECUTIVE AND OTHER VICE-PRESIDENTS. 11
SECTION 3.6 SECRETARY AND ASSISTANT SECRETARIES. 11
SECTION 3.7 TREASURER AND ASSISTANT TREASURERS. 12
ARTICLE IV
SHARE CERTIFICATES 12
SECTION 4.1. FORM AND SIGNATURES. 12
SECTION 4.2. TRANSFER OF SHARES. 13
SECTION 4.3. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. 13
SECTION 4.4. STOCK LEDGERS. 13
SECTION 4.5. TRANSFER AGENTS AND REGISTRARS. 13
ARTICLE V
INDEMNIFICATION 13
SECTION 5.1. AUTHORIZATION OF INDEMNIFICATION. 13
SECTION 5.2 NON-EXCLUSIVITY. 14
SECTION 5.3 SURVIVAL OF INDEMNIFICATION. 14
SECTION 5.4 INSURANCE. 15
ARTICLE VI
FINANCES 15
SECTION 6.1. DIVIDENDS. 15
SECTION 6.2. RESERVES. 15
SECTION 6.3. BILLS, NOTES, ETC. 15
SECTION 6.4. VOTING SHARES HELD BY THE CORPORATION. 15
ARTICLE VII
AMENDMENTS 16
SECTION 7.1. POWER TO AMEND. 16
SECTION 7.2. NOTICE OF AMENDMENT AFFECTING ELECTION OF DIRECTORS. 16
ARTICLE VIII
OFFICES OF THE CORPORATION 16
SECTION 8.1. REGISTERED OFFICE. 16
SECTION 8.2. OTHER OFFICES. 16
ARTICLE IX
GENERAL PROVISIONS 17
SECTION 9.1. DIVIDENDS. 17
SECTION 9.2. RESERVES. 17
SECTION 9.3 EXECUTION OF INSTRUMENTS. 17
SECTION 9.4 FISCAL YEAR. 17
SECTION 9.5 SEAL. 17
BYLAWS
of
SOFTLOCK.COM, INC.
ARTICLE I
SHAREHOLDER MEETINGS
SECTION 1.1. ANNUAL MEETING. The annual meeting of the shareholders
shall be held within the six (6) calendar months following the end of
each fiscal year of SoftLock.com, Inc. (the "Corporation"), at such
date and hour as may be fixed by the Board of Directors (the "Board"),
for the election of directors and for the transaction of such other
business as may properly be brought before the meeting. At each annual
meeting of shareholders, only such business shall be conducted as is
proper to consider and has been brought before the meeting (i) pursuant
to the Corporation's notice of the meeting, (ii) by or at the direction
of the Board of Directors, or (iii) by a shareholder who is a
shareholder of record of a class of shares entitled to vote on the
business such shareholder is proposing both at the time of the giving
of the shareholder's notice hereinafter described in Section 1.2 hereof
and on the record date for such annual meeting, and who complies with
the notice procedures set forth in Section 1.4 hereof.
SECTION 1.2. SHAREHOLDER PROPOSALS FOR ANNUAL MEETING.
(a) In order to bring before an annual meeting of shareholders
any business which may properly be considered, a shareholder who meets
the requirements set forth in the preceding paragraph must give the
Corporation timely written notice which complies with Section 1.4 of
these bylaws. To be timely, a shareholder's notice must be given, by
certified United States mail, with postage thereon prepaid and with
return receipt requested, addressed to the Secretary at the principal
office of the Corporation. Any such notice must be received at the
Corporation's principal office not less than one hundred twenty (120)
calendar days in advance of the anniversary of the date on which the
Corporation's proxy statement was released to its shareholders in
connection with the previous year's annual meeting of shareholders,
unless the date of the meeting to which such notice relates has been
changed by more than thirty (30) days from the date contemplated at the
time of the previous year's proxy statement, in which case any such
notice must be received not less than sixty (60) days before the date
established for the meeting.
(b) Each such shareholder's notice shall set forth as to each
matter the shareholder proposes to bring before the annual meeting: (i)
the name and address, as they appear on the Corporation's stock
transfer books, of the shareholder proposing business; (ii) the class
and number of shares of stock of the Corporation beneficially owned by
such shareholder; (iii) a representation that such shareholder is a
shareholder of record at the time of the giving of the notice and
intends to appear in person or by proxy at the meeting to present the
business specified in the notice; (iv) a brief description of the
business desired to be brought before the meeting, including the
complete text of any resolutions to be presented and the reasons for
wanting to conduct such business; and (v) any interest which the
shareholder may have in such business.
(c) The Secretary or Assistant Secretary shall deliver each
shareholder's notice that has been timely received to the Chairman and
to the Chief Executive Officer for review.
(d) Notwithstanding the foregoing provisions of this Section 1.2,
a shareholder seeking to have a proposal included in the Corporation's
proxy statement for an annual meeting of shareholders shall comply with
the applicable requirements of Regulation 14A under the Securities
Exchange Act of 1934, as amended from time to time, or with any
successor regulation.
SECTION 1.3. SPECIAL MEETINGS.
(a) A special meeting may also be called by shareholders
entitled to cast twenty-five percent (25%) of all votes entitled to be
cast at the meeting, upon the request in writing signed by such
shareholders and delivered to the Chairman of the Board, the Chief
Executive Officer, or the Secretary. Such request shall set forth: (i)
the names and addresses, as they appear on the Corporation's stock
transfer books, of the stockholders making the request; (ii) the class
and number of shares of stock of the Corporation beneficially owned by
such stockholders; (iii) a representation that such stockholders are
stockholders of record at the record date for determining whether the
requisite number of stockholders have signed and delivered the written
request demanding a special meeting of stockholders and a
representation as to the date on which the first such stockholder
signed such request; (iv) a representation that each such stockholder
intends to appear in person or by proxy at the meeting to present the
business specified in the notice; (v) as to each matter or business the
requesting stockholders propose to bring before the special meeting, a
brief description of the matter or business including the complete text
of any resolutions to be presented and the reasons for wanting to
conduct such business; and (iv) any interest which any of the
requesting stockholders may have in such business.
(b) The record date for determining whether the requisite number
of stockholders have signed and delivered the written request demanding
a special meeting of stockholders is the date the first such
stockholder signs such request.
(c) A special meeting may not be called to consider any matter
which is substantially the same as a matter voted on at any special
meeting of the stockholders held during the preceding twelve (12)
months, unless the meeting is requested by stockholders entitled to
cast a majority of all of the votes entitled to be cast at the meeting.
The twelve-month period shall be determined from the date of the
previous special meeting to the date of the stockholder request.
(d) The Secretary or Assistant Secretary shall inform the
shareholders who make the request of the reasonably estimated cost of
preparing and mailing a notice of the meeting, and only upon payment of
these costs to the Corporation, notify each shareholder entitled to
notice of the meeting. If the officer of the Corporation to whom such
request in writing shall have been delivered pursuant to Section 1.2(a)
shall fail to issue a call for such meeting within ten (10) business
days after payment to the Corporation of the reasonably estimated cost
of preparing and mailing a notice of the meeting, then the stockholders
who made the request may do so by giving fifteen (15) business days'
notice of the time, place and object of the meeting by advertisement
inserted in a daily newspaper of general circulation in the City of
Boston, Massachusetts.
