<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Transition Period From to
----- ------
Commission File Number 000-22172
MIDISOFT CORPORATION
(Exact name of small business issuer as specified in its charter)
Washington 91-1345532
(State of incorporation) (I.R.S. Employer Identification No.)
1605 NW Sammamish Rd., Suite 205
Issaquah, Washington 98027
(Address of principal executive offices)
(206) 391-3610
(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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common stock, no par value; 4,691,066 shares outstanding
as of October 4, 1996
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<PAGE>
MIDISOFT CORPORATION
INDEX TO FORM 10-QSB
PAGE
----
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . 3
a) Balance Sheets - September 30, 1996 and December 31, 1995
b) Statements of Operations - For the Three and Nine Months
Ended September 30, 1996 and 1995
c) Statements of Cash Flows - For the Nine Months Ended
September 30, 1996 and 1995
d) Notes to Financial Statements - For the Three and Nine
Months Ended September 30, 1996 and 1995
Item 2. Management's Discussion and Analysis of Financial Condition or
Plan of Operation . . . . . . . . . . . . . . . . . . . . . 8
PART II
OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 11
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . 11
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 11
SIGNATURE 12
2
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ITEM 1. MIDISOFT CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
At September 30, At December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 928,000 $ 2,143,000
Short term investments 1,540,000
Accounts receivable - net of allowances of
$1,131,000 in 1996 and $1,550,000 in 1995 1,471,000 2,329,000
Inventories 498,000 494,000
Prepaid expenses 324,000 266,000
--------------- ---------------
Total current assets 3,221,000 6,772,000
Property & equipment, net 450,000 562,000
Capitalized software and other costs, net 609,000 1,230,000
--------------- ---------------
Total assets $ 4,280,000 $ 8,564,000
--------------- ---------------
--------------- ---------------
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 158,000 $ 429,000
Accrued wages & payroll taxes 183,000 260,000
Other accrued expenses 1,666,000 1,804,000
Deferred revenue 914,000 807,000
--------------- ---------------
Total current liabilities 2,921,000 3,300,000
--------------- ---------------
Shareholders' equity
Common stock, no par value; 10,000,000 shares authorized,
4,691,066 issued and outstanding in 1996 and
4,662,441 issued and outstanding in 1995 17,178,000 17,106,000
Retained deficit (15,819,000) (11,842,000)
--------------- ---------------
Total shareholders' equity 1,359,000 5,264,000
--------------- ---------------
Total liabilities and shareholders' equity $ 4,280,000 $ 8,564,000
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to financial statements
3
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MIDISOFT CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 1,158,000 $ 1,234,000 $ 2,161,000 $ 4,461,000
Cost of revenues 588,000 552,000 1,400,000 1,700,000
------------ ------------ ------------ ------------
Gross profit 570,000 682,000 761,000 2,761,000
Operating expenses:
Sales and marketing 723,000 1,182,000 2,459,000 2,948,000
General and administrative 488,000 1,804,000 1,708,000 2,754,000
Research and development 244,000 603,000 666,000 1,222,000
Restructuring charge 2,369,000 2,369,000
------------ ------------ ------------ ------------
Total operating expenses 1,455,000 5,958,000 4,833,000 9,293,000
------------ ------------ ------------ ------------
Operating loss (885,000) (5,276,000) (4,072,000) (6,532,000)
Interest and other income 17,000 90,000 95,000 339,000
------------ ------------ ------------ ------------
Loss before taxes (868,000) (5,186,000) (3,977,000) (6,193,000)
Provision for income taxes - 326,000 - -
------------ ------------ ------------ ------------
Net loss $ (868,000) $(5,512,000) $(3,977,000) $(6,193,000)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per share $ (0.19) $ (1.23) $ (0.85) $ (1.37)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average shares outstanding 4,691,000 4,497,000 4,677,000 4,512,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements
4
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MIDISOFT CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net loss $ (3,977,000) $ (6,193,000)
-------------- --------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation & amortization 792,000 914,000
Deferred rent provision 46,000
Writedown of capitalized software 2,369,000
(INCREASE) DECREASE IN ASSETS:
Accounts receivable, net 858,000 386,000
Inventories (4,000) (226,000)
Prepaid expenses (58,000) 83,000
INCREASE (DECREASE) IN LIABILITIES:
Trade accounts payable (271,000) 82,000
Accrued wages & payroll taxes (77,000) 367,000
Other accrued expenses (138,000) 407,000
Deferred income taxes - (18,000)
Deferred revenue 107,000 -
-------------- --------------
Total adjustments 1,209,000 4,410,000
-------------- --------------
Net cash (used) for operations (2,768,000) (1,783,000)
-------------- --------------
CASH FROM/(USED FOR) INVESTMENTS:
Redemption of short term investments 1,540,000 -
Additions to plant & equipment (59,000) (400,000)
Captialized software - (2,384,000)
-------------- --------------
Net cash from/(used for) investments 1,481,000 (2,784,000)
-------------- --------------
CASH FLOWS FROM FINANCING:
Stock options exercised 72,000 29,000
Stock buyback - (17,000)
-------------- --------------
Net cash provided by financing 72,000 12,000
-------------- --------------
Net change in cash and cash equivalents (1,215,000) (4,555,000)
Cash and cash equivalents, beginning of year 2,143,000 9,601,000
-------------- --------------
Cash and cash equivalents, end of period $ 928,000 $ 5,046,000
-------------- --------------
-------------- --------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ - $ 2,000
Common stock issued for purchase of other assets $ - $ 1,991,000
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
MIDISOFT CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
INTERIM FINANCIAL INFORMATION
The condensed financial statements included herein have been prepared by
Midisoft Corporation (the "Company") without audit, according to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. However, in the opinion of management,
the accompanying unaudited financial statements contain all adjustments
(consisting of only normal recurring accruals) considered necessary to present
fairly the results for the interim periods presented. The accompanying
condensed financial statements and related notes should be read in conjunction
with the Company's 1995 audited financial statements included in its Annual
Report on Form 10-KSB filed March 29, 1996.
The results of operations for the nine months ended September 30, 1996 are
not necessarily indicative of the results to be expected for the full calendar
year.
ACCOUNTS RECEIVABLE AND MAJOR CUSTOMER INFORMATION
Accounts receivable from Original Equipment Manufacturers (OEM) and other
resellers are summarized as follows:
September 30, December 31,
1996 1995
---- ----
OEM $ 1,689,000 $ 2,398,000
Resellers and other 913,000 1,481,000
-------------- --------------
Subtotal 2,602,000 3,879,000
Less: Allowance for doubtful accounts (895,000) (1,120,000)
Allowance for sales returns (236,000) (430,000)
-------------- --------------
Total accounts receivable $ 1,471,000 $ 2,329,000
-------------- --------------
-------------- --------------
Accounts receivable consist principally of amounts due from OEMs and
reseller customers for licensing fees, royalties and direct sales of products.
OEM customer payment terms typically are one year in duration and require
payments to be made in quarterly installments. At September 30, 1996, OEM
accounts receivable amounts not yet due were $329,000, equal to 19.5% of total
OEM receivables compared to $971,000, equal to 40% at December 31, 1995.
Reseller payment terms typically are standardized and similar to those given
software distributors. At September 30, 1996, reseller accounts receivable
amounts not yet due were $776,000, equal to 85% of total reseller receivables
compared to $421,000, equal to 28% at December 31, 1995.
The Company's primary credit concentrations involve domestic and foreign
OEM and reseller customers. Foreign customers are primarily located in Western
Europe, Taiwan, Singapore, Korea and Japan. Domestic customers comprised
$1,812,000 of accounts receivable at September 30, 1996 compared to $2,769,000
at December 31, 1995. Foreign customers comprised $790,000 of accounts
receivable at September 30, 1996 compared to $1,110,000 at December 31, 1995.
INCOME TAXES
No income taxes are payable at September 30, 1996, the result of the
Company's year-to-date loss and the result of Federal net operating losses at
December 31, 1995 of approximately $11.3 million that will reduce taxes due in
future periods and expire beginning in 2008.
6
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CAPITALIZED SOFTWARE AND OTHER COSTS
Capitalized software and other costs are summarized as follows:
September 30, December 31,
1996 1995
---- ----
Purchased software technology, net of
accumulated amortization of $353,000
and $177,000, respectively, in 1996
and 1995 $ 252,000 $ 428,000
Purchased contract software technology,
net of accumulated amortization of
$337,000 and $131,000, respectively,
in 1996 and 1995 157,000 364,000
Capitalized software development costs,
net of accumulated amortization of
377,000 and $139,000, respectively,
in 1996 and 1995 200,000 438,000
-------------- --------------
Total capitalized software $ 609,000 $ 1,230,000
-------------- --------------
-------------- --------------
OTHER ACCRUED EXPENSES
The following table summarizes the components of the other current liabilities:
September 30, December 31,
1996 1995
---- ----
Shareholder litigation settlement $ 1,544,000 $ 1,644,000
Other accrued expenses 122,000 160,000
-------------- --------------
$ 1,666,000 $ 1,804,000
-------------- --------------
-------------- --------------
The shareholder litigation settlement is comprised of 650,000 shares of the
Company's common stock expected to be issued in the fourth quarter of 1996. The
cash payment portion of the settlement in the amount of $100,000 was made in
May, 1996.
LITIGATION
On February 26, 1996, the Company settled the shareholders' class action
lawsuit which had been filed against it in March 1995. See "PART II, ITEM 1.
Legal Proceedings".
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE IN THIS FORM 10-QSB.
GENERAL
The Company is a leading provider of innovative applications for the use of
sound on the personal computer (PC). The Company was incorporated in Washington
in 1986 and introduced its first product, METATRAK, the precursor to Studio, in
that year. The Company has focused its product lines to include music learning
and creativity and the integration of sound and media in today's PC environment.
The Company divides these product lines into two development categories, music
products and strategic products. The Company's music products enable users to
enjoy, explore, learn, create and share music. The Company pioneered the
development of MIDI technology, including the ability of users to instantly view
musical notation of sounds played through a piano keyboard, or other MIDI-
equipped instrument, linked to a PC. Midisoft's strategic products promote the
convergence of sound with other technologies into the personal computer desktop.
The products allow users to enhance their computing experience, and to
communicate more effectively with and through computers. The Company markets
its products on a worldwide basis to (i) original equipment manufacturers
(OEMs), which "bundle" one or more of Midisoft's products with their own
products, (ii) distributors and resellers, which directly supply the retail
distribution channel, and (ii) end users, catalog companies, and businesses.
Sales to software distributors and resellers, together with direct sales,
represented 60% and 65% of revenues in the three and nine months ended September
30, 1996, and OEM sales represented 40% and 35% during the same periods.
International sales accounted for 18% and 17% of the Company's revenues during
the three and nine months ended September 30, 1996. Midisoft's customer base
tends to vary from period to period as it establishes new relationships in each
of its customer segments. During the three months ended September 30, 1996, two
different software distributors individually accounted for greater than 10% of
the Company's total revenues, collectively accounting for 25%. During the three
months ended September 30, 1996, one OEM customer accounted for 11% of the
Company's total revenues.
The Company's revenues include sales of software, software licenses and
services, less returns and sales return reserves. Cost of revenues includes the
costs of manuals, diskettes and duplication, packaging materials, assembly,
paper goods, shipping and amortization of purchased software technology and
capitalized software development costs. Cost of revenues as a percentage of
sales is lower for OEM sales than for distributor and direct sales because few
direct costs are involved. Sales and marketing expenses consist primarily of
salaries of sales and marketing personnel, customer service and technical
support costs and advertising and promotion expenses. General and administrative
expenses consist of salaries of administrative personnel, legal and accounting
costs of litigation. Research and development expenses consist primarily of
personnel and equipment costs required to conduct the Company's development
efforts. Software development costs are expensed as incurred, until
technological feasibility is established, after which any additional costs may
be capitalized until the software is ready for release. Amortization of
capitalized software development costs begins when the related product is
available for release to customers.
Revenues from sales to distributors and resellers and direct sales are
recognized when products are shipped. The Company's software sales agreements
generally do not involve any significant obligations to customers subsequent to
delivery. Revenues from products licensed to OEMs, consisting of one-time
license fees, are recognized at the time the software master is delivered and
when the criteria for fixed fee revenue recognition under Statement of Position
No. 91-1 "Software Revenue Recognition" are satisfied. Additional royalty use
or unit copy royalty fees are recognized when they are received pursuant to
license agreements upon notification of shipment from OEMs.