(e) Only business within the purpose or purposes described in the
notice for a special meeting of shareholders may be conducted at the
meeting.
SECTION 1.4. PLACE OF MEETINGS. Annual and special meetings of the
shareholders shall be held at the principal office of the Corporation
or at such other place within or without the Commonwealth of
Massachusetts as the Board or other persons authorized to call such
meetings may from time to time determine and indicate in the notice.
SECTION 1.5. NOTICE OF MEETINGS. Written notice shall be given
stating the place, date and hour of all meetings of the shareholders.
The notice shall state the purpose or purposes of the meeting and shall
indicate that it is being issued by or at the direction of the person
or persons calling the meeting. A copy of the notice of any meeting
shall be given, personally or by mail, not less than ten (10) nor more
than fifty (50) days before the date of the meeting, to each
shareholder entitled to vote at the meeting. If mailed, notice shall
be deemed to have been given when deposited in the United States mail,
postage prepaid, directed to each shareholder at his or her last known
address as it appears on the records of the Corporation, or, if he or
she shall have filed with the Secretary a written request that notices
be mailed to some other address, then directed to him or her at such
other address. Notice must also be given to any shareholder who, by
reason of the action proposed at the meeting would be entitled to
receive payment for his or her shares, and the existence of this right
must be stated in the notice. No notice provided for in this Section
1.4 is required to be given to any shareholder who submits a signed
waiver of notice, in person or by proxy, whether before or after the
meeting. The attendance of any shareholder at the meeting, in person or
by proxy, who does not protest prior to the conclusion of the meeting
the lack of notice of such meeting, shall constitute a waiver of notice
to the shareholder. No notice of any adjourned meeting of shareholders
need be given, unless the Board fixes a new record date for the
adjourned meeting.
SECTION 1.6. RECORD DATE. For the purposes of determining the
shareholders entitled to notice of or vote at a shareholder's meeting
or any adjournment thereof, the Board may fix a date of record which
shall not be more than fifty (50) days nor less than ten (10) days
before the meeting date. For the purpose of determining shareholders
entitled to express consent to or dissent from any proposal without a
meeting, or for determining shareholders entitled to receive payment of
a dividend or the allotment of any rights, or for any other action, the
Board may fix a date of record which shall not be more than fifty (50)
days prior to such action.
SECTION 1.7. QUORUM. At all meetings of the shareholders, except as
otherwise provided by law, there shall be present, in person or
represented by proxy, shareholders owning a majority in number of the
shares of the Corporation issued and outstanding and entitled to vote
thereat, in order to constitute a quorum; but if there be no quorum,
the holders of the share present or represented may, by majority vote,
adjourn the meeting from time to time, but not for a period of over
thirty (30) days at any one time, without notice other than by
announcement at the meeting, until a quorum shall attend. At any such
adjourned meeting at which a quorum shall attend, any business may be
transacted which might have been transacted at the meeting as
originally called. When a quorum is once present, it is not broken by
the subsequent withdrawal of any shareholder.
SECTION 1.8. VOTING. At all meetings of the shareholders, each
shareholder entitled to vote thereat may vote in person or by proxy and
shall have one (l) vote for each share standing in his name on the
books of the Corporation, unless otherwise provided in the Certificate
of Incorporation. A plurality of votes cast shall be sufficient to
elect directors and a majority of votes cast shall be sufficient to
take any other corporate action, except as otherwise provided by law,
the Certificate of Incorporation, or these Bylaws.
SECTION 1.9. PROXIES. No shareholder shall enter into a voting trust
agreement, proxy or other type of agreement vesting in another person,
other than another shareholder of the Corporation, or an officer or
director of the Corporation, the authority to exercise voting power of
any or all of his or her shares. Every proxy shall be in writing,
subscribed by the shareholder or his or her duly authorized attorney-
in-fact and dated. No proxy which is dated more than eleven (11)
months before the meeting at which it is offered shall be accepted,
unless such proxy shall, on its face, name a longer period for which it
is to remain in force.
SECTION 1.10. CONDUCT OF MEETING. Meetings of the shareholders shall
be presided over by the Chairman in accordance with Section 3.2 hereof,
or in the absence of the Vice Chairman or all other such officers as
prescribed in Article III hereof, by a Chairman to be chosen at the
meeting. The Secretary or, pursuant to Article III hereof, the
Assistant Secretary of the Corporation (if such Assistant Secretary has
been appointed by the Board) shall act as Secretary of the meeting, if
present, otherwise the Chairman shall appoint a Secretary.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1. ELECTION AND POWERS. The Board of Directors shall have
the management and control of the affairs and business of the
Corporation. The Board may act at any duly held meeting by the vote of
a majority of the directors present, or it may act by unanimous written
consent of all members of the Board if permitted by the Corporation's
State of Incorporation. From and after the closing of the
Corporation's annual meeting on June 30, 1999 (the "Annual Meeting"),
the directors of the Corporation shall be divided into three (3)
classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors prior to
the Annual Meeting. At the first annual meeting of shareholders
following the Annual Meeting, the term of office of the Class I
directors shall expire and Class I directors shall be elected for a
full term of three (3) years. At the second annual meeting of
shareholders following the closing of the Annual Meeting, the term of
the Class II directors shall expire and Class II directors shall be
elected for a full term of three (3) years. At the third annual
meeting of shareholders following the closing of the Annual Meeting,
the term of office of the Class III directors shall expire and Class
III directors shall be elected for a full term of three (3) years. At
each succeeding annual meeting of shareholders, directors shall be
elected for a full term of three (3) years to succeed the directors of
each class whose terms expire at such annual meeting. Notwithstanding
the foregoing provisions of this Article, each director shall serve
until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any
incumbent director. Each director shall serve until a successor is
elected and qualified pursuant to the terms of this Article III, unless
his or her directorship be therefore vacated by resignation, death,
legal disqualification pursuant to Article V, removal or otherwise.
SECTION 2.2. NUMBER. The number of directors constituting the entire
Board shall be such number, not less than three (3), as shall be fixed
by vote of a majority of the entire Board from time to time. In absence
of such action, the number of directors shall be three (3).
Notwithstanding the provisions of this Section, where all of the shares
are owned beneficially and of record by fewer than three (3)
shareholders, the number of directors shall be equal to the number of
shareholders, unless otherwise fixed by the Board, which may fix a
greater number.
SECTION 2.3. VACANCIES. Vacancies and other openings in the Board,
created for any reason except removal of a director without cause, may
be filled by the Board or a majority of the directors then in office if
less than a quorum are in office.
SECTION 2.4. REMOVAL. At any meeting of the shareholders duly called,
any director may be removed from office only for cause by vote of the
holders of a majority of the shares entitled to vote in the election of
directors.
SECTION 2.5. NOMINATION OF DIRECTORS.
(a) No person shall be eligible for election as a director at a
meeting of shareholders unless nominated (i) by the Board of Directors
or (ii) by a shareholder who is a shareholder of record of a class of
shares entitled to vote for the election of directors, both at the time
of the giving of the shareholder's notice hereinafter described in this
Section 2.5 and on the record date for the meeting at which directors
will be elected, and who complies with the notice procedures set forth
in this Section 2.5.
(b) In order to nominate any persons who are not listed as
nominees in the Corporation's proxy statement for a shareholders'
meeting for election as directors at such meeting, a shareholder who
meets the requirements set forth in the preceding paragraph must give
the Corporation timely written notice. To be timely, a shareholder's
notice must be given either by personal delivery to the Secretary or an
Assistant Secretary at the principal office of the Corporation or by
first class United States mail, with postage thereon prepaid, addressed
to the Secretary at the principal office of the Corporation. Any such
notice must be received (i) on or after April 1st and before May 1st of
the year in which the meeting will be held if the meeting is to be an
annual meeting and clause (ii) is not applicable, or (ii) not less than
sixty (60) days before an annual meeting, if the date of the applicable
annual meeting, as prescribed in these Bylaws, has been changed by more
than thirty (30) days or (iii) not later than the close of business on
the tenth day following the day on which notice of a special meeting of
shareholders called for the purpose of electing directors is first
given to shareholders.
(c) Each such shareholder's notice shall set forth the
following: (i) as to the shareholder giving the notice, (1) the name
and address of such shareholder as they appear on the Corporation's
stock transfer books, (2) the class and number of shares of the
Corporation beneficially owned by such shareholder, (3) a
representation that such shareholder is a shareholder of record at the
time of giving the notice and intends to appear in person or by proxy
at the meeting to nominate the person or persons specified in the
notice and (4) a description of all arrangements or understandings, if
any, between such shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made; and (ii) as to each person
whom the shareholder wishes to nominate for election as a director, (1)
the name, age, business address and residence address of such person,
(2) the principal occupation or employment of such person, (3) the
class and number of shares of the Corporation which are beneficially
owned by such person and (4) all other information that is required to
be disclosed about nominees for election as directors in solicitations
of proxies for the election of directors under the rules and
regulations of the Securities and Exchange Commission. In addition,
each such notice shall be accompanied by the written consent of each
proposed nominee to serve as a director if elected and such consent
shall contain a statement from the proposed nominee to the effect that
the information about him contained in the notice is correct.
SECTION 2.6. MEETINGS. A regular meeting of the Board shall be held
as soon as practicable after the adjournment of the annual meeting of
shareholders for the election of officers, and the transaction of such
business as may be properly presented, including the designation of
times and places for additional regular meetings of the Board during
the ensuing year. Special meetings of the Board shall be held at any
time, upon call from the Chairman of the Board, if any, the Chief
Executive Officer, or at least one-third (1/3) of the directors.
SECTION 2.7. PLACE OF MEETINGS. All meetings of the Board shall be
held at the principal office of the Corporation, or at such other
place, within or without the Commonwealth of Massachusetts as may from
time to time be determined by the Board or the person or persons
authorized to call the meeting.
SECTION 2.8. NOTICE OF MEETINGS. No notice need be given of a regular
meeting of the Board. Notice of the place, day and hour of every
special meeting shall be given to each director by personal delivery or
by telegraph or facsimile or e-mail or leaving the same at the
director's residence or usual place of business, at least one (1) day
before the meeting, or shall be mailed to each director, postage
prepaid and addressed to the director at his or her last known address
according to the records of the Corporation, at least three (3) days
before the meeting. No notice of any adjourned meeting of the Board
need be given other than by announcement at the meeting, subject to the
provisions of Section 2.10 of this Article.
SECTION 2.9. WAIVER OF NOTICE. Notice of a meeting need not be given
to any director who submits a signed written waiver thereof whether
before, during or after the meeting nor to any director who attends the
meeting without protesting, prior thereto or at its commencement, the
lack of notice to him or her.
SECTION 2.10. QUORUM. A majority of the directors in office, but in
no event less than one-third (1/3) of the entire Board shall be
necessary to constitute a quorum for the transaction of business at
each meeting of the Board; but if at any meeting there be less than a
quorum present, a majority of those present may adjourn the meeting
from time to time without notice other than by announcement at the
meeting, until a quorum shall attend. At any such adjournment at which
a quorum shall be present any business may be transacted which might
have been transacted at the meeting as originally called.
SECTION 2.11. PRESENCE AT MEETINGS. Any one or more members of the
Board or any committee thereof may participate in a meeting of the
Board or such committee, by means of a conference telephone or similar
communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such
means shall constitute presence at a meeting.
SECTION 2.12. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken any action by the Board of Directors or by any
committee thereof at a duly held meeting may be taken without a meeting
if all members of the Board of Directors or of the committee, as the
case may be, consent in writing to the adoption of resolutions
authorizing the action. Such resolutions and such written consents
shall be filed with the minutes of the proceedings of the Board of
Directors or of the committee.
SECTION 2.13. EXECUTIVE COMMITTEE AND OTHER COMMITTEES. The Board
may, in its discretion, by an affirmative vote of a majority of the
entire Board appoint an Executive Committee, or any other committee, to
consist of three (3) or more directors. Unless limited by the Board,
or by law, the Executive Committee shall have and may exercise all
power and authority of the Board in the management of the business and
affairs of the Corporation, and other committees shall have those
powers conferred upon them by the Board, except that no committee shall
have power to act in those areas specifically prohibited by law. Any
committee shall have the power to act by unanimous written consent of
all of its members in accordance with the Delaware General Corporation
Law.
ARTICLE III
OFFICERS
SECTION 3.1 OFFICERS. The officers of the Corporation shall be chosen
by the Board and shall be a Chairman, a Chief Executive Officer, a
President, a Secretary and a Treasurer. The Board may also choose one
or more executive, senior, assistant or other Vice Presidents,
Assistant Secretaries or Assistant Treasurers. Any number of offices
may be held by the same person except the offices of President and
Secretary, unless the Certificate of Incorporation or these Bylaws
otherwise provide.
(a) The Board at its first meeting after each annual meeting of
shareholders shall choose a Chairman, a Chief Executive Officer, a
President, a Secretary and a Treasurer.
(b) The Board may appoint such other officers and agents as it
shall deem necessary, who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
(c) The officers of the Corporation shall hold office until
their successors are chosen and qualify. Any officer elected or
appointed by the Board may be removed at any time by the affirmative
vote of a majority of the Board of Directors. Any vacancy occurring in
any office of the Corporation shall be filled by the Board.
(d) Any officer of the Corporation shall have authority to
execute documents in the ordinary course of business such as bonds,
mortgages, and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof
shall be expressly delegated or limited by the Board to some particular
officer or agent of the Corporation. No officer of the Corporation
shall have any power or authority outside the normal day-to-day
business of the Corporation, to bind the Corporation by contract or
engagement or to pledge its credit or to render it liable in connection
with any transaction unless so authorized by the Board.
SECTION 3.2 CHAIRMAN. The Chairman shall preside at all meetings of
shareholders and of the Board. The Chairman shall perform such other
duties and have such other powers as the Board may from time to time
prescribe.
SECTION 3.3 VICE-CHAIRMAN. In the absence of the Chairman or in the
event of his inability or refusal to act, the Vice-Chairman, if one has
been appointed, shall perform the duties of the Chairman, and when so
acting, shall have all the powers of and be subject to all of the
restrictions upon the Chairman. The Vice-Chairman, if one has been
appointed, shall perform such other duties and have such other powers
as the Board may from time to time prescribe.