SEASONALITY
Sales to distributors tend to be greater in the fourth and first quarters
as consumers buy software to supplement their holiday computer hardware
purchases. OEM sales are concentrated in a small number of large customer
contracts and tend to occur sporadically. Direct sales generally increase when
software upgrades become available.
8
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COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 TO 1995
Revenues for the three months ended September 30, 1996 were $1,158,000, a
decrease of $76,000, compared to $1,234,000 for the same period in 1995.
Revenues for the nine months ended September 30, 1996 were $2,161,000, a
decrease of $2,300,000 or 52%, compared to $4,461,000 for the same period in the
prior year. Sales to software distributors and resellers, together with direct
sales were $691,000 and $1,415,000 represented 60% and 65% of revenues in the
three and nine months ended September 30, 1996, respectively, while such sales
represented 10% and 38% of revenues for the same periods in 1995. OEM sales of
$468,000 and $746,000 represented 40% and 35% in the three and nine months ended
September 30, 1996, respectively, while such sales represented 90% and 62% of
revenues for the same periods in 1995. International sales accounted for 18%
and 17% of the Company's revenues for the three and nine months ended September
30, 1996 and accounted for 12% and 19% for the same periods in 1995. Four new
products were released by the Company at the end of July, 1996 which the Company
expects to result in an increase in domestic distributor sales. One of these
products is also expected to favorably impact OEM domestic and international
revenues.
Gross profit for the three months ended September 30, 1996 was $570,000, a
decrease of $112,000, compared to $682,000 for the same period the prior year.
Gross profit for the nine months ended September 30, 1996 was $761,000, a
decrease of $2,000,000 as compared with the same period the prior year. As a
percentage of revenues, gross profit decreased to 49% in the three months ended
September 30, 1996 from 55% in 1995. As a percentage of revenues, gross profit
decreased to 35% in the nine months ended September 30, 1996 from 62% in 1995.
The reduced gross profit percentages for both the three and nine month periods
were primarily the result of a change to the product mix to increase sales to
distributors versus higher profit margin sales to OEM. Software amortization
costs for the three months ended September, 1996 fell to $193,000 as compared
with $436,000 for the same period during 1995. Software amortization costs for
the nine months ended September 30, 1996 decreased to $621,000 as compared with
$764,000 for the same period in the prior year.
Sales and marketing expenses for the three months ended September 30, 1996
were $723,000, a reduction of $459,000, compared to $1,182,000 for the same
period in the prior year. Sales and marketing expenses for the nine months
ended September 30, 1996 were $2,459,000, a decrease of $489,000 compared to
$2,948,000 for the same period in the prior year. As a percentage of revenues,
sales and marketing expenses decreased to 62% in the three months ended
September 30, 1996 from 96% for the same period in 1995. As a percentage of
revenues, sales and marketing expenses increased to 114% in the nine months
ended September 30, 1996 from 66% for the same period in 1995. The sales and
marketing expenses incurred during the nine months ended September 30, 1996
represent the base level of personnel, travel and advertising expenses necessary
to sell the current product lines.
General and administrative expenses for the three months ended September
30,1996 were $488,000, a decrease of $1,316,000, compared to $1,804,000 for the
same period of the prior year. General and administrative expenses for the nine
months ended September 30, 1996 were $1,708,000 a decrease of $1,046,000,
compared to $2,754,000 for the same period in the prior year. As a percentage
of revenues, these expenses for the three months ended September 30, 1996
decreased to 42% in 1996 from 146% for the same period in 1995. As a percentage
of revenues, general and administrative for the nine months ended September 30,
1996 increased to 79% from 62% for the same period in 1995. The current expense
represents base levels for the Company's general and administrative expenses.
Research and development expenses for the three months ended September
30,1996 were $244,000, a decrease of $359,000, compared to $603,000 for the same
period the prior year. As a percentage of revenues, research and development
expenses decreased to 21% in the three months ended September 30, 1995 from 49%
for the same period in 1995. Research and development expenses for the nine
months ended September 30, 1996 were $666,000, a decrease of $556,000, compared
to $1,222,000 for the same period the prior year. As a percentage of revenues,
research and development expenses increased to 31% in the nine months ended
September 30, 1996 from 27% for the same period the prior year. Research and
development costs in 1995 were substantially higher as the result of efforts to
diversify the product line in the second and third quarters of that year.
The Company incurred a restructuring charge of $2,369,000 for the nine
months ended September 30, 1995 as a result of the writedown of capitalized
software assets to net realizable value.
Interest and other income for the three months ended September 30,1996 was
$17,000, compared to $90,000 for the same period the prior year. Interest and
other income for the nine months ended September 30, 1996 was $95,000,
9
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compared to $339,000 for the same period the prior year. The decrease in income
is the result of the reduction of investments caused by the negative cash flow
from operations of the Company.
No income taxes are payable at September 30, 1996, the result of the
Company's year-to-date loss and the result of Federal net operating losses at
December 31, 1995 of approximately $11,300,000. The net operating losses will
reduce taxes due in future periods and begin to expire in 2008.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company's principal sources of liquidity
included cash and cash equivalents of $928,000 and net accounts receivable of
$1,471,000. This compares to cash, cash equivalents and short term investments
of $3,683,000 and net accounts receivable of $2,329,000 at December 31, 1995.
The decline in liquidity and capital resources is due largely to negative cash
flow from operations as the result of unprofitable business decisions made in
1995 and the subsequent need for current management to restructure the Company
and its product lines. Management believes that the Company has established
conservative allowances for doubtful accounts and returns.
The Company's current liabilities at September 30, 1996 were $2,921,000
compared to $3,300,000 at December 31, 1995. The Company has had no long term
debt since inception, and has no present commitments or agreements that could
require any long-term debt to be incurred. As of September 30, 1996, working
capital totaled $1,844,000, excluding accrued expenses of $1,544,000 to be
satisfied through the issuance of common stock.
Historically, the Company has relied on external sources of liquidity and
the existing cash and cash equivalents consisting largely of proceeds remaining
from the 1994 public offering. Although the current rate of cash consumption
has decreased from the third and fourth quarters of 1995, the Company's future
viability is dependent on the success of its latest product releases or on its
ability to obtain additional financing, none of which can be assured.
The Company is dependent to a material degree on OEM sales. These sales
are concentrated in a small number of large customer contracts and tend to occur
sporadically. OEM sales were adversely affected during the quarter ended March
31, 1996 by a reorganization of the Company's sales department and in the second
quarter by the anticipated release of Sound Bar, the primary OEM product, which
was released in July, 1996. If the Company is unable to close significant OEM
contracts in the future, its results of operations and liquidity will be
materially affected. If the sales increase fails to materialize, the Company's
liquidity will be severely affected.
The Company's operating activities used cash of $2,768,000 for the nine
month period ended September 30, 1996, reflecting increased working capital
needs as a result of the introduction of new products during the third quarter.
The primary components of changes in working capital were operating losses of
$3,977,000 and a decrease in current liabilities of $379,000 mitigated
principally by a decrease in gross receivables of $1,277,000.
Cash from investments was $1,540,000, consisting of the redemption of short
term investments. Cash used for investments totaled $59,000 for the nine months
ended September, 1996. These investments consisted of additions to equipment.
SUBSEQUENT EVENTS
In October, 1996, the Company raised $1,100,000 through the sale of 1,100
shares of Preferred Stock as Series A Convertible Preferred Stock (the "Series A
Preferred Stock"). All 1,100 shares were issued at a price of $1,000 per share
in an offshore private placement made to two investors. The Series A Preferred
Stock is convertible at the holder's option into shares of Common Stock at a
price which is equal to the lesser of 85% of the closing bid as of the date of
conversion or 100% of the closing bid price of the Common Stock as of the date
of issuance of the Series A Preferred Stock. The holders have the right to
convert one-third of their shares commencing 60 days after the date of issuance;
one-third of their shares commencing 90 days after the date of issuance; and
one-third of their shares commencing 120 days after the date of issuance. The
Series A Preferred Stock is also subject to mandatory conversion two years after
its date of issuance based upon the conversion formula described above. Holders
of the Series A Preferred Stock are entitled to an 8% cumulative dividend
payable in Common Stock at the time of conversion. At the time of conversion,
the Company is also obligated to issue one warrant (the "Warrant") with respect
to each share of Common Stock which is issued. Each Warrant will entitle the
holder to purchase one share of Common Share at a price equal to 200% of the
closing bid price of the Common Stock as of the date of issuance of the Series A
Preferred Stock. The Warrants shall be exercisable for two years.
10
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 24, 1995 a shareholders' class action was filed against the
Company and three of the Company's former officers. The complaint, captioned as
SMITH, ET AL. V. MIDISOFT, ET AL., was filed in the United States District Court
for the Western District of Washington. The action was brought on behalf of
purchasers of the Company's Common Stock during the period April 26, 1994 to
August 18, 1995, as extended. Among other things, the complaint alleged that
the defendants made various misrepresentations and/or omissions with respect to
the Company's business. On February 26, 1996 the parties entered into an
agreement pursuant to which the case was settled subject to final court
approval. Pursuant to the settlement agreement, the Company has paid $100,000
in cash and will issue 650,000 shares of Common Stock to the plaintiffs; the
Company is also obligated to register the Common Stock under the Securities
Exchange Act of 1933 in order to allow the plaintiffs to sell the stock. The
Company expects to file a registration statement covering the Common Stock to be
issued to the plaintiffs in 1996.
The SEC has concluded its investigation into the restatement of the
Company's financial statements for the year ended December 31, 1994 and the
Company has entered into a settlement agreement with the SEC. Pursuant to
the settlement agreement the Company, without admitting or denying any of the
SEC's findings, was ordered to cease and desist from permitting or causing
any violation of certain reporting and accounting requirements contained in
the federal securities laws. The settlement is not expected to effect the
Company's future operating results. The Company believes that the SEC
investigation has encompassed the participation of Raymond Bily in events
leading to the restatement of Company financial statements. The Company
expects that Mr. Bily will make an offer of settlement to the SEC. Mr. Bily's
term as a director of the Company expires in 1997, and the Board of Directors
has determined that he will not be renominated.
TEM 2. CHANGES IN SECURITIES - None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -None
ITEM 5. OTHER INFORMATION. - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBITS:
4.2 Designation of Rights and Preferences of Series A
Convertible Stock
4.3 Form of Subscription Agreement
4.4 Form of Warrant
11
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MIDISOFT CORPORATION
(Registrant)
Date: November 8, 1996
BY: /s/ Melinda A. Bryden
---------------------------------
Melinda A. Bryden, Vice President of
Finance and Chief Financial Officer
12
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EXHIBIT 4.2 DESIGNATION OF RIGHTS AND PREFERENCES OF SERIES A CONVERTIBLE
PREFERRED STOCK
CERTIFICATE OF DESIGNATION
of the
RELATIVE RIGHTS AND PREFERENCES
of the
SERIES A CONVERTIBLE PREFERRED STOCK
of
MIDISOFT CORPORATION
The undersigned, the Secretary of Midisoft Corporation, a Washington corporation
(the "Corporation"), in accordance with the provisions of RCW 23B.10.060, does
hereby certify that, pursuant to the authority conferred upon the Board of
Directors by the Restated Articles of Incorporation of the Corporation, the
following resolution creating the Series A Convertible Preferred Stock was duly
adopted by the Board of Directors on September 16, 1996.
RESOLVED, that pursuant to the authority conferred upon the Board of Directors
of the Corporation by the Restated Articles of Incorporation and the provisions
of RCW 23B.06.020(4), the Board of Directors does hereby provide for the
designation of a series of preferred stock to be named "Series A Convertible
Preferred Stock," initially consisting of one thousand five hundred (1,500)
shares, and to the extent that the designation, powers, preferences and relative
and other special rights and the qualifications, limitations and restrictions of
the Series A Convertible Preferred Stock are not stated and expressed in the
Restated Articles of Incorporation, the Board of Directors does hereby fix and
herein state and express such designation, powers, preferences and relative and
other special rights and the qualifications, limitations and restrictions as
follows:
1. DESIGNATION.
A total of one thousand five hundred (1,500) shares of the Corporation's
Preferred Stock shall be designated the "Series A Convertible Preferred Stock."
2. DIVIDENDS.
a. COMPUTATION OF CUMULATIVE DIVIDENDS. The holders of the
outstanding shares of Series A Convertible Preferred Stock shall be entitled to
receive, out of any funds legally available therefor, cumulative dividends at
the annual rate of 8% per share of Series A Convertible Preferred Stock.