SECTION 3.4 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall, subject to the direction of the Board and the Chairman, have the
general management and control of the affairs and business of the
Corporation. The Chief Executive Officer shall see that all orders and
resolutions of the Board are carried into effect. The Chief Executive
Officer shall also perform such other duties and have such other powers
as the Board may from time to time prescribe.
SECTION 3.5 PRESIDENT. In the absence of the Chief Executive
Officer or in the event of his inability or refusal to act, the
President shall perform the duties of the Chief Executive Officer, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Chief Executive Officer. The President shall
perform such other duties and have such other powers as the Board may
from time to time prescribe.
SECTION 3.6 EXECUTIVE AND OTHER VICE-PRESIDENTS.
(a) In the absence of the Chief Executive Officer and the
President or in the event of their inability or refusal to act, the
Executive Vice-President, in the event one has been elected (or in the
event there be more than one Executive Vice-President, the Executive
Vice-Presidents in the order designated, or in the absence of any
designation, then in the order of their election), shall perform the
duties of the Chief Executive Officer, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the Chief
Executive Officer. The Executive Vice-Presidents shall perform such
other duties and have such other powers as the Board may from time to
time prescribe.
(b) In the absence of the Chief Executive Officer, the President
and any Executive Vice-President or in the event of the inability or
refusal of any Executive Vice-President to act, or in the event an
Executive Vice-President has not been elected, the Vice-President (or
in the event there be more than one Vice-President, the Vice-Presidents
in the order designated, or in the absence of any designation, then in
the order of their election) shall perform the duties of the Chief
Executive Officer, and when so acting, shall have all the powers of and
be subject to all the restrictions upon the Chief Executive Officer.
The Vice-Presidents shall perform such other duties and have such other
powers as the Board may from time to time prescribe.
SECTION 3.7 SECRETARY AND ASSISTANT SECRETARIES.
(a) The Secretary shall attend all meetings of the Board and all
meetings of the shareholders and shall record all proceedings of the
meetings of the Corporation and of the Board in a book to be kept for
that purpose and shall perform like duties for the standing committees
when required. The Secretary shall give, or cause to be given, notice
of all meetings of the shareholders and special meetings of the Board,
and shall perform such other duties as may be prescribed by the Board,
under whose supervision he or she shall be. The Secretary shall have
custody of the corporate seal of the Corporation and he or she, or an
Assistant Secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by his
or her signature or by the signature of each such Assistant Secretary.
The Board may give general authority to any other officer to affix the
seal of the Corporation and to attest the fixing by his or her
signature.
(b) The Assistant Secretary, or if there be more than one, the
Assistant Secretaries in the order determined by the Board (or if there
be no such determination, then in the order of their election), shall,
in the absence of the Secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other
powers as the Board may from time to time prescribe.
SECTION 3.8 TREASURER AND ASSISTANT TREASURERS.
(a) The Treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the Corporation and shall
deposit all monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by
the Board.
(b) The Treasurer shall disburse the funds of the Corporation as
may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the Board, at its regular meetings,
or when the Board so requires, an account of all of the Treasurer's
transactions as Treasurer and of the financial condition of the
Corporation.
(c) If required by the Board, the Treasurer shall give the
Corporation a bond (which shall be renewed every six (6) years) in such
sum and with such surety or sureties as shall be satisfactory to the
Board for the faithful performance of the duties of the Treasurer's
office and for the restoration to the Corporation, in case of the
Treasurer's death, resignation, retirement or removal from office, of
all books, papers, vouchers, money and other property of whatever kind
in the Treasurer's possession or under the Treasurer's control
belonging to the Corporation.
(d) The Assistant Treasurer, or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board (or if
there be no such determination, then in the order of their election),
shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and
exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board may from time to time
prescribe.
ARTICLE IV
SHARE CERTIFICATES
SECTION 4.1. FORM AND SIGNATURES. The interest of each shareholder of
the Corporation shall be evidenced by certificates for shares in such
form not inconsistent with law or the Certificate of Incorporation as
the Board may from time to time prescribe. The share certificates shall
be signed by the Chief Executive Officer, the President or a Vice
President and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer, sealed with the seal of the
Corporation, and countersigned and registered in such manner, if any,
as the Board may by resolution prescribe. Where any share certificate
is countersigned by a transfer agent or registered by a registrar,
other than the Corporation itself or its employee, the signatures of
any such Chief Executive Officer, President, Vice President, Secretary,
Assistant Secretary, Treasurer, or Assistant Treasurer, and such
corporate seal, may be facsimiles, engraved or printed. In case any
officer who has signed or whose facsimile signature has been placed
upon such certificate shall have ceased to be such officer before the
share certificate is issued, such certificate may be issued by the
Corporation with the same effect as if such person had not ceased to be
such officer.
SECTION 4.2. TRANSFER OF SHARES. The shares of the Corporation shall
be transferred on the books of the Corporation by the registered holder
hereof, in person or by his or her attorney, upon surrender for
cancellation of certificates for the same number of shares, with a
proper assignment and powers of transfer endorsed thereon or attached
thereto, duly signed by the person appearing by the certificate to be
the owner of the shares represented thereby, with such proof of the
authenticity of the signature as the Corporation or its agents may
reasonably require. Such certificate shall have fixed thereto all stock
transfer stamps required by law. The Board shall have power and
authority to make all such other rules and regulations as it may deem
expedient concerning the issue, transfer and registration of
certificates for shares of the Corporation.
SECTION 4.3. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES.
The holder of any certificates representing shares of the Corporation
shall immediately notify the Corporation of any mutilation, loss, theft
or destruction thereof, and the Board may, in its discretion, cause one
or more new certificates for the same number of shares in aggregate to
be issued to such holder upon the surrender of the mutilated
certificate, or in the case of loss, theft or destruction of the
certificate, upon satisfactory proof of loss, theft or destruction and
the deposit of indemnity by way of bond or otherwise in such form and
amount and with such sureties or securities as the Board may require to
indemnify the Corporation, its transfer agent and registrar, if any,
against loss or liability by reason of the issuance of such new
certificates; but the Board may in its discretion refuse to issue such
new certificates save upon the order of some court having jurisdiction
in such matters.
SECTION 4.4. STOCK LEDGERS. The stock ledgers of the Corporation
containing the names and addresses of the shareholders and the number
of shares held by them respectively shall be maintained at the
principal office of the Corporation, or if there be a transfer agent,
at the office of such transfer agent, as the Board shall determine.
SECTION 4.5. TRANSFER AGENTS AND REGISTRARS. The Corporation may have
one or more transfer agents and one or more registrars of its stock or
of any class or classes of its shares whose respective duties the Board
may from time to time determine.
ARTICLE V
INDEMNIFICATION
SECTION 5.1. AUTHORIZATION OF INDEMNIFICATION. Each person who was or
is a party or is threatened to be made a party to or is involved in any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative and whether by or in
the right of the Corporation or otherwise (a "proceeding"), by reason
of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or
is or was serving at the request of the Corporation as a director,
officer, employee, partner (limited or general) or agent of another
corporation or of a partnership, joint venture, limited liability
company, trust or other enterprise, including service with respect to
an employee benefit plan, shall be (and shall be deemed to have a
contractual right to be) indemnified and held harmless by the
Corporation (and any successor to the Corporation by merger or
otherwise) to the fullest extent authorized by, and subject to the
conditions and (except as otherwise provided herein) procedures set
forth in the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but any such amendment shall not be deemed to
limit or prohibit the rights of indemnification hereunder for past acts
or omissions of any such person insofar as such amendment limits or
prohibits the indemnification rights that said law permitted the
Corporation to provide prior to such amendment), against all expenses,
liabilities and losses (including attorneys' fees, judgments, fines,
ERISA taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith;
provided, however, that the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part
thereof) initiated by such persons only if such proceeding (or part
thereof) was authorized by the Board. Persons who are not directors or
officers of the Corporation and are not so serving at the request of
the Corporation may be similarly indemnified in respect of such service
to the extent authorized at any time by the Board. The indemnification
conferred in this Section 5.1 also shall include the right to be paid
by the Corporation (and such successor) the expenses (including
attorneys' fees) incurred in the defense of or other involvement in any
such proceeding in advance of its final disposition; provided, however,
that, if and to the extent the Delaware General Corporation Law
requires, the payment of such expenses (including attorneys' fees)
incurred by a director or officer in advance of the final disposition
of a proceeding shall be made only upon delivery to the Corporation of
an undertaking by or on behalf of such director or officer to repay all
amounts so paid in advance if it shall ultimately be determined that
such director or officer is not entitled to be indemnified under this
Section 5.1 or otherwise; and provided further, that, such expenses
incurred by other employees and agents may so be paid in advance upon
such terms and conditions, if any, as the Board deems appropriate.
SECTION 5.2 NON-EXCLUSIVITY. The rights to indemnification and
advance payment of expenses provided by Section 5.1 hereof shall not be
deemed exclusive of any other rights to which those seeking
indemnification and advance payment of expenses may be entitled under
any by-law, agreement, vote of shareholders or disinterested directors
or otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office.
SECTION 5.3 SURVIVAL OF INDEMNIFICATION. The indemnification and
advance payment of expenses and rights thereto provided by, or granted
pursuant to, Section 5.1 hereof shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee, partner or agent and shall inure to the
benefit of the personal representatives, heirs, executors and
administrators of such person.
SECTION 5.4 INSURANCE. The Corporation shall have the power to
purchase and maintain on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee,
partner (limited or general) or agent of another corporation or of a
partnership, joint venture, limited liability company, trust or other
enterprise, against any liability asserted against such person or
incurred by such person in any such capacity, or arising out of such
person's status as such, and related expenses, whether or not the
Corporation would have the power to indemnify such person against such
liability under the provisions of the Delaware General Corporation Law.
ARTICLE VI
FINANCES
SECTION 6.1. DIVIDENDS. Subject to law and to the provisions of the
Certificate of Incorporation, the Board may declare dividends on the
stock of the Corporation, payable upon such dates as the Board may
designate.
SECTION 6.2. RESERVES. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends
such sum or sums, as the Board from time to time, in its absolute
discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other purpose
as the Board shall deem conducive to the best interest of the
Corporation, and the Board may modify or abolish any such reserve in
the manner in which it was created.
SECTION 6.3. BILLS, NOTES, ETC. All checks or demands for money and
notes or other instruments evidencing indebtedness or obligations of
the Corporation shall be made in the name of the Corporation and shall
be signed by an officer of the Corporation or such other officer or
officers or such other person or persons as the Board may from time to
time designate.
SECTION 6.4. VOTING SHARES HELD BY THE CORPORATION. Unless otherwise
determined by the Board, the Chief Executive Officer of the Corporation
is hereby designated as the officer of the Corporation authorized to
vote any and all shares of stock held by the Corporation in other
domestic or foreign corporations; he or she shall have the power and
authority to vote such shares in person or by proxy, or by written
consents in lieu of formal meetings.
ARTICLE VII
AMENDMENTS
SECTION 7.1. POWER TO AMEND. The Board shall have the power to adopt,
amend or repeal the Bylaws of the Corporation by a majority vote of the
entire Board at any meeting, or by unanimous written consent of all
members of the Board. However, any Bylaws adopted by the Board may be
amended or repealed at any meeting of the shareholders.
SECTION 7.2. NOTICE OF AMENDMENT AFFECTING ELECTION OF DIRECTORS.
If any Bylaw regulating an impending election of directors is
adopted, amended or repealed by the Board, there shall be set forth in
the notice of the next meeting of shareholders for the election of
directors, the Bylaw so adopted, amended or repealed, together with a
concise statement of the changes made.
ARTICLE VIII
OFFICES OF THE CORPORATION
SECTION 8.1. REGISTERED OFFICE. The initial registered office of the
Corporation shall be in Wilmington, Delaware, and the initial
registered agent in charge thereof shall be The Company Corporation.
SECTION 8.2. OTHER OFFICES. The Corporation may also have offices at
such other places, both within and without the State of Delaware, as
the Board may from time to time determine or as may be necessary or
useful in connection with the business of the Corporation.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1. DIVIDENDS. The Board may, but shall not be obligated to,
declare dividends upon the capital stock of the Corporation, subject to
the provisions of the Certificate of Incorporation, as may be amended,
and the laws of the State of Delaware.
SECTION 9.2. RESERVES. The Board may set apart, out of the funds of
the Corporation available for dividends, a reserve or reserves for any
proper purpose and may abolish any such reserve.
SECTION 9.3 EXECUTION OF INSTRUMENTS. All checks, drafts or other
orders for the payment of money, and promissory notes of the
Corporation shall be signed by such officer or officers or such other
person or persons as the Board may from time to time designate.
SECTION 9.4 FISCAL YEAR. The fiscal year of the Corporation shall end
on the 31st day of December of each year.
SECTION 9.5 SEAL. The corporate seal shall be in such form as the
Board shall approve. The seal may be used by causing it or a facsimile
thereof to be impressed or affixed otherwise reproduced.
Exhibit 4
SOFTLOCK.COM, INC.
SUBSCRIPTION AGREEMENT
Name of Subscriber: ______________________
THE SECURITIES OF SOFTLOCK.COM, INC. BEING SOLD PURSUANT TO THIS
MEMORANDUM HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE "BLUE SKY" OR SECURITIES LAWS. THE
SHARES CANNOT BE SOLD, TRANSFERRED, ASSIGNED, OR OTHERWISE DISPOSED OF
EXCEPT IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
SoftLock.com, Inc., a Delaware corporation ("the Company"), is
conducting a private offering on a "best efforts" basis, of up to
1,200,000 shares of Common Stock (the "Shares") pursuant to exemptions
from registration under Section 4(2) of the Securities Act of 1933, as
amended (the "1933 Act"), and Rule 506 of Regulation D adopted
thereunder, as described in this Agreement and the Company's
Confidential Offering Memorandum dated May 10, 1999, attached hereto
(the "Memorandum").
If and when accepted by the Company, this Subscription Agreement, when
executed below, shall constitute a contract to purchase Shares in the
amount set forth on the signature page of this Agreement. This
Subscription Agreement will be binding upon and enforceable against the
Company only when countersigned by an authorized agent of the Company.