Dividends on the Series A Convertible Preferred Stock shall accrue from day to
day on each share of Series A Convertible Preferred Stock from the date of
original issuance of such share, whether or not earned or declared, and shall
accrue until paid if, as and when declared by the Board of Directors of the
Corporation, or upon liquidation, dissolution or winding up of the Corporation
pursuant to Section 3 hereof, or upon redemption pursuant to Section 6 hereof,
provided however, that such dividend shall be payable in shares of common stock
of the Corporation (the "Common Stock"), at the option of the holder hereof, at
each conversion Series A Convertible Preferred Stock for Common Stock as
provided for herein ("Conversion"). Such dividend consisting of Common Stock at
each Conversion shall be equal to the dollar amount of the unpaid cumulative
dividend divided by the closing price of Common Stock as reported by the Nasdaq
National Market or other stock exchange where the Common Stock is traded on the
day of the Conversion.
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All numbers relating to calculation of cumulative dividends shall be
subject to equitable adjustment in the event of any stock dividend, stock split,
combination, reorganization, recapitalization, reclassification or other similar
event involving a change in the capital structure of the Series A Convertible
Preferred Stock. Such dividends on the Series A Convertible Preferred Stock
shall be cumulative so that if such dividends in respect of any previous or
current annual dividend period, at the annual rate specified above, shall not
have been paid or declared and a sum sufficient for the payment thereof set
apart, the deficiency shall first be fully paid before any dividend or other
distribution shall be paid or declared and set apart for the Common Stock. Upon
the conversion of all shares of the Series A Convertible Preferred Stock, all
such accrued and unpaid cumulative dividends on such shares of Series A
Convertible Preferred Stock to and until the date of such conversion shall be
payable in common stock of the Corporation.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Corporation
designated to be junior to the Series A Convertible Preferred Stock and subject
to the liquidation rights and preferences of any class or series of preferred
stock designated in the future to be senior to, or on a parity with, the Series
A Convertible Preferred Stock with respect to liquidation preferences, the
holders of each share of Series A Convertible Preferred Stock shall be entitled
to be paid first out of the assets of the Corporation available for distribution
to holders of the Corporation's capital stock of all classes whether such assets
are capital, surplus or earnings ("Available Assets"), an amount equal to the
sum of:
a. $1000 per share of Series A Convertible Preferred Stock, plus all
accrued but unpaid dividends thereon, whether or not earned or declared up to
and including the date full payment shall be tendered to the holders of the
Series A Convertible Preferred Stock with respect to such liquidation,
dissolution or winding up.
The amounts set forth above and throughout this Section 3 shall be subject
to equitable adjustment whenever there shall occur a stock dividend, stock
split, combination, reorganization, recapitalization, reclassification or other
similar event involving a change in the capital structure of the Series A
Convertible Preferred Stock.
If, upon liquidation, dissolution or winding up of the Corporation, the
Available Assets shall be insufficient to pay the holders of Series A
Convertible Preferred Stock the full amount to which they otherwise would be
entitled to receive, the holders of Series A Convertible Preferred Stock shall
share ratably in any distribution of Available Assets pro rata in proportion to
the respective liquidation preference amounts to which they would otherwise be
entitled to receive upon liquidation if all liquidation preference dollar
amounts owing to the holders of Series A Convertible Preferred Stock were paid
in full.
After such payment shall have been made in full to the holders of the
Series A Convertible Preferred Stock or funds necessary for such payment shall
have been set aside by the Corporation in trust for the account of holders of
the Series A Convertible Preferred Stock so as to be available for such payment,
the remaining assets available for distribution shall be distributed ratably
among the holders of the Common Stock.
Whenever the distribution provided for in this Section 3 shall be payable
in property other than cash, the value of such distribution shall be the fair
market value of such property as determined in good faith by the Board of
Directors of the Corporation. All distributions (including distributions other
than cash) made hereunder shall be made pro rata with respect to each series of
Series A Convertible Preferred Stock in accordance with the liquidation
preference amounts described in Section 3 above.
In the event of any dispute between the holders of the Series A Convertible
Preferred Stock and the Corporation regarding the determination of the fair
market value of non-cash distributions, on the request of the holders of at
least a majority of the then outstanding shares of Series A Convertible
Preferred Stock (voting as a separate class), the Corporation shall engage a
consulting or investment banking firm selected by the Board of
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Directors and approved by the holders of at least a majority of the then
outstanding shares of Series A Convertible Preferred Stock (voting as a separate
class) to prepare an independent appraisal of the fair market value of such
property to be distributed. The expenses of any appraisal by such consulting or
investment banking firm shall be borne by the Corporation.
4. VOTING POWER.
Except as otherwise expressly provided in this Section 4, or as otherwise
required by law, the Series A Preferred Stock shall be non-voting capital stock
of the Corporation. Except as otherwise expressly provided in this Section 4 or
Section 8 hereof or as otherwise required by law, the holders of shares of
Series A Preferred Stock shall vote together (or render written consents in lieu
of a vote) as a single class on all matters submitted to the holders of Series A
Preferred Stock of the Corporation.
5. CONVERSION RIGHTS. The holders of the Series A Convertible Preferred Stock
shall have the following rights with respect to the conversion of such shares
into shares of Common Stock:
a. GENERAL. Subject to and in compliance with the provisions of this
Section 5, each share of Series A Convertible Preferred Stock held by any person
or entity may, at the option of such person or entity, be converted in amounts
as provided in Section 5(c) hereof at any time and from time to time into shares
of Common Stock. The per share of Series A Convertible Preferred Stock number of
shares of Common Stock to which such holder shall be entitled to receive upon
Conversion shall be the quotient obtained by dividing $1,000 by the Conversion
Rate (determined as provided in Section 5(b)).
b. CONVERSION RATE. The conversion rate in effect at any time for
the Series A Convertible Preferred Stock (the "Conversion Rate") shall be equal
to the lesser of (a) eighty five percent (85%) of the closing bid price of the
Common Stock as report by the Nasdaq National Market or such other exchange that
the Common Stock is then traded on the day of Conversion, or (b) one hundred
percent (100%) of the closing bid price of the Common Stock as reported by the
Nasdaq National Market on the Closing Date. The Closing Date is the date the
Series A Convertible Preferred Stock is issued, on or about September 20, 1996.
c. CONVERSION AMOUNT. Each holder of Series A Convertible Preferred
Stock shall be entitled to convert, in compliance with this Section 5, the
following amounts of their Series A Convertible Preferred Stock: (i) one-third
(1/3) of the shares of Series A Convertible Preferred Stock purchased by such
holder on or after the date 60 days following the Closing Date, (ii) one-third
(1/3) of the shares of Series A Convertible Preferred Stock purchased by such
holder on or after the date 90 days following the Closing Date, and (iii)
one-third (1/3) of the shares of Series A Convertible Preferred Stock purchased
by such holder on or after the date 120 days following the Closing Date.
d. WARRANT GRANTED UPON CONVERSION. At the time of Conversion, the
Corporation will issue one warrant (a "Warrant") with each share of Common Stock
issued pursuant to a Conversion. Such Warrant will entitle the holder thereof
for a period of two years from the date of issuance to purchase one share of
Common Stock at a price equal to two hundred percent (200%) of the closing bid
price of the Common Stock as reported by the Nasdaq National Market on the
Closing Date.
e. AUTOMATIC CONVERSION.
(1) Immediately on date 24 months from the Closing Date, all
outstanding shares of Series A Convertible Preferred Stock shall be converted
automatically into the number of shares of Common Stock into which such shares
of Series A Convertible Preferred Stock are then convertible pursuant to Section
5 hereof, without any further action by the holders of such shares and whether
or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent.
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(2) SURRENDER OF CERTIFICATES UPON AUTOMATIC CONVERSION. Upon
the occurrence of the conversion event specified in the immediately preceding
subparagraph, the holders of the Series A Convertible Preferred Stock shall,
upon notice from the Corporation, surrender the certificates representing such
shares at the office of the Corporation or of its transfer agent for the Common
Stock. Thereupon, there shall be issued and delivered to such holder a
certificate or certificates for the number of shares of Common Stock into which
the shares of Series A Convertible Preferred Stock so surrendered were
convertible on the date on which such conversion occurred. The Corporation shall
not be obligated to issue such certificates unless certificates evidencing the
shares of Series A Convertible Preferred Stock being converted are either
delivered to the Corporation or any such transfer agent, or the holder notifies
the Corporation that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection therewith.
f. CAPITAL REORGANIZATION OR RECLASSIFICATION. If the Common Stock
issuable upon the conversion of the Series A Convertible Preferred Stock shall
be changed into the same or different number of shares of any class or classes
of capital stock, whether by capital reorganization, recapitalization,
reclassification or otherwise [other than a subdivision or combination of shares
or stock dividend provided for elsewhere in this Section 5, or the sale of all
or substantially all of the Corporation's capital stock or assets to any other
person), then and in each such event the holders of the Series A Convertible
Preferred Stock shall have the right thereafter to convert such shares into the
kind and amount of shares of capital stock and other securities and property
receivable upon such reorganization, recapitalization, reclassification or other
change by the holders of the number of shares of Common Stock into which such
shares of Series A Convertible Preferred Stock might have been converted
immediately prior to such reorganization, recapitalization, reclassification or
change, all subject to further adjustment as provided herein.
g. CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares of Common
Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series A Convertible Preferred Stock. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of Series A Convertible Preferred Stock, the Corporation shall pay to
the holder of the shares of Series A Convertible Preferred Stock which were
converted a cash adjustment in respect of such fractional shares in an amount
equal to the same fraction of the fair market value per share of the Common
Stock (as determined in a reasonable manner prescribed by the Board of
Directors} at the close of business on the Conversion Date. The determination as
to whether or not any fractional shares are issuable shall be based upon the
aggregate number of shares of Series A Convertible Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series A
Convertible Preferred Stock being converted.
h. RESERVATION OF COMMON STOCK. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series A Convertible Preferred Stock, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Convertible Preferred Stock (including any
shares of Series A Convertible Preferred Stock represented by any warrants,
options, subscription or purchase rights for Series A Convertible Preferred
Stock), and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Convertible Preferred Stock (including any
shares of Series A Convertible Preferred Stock represented by any warrants,
options, subscriptions or purchase rights for such Series A Convertible
Preferred Stock), the Corporation shall take such action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
i. NO REISSUANCE OF SERIES A CONVERTIBLE PREFERRED STOCK. No share
or shares of Series A Convertible Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued, and
all such shares shall be cancelled, retired and eliminated from the shares which
the Corporation shall be authorized to issue. Upon any of the foregoing events,
the Corporation shall from time to time take such appropriate corporate action
as may be necessary to reduce the authorized number of shares of the Series A
Convertible Preferred Stock.
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6. RESTRICTIONS AND LIMITATIONS.
The Corporation shall not take any corporate action or otherwise amend its
Articles of Incorporation or Bylaws without the approval by vote or written
consent of the holders of at least a majority of the then outstanding shares of
Series A Convertible Preferred Stock (voting as a separate class), each share of
Series A Convertible Preferred Stock to be entitled to one vote in each
instance, if such corporate action or amendment would change any of the rights,
preferences, privileges of or limitations provided for herein for the benefit of
any shares of Series A Convertible Preferred Stock or materially adversely
affect the rights of the holders of the Series A Convertible Preferred Stock.
Without limiting the generality of the preceding sentence, the Corporation will
not amend its Articles of Incorporation or take any other corporate action
without the approval of the holders of at least a majority of the then
outstanding shares of Series A Convertible Preferred Stock, voting separately as
a single class, if such amendment or corporate action would:
a. cause or authorize the Corporation to redeem, purchase or
otherwise acquire for value (or pay into or set aside for a sinking fund for
such purpose), any share or shares of equity securities of the Corporation other
than as provided for in or permitted by Section 2 or Section 6 hereof; or
b. authorize, create or issue, or obligate the Corporation to
authorize, create or issue, additional shares of any security senior to or on a
parity with the Series A Convertible Preferred Stock; or
c. reduce the amount payable to the holders of Series A Convertible
Preferred Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; or
d. adversely affect the liquidation preferences, dividend rights,
voting rights or redemption rights of the holders of Series A Convertible
Preferred Stock; or
e. cancel or modify the conversion rights of the holders of Series A
Convertible Preferred Stock provided for in Section 5 herein; or
f. provide for the voluntary liquidation, dissolution,
recapitalization or winding up of the Corporation; or
g. cause or authorize, or obligate itself to cause or authorize, any
Reorganization.
7. NO DILUTION OR IMPAIRMENT. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of capital
stock or assets. consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of the Series A Convertible Preferred Stock set
forth herein, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Series A
Convertible Preferred Stock. Without limiting the generality of the foregoing,
the Corporation (a) will not increase the par value of any shares of stock
receivable on the conversion of the Series A Convertible Preferred Stock above
the amount payable therefor on such conversion, and (b) will take all such
action as may be necessary or appropriate in order that the Corporation may
validly and legally issue fully paid and nonassessable shares of stock on the
conversion of all Series A Convertible Preferred Stock from time to time
outstanding.
8. NOTICES OF RECORD DATE. In the event of
a. any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right, or
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b. any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other corporation, or
any other entity or person, or
c. any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation,
then and in each such event the Corporation shall mail or deliver or cause to be
mailed or delivered to each holder of Series A Convertible Preferred Stock a
notice specifying (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right and a description of such
dividend, distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, Iiquidation or winding up is expected to become effective, and
(iii) the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities} for securities or other property deliverable
upon such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up. Such notice shall
be mailed by first class mail, postage prepaid, or delivered at least 20 days
prior to the date specified in such notice on which such action is to be taken.
IN WITNESS HEREOF, the undersigned has executed and subscribed this
Certificate and does affirm the foregoing as true and correct this 18th day of
September, 1996.
MIDISOFT CORPORATION
/s/ Melinda Bryden
--------------------
Melinda Bryden
Secretary
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EXHIBIT 4.3 FORM OF SUBSCRIPTION AGREEMENT
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
FOR CONVERTIBLE PREFERRED SHARES
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER OR ANY STATE SECURITIES LAWS, AND
MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS DEFINED IN REGULATION S
OF THE 1933 ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS
DEFINED IN REGULATION S OF THE 1933 ACT) EXCEPT PURSUANT TO REGISTRATION UNDER
OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT OR ANY STATE
SECURITIES LAWS.
THIS OFFERING IS BEING MADE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE 1933 ACT FOR AN OFFER AND SALE OF SECURITIES THAT DO NOT INVOLVE A
PUBLIC OFFERING. THE SECURITIES OFFERED HEREBY MAY NOT BE TRANSFERRED, SOLD OR
OTHERWISE DISPOSED OF, EXCEPT AS PERMITTED UNDER THE 1933 ACT AND APPLICABLE
STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THERE IS
CURRENTLY NO PUBLIC OR OTHER MARKET FOR THE SECURITIES OFFERED HEREBY AND THERE
CAN BE NO ASSURANCE THAT A PUBLIC OR OTHER MARKET WILL DEVELOP. EACH
PROSPECTIVE INVESTOR SHOULD PROCEED ONLY ON THE ASSUMPTION THAT SUCH PROSPECTIVE
INVESTOR MAY HAVE TO BEAR THE ECONOMIC RISK OF ANY INVESTMENT IN THE SECURITIES
OFFERED HEREBY FOR AN INDEFINITE PERIOD OF TIME.
NO GENERAL SOLICITATION WILL BE CONDUCTED AND NO OFFERING LITERATURE OR
ADVERTISING IN ANY FORM WILL OR MAY BE EMPLOYED IN THE OFFERING OF THE UNITS.
EXCEPT FOR THE DOCUMENTS SUMMARIZED HEREIN OR ENCLOSED HEREWITH. NO PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED
IN THE DOCUMENTS SUMMARIZED HEREIN OR ENCLOSED HEREWITH AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON.
THE PURCHASE OF THESE SECURITIES ENTAILS A HIGH DEGREE OF RISK. NO
INVESTMENT IN THE SHARES SHOULD BE MADE BY ANY PERSON WHO IS NOT IN A POSITION
TO LOSE THE ENTIRE AMOUNT OF SUCH INVESTMENT. THIS IS NOT AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES DESCRIBED HEREIN IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SALE.
This Offshore Securities Subscription Agreement ("Agreement") is executed in
reliance upon the transaction exemption afforded by Regulation S ("Regulation
S") as promulgated by
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the Securities and Exchange Commission ("SEC") under the Securities Act of 1933,
as amended ("1933 ACT").
This Agreement has been executed by the undersigned in connection with the
offshore offering of an amount not exceeding $1,100,000 of the Series A
Convertible Preferred Stock (the "Shares") of
MIDISOFT CORPORATION
1605 NW Sammamish Road
Suite 205
Issaquah, WA 98027
National Association of Securities Dealers Automated Quotation System Symbol
(MIDI), a corporation organized under the laws of Washington, United States of
America (the "ISSUER" or "Company").
The Undersigned Purchaser:
NAME:
----------------------------------
ADDRESS:
--------------------------------
--------------------------------
--------------------------------
, a non "U.S. person" as that term Is defined In Regulation S of the 1933 Act
(the "PURCHASER") hereby represents and warrants to, and agrees with, ISSUER as
follows:
1. THE OFFERING.
a. The undersigned hereby subscribes for ____________ Series A Convertible
Preferred Shares (the "Shares") of the Issuer, at the aggregate subscription
price of U.S.$1,000 per share, payable in United States Dollars, for a total
consideration of $___________ Dollars (the "Subscription Proceeds"). The Shares
shall pay an 8% cumulative dividend payable in common stock at the time of each
conversion. The Shares are subject to a mandatory, 24 month conversion feature
at the end of which all Shares outstanding will be automatically converted based
upon the conversion formula set forth in this Section 1.a.
The PURCHASER is entitled, at its option to convert one-third of the Shares
into shares of Common Stock, $0.001 par value per share, of the Issuer (the
"Common Stock"), 60 days after the Closing Date (as defined in Paragraph 8),
one-third of the Shares 90 days after the Closing Date and one-third of the
Shares 120 days after the Closing Date. The conversion price for each share of
Common Stock shall equal the lesser of (a) eighty-five percent (85%) of the
closing bid price on the day of conversion, or (b) 100% of the closing bid price
for the Common Stock on the "Closing Date" as defined in paragraph 8 (the
"Conversion Rate"). PURCHASER shall exercise the conversion option pursuant to
the Notice of Conversion attached hereto as Exhibit "A".
At the time of conversion the company will issue one warrant (the "Warrant")
with each share of Common stock that is issued. The Warrant holders will have
the right FOR TWO YEARS
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to purchase one share of common stock at 200% OF THE CLOSING BID PRICE ON THE
DAY OF CLOSING of this transaction.
b. Form of Payment. PURCHASER shall pay the total Subscription Proceeds
hereunder by delivering good funds by wire transfer in United States Dollars on
or before October 4, 1996 into the escrow account as follows:
Bank
------------------------------------------------------------
ABA NO.
-----------------------------------------------------
FOR THE ACCOUNT OF:
------------------------------------------------------------
ACCOUNT NO.
---------------------------------------------------
IN FAVOR OF ____________________________________ ATTORNEY TRUST ACCOUNT
ACCOUNT NO.
----------------
2. SUBSCRIBER REPRESENTATIONS; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
a. OFFSHORE TRANSACTION. PURCHASER represents and warrants to ISSUER as
follows:
i) Neither the PURCHASER nor any person or entity for whom the
PURCHASER is acting as fiduciary is a U.S. person. A U.S. person means any
one of the following:
(1) any natural person resident in the United States of America;
(2) any partnership or corporation organized or incorporated
under the laws of the United States;
(3) any estate of which any executor or administrator is a U.S.
person;
(4) any trust of which any trustee is a U.S. person;
(5) any agency or branch of a foreign entity located in the
United States;
(6) any non-discretionary account or similar account (other than
an estate or trust) held by a dealer or other fiduciary for the benefit
or account of a U.S. person;
(7) any discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary organized,
incorporated, or (if an individual) resident in the United States; and
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(8) any partnership or corporation if:
(A) organized or incorporated under the laws of any foreign
jurisdiction; and
(B) formed by a U.S. person, principally for the purpose of
investing in securities not registered under the Securities Act,
unless it is organized or incorporated, and owned, by accredited
investors (as defined in Rule 501(a) under the Securities Act)
who are not natural persons, estates or trusts.
ii) At the time the buy order was originated, PURCHASER was outside
the United States and is outside the United States as of the date of the
execution and delivery of this Agreement. No offer to purchase the Shares
was made to a person In the United States.
iii) PURCHASER is purchasing the Shares for its own account or for the
account of beneficiaries for whom the PURCHASER has full investment
discretion with respect to the Shares and whom the PURCHASER has full
authority to bind so that each such beneficiary Is bound hereby as if such
beneficiary were a direct purchaser hereunder and all representations,
warranties and agreements herein were made directly by such beneficiary.
Purchaser is not purchasing the Shares on behalf of any U.S. person and the
sale has not been prearranged with a purchaser In the United States.
iv) Each distributor participating in the offering of the Shares, if
any, has agreed In writing, a copy of which has been delivered to ISSUER
with this Agreement, that all offers and sales of the Shares prior to the
expiration of a period commencing on the date of the Closing of the last
purchase and sale of the Shares offered by the ISSUER and ending 40 days
thereafter or such other time period as required by Regulation S as it is
then in effect (the "Restricted Period") shall only be made (a) In
compliance with the safe harbor contained in Regulation S; (b) pursuant to
registration of Shares under the Securities Act; or (c) pursuant to an
exemption from registration.
v) PURCHASER represents and warrants and hereby agrees that all
offers and sales of the Shares, the Common Stock or the Warrants shall only
be made (a) in compliance with the safe harbor contained in Regulation S;
(b) pursuant to registration of Shares under the 1933 Act; or (c) pursuant
to an exemption from registration.
vi) PURCHASER understands and acknowledges that the Shares, the
Common Stock or the Warrants have not been registered under the 1933 Act and
any State securities laws and may not be offered or sold In the United
States or to U.S. persons or for the account or benefit of a U.S. person
(other than distributors as defined in Regulation S) unless the Shares, the
Common Stock or the Warrants are registered under the 1933 Act, the Common
Stock or the Warrants or an exemption from the registration requirements is
available.
vii) PURCHASER acknowledges that the purchase of the Shares involves a
high degree of risk and further acknowledges that it can bear the economic
risk of the
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purchase of the Shares, including the total loss of its investment.
PURCHASER acknowledges that it has obtained the advice of competent legal
counsel in its domicile jurisdiction that Purchaser is qualified under the
laws of its domicile to purchase the securities offered hereunder and that
the offer and sale of said securities will not violate the laws of its
domicile jurisdiction.
viii) PURCHASER understands that the Shares are being offered and sold
to it and that the Common Stock and Warrants will be issued to it in
reliance on the rules promulgated under Regulation S and that the ISSUER Is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of PURCHASER set forth herein
in order to determine the applicability of such rules and the suitability of
PURCHASER to acquire the Shares, the Common Stock and the Warrants.
ix) PURCHASER is sufficiently experienced in financial and business
matters to be capable of evaluating the merits and risks of its investments,
and to make an informed decision relating thereto.
x) In evaluating its investment, PURCHASER has consulted with its
own investment and/or legal and/or tax advisors who are unaffiliated with
and not compensated by the Issuer and who have such knowledge and experience
in financial, tax and business matters so as to enable the PURCHASER to
utilize the information made available to the PURCHASER in connection with
this agreement to evaluate the risks and merits of an investment in the
shares and to make an informed decision with respect thereof.
xi) PURCHASER understands that in the view of the SEC the statutory
basis for the exemption claimed for this transaction would not be present if
the offering of Shares, although in technical compliance with Regulation S,
is part of a plan or scheme to evade the registration provision of the
Securities Act. PURCHASER is acquiring the Shares and will be acquiring for
investment purposes and has no present intention to sell the Shares, the
Warrants or the Common Stock in the United States, to a U.S. person or for
the account or benefit of a U.S. person. PURCHASER hereby confirms that the
purpose of including the PURCHASER Representation Letter (see Exhibit B
attached hereto) to facilitate the transfer of the certificates representing
the Shares into street name, is to enable PURCHASER to comply with the
requirements of certain offshore portfolio management regulations and the
security requirements of offshore lenders for margin loans.
xii) PURCHASER is neither an underwriter of, nor a dealer in, the
Shares. PURCHASER is not participating, pursuant to a contractual
agreement, in the distribution of the Shares.
xiii) PURCHASER represents and warrants that neither it nor any of its
affiliates will directly or indirectly maintain any short position in
Shares, Common Stock or any other securities of the ISSUER during the
Restricted Period.
xiv) If PURCHASER is a natural person, PURCHASER has reached the age
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<PAGE>
of twenty-one.
If PURCHASER is purchasing the Shares subscribed for hereby in
representative or fiduciary capacity, the representations and warranties
in this Offshore Securities Subscription Agreement shall be deemed to
have been made on behalf of the person or persons for whom PURCHASER is
so purchasing.