The purchase and sale of the Shares shall take place at one or multiple
closings upon receipt of subscriptions acceptable by the Company and at
such time as is agreeable to the Company (the "Closing" or "Closings").
At each Closing, the Company shall deliver to the Investors the Shares,
against delivery to the Company by each such Investor of the purchase
price in cash, immediately available funds or by check (the "Purchase
Price"), together with a fully completed Affidavit of Accredited
Investor and signature page to this Subscription Agreement.
Piggy-Back Registration Rights
(a) In the event that the Company shall register any of its Common
Stock under the Securities Act of 1933 (a "Registered Offering"),
either for its own account or the account of any other holder or
holders of equity securities of the Company (the "Principal Shares"),
other than (i) a registration relating solely to employee benefit plans
including any registrations on Form S-8, (ii) a registration relating
solely to a Rule 145 transaction including any registrations on Form S-
4, or (iii) a registration in which the only equity security being
registered is capital stock issuable upon conversion of convertible (or
exchange of exchangeable) debt securities which are also being
registered, the Company will provide you with written notice thereof
within 90 days of the filing date of the first registration statement
filed in connection with the Registered Offering (the "Company
Notice"), and, subject to the other terms and conditions set forth
herein, include in such registration (and any related qualification
under blue sky laws or other compliance) and any underwriting involved
therein, the Commission Shares specified in a written request or
requests made by you to the Company within 10 days after receipt of the
Company Notice; provided, however, that the number of Commission Shares
specified in such written request or requests made by you to the
Company shall not exceed 25% of all Commission Shares received by you
(collectively, the "Registrable Securities").
(b) If the Registered Offering of which the Company gives notice is
for a registered public offering involving an underwriting, the Company
shall so advise you as a part of the Company Notice. In such event,
your rights to registration pursuant to Section (a) shall be
conditioned upon your participation in such underwriting, and the
inclusion of your Registrable Securities in the underwriting shall be
limited to the extent provided herein. You shall (together with the
Company and the other holders distributing their securities through
such underwriting, if any) enter into an underwriting agreement in
customary form with the managing underwriter selected for such
underwriting by the Company. Notwithstanding any other provision
herein, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the
managing underwriter may limit the number of your Registrable
Securities to be included in such registration to such number of your
Registrable Securities which the managing underwriter determines can be
included in such underwriting without reducing the number of shares to
be sold by the Company pursuant to such underwriting. In such event,
the Company shall so advise you and the number of shares (other than
the Principal Shares) that may be included in the registration and
underwriting shall be allocated among all the holders of the Company's
shares wishing to participate in the Registered Offering under these
piggy-back registration rights in proportion, as nearly as practicable,
to the respective amounts of shares held by such holders at the time of
filing the Registration Statement. To facilitate the allocation of
shares in accordance with the above provisions, the Company may round
the number of shares allocated to any holder to the nearest 100 shares.
If you disapprove of the terms of any such underwriting, you may elect
to withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration, and shall not
be transferred in a public distribution prior to 180 days after the
effective date of the registration statement relating thereto, or such
other shorter period of time as the underwriters may require.
(c) The Company shall have the right to terminate or withdraw any
Registered Offering or other registration prior to the effectiveness of
such registration whether or not you have elected to include your
Registrable Securities in such registration.
(d) All registration expenses incurred in connection with
registrations pursuant to this Section shall be borne by the Company.
Unless otherwise stated, all selling expenses relating to your
Registrable Securities shall be borne by you.
(e) In the case of each registration, qualification or compliance
effected by the Company pursuant to this Agreement, the Company will
keep you advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. At its
expense the Company will:
(i) prepare and file with the Commission a registration statement
with respect to such securities and use reasonable efforts to cause
such registration statement to become and remain effective for at least
sixty (60) days or until the distribution described in the registration
statement has been completed, whichever first occurs; and
(ii) furnish to you, should you choose to participate in such
registration, and to the underwriters of the securities being
registered such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other
documents you and/or the underwriters may reasonably request in order
to facilitate the public offering of such securities.
(f) You agree, if any of your Registrable Securities are included in
the securities as to which such registration, qualification or
compliance is being effected, to indemnify the Company, each of its
directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person or
entity who controls the Company or such underwriter within the meaning
of Section 15 of the Securities Act, and each other such holder, each
of its officers and directors and each Person or entity controlling
such holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company, and
its directors, officers, representatives, underwriters and control
persons for any legal or any other expenses reasonably incurred, as
such expenses are incurred, in connection with investigating or
defending any such claim, loss, damage, liability or action, in each
case to the extent, but only to the extent, that such untrue statement
(or alleged untrue statement) or omission (or alleged omission) is made
in reliance upon and in conformity with written information furnished
to the Company by you. Notwithstanding the foregoing, your liability
under this subsection shall be limited in an amount equal to the
initial price of the Registrable Securities offered by you, unless
such liability arises out of or is based on willful misconduct by you.
(g) Each party entitled to indemnification under this Section (for
the purposes of this Section, the "Indemnified Party") shall give
notice to the party required to provide indemnification (for the
purposes of this Section, the "Indemnifying Party") after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by
the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at
such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Agreement, unless
the failure to give such notice is materially prejudicial to an
Indemnifying Party's ability to defend such action, and provided
further that the Indemnifying Party shall not assume the defense for
matters as to which there is a conflict of interest or separate and
different defenses. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
(h) In the event the terms of this Section conflict with the terms of
any underwriting agreement in connection with any registration
hereunder, the terms of such underwriting agreement shall control.
(i) If your Registrable Securities are to be included in any
Registered Offering, you shall furnish to the Company such information
as the Company may request in writing and as shall be required in
connection with any registration, qualification or compliance referred
to in this Agreement.
(j) The rights granted pursuant to this Section shall terminate at
such time as the Company has registered all your Registrable Securities
in a Registered Offering or other registration. You may exercise its
piggy-back registration rights granted under this Section not more than
two (2) times. The registration rights granted under this Agreement
shall not be assignable, directly or indirectly, in whole or in part,
to any other person or entity, whether by operation of law or
otherwise. Upon any assignment of Registrable Securities, the
registration rights granted under this Agreement shall terminate with
respect to the Registrable Securities so transferred.
If paying by check, make check payable to "Softlock.com, Inc.". If
wiring funds, please wire transfer to:
Bank Name: Chase Manhattan Bank
Branch: 560 Monroe Ave.; Rochester, NY 14607
Routing Number (ABA#): 021 000 021
Account Number: 000 185 5063
Account Name: SoftLock Services, Inc.
Each part of this Subscription Agreement must be completed by the
Investor. By Investor's signature below, the Investor acknowledges
that he or she understands that the Company is relying upon the
accuracy and completeness hereof in complying with its obligations
under applicable securities laws, and represents and warrants the
accuracy of the statements set forth below. One of the purposes of
this Subscription Agreement is to assure the Company that each
prospective Investor is an Accredited Investor as that term is defined
in Rule 501 of Regulation D.