The foregoing representations and warranties are true and accurate as of
the date hereof, shall be true and accurate as of the date of the
acceptance by the ISSUER of PURCHASER's subscription, and shall survive
thereafter. If PURCHASER has knowledge, prior to the acceptance of its
Offshore Securities Subscription Agreement by the ISSUER, that any such
representations and warranties shall not be true and accurate in any
respect, the PURCHASER, prior to such acceptance, will give written
notice of such fact to the ISSUER specifying which representations and
warranties are not true and accurate and the reasons therefor.
b. CURRENT PUBLIC INFORMATION. PURCHASER acknowledges that PURCHASER has
acquired and carefully reviewed the ISSUER'S annual report on Form 10-K for its
fiscal year ended December 31, 1995, and its quarterly report on Form 10-Q filed
for the quarter ended June 30, 1996, proxy statements and Form 8-Ks (together,
the "SEC Reports"). Except as set forth in this Agreement and the SEC Reports,
no representations or warranties have been made to PURCHASER by the ISSUER or
any agent, employee or affiliate of the ISSUER, and in entering into this
transaction PURCHASER is not relying upon any information, other than that
provided pursuant to this Agreement and the SEC Reports and the results of
independent investigation by PURCHASER.
c. INDEPENDENT INVESTIGATION; ACCESS. PURCHASER acknowledges that
PURCHASER, in making the decision to purchase the Shares subscribed for, has
relied upon independent investigations made by it and its PURCHASER
representative, if any, and PURCHASER and such representative, if any, have,
prior to any sale to PURCHASER, had an opportunity to ask questions of, and to
receive answers from ISSUER or any person acting on its behalf concerning the
terms and conditions of this offering. PURCHASER and its advisor's, if any,
have been furnished with access to all publicly available materials relating to
the business, finances and operations of the ISSUER and materials relating to
the offer and sale of the Shares which have been requested. PURCHASER and its
advisors, if any, have received complete and satisfactory answers to any such
inquiries.
d. NO GOVERNMENT RECOMMENDATIONS OR APPROVAL. PURCHASER understands that
no federal or state agency has made or will make any finding or determination
relating to the fairness for public investment in the Shares, or has passed or
made, or will pass on or make, any recommendation or endorsement of the Shares.
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<PAGE>
e. ENTITY PURCHASES. If PURCHASER is a partnership, corporation or trust,
the person executing this Agreement on its behalf represents and warrants that:
i) He or she has made due inquiry to determine the truthfulness of
the representations and warranties made pursuant to this Agreement with
respect to each partner, shareholder, trustee, or beneficiary as the case
may be;
ii) He or she is duly authorized (if the undersigned is a trust, by
the trust agreement) to make this investment and to enter into and execute
this Agreement on behalf of such entity, partner, shareholder, trustee or
beneficiary as the case may be.
3. ISSUER REPRESENTATIONS.
ISSUER represents and warrants to the PURCHASER as follows:
a. ORGANIZATION AND AUTHORIZATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Washington and has all requisite corporate power and authority to own and
operate its properties and assets and to carry on its business as currently
conducted. The Company is not in default or violation of any material term or
provision of its Articles of Incorporation, as amended, or By-laws nor will the
consummation of the transactions contemplated by this Agreement cause any such
default or violation. The Company has all requisite corporate power and
authority to enter into this Agreement, to sell the Securities hereunder and to
carry out and perform its obligations under the terms of this Agreement. This
Agreement is a valid and binding obligation of the Company, enforceable in
accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
effecting the rights of creditors generally and available equitable remedies.
b. SEC FILINGS. None of the Company's filings with the Securities and
Exchange Commission since January 1, 1996, when such filings were made,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made, not
misleading.
c. FULL DISCLOSURE. There is no fact known to the Company (other than
general economic conditions known to the public generally) that has not been
disclosed to the Subscriber that (i) could reasonably be expected to have a
material adverse effect on the condition (financial or otherwise) or on the
earnings, business affairs, business prospects, properties or assets of the
Company, or (ii) could reasonably be expected to materially and adversely affect
the ability of the Company to perform its obligations pursuant to this
Agreement.
d. OPINION(S) OF COUNSEL. Subscriber shall, upon purchase of the Stock,
receive an opinion letter or opinion letters from counsel to the Company, and
the Company represents that it will immediately obtain such opinions from
counsel to the satisfaction of the transfer agent, to the effect that, except as
otherwise and qualified in the opinion:
7
<PAGE>
i) The Company has been incorporated and is existing in the
jurisdiction of its incorporation.
ii) Except as otherwise disclosed in such opinion, to such counsel's
knowledge, there is no action, proceeding or investigation pending
against the Company which might result, either individually or in the
aggregate, in any material adverse change in the business or operations
of the Company.
iii) Except as otherwise disclosed in such opinion, to such counsel's
knowledge, the Company is not a party to or subject to the provisions of
any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality.
iv) All issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable.
v) The Agreement, the issuance of the Stock and the issuance of
Common Stock, upon conversion of the Stock, have been duly approved by
all required corporate action and that all such securities, upon
delivery in accordance with this Agreement, shall be validly issued and
outstanding, fully paid and nonassessable.
The Company shall have furnished to such counsel such documents and shall
have exhibited to them such papers and records as they may reasonably request
for the purpose of enabling them to pass upon such matters. In connection with
such opinions, such counsel may rely on representations or certificates of
officers of the Company and governmental officials.
e. REPORTING COMPANY STATUS. ISSUER is a reporting issuer as defined by
Rule 902 of Regulation S. ISSUER has filed the information required by the
reporting obligations under Sections 13 or 15(d) of the Securities Exchange Act
of 1934, as amended.
f. OFFSHORE TRANSACTION. ISSUER has not offered Shares to any person in
the United States or to any U.S. person or for the account or benefit of any
U.S. person. At the time the buy order was originated, ISSUER and/or its agent
reasonably believed that PURCHASER was outside of the United States and was not
a U.S. Person. ISSUER and/or its agent reasonably believe that the transaction
has not been prearranged with a Purchaser in the United States.
g. NO DIRECTED SELLING EFFORTS. In regard to this transaction, ISSUER, has
not conducted any "directed selling efforts" as that term is defined in Rule 902
of Regulation S nor has ISSUER conducted any general solicitation relating to
the offer and sale of Shares to U.S. persons residing within the United States
or elsewhere.
h. SHARES. The Shares and shares of Common Stock Issuable upon conversion
of the Shares, when issued and delivered will be duly and validly authorized and
issued, fully paid and non-assessable and will not subject the holders thereof
to any liability by reason of being such holders. If at the time of conversion
all representations and warranties are true and
8
<PAGE>
correct, including those contained in the Purchaser Representation Letter, then
in such event the stock certificates representing Common Stock issued upon
conversion of the Shares shall be unlegended and there shall be no stop transfer
instructions issued in relation to such common stock.
i. SUBSCRIPTION AGREEMENT. This Agreement, when acknowledged by the
signature of an officer of the ISSUER, has been duly authorized, validly
executed and delivered on behalf of the ISSUER and is a valid and binding
agreement of the ISSUER in accordance with its terms.
j. NON-CONTRAVENTION. The execution and delivery of this Agreement, the
consummation of the issuance of the Shares and the transactions contemplated
hereunder do not and will not conflict with or result in a breach by the ISSUER
of any of the terms or provisions of, or constitute a default under, the
certificate of incorporation or by-laws of the ISSUER (or any equivalent
documents thereto) or any indenture, mortgage, deed of trust, or other material
agreement or instrument to which the ISSUER is a party or by which it or any of
its properties or assets are bound, or any existing applicable law, rule, or
regulation or any applicable decrees, judgment, or order of any court, federal
or state regulatory body, administrative agency or other governmental body
having jurisdictions over the ISSUER or any of its properties or assets.
k. PRIOR SHARES ISSUED UNDER REGULATION S. ISSUER has not issued any
shares of stock under Regulation S subsequent to its most recent SEC Report.
l. SECURITIES LAW COMPLIANCE. Based upon the representations and
warranties of the PURCHASER in Section 2 and of all other PURCHASERS executing
similar agreements in connection with this offering, with respect to the
Company's actions, (i) the offer and the sale of Shares has been made so as to
conform in all respects with the requirements of Regulation S and with the
requirements of all other published rules and regulations of the SEC currently
in effect relating to "private offerings" to non-residents of the United States
of the type contemplated herein; and (ii) Neither the offer, sale or delivery of
the Shares under the terms of this Agreement will violate Section 5 of the
Securities Act, as presently in effect.
m. FILINGS. ISSUER undertakes and agrees pursuant to the sale of its
securities under Regulation S to make all necessary filings in connection with
the sale of its securities as required by the laws and regulations of the United
States.
n. USE OF PROCEEDS. ISSUER represents that the proceeds of this offering
shall be used for advertising and promotion of its products.
o. COMPANY LISTING. ISSUER shall use its best efforts to maintain its
listing on the Nasdaq Stock Market.
p. CONCERNING THE SECURITIES. The issuance, sale and delivery of the
Shares have been duly authorized by all required corporate action on the part of
ISSUER, and when issued, sold and delivered in accordance with the terms hereof
and thereof for the consideration expressed herein and therein, will be duly and
validly issued, fully paid and non-assessable. A sufficient
9
<PAGE>
number of shares of Common Stork issuable upon conversion of the Shares have
been duly and validly reserved for issuance and upon issuance in accordance with
the terms of the Shares, shall be duly and validly issued, fully paid, and
nonassessable and will not subject the holders thereof, if such persons are non-
U.S. persons, to personal liability by reason of being such holders. There are
no pre-emptive rights of any shareholder of ISSUER.
q. INTELLECTUAL PROPERTY. The Company has valid and unrestricted and know-
how, technology and other intellectual property necessary to the conduct of its
business. The Company also has trade secrets necessary to the conduct of its
business which are necessarily secret and cannot be disclosed to Purchasers.
The Company has granted licenses or has assigned or otherwise transferred a
portion of (or all of) such valid, unrestricted and exclusive patents,
trademarks, trademark registrations, trade names, copyrights, know-how,
technology and other intellectual property necessary to the conduct of its
business. The Company has granted licenses or has been assigned or has
otherwise had transferred to it from other persons or entities the use of
patents, trademarks, trademarks registrations, trade names, copyrights,
know-how, technology and/or other intellectual property necessary to the conduct
of its business.
To the best of the Company's knowledge, the Company is not infringing on the
intellectual property rights of any third party, nor is any third party
infringing on the Company's intellectual property rights. There are no
restrictions in any agreements, licenses, franchises, or other instruments that
are necessary for the conduct of the Company's business as presently conducted
or as planned to be conducted in the future.
4. RESTRICTED PERIOD; CONVERSION.
Rule 903 (c) under Regulation S restricts PURCHASER from offering and
selling the Shares or the shares of Common Stock into which the Shares may be
converted to U.S. persons or for the account or benefit of a U.S. person during
the Restricted Period.
5. RELIANCE ON REPRESENTATIONS.
PURCHASER understands that the offer and sale of the Shares is not being
registered under the Securities Act. ISSUER is relying on the rules governing
offers and sales made outside the United States pursuant to Regulation S. Rules
901 through 903 of Regulation S govern this transaction.
6. TRANSFER AGENT INSTRUCTIONS.
a. LEGENDS ON CERTIFICATE. PURCHASER may transfer the Shares to persons
other than U.S. persons in accordance with Regulation S prior to the expiration
of the Restricted Period. Accordingly, PURCHASER acknowledges that the Company
will instruct its transfer agent to place a stop transfer order with respect to
certificates representing the Shares and that such certificates will bear the
following legend:
"The shares represented by this certificate have been acquired for
investment purposes only, issued pursuant to Regulation S promulgated
under the Securities
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<PAGE>
Act of 1933, as amended ("Act"), and have not been registered under the
Act. These shares may not be offered or sold within the United States
or to or for the account of a "U.S. Person" (as that term is defined in
Regulation S) until after __________________, 1996, [the 40th day
following completion of the offering]. The terms of conversion are
subject to a Subscription Agreement that was entered into with Midisoft
Corporation."
b. PURCHASER REPRESENTATION LETTER. ISSUER agrees to accept a PURCHASER's
Representation Letter from the PURCHASER in the form of Exhibit "B" attached, as
evidence that the PURCHASER has complied with applicable securities laws and
upon receipt of such a letter shall promptly transfer, or instruct the transfer
agent, for the Convertible Preferred Shares, if any, to transfer the Shares into
"Street Name", if so requested by PURCHASER, as expeditiously as practical after
receipt of the certificates and the PURCHASER Representation Letter.
c. TRANSFER AGENT INSTRUCTIONS. ISSUER shall issue, or instruct the
transfer agent for the Convertible Preferred Shares, if any, to issue one or
more share certificates representing Shares, in the names of qualified
purchasers to be specified prior to Closing. All of the Shares so issued will
be issued pursuant to Regulation S. ISSUER warrants further that the Shares
shall be freely transferable on the books and records of ISSUER subject to
compliance with Regulation S and other applicable securities laws and the terms
of this Agreement.
7. CONVERSION PROCEDURES.
(a) The PURCHASER is entitled, at its option to convert one-third of the
Shares into shares of Common Stock, $0.001 par value per share, of the Issuer
(the "Common Stock") 60 days after the Closing Date (as defined in paragraph 8),
one-third of the Shares 90 days after the Closing Date and one-third of the
Shares 120 days after the Closing Date. The conversion price for each share of
Common Stock shall be equal to the lesser of (a) eighty-five percent (85%) of
the closing bid price on the day of conversion, or (b) 100% of the closing bid
price for the Common Stock on the Closing Date as defined in paragraph 8. Such
conversion shall be effectuated by sending to the Company, the Share or Shares
to be converted, a facsimile or original of the signed Notice of Conversion and
a facsimile or original of the signed Purchaser Representation Letter, see
Exhibits A and B attached hereto, which evidences Purchaser's intention to
convert the Shares or a specified portion thereof, and accompanied by proper
assignment, if applicable. The Conversion Price shall be set on the day the
Notice of Conversion and the signed Purchaser Representation Letter is sent by
Purchaser. No fractional shares or scrip representing fractions of shares will
be issued on conversion, but the number of shares issuable shall be rounded down
or up, as the case may be, to the nearest whole share. The date on which notice
of conversion Is effective ("Conversion Date") shall be deemed to be the date on
which the Purchaser has delivered to the Company the original Shares, a
facsimile or original of the signed Notice of Conversion and a facsimile or
original of the signed Purchaser Representation Letter. If after 10 business
days the Company has failed to honor a Conversion Notice for any reason, then in
such event, Purchaser shall have the right to demand and receive from the
Company the full amount of Subscription Proceeds paid by PURCHASER plus interest
based on the 8% cumulative dividend.
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<PAGE>
(b) If at the time of conversion all representations and warranties are true
and correct including those contained in the Purchaser Representation Letter,
then in such event, within seven (7) business days after receipt of the
documentation referred to above in this Section 7(a), the Company shall deliver
a certificate, without restrictive legend or stop transfer instructions, for the
number of Common Stock issuable upon the conversion, it shall be the Company's
responsibility to take all necessary actions and to bear all such costs to issue
the Common Stock as provided herein, including the delivery of an opinion letter
to the transfer agent, if so required. The person in whose name the certificate
of Common Stock is to be registered shall be treated as a shareholder of record
on and after the conversion date. No payment or adjustment shall be made for
accrued and unpaid interest until the earlier of the Conversion Date or the
mandatory conversion date. Upon surrender of any Shares that are to be
converted in part, the Company shall issue to the Purchaser new Shares equal to
the number of unconverted Shares, if so requested by Purchaser. In the event
the Company does not make delivery of the Common Stock, as instructed by
Purchaser, within 4 business days after the Conversion Date, then in such event
the Company shall pay to Purchaser an amount, in cash in accordance with the
following schedule, wherein "No. Business Days Late" is defined as the number
of business days beyond the 4 business days delivery period.
Late Payment for Each
$10,000 of Preferred Principal
No. Business Days Late Amount Being Converted
- ---------------------- ------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Days Late Beyond
10 Days
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 7(b) is due to the unavailability of authorized but
unissued shares of Common Stock, the provisions of this Section 7(b) shall not
apply but instead the provisions of Section 7(c) shall apply.
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<PAGE>
The Company shall pay any payments incurred under this Section 7(b) in
immediately available funds within three (3) business days from the date of
issuance of the applicable Common Stock. Nothing herein shall limit a
Purchaser's right to pursue actual damages for the Company's failure to issue
and deliver Common Stock to the Holder within 4 business days after the
Conversion Date.
The Company recognizes the right of Purchaser to assign any portion of
the Shares to another non-U.S. Person during the 40 day restricted period and to
assign any portion of the Shares to another non-U.S. Person or U.S. person or
entity after the 40 day restricted period.
(c) If, at any time Purchaser submits a Notice of Conversion and the Company
does not have sufficient authorized but unissued shares of Common Stock
available to effect, in full, a conversion of the Shares (a "Conversion
Default", the date of such default being referred to herein as the "Conversion
Default Date"), the Company shall issue to the Purchaser all of the shares of
Common Stock which are available, and the Notice of Conversion as to any Shares
requested to be converted but not converted (the "Unconverted Shares") shall
become null and void. The Company shall provide notice of such Conversion
Default ("Notice of Conversion Default") to all existing Purchasers of
outstanding Shares, by facsimile, within one (1) business day of such default
(with the original delivered by overnight or two day courier). No Holder may
submit a Notice of Conversion after receipt of a Notice of Conversion Default
until the date additional shares of Common Stock are authorized by the Company.
The Company agrees to pay to all Purchasers of outstanding Shares payments
for a Conversion Default ("Conversion Default Payments") in the amount of
(N/365) x (.24) x the initial issuance price of the outstanding Shares held by
each Purchaser where N = the number of days from the Conversion Default Date to
the date (the "Authorization Date") that the Company authorizes a sufficient
number of shares of Common Stock to effect conversion of all remaining Shares.
The Company shall send notice ("Authorization Notice") to each Purchaser of
outstanding Shares that additional shares of Common Stock have been authorized,
the Authorization Date and the amount of Holder's accrued Conversion Default
Payments. The accrued Conversion Default shall be paid in cash or shall be
convertible into Common Stock at the Conversion Rate, at the Purchaser's option,
payable as follows: (i) in the event Purchaser elects to take such payment in
cash, cash payments shall be made to such Purchaser of outstanding Shares by the
fifth day of the following calendar month, or (ii) in the event Purchaser elects
to take such payment in stock, the Purchaser may convert such payment amount
into Common Stock at the Conversion Rate at anytime after the 5th day of the
calendar month following the month in which the Authorization Notice was
received, until the expiration of the mandatory 24 month conversion period.
Nothing herein shall limit the Purchaser's right to pursue actual damages
for the Company's failure to maintain a sufficient number of authorized shares
of Common Stock.
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8. CLOSING DATE AND ESCROW AGENT.
The date of the issuance of the Shares in the name of the PURCHASER (the
"Closing Date") shall be October 7, 1996. Closing shall be effected through
delivery of funds and certificates to the Escrow Agent as per a separate Escrow
Agreement. PURCHASER shall forthwith deliver the necessary funds as indicated
in Paragraph 1 to the Escrow Agent. Share Certificates will be delivered at the
instructions of the ISSUER to the Escrow Agent: ______________________________.
PURCHASER herein instructs the Escrow Agent, and gives the Escrow Agent its good
and sufficient authority to release funds to the ISSUER and placement agent in
connection with the purchase of the Shares, upon receipt by the Escrow Agent of
said Shares subscribed for, subject to the terms and conditions of any Escrow
Agreement in effect between the Issuer and the Escrow Agent. PURCHASER and
ISSUER agree that the Escrow Agent, In his capacity as Escrow Agent, has no
liability as a result of any fraudulent or unlawful conduct of any party other
than the Escrow Agent and agree to hold the Escrow Agent harmless in such event.
In the event the Share Certificates are not received by the Escrow Agent from
the ISSUER within Five (5) Business Days of the date of receipt of the Escrowed
Funds, the Escrow Agent shall return the Escrowed funds without interest to the
PURCHASER by wire transfer pursuant to written instructions.
9. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
ISSUER reserves the right to reject this Agreement for any reason
whatsoever, prior to signing by ISSUER. PURCHASER understands that ISSUER'S
obligation to sell the Shares subscribed for hereunder is conditioned upon:
a. The receipt and acceptance by ISSUER of this Agreement for all the
Shares as evidenced by execution of this subscription agreement by the Chief
Executive Officer or Chief Financial Officer of the ISSUER. The acceptance of
funds by the ISSUER shall be deemed to be constructive acceptance of this
Agreement. PURCHASER understands this Agreement is irrevocable; and
b. Delivery into the Escrow Agent by PURCHASER of good U.S. funds as
payment in full for the purchase of the Shares and all fees.
10. CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE.
ISSUER understands that PURCHASER's obligation to purchase the Shares
subscribed for hereunder is conditioned upon the following:
a. execution and delivery of this Agreement;
b. delivery of Shares; and
c. delivery of a filed Certificate of Designation
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<PAGE>
11. GOVERNING LAW.
This agreement shall be governed by and construed under the laws of the
State of New York without regard to its choice of law principles.
12. RIGHT OF FIRST REFUSAL.
The PURCHASER Is hereby given a pro-rata right of first refusal on any
Regulation S offering involving the Issuer during the next 12 months. Purchaser
shall have 5 business days from the date the Company sends a facsimile copy of
the Subscription Agreement to the PURCHASER in which to accept by signing the
Subscription Agreement and faxing it to the Company.
13. ENTIRE AGREEMENT/FACSIMILE.
This Agreement constitutes the entire agreement among the parties hereof
with respect to the subject matter hereof and supersedes any and all prior or
contemporaneous representations, warranties, agreements and understandings in
connection therewith. This Offshore Securities Subscription Agreement may be
amended only in writing executed by all parties hereto. In lieu of the
original, a facsimile transmission or copy of the original shall be as effective
and enforceable as the original. This Agreement may be executed in
counterparts, which shall be considered an original document and which together
shall be considered a complete document.
14. INDEMNIFICATION.
Each of the Company and the Subscriber agrees to indemnify the other and to
hold the other harmless from and against any and all losses, damages,
liabilities, costs and expenses (including reasonable attorneys' fees) which the
other may sustain or incur in connection with a material breach by the
indemnifying party of any representation, warranty or covenant made by it in
this Agreement.
15. FINANCING; RESTRICTIONS.
The Company cannot, without the prior approval in writing from Subscriber,
obtain convertible debt or equity financing for a period of sixty (60) days
following the Closing Date.
16. RESTRICTIONS ON CONVERSION OF SHARES.
The Subscriber or any subsequent holder of the Shares (the "Holder") shall
be prohibited from converting any portion of the Debentures which would result
in the Subscriber or the Holder being deemed the beneficial owner, in accordance
with the provisions of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended, of 4.99% or more of the then issued and outstanding Common Stock of the
Company.
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<PAGE>
17. INDEPENDENT COUNSEL.
The undersigned acknowledge that they have been advised to consult with
their own attorneys and financial advisors regarding this Agreement.
18. ARBITRATION.
The parties shall resolve any dispute arising hereunder before a panel of
three arbitrators selected pursuant to and run in accordance with the rules of
the American Arbitration Association. The arbitration shall be held in New
York, New York. The successful party shall be entitled to an award of
reasonable attorneys fees and costs to be awarded in the sole discretion of the
arbitrators. Disputes under this Agreement as well as all of the terms and
conditions of this Agreement shall be governed in accordance with and by the
laws of the State of New York.
19. FULL NAME AND ADDRESS OF PURCHASER FOR REGISTRATION PURPOSES:
If not filled in completely by Purchaser the Company will not accept.)
NAME:
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ADDRESS:
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- -------------------------------------------------------------------------------
TELE. NO.:
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FAX NO.:
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CONTACT NAME:
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20. DELIVERY INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME):
NAME:
--------------------------------------------------------------------------
ADDRESS:
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- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TELE. NO.:
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FAX NO.:
-----------------------------------------------------------------------
CONTACT NAME:
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SPECIAL
INSTRUCTIONS:
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- -------------------------------------------------------------------------------
21. ISSUER'S ACCEPTANCE BASED UPON PURCHASER REPRESENTATIONS.
ISSUER is accepting this subscription based upon and in reliance upon the
representations and warranties of PURCHASER contained herein, including without
limitation, those contained in section 2 and this Agreement would not be
accepted by ISSUER in the absence of such representations and warranties.
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<PAGE>
IN WITNESS WHEREOF, this Offshore Securities Subscription Agreement was duly
executed as of the _______ day of __________, 1996.