PLEASE READ AND COMPLETE EACH RESPONSE:
1. I have received and read the Memorandum and the Exhibits thereto,
and am familiar with the terms and provisions thereof. I acknowledge
that I have not relied upon any information which is not set forth in
the Memorandum or any document included as an Exhibit thereto or
provided to me by the Company in response to a request for such
documents. Other than the Memorandum and Exhibits thereto, I have
relied upon the following documents requested from the Company and
provided to me for purposes of making my decision to invest in the
Shares:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________
(Initial)
2. I have such knowledge and experience in business and financial matters
that I am capable of evaluating the Company and the proposed activities
thereof, and the risks and merits of this prospective investment.
_________
(Initial)
3. (a) My net worth, either individually or jointly with my spouse, is:
(Please initial the appropriate box below)
Below $50,000 _____
$50,000 to $75,000 _____
$75,000 to $149,999 _____
$150,000 to $224,999 _____
$225,000 to $499,999 _____
$500,000 to $999,999 _____
$1,000,000 or more _____
(b) During each of the last 2 years, I have had and reasonably expect in
the current year to have, an income in excess of $200,000 (not including any
income attributable to my spouse).
_____YES _____NO
(i) During 1999, I reasonably expect to have annual gross income of:
(Please initial the appropriate box below)
Below $50,000 _____
$50,000 to $99,999 _____
$100,000 to $200,000 _____
$200,000 or more _____
(ii) During 1998, I had annual gross income of:
(Please initial the appropriate box below)
Below $50,000 _____
$50,000 to $99,999 _____
$100,000 to $200,000 _____
$200,000 or more _____
(iii) During 1997, I had annual gross income of:
(Please initial the appropriate box below)
Below $50,000 _____
$50,000 to $99,999 _____
$100,000 to $200,000 _____
$200,000 or more _____
(c) During each of the last 2 years, my spouse and I together have had and
reasonably expect in the current year to have, annual gross income in excess
of $300,000.
_____YES _____NO
(i) During 1999, we expect to have annual gross income of:
(Please initial the appropriate box below)
Below $50,000 _____
$50,000 to $149,999 _____
$150,000 to $299,999 _____
$300,000 or more _____
(ii) During 1998, we had annual gross income of:
(Please initial the appropriate box below)
Below $50,000 _____
$50,000 to $149,999 _____
$150,000 to $299,999 _____
$300,000 or more _____
(iii) During 1997, we had annual gross income of:
(Please initial the appropriate box below)
Below $50,000 _____
$50,000 to $149,999 _____
$150,000 to $299,999 _____
$300,000 or more _____
4. I have a pre-existing personal or business relationship with the Company
or one or more of the Officers, Directors, or controlling persons of the
Company, and as a result of such relationship, I am capable of protecting my
own interests in connection with my proposed investment.
_____YES _____NO
If yes, please explain this relationship.
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
5. I have previously been advised that I would have an opportunity to
review all the pertinent facts concerning the Company and to obtain any
additional information which I might request, to the extent possessed or
obtainable without unreasonable effort and expense, in order to verify the
accuracy of information contained in the Memorandum. I have had an
opportunity to ask questions and receive answers from the Company regarding
the Company, its business, operations and financial condition and the terms
and conditions of this offering of the Shares, and answers have been
provided to my full satisfaction. I have fully reviewed all corporate and
governance documents of the Company and such other documents which I feel is
necessary or appropriate prior to purchase of the Shares, understand all
relevant terms and have asked all questions and received answers thereto to
my full satisfaction. If deemed necessary by me, I have consulted with a
professional advisor who has provided me with advice concerning the terms and
conditions of the offering.
_________
(Initial)
6. (a) I would like the Company to contact me in person or by telephone
before accepting my subscription so that I may further avail myself of the
opportunity for additional information and the opportunity to ask additional
questions of the Company (If "Yes", the Company will contact you).
_____YES _____NO
(b) If "Yes", please attach your written statement hereto setting further
the general nature of the information desired and then state Business Phone
No. (____) ____________, and Residence Phone No. (____) ______________, where
the Company can contact you immediately.
7. I understand that the Shares have not been registered under the Securities
Act of 1933, as amended (the "Act"), in reliance upon the exemptions from the
registration requirements under the Act pursuant to Section 4(2) of the Act,
and Rule 506 of Regulation D adopted thereunder, and that the Shares have not
been registered under any blue sky or state securities laws; and, therefore,
that I must bear the economic risk of the investment for an indefinite period
of time since the Shares cannot be sold, transferred or assigned to any person
or entity without compliance with the provisions of the Act and applicable
state blue sky or securities laws. I acknowledge that this Agreement is not
assignable.
_________
(Initial)
8. I have adequate means of providing for my current needs and personal
contingencies without taking into account the amount invested to purchase
the Shares, and have no need for liquidity in this investment in order to
meet such needs.
_________
(Initial)
9. I represent and warrant that:
(Initialing below (i) of this Section is an acknowledgment of all
representations contained in this Section (9).)
(a) I understand that the Shares being purchased hereunder have not been
registered under the Act or any state securities laws.
(b) I understand that I cannot sell or otherwise transfer the Shares being
purchased hereunder unless they are registered under the Act and applicable
state securities laws, or exemptions from such registration are available at
the time of the sale.
(c) I understand that I must bear the economic risk of the investment in
the Shares for an indefinite period of time because, as described in
Paragraph 9(a) above, the Shares have not been registered under the Act or
any state securities laws.
(d) I understand that the Company has a limited operating history and that
an investment in the Shares is speculative in nature and involves a
substantial degree of risk. I understand that I may lose my entire
investment.
(d) I will not sell the Shares being purchased hereunder without
registration under the Act and applicable state securities laws or
unless an exemption from such registration requirements is available.
I understand that the burden will be upon me to prove the availability of
such an exemption.
(f) I understand that the Company will restrict the transfer of the Shares
in accordance with the foregoing representations.
(g) I agree that all certificates representing the Shares of the Company
will contain or be endorsed with the following (or a substantially
equivalent) legends:
The securities represented by this Certificate have not been registered
under the Securities Act of 1933 (the "Act") and are "restricted securities"
as that term is defined in Rule 144 under the Act. The securities may not
be offered for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Act or pursuant to an exemption
from registration under the Act, the availability of which is to be
established to the satisfaction of the Company.
(h) I understand that there is presently only a limited public market for
the shares of Common Stock, and there is no assurance that such public
market for the shares will continue.
(i) I have full power and authority to enter into this Agreement, and,
for those Investors which are corporations (1) such Investor is a
corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, and has all requisite
power and authority to carry on its business as now conducted, and (2) all
action on the part of the Investor necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations
of the Investor hereunder, including, without limitation, the payment of the
purchase price for the Shares sold such Investor hereunder has been taken,
and the Investor has all requisite power and authority to enter into this
Agreement. This Agreement has been duly executed and delivered by Investor
and, assuming due authorization, execution and delivery by the Company,
constitutes Investor's valid and legally binding obligation enforceable
against the Investor in accordance with its terms, subject to the effect
of any applicable bankruptcy, reorganization, insolvency (including, without
limitation, all laws relating to fraudulent transfers), moratorium or similar
laws affecting creditors' rights generally, subject, as to enforceability, to
the effect of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and subject
to the effect of applicable securities laws as to rights of indemnification.
_________
(Initial)
10. I represent that I am the sole party in interest as to my subscription
and am acquiring the Shares solely for investment for my own account and have
no present agreement, understanding, arrangement, or intent to subdivide,
sell, assign, transfer or otherwise dispose of all or any part of my Shares
to any other person.