Company
Name:
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Purchaser
By:
----------------------------------------
Official Signatory of Purchaser
Name:
(Printed):
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Title:
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County of
Execution:
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Accepted this _____ day of the month of ____________________, 1996.
MIDISOFT CORPORATION
By:
-------------------------------
its:
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18
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EXHIBIT "A"
NOTICE OF CONVERSION
_______________, 199___
MIDISOFT CORPORATION
1605 NW Sammamish Road
Suite 205
lssaquah, WA 98027
The undersigned, _________________________ (the "Holder"), does hereby give
notice that it wishes to convert __________ shares of Series A Convertible
Preferred Stock (the "Shares") of MIDISOFT CORPORATION (the "Issuer") held by it
into shares of Common Stock of the Issuer, which have been reserved for issuance
upon such conversion. The Holder represents and warrants that (i) all of the
requirements of Regulation S promulgated under the Securities Act of 1933, as
amended (the "Act") applicable to the Holder have been complied with by the
Holder and (ii) the Holder has not engaged in any transaction or series of
transactions that, although in technical compliance with all of the requirements
of Regulation S, is part of a plan or scheme to evade the registration
requirements of the Act. The number of shares of the Corporation's common
stock, par value $.001 per share ("Common Stock") issuable upon conversion of
the Shares held by an Investor under the terms of this Agreement shall equal the
Subscription Proceeds plus the amount of the accrued dividends through the
Conversion Date, divided by the lesser of (a) eight-five percent (85%) of the
closing bid price on the day of conversion, or (b) 100% the closing bid price
for the Common on the "Closing Date" as defined in paragraph 8 of the
Subscription Agreement. The undersigned has not taken any short position, in
violation of Regulations nor has the undersigned made any promissory notes
and/or pledges to that effect on the Company's Common Stock.
[Holder]
By:
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EXHIBIT "B"
PURCHASER REPRESENTATION LETTER
Dear Sirs:
The undersigned ______________________ has purchased on ______, 1996,
__________ Convertible Preferred Shares of MIDISOFT CORPORATION (the Company")
at a per share subscription price of $1,000 per share, (the Convertible
Preferred Shares referred to herein as the "Shares") together with warrants as
set forth in the Subscription Agreement. In connection with such purchase, the
undersigned, has executed and delivered a subscription agreement ("Subscription
Agreement") of your design. As the applicable transaction restriction period
has expired, the undersigned hereby requests that the Shares be transferred into
[ ] the Purchaser's name or [ ] "Street Name" of _______________ (check
whichever is applicable).
The undersigned represents and warrants as follows:
(1) The offer to purchase the Shares was made to it outside of the United
States and the undersigned was, at the time the Subscription Agreement was
executed and delivered, and is now, outside the United States;
(2) It is not a U.S. Person (as such term is defined In Section 902(a) of
Regulation S promulgated under the United States Securities Act of 1933 (the
"Securities Act"); and it has purchased the Shares Shams for its own account and
not for the account or benefit of any U.S. person;
(3) All offers and sales by the undersigned of the Shares shall be made
pursuant to an effective registration statement under the Securities Act or
pursuant to an exemption from, or in a transaction not subject to the
registration requirements of, the Securities Act;
(4) It Is familiar with and understands the terms, conditions and
requirements contained in Regulation S and definitions of U.S. persons contained
in Regulation S;
(5) The undersigned has not engaged in any "directed selling efforts" (as
such term is defined in Regulation S) with respect to the Shares; and
Dated this _____ day of the month of _______________, 1996.
By:
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Official Signature of Purchaser
----------------------------------
Title
20
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EXHIBIT 4.4 FORM OF WARRANT
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT"). THIS WARRANT AGREEMENT SHALL NOT
CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE
SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE 1933 ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
STOCK PURCHASE WARRANT
To Purchase Shares of Common Stock of
MIDISOFT CORPORATION
THIS CERTIFIES that, for value received, ____________________ (the "Investor"),
is entitled, upon the terms and subject to the conditions hereinafter set forth,
at any time on or after the date hereof and on or prior to October _, 1998 (the
"Termination Date") but not thereafter, to subscribe for and purchase from
MIDISOFT CORPORATION, a Washington corporation (the "Company"), One (1) share of
Common Stock for each share Investor receives upon conversion of Preferred Stock
as per Agreement (the "Warrant Shares"). The purchase price of one share of
Common Stock (the "Exercise Price") under this Warrant shall be Two Hundred
(200%) percent of the closing bid price on the Closing Date (as defined-in the
Agreement). The Exercise Price and the number of shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein. This warrant is
being issued pursuant to the Convertible Offshore Securities Subscription
Agreement dated October
1996 complete with all listed exhibits thereto (the "Agreement") between the
Company and the Investor and is subject to its terms. In the event of any
conflict between the terms of this Warrant and the Agreement, the Agreement
shall control.
1. TITLE OF WARRANT. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company, by
the holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant together with the Assignment Form annexed hereto properly endorsed.
2. AUTHORIZATION OF SHARES. The Company covenants that all shares of Common
Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and non assessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. EXERCISE OF WARRANT. Exercise of the purchase rights represented by this
Warrant may be made at any time or times, in whole or in part, before the close
of business on the Termination Date, or such earlier date on which this Warrant
may terminate as provided in paragraph 11 below, by the surrender of this
Warrant and the Subscription Form annexed hereto duly executed, at the of office
of the Company (or such other of office or agency of the Company as it may
designate by notice in writing to the registered holder hereof at the address of
such holder appearing on the books of the Company) and upon payment of the
Exercise Price of the shares thereby purchased, whereupon the holder of this
Warrant shall be entitled to receive a certificate for the number of shares of
Common Stock so purchased immediately. The Company at the Closing Date, as
defined in the Agreement, shall furnish an opinion of counsel that the
restricted period under Regulation S in respect to these warrants runs from the
Closing Date, as defined in the Agreement, not the date of exercise. In the
event upon exercising the
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Warrant, the transfer agent requires an opinion of counsel, the Company shall
have such opinion furnished to the transfer agent to the transfer agent's
satisfaction. In the event the Investor is relying on another exemption from
registration under the 1933 Act, the Shares shall be issued immediately, if the
Investor furnishes an opinion of counsel, reasonably satisfactory to the
Company, that another exemption from registration is available. Certificates for
shares purchased hereunder shall be delivered to the holder hereof within five
business days after the date on which this Warrant shall have been exercised as
aforesaid. Payment of the Exercise Price of the shares may be by certified check
or cashier's check or by wire transfer to an account designated by the Company
in an amount equal to the Exercise Price multiplied by the number of shares
being purchased.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
5. CHARGES. TAXES AND EXPENSES. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by the
holder of this Warrant; provided, however, that in the event certificates for
shares of Common Stock are to be issued in a name other than the name of the
holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof, together with evidence satisfactory to the Company that such transfer or
assignment is being made in compliance with all applicable federal and state
securities laws; and provided further, that upon any transfer involved in the
issuance or delivery of any certificates for shares of Common Stock, the Company
may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.
6. CLOSING OF BOOKS. The Company will at no time close its shareholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
7. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does not entitle
the holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise thereof. If, however, at the time of the surrender
of this Warrant and purchase the holder hereof shall be entitled to exercise
this Warrant, the shares so purchased shall be and be deemed to be issued to
such holder as the record owner of such shares as of the close of business on
the date on which this Warrant shall have been exercised.
8. ASSIGNMENT AND TRANSFER OF WARRANT. This Warrant may be assigned by the
surrender of this Warrant and the Assignment Form annexed hereto duly executed
at the office of the Company (or such other office or agency of the Company as
it may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company); provided,
however, that this Warrant may not be resold or otherwise transferred except (i)
in a transaction registered under the Securities Act, or (ii) in a transaction
pursuant to an exemption, if available, from such registration and whereby, if
requested by the Company, an opinion of counsel reasonably satisfactory to the
Company is obtained by the holder of this Warrant to the effect that the
transaction is so exempt.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
represents and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or stock certificate, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and upon reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and cancellation
of such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of this Warrant or stock certificate.
10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken or
such right may be exercised on the next succeeding day not a legal holiday.
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11. EFFECT OF CERTAIN EVENTS.
(a) If at any time the Company proposes (i) to sell or otherwise convey all or
substantially all of its assets or (ii) to effect a transaction (by merger or
otherwise) in which more than 50% of the voting power of the Company is disposed
of (collectively, a "Sale or Merger Transaction"), in which the consideration to
be received by the Company or its shareholders consists solely of cash, the
Company shall give the holder of this Warrant thirty (30) days' notice of the
proposed effective date of the transaction specifying that the Warrant shall
terminate if the Warrant has not been exercised by the effective date of the
transaction.
(b) In case the Company shall at any time effect a Sale or Merger Transaction in
which the consideration to be received by the Company or its shareholders
consists in part of consideration other than cash, the holder of this Warrant
shall have the right thereafter to purchase, by exercise of this Warrant and
payment of the aggregate Exercise Price in effect immediately prior to such
action, the kind and amount of shares and other securities and property which it
would have owned or have been entitled to receive after the happening of such
transaction had this Warrant been exercised immediately prior thereto.
(c) Subject to the terms and conditions set forth herein, if the Company or any
of its stockholders propose at any time to register any shares of Common Stock
(the "Initially Proposed Shares") under the Securities Act for any reason,
except Forms S-4 and S-8 filings, the Company will promptly (but in no event
less than fifteen (15) days prior to the anticipated filing date of the
Company's registration statement (the "Incidental Registration Statement")
pursuant to the Securities Act, give written notice to the Investor of its
intention to effect such registration (such notice to specify, to the extent
known, the proposed offering price, the number of shares of Common Stock
proposed to be registered and the distribution arrangements, including
indemnification of underwriters),), and the Investors shall be entitled to
include in such registration statement, such number of shares of Registrable
Securities to be sold for the account of the Investors (on the same terms and
conditions as the Initially Proposed Shares) as shall be specified in requests
in writing delivered to the Company not less than 5 days before the later of (i)
the anticipated filing date specified in the Company's notice, or (ii) the
actual filing date.
12. REGISTRATION RIGHTS. If, upon exercise of all or any part of the
Warrant effected by the Investor pursuant to the terms of any part of this
Warrant and the terms of the Convertible Debenture Offshore Securities
Agreement, the Company fails to issue certificates for the shares of Common
Stock issuable upon such exercise to the Investor bearing no restrictive legend
for any reason, other than a breach of contract by Investor concerning the
representations and warranties made by Investor in this Agreement or the Notice
of Exercise found herein were untrue when made, then the Company shall be
required, at the request of the Investor and at the Company's expense, to effect
the registration of the shares of Common Stock issuable upon exercise of the
shares of Common Stock under the 1933 Act, and relevant Blue Sky laws as
promptly as is practicable. The Company and the Investor shall cooperate in good
faith in connection with the furnishing of information required for such
registration and the taking of such other actions as may be legally or
commercially necessary in order to effect such registration. The Company shall
commence to prepare and file a registration statement within 10 days of
Investor's demand therefor and shall use its best efforts to cause such
registration statement to become effective as soon as practicable thereafter.
Such best efforts shall include, but not be limited to, promptly responding to
all comments received from the staff of the Securities and Exchange Commission
with respect to such registration statement and promptly preparing and filing
amendments to such registration statement which are responsive to the comments
received from the staff of the Securities and Exchange Commission. Once declared
effective by the Securities and Exchange Commission, the Company shall cause
such registration statement to remain effective until the earlier of (i) the
sale by the Investor of all Securities registered, or (ii) 120 days after the
effective date of such registration statement.
In the event that the Company has not effected the registration of the
shares of Common Stock issuable upon the exercise of the Warrant under the 1933
Act and relevant Blue Sky Laws as soon as practicable after the date of the
Investor's demand therefor, the Company shall pay to the Investor by wire
transfer, as liquidated damages for such failure and not as a penalty, an amount
in cash equal to $10,000. If the Company does not remit the damages to the
Investor as set forth above, the Company will pay the Investor reasonable costs
of collection, including attorneys fees, in addition to the liquidated damages.
Such payment shall be made to the Investor
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immediately if the registration of the shares of Common Stock is not effected;
provided, however, that the payment of such liquidated damages shall not relieve
the Company from its obligations to register the shares of Common Stock pursuant
to this Section. The registration of the shares of Common Stock pursuant to this
provision shall not effect or limit Investor's other rights or remedies as set
forth in this Agreement.
13. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events, as hereinafter set forth:
(a) In case the Company shall (i) declare or pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, the number of Warrant Shares purchasable
upon exercise of this Warrant immediately prior thereto shall be adjusted so
that the holder of this Warrant shall be entitled to receive the kind and number
of Warrant Shares or other securities of the Company which he would have owned
or have been entitled to receive had such Warrant been exercised in advance
thereof. An adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event.
(b) In case the Company shall issue rights, options or warrants to holders
of its outstanding Common Stock entitling them (for a period within 45 days
after the record date mentioned below) to subscribe for or purchase shares of
Common Stock or securities convertible into or exchangeable or exercisable for
Common Stock at a Price Per Share (as defined in paragraph (e) below) which is
lower at the date of issuance thereof than the then Current Market Price (as
defined in paragraph ((f)) below) per share of Common Stock at such date, the
number of Warrant Shares hereafter purchasable upon the exercise of this Warrant
shall be determined by multiplying the number of Warrant Shares theretofore
purchasable upon exercise of this Warrant by a fraction, of which the numerator
shall be the number of shares -of Common Stock outstanding on the date of
issuance of such rights, options or warrants plus the number of additional
shares of Common Stock actually subscribed for and purchased, and of which the
denominator shall be the number of shares of Common Stock outstanding on the
date of issuance of such rights, options or warrants plus the number of shares
of Common Stock which the aggregate Proceeds (as defined in paragraph (e) below)
received by the Company on exercise of such rights, options and warrants would
purchase at the Current Market Price per share of Common Stock at the date of
issuance of such rights, options or warrants. Such adjustment shall be made
whenever such rights, options or warrants are issued, and shall become effective
on the date of distribution retroactive to the record date for the
determination-of stockholders entitled to receive such rights, options or
warrants.
(c) In case the Company shall distribute to holders of its shares of Common
Stock evidences of its indebtedness or assets (excluding dividends or
distributions referred to in paragraph (a) above or in the paragraph immediately
following this paragraph and excluding any dividend or distribution paid out of
the retained earnings of the Company) or rights, options or warrants, or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock (excluding those referred to in paragraph (b)
above), then in each case the number of Warrant Shares thereafter purchasable
upon the exercise of this Warrant shall be determined by multiplying the number
of Warrant Shares theretofore purchasable upon the exercise of this Warrant by a
fraction, of which the numerator shall be the then Current Market Price per
share of Common Stock on the date of such distribution, and of which the
denominator shall be such Current Market Price, less the then fair value (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive) of the portion of the assets or evidences of indebtedness so
distributed or of such subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of distribution retroactive to the record date for
the determination of shareholders entitled to receive such distribution.
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(d) For purposes of this Section 13, "Price Per Share" shall be defined and
determined according to the following formula:
R
P = -------------
N
where
P = Price Per Share,
R= the "Proceeds" received or receivable by the Company which (i) in
the case of shares of Common Stock is the total amount received or
receivable by the Company in consideration for the sale and issuance
of such shares; (ii) in the case of rights, options or warrants to
subscribe for or purchase shares of Common Stock or of securities
convertible into or exchangeable or exercisable for shares of Common
Stock, is the total amount received or receivable by the Company in
consideration for the sale and issuance of such rights, options,
warrants or convertible or exchangeable or exercisable securities,
plus the minimum aggregate amount of additional consideration, other
than the surrender of such convertible or exchangeable securities,
payable to the Company upon exercise, conversion or exchange thereof;
and (iii) in the case of rights, options or warrants to subscribe for
or purchase convertible or exchangeable or exercisable securities, is
the total amount received or receivable by the Company in
consideration for the sale and issuance of such rights, options or
warrants, plus the minimum aggregate amount of additional
consideration other than the surrender of such convertible or
exchangeable securities, payable upon the exercise, conversion or
exchange of such rights, options or warrants and upon the conversion
or exchange or exercise of the convertible or exchangeable or
exercisable securities; provided that in each case the proceeds
received or receivable by the Company shall be deemed to be the gross
cash proceeds without deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or other performing similar services or any
expenses incurred in connection therewith,
and
N= the "Number of shares," which (i) in the case of Common Stock is
the number of shares issued; (ii) in the case of rights, options or
warrants to subscribe for or purchase shares of Common Stock or of
securities convertible into or exchangeable or exercisable for shares
of Common Stock, is the maximum number of shares of Common Stock
initially issuable upon exercise, conversion or exchange thereof; and
(iii) in the case of rights, options or warrants to subscribe for or
purchase convertible or exchangeable or exercisable securities, is the
maximum number of shares of Common Stock initially issuable upon
conversion, exchange or exercise of the convertible, exchangeable or
exercisable securities issuable upon the exercise of such rights,
options or warrants.
If the Company shall issue shares of Common Stock or rights, options,
warrants or convertible or exchangeable or exercisable securities for a
consideration consisting, in whole or in part, of property other than cash, the
amount of such consideration shall be determined in good faith by the Board of
Directors of the Company whose determination shall be conclusive.
(e) For the purpose of any computation under paragraphs (b), (c) or (d) of
this Section 13, the "Current market Price" per share of Common Stock at any
date shall be the average of the Closing NASDAQ Price of the Common Stock for
the thirty (30) trading days commencing 30 trading days before the date of
determination.
(f) Whenever the number of Warrant Shares purchasable upon the exercise of
this Warrant is adjusted, as herein provided, the Exercise Price payable upon
exercise of this Warrant shall be adjusted by multiplying such
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Exercise Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Warrant Shares purchasable upon the exercise of
this Warrant immediately prior to such adjustment, and of which the denominator
shall be the number of Warrant Shares purchasable immediately thereafter.
(g) No adjustment in the number of Warrant Shares purchasable hereunder
shall be required unless such adjustment would result in an increase or decrease
of at least one percent (1%) percent of the Exercise Price; provided that any
adjustments which by reason of this paragraph ((h)) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest cent or to the nearest
one-thousandth of a share, as the case may be.
(h) No adjustment in the number of Warrant Shares purchasable upon the
exercise of this Warrant need be made under paragraph (b), (c) or (d) if the
Company issues or distributes to the holder of this Warrant the shares, rights,
options, warrants or convertible or exchangeable securities, or evidences of
indebtedness or assets referred to in those paragraphs which the holder of this
Warrant would have been entitled to receive had this Warrant been exercised
prior to the happening of such event or the record date with respect thereto. In
no event shall the Company be required or obligated to make any such
distribution otherwise than in its sole discretion. No adjustment in the number
of Warrant shares purchasable upon the exercise of this Warrant need by made for
sales of Common Stock pursuant to a Company plan for reinvestment of dividends
or interest. No adjustment need be made for a change in the par value of the
Common Stock.
(i) In the event that at any time, as a result of an adjustment made
pursuant to paragraph (a) above, the holder of this Warrant shall become
entitled to purchase any securities of the Company other than shares of Common
Stock, thereafter the number of such other shares so purchasable upon exercise
of this Warrant and the Exercise Price of such shares shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
paragraphs (a) through (i), inclusive, above.
(j) Upon the expiration of any rights, options, warrants or conversion or
exchange privileges, if any thereof shall not have been exercised, the Exercise
Price and the number of shares of Common Stock purchasable upon the exercise of
the Warrant shall, upon such expiration, be readjusted and shall thereafter be
such as it would have been had it been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (A) the only shares of
Common Stock so issued were the shares of Common Stock, if any, actually issued
or sold upon the exercise, exchange or conversion of such rights, options,
warrants or conversion or exchange rights, and (B) such shares of Common Stock,
if any, were issued or sold for the aggregate proceeds actually received or
receivable by the Company upon such exercise plus the aggregate proceeds, if
any, actually received by the Company for the issuance, sale or grant of all
such rights, options, warrants or conversion or exchange rights whether or not
exercised; provided that no such readjustment shall have the effect of
increasing the Exercise Price or decreasing the number of shares of Common Stock
purchasable upon the exercise of the Warrant by an amount in excess of the
amount of the adjustment initially made in respect of the issuance, sale or
grant of such rights, options, warrants or conversions or exchange rights.
14. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at its option, at
any time during the term of this Warrant, reduce the then current Exchange Price
to any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
15. NOTICE OF ADJUSTMENT. Whenever the number of Warrant shares or number
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
promptly mail by registered or certified mail, return receipt requested, to the
transfer agent for the Common Stock and to the holder of this Warrant notice of
such adjustment or adjustments setting forth the number of Warrant Shares (and
other securities or property) purchasable upon the exercise of this Warrant and
the Exercise Price of such Warrant Shares after such adjustment, setting forth a
brief statement of the facts requiring such adjustment and setting forth
computation by which such adjustment was made. Such notice, in absence of
manifest error, shall be conclusive evidence of the correctness of such
adjustment.
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16. AUTHORIZED SHARES. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common Stock
upon the exercise of any purchase rights under this Warrant. The Company further
covenants that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of the Company's Common
Stock upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
shares of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of NASDAQ or any domestic
securities exchange upon which the Common Stock may be listed.
17. MISCELLANEOUS.
(a) Issue Date. The provisions of this Warrant shall be construed and shall be
given effect in all respects as if it had been issued and delivered by the
Company on the date hereof. This Warrant shall be binding upon any successors or
assigns of the Company. This Warrant shall constitute a contract under the laws
of New York and for all purposes shall be construed in accordance with and
governed by the laws of said state without regard to its conflict of law,
principles or rules.
(b) RESTRICTIONS. The holder hereof acknowledges that the Common
Stock acquired upon the exercise of this Warrant, if not registered, may have
restrictions upon its resale imposed by state and federal securities laws.
(c) MODIFICATION AND WAIVER. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of the same is
sought.
(d) NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof of the Company shall
be delivered or shall be sent by certified or registered mail, postage
prepaid, to each such holder at its address as shown on the books of the
Company or to the Company at the address set forth in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officers thereunto duly authorized.
Dated: October , 1996
MIDISOFT CORPORATION
By
----------------------------
Officer
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ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to whose address is
--------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: , 199
------------- -
Investor agrees not to reoffer or sell the Warrant, or to cause any
transferee permitted hereunder to reoffer to sell the Warrant, within the United
States, or for the account or benefit of a U.S. Person, (i) as part of the
distribution of the Securities at any time, or (ii) otherwise, until forty-one
(41) days after the Warrant is exercised, and, in either case, in a transaction
meeting the requirements of Reg S under the Act, including without limitation,
where the offer (i) is not made to a person in the United States and either (A)
at the time the buy order is originated, the Buyer is outside the United States
or the Company and any person acting on its behalf reasonably believe that the
buyer is outside the United States, or (B) the transaction is executed in, on or
through the facilities of a designated offshore securities market and neither
the seller nor any person acting on its behalf knows that the transaction has
been prearranged with a buyer in the United States; and (ii) no directed selling
efforts shall be made in the United States by the buyer, an affiliate or any
person acting on their behalf, or in a transaction registered under the Act or
pursuant to an exemption from such registration.
Holder's Signature:
-------------
Holder's Address:
---------------
Signature Guaranteed:
-----------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name
as it appears on the face of the Warrant, without alteration or enlargement or
any change whatsoever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in an fiduciary or other
representative capacity should file proper evidence of authority to assign the
foregoing Warrant.
8
<PAGE>
NOTICE OF EXERCISE
, 1996
---------------
Midisoft Corporation
1605 NW Sammamish Road, Suite 205
Issaquah, WA 98027
Dear Sir or Madam:
The undersigned, _____________________________________________________ (the
"Investor"), does hereby give notice that it wishes to purchase shares of Series
A Preferred Stock of MIDISOFT CORPORATION (the "Company"), pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase price in
full, together with all applicable transfer taxes, if any. Please issue a
certificate of certificates representing said shares of common Stock in the name
of the undersigned or in such other name specified below.
Name:
----------------------------------
Address:
----------------------------------
----------------------------------
- ----------------------------------------
By
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF MIDISOFT CORPORATION FOR THE 3 MONTHS ENDED
OF SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 928,000
<SECURITIES> 0
<RECEIVABLES> 2,602,000
<ALLOWANCES> 1,131,000
<INVENTORY> 498,000
<CURRENT-ASSETS> 3,221,000
<PP&E> 608,000
<DEPRECIATION> 110,000
<TOTAL-ASSETS> 4,280,000
<CURRENT-LIABILITIES> 2,921,000
<BONDS> 0
0
0
<COMMON> 17,178,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,280,000
<SALES> 2,161,000
<TOTAL-REVENUES> 2,161,000
<CGS> 1,400,000
<TOTAL-COSTS> 6,233,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 44,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,977,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,977,000)
<EPS-PRIMARY> (.85)
<EPS-DILUTED> (.85)
</TABLE>