_________
(Initial)
11. I represent that I have not distributed the Memorandum (or any
other documents provided to me by the Company) to anyone other than my
personal advisors (e.g., investment advisors, attorney and/or accountant),
and that I have not allowed any other person to review the Memorandum.
_________
(Initial)
12. If an individual, I am over 21 years of age and I am a resident of
the United States.
_________
(Initial)
13. If the prospective investor is a partnership, joint venture,
corporation, trust, or other entity not a natural person, such entity
represents and warrants that (i) such entity was not formed for purposes
of investing in the Shares, and (ii) all of the equity owners of such
entity are accredited investors within the meaning of Rule 501 of
Regulation D promulgated under the Act.
_________
(Initial)
14..I am not affiliated with an NASD member broker/dealer firm as an
employee, partner or shareholder or as a relative or member of the same
household of any employee, partner or shareholder of an NASD member
broker/dealer firm, except as described below:
I am not affiliated with an NASD member. _________ (Initial)
or
I have the following affiliations to NASD member(s):
(describe, including name and address of firm, individual members and
nature of affiliation(s)):
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
15. I recognize that the sale of the Shares to me will be based
upon my representations and warranties set forth hereinabove and the
statements made by me herein and I hereby agree to indemnify the Company
and each of its Officers, Directors, controlling persons, attorneys and
agents, and to hold each of them harmless from and against any and all
loss, damage, liability or expense, including costs and reasonable
attorney's fees, to which they may be put or which they may incur by
reason of, or in connection with, any misrepresentation made by me in
this Subscription Agreement, any breach by me of my warranties and/or
failure by me to fulfill any of my covenants or agreements set forth
herein or arising out of the sale or distribution of any Shares by me in
violation of the Act, or any other applicable securities or "blue sky" laws.
_________
(Initial)
16. I acknowledge that the obligations of the Company to me hereunder are
subject to and contingent upon the fulfillment by me, on or before the
Closing, of each of the following conditions:
(a) the representations and warranties made by me herein shall be true
and correct on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing;
(b) I shall have delivered to the Company the Purchase Price specified
herein, in the manner specified herein; and
(c) I shall have delivered to the Company an Affidavit of Accredited
Investor in the form attached hereto, and the information provided therein
shall be complete and correct on and as of the Closing with the same effect
as though such information had been provided as of the date of such Closing.
IN WITNESS WHEREOF, subject to acceptance by the Company, the undersigned has
completed this Subscription Agreement to evidence his or her subscription to
Shares of SoftLock.com, Inc. as offered by the Confidential Offering
Memorandum dated ___________, as of this ____ day of ______________, 199__.
Amount of Commitment
(Minimum Purchase: 20,000 Shares ($100,000))
$ for Shares
Checks should be made payable to SoftLock.com, Inc.
__________________________________
Name (Please Print)
__________________________________
(Signature)
Residence Address: Telephone Numbers:
(include Zip Code) (include Area Codes)
___________________________ Business: (___) ______________
___________________________ Residence: (___) _____________
Mailing Address: S.S. Number: ________________
(if different)
____________________________ Date of Birth: ________________
____________________________ Citizenship: _________________
ACCEPTED FOR __________ Shares
this ____ day of _____________,199_.
SOFTLOCK.COM, INC.
By__________________________
Douglas Johnson
Executive Vice President, CFO
EXHIBIT B
AFFIDAVIT OF ACCREDITED INVESTOR
SoftLock.com, Inc.
Attn: Douglas Johnson, Executive Vice President, CFO
399 Alexander Street
Rochester, New York 14607
Gentlemen:
In connection with my purchase of ____________ shares of Common Stock of
SoftLock.com, Inc. (the "Shares"), I hereby represent to you as follows:
A. I am an "accredited investor," as that term is defined in Rule 501 of
Regulation D adopted under the Securities Act of 1933, as amended ("the
Act"). Specifically, I come within the following category of that definition
(check one and complete the blanks as applicable):
1. _____ I am an institutional investor within the meaning of Rule 501(a)(1)
of Regulation D of the Act, with total assets of $ _______________________.
2. _____ I am a private business development company as defined in Section
202(a)(22) of the Investment Advisors Act of 1940.
3. _____ I am a tax exempt organization described in Section 501(c)(3)
of the Internal Revenue Code, with total assets of $ ______________________.
4. _____ I am an officer or director of SoftLock.com, Inc. My capacity is
_________________________.
5. _____ I am a natural person whose present net worth (or whose joint
net worth including my spouse) exceeds $1,000,000.
6. _____ I am a natural person who had individual income in excess of
$200,000 in each of the last two years (1996 and 1997), and I reasonably
expect to have an income in excess of $200,000 in the current year (1998).
I expect my income during 1998 to be approximately $__________.
or
_____ I am a natural person who (together with my spouse) had joint
income in excess of $300,000 in each of the last two years (1996 and 1997),
and we reasonably expect to have joint income in excess of $300,000 in the
current year (1998). I expect our income during 1998 to be approximately $
_____________.
7. _____ I am a trust with total assets of $5,000,000 whose purchase of
the securities is directed by a sophisticated person as described in Rule
506(b)(c)(ii) of Regulation D.
8. _____ I am an entity, all of whose equity owners are accredited
investors under paragraphs 1,2,3,4,5, 6, or 7, above.
B. I understand that Regulation D requires that you have information
which causes you to have a reasonable belief that the foregoing statement
is correct. Thus, if you care to do so, you may contact my banker, my
accountant or other person who I designate below to corroborate the above.
The name and telephone number of:
(a) My banker is ________________________________________________;
(b) My accountant is _____________________________________________; and
(c) Other reference is ____________________________________________.
C. I represent that I am the sole party in interest as to my participation
in and commitment to the Company and am acquiring the Shares solely for
investment for my own account and have no present agreement, understanding
or arrangements to subdivide, sell, assign, transfer or otherwise dispose of
all or any part of my Shares to any other person.
D. I have read and understand the following restrictive legend, and I
further understand the restrictions on transferability and sale of such
securities:
The securities represented by this Certificate have not been registered under
the Securities Act of 1933 (the "Act") and are "restricted securities" as that
term is defined in Rule 144 under the Act. The securities may not be offered
for sale, sold or otherwise transferred except pursuant to an effective
registration statement under the Act or pursuant to an exemption from
registration under the Act, the availability of which is to be established to
the satisfaction of the Company.
E. This Affidavit is provided to assist you in complying with Regulation
D of the Act and/or Section 4(2) of the Act.
F. I agree to indemnify the Company for any loss it may sustain or incur
as a result of any action taken by the Securities and Exchange Commission or
any other person challenging my status as an accredited investor under
Regulation D of the Act, and to provide them with whatever documentation
they may reasonably request in order to prove that, at the time of my
purchase of the Shares, I was an accredited investor as defined in
Regulation D of the Act.
IN WITNESS WHEREOF, subject to acceptance by the Company, the undersigned
has executed this Affidavit and related Subscription Agreement to evidence
his or her subscription to Shares of SoftLock.com, Inc. on this ______ day of
____________, 199__.
SUBSCRIBER:
(Print Name)
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