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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, 1997
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)
(425) 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; 6,359,630 shares outstanding;
as of October 15, 1997
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<PAGE>
MIDISOFT CORPORATION
INDEX TO FORM 10-QSB
Page
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 3
a) Balance Sheets - September 30, 1997 and December 31, 1996
b) Statements of Operations - For the Three and Nine months
Ended September 30, 1997 and 1996
c) Statements of Cash Flows - For the Nine months Ended
September 30, 1997 and 1996
d) Notes to Unaudited Financial Statements
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,
1997 1996
---------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 54,000 $ 709,000
Accounts receivable - net of allowances of
443,000 in 1997 and $1,052,000 in 1996 767,000 1,282,000
Inventories 580,000 942,000
Prepaid expenses and other receivable 366,000 282,000
---------------- ---------------
Total current assets 1,767,000 3,215,000
Property & equipment, net 276,000 421,000
Capitalized software and other costs, net 38,000 455,000
---------------- ---------------
Total assets $ 2,081,000 $ 4,091,000
---------------- ---------------
---------------- ---------------
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 1,003,000 $ 691,000
Note Payable 360,000
Accrued wages & payroll taxes 114,000 186,000
Other accrued expenses 113,000 118,000
Deferred revenue 95,000 821,000
---------------- ---------------
Total current liabilities 1,685,000 1,816,000
---------------- ---------------
Convertible Debt 250,000 --
Shareholders' equity
Common stock, no par value; 10,000,000 shares authorized,
6,359,630 issued and outstanding in 1997 and
5,345,425 issued and outstanding in 1996 19,974,000 18,733,000
Preferred stock; no convertible shares outstanding in 1997 and
1,100 convertible shares issued and outstanding in 1996 -- 1,100,000
Retained deficit (19,828,000) (17,558,000)
---------------- ---------------
Total shareholders' equity 146,000 2,275,000
---------------- ---------------
Total liabilities and shareholders' equity $ 2,081,000 $ 4,091,000
---------------- ---------------
---------------- ---------------
</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,
------------------------- ---------------------------
1997 1996 1997 1996
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 767,000 $ 1,158,000 $ 2,123,000 $ 2,161,000
Cost of revenues 302,000 588,000 974,000 1,400,000
---------- ------------ ------------ ------------
Gross profit 465,000 570,000 1,149,000 761,000
Operating expenses:
Sales and marketing 334,000 723,000 1,300,000 2,459,000
General and administrative 539,000 488,000 1,329,000 1,708,000
Research and development 223,000 244,000 744,000 666,000
---------- ------------ ------------ ------------
Total operating expenses 1,096,000 1,455,000 3,373,000 4,833,000
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
Operating loss (631,000) (885,000) (2,224,000) (4,072,000)
Interest and other income/(expense) (14,000) 17,000 (46,000) 95,000
---------- ------------ ------------ ------------
Net loss $ (645,000) $ (868,000) $ (2,270,000) (3,977,000)
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
Net loss per share $ (0.10) $ (0.19) $ (0.37) $ (0.85)
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
Weighted average shares outstanding 6,257,000 4,691,000 6,205,000 4,677,000
---------- ------------ ------------ ------------
---------- ------------ ------------ ------------
</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,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operations:
Net loss $(2,270,000) $(3,977,000)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation & amortization 570,000 792,000
Interest paid through Common Stock 41,000
(INCREASE) DECREASE IN ASSETS:
Accounts receivable, net 515,000 858,000
Inventories 362,000 (4,000)
Prepaid expenses (84,000) (58,000)
INCREASE (DECREASE) IN LIABILITIES:
Trade accounts payable 312,000 (271,000)
Accrued wages & payroll taxes (72,000) (77,000)
Other accrued expenses (5,000) (138,000)
Deferred revenue (726,000) 107,000
----------- -----------
Total adjustments 913,000 1,209,000
----------- -----------
Net cash used for operations (1,357,000) (2,768,000)
----------- -----------
Cash from/(used for) investments:
Redemption of short term investments -- 1,540,000
Additions to plant & equipment (8,000) (59,000)
----------- -----------
Net cash from/(used for) investments (8,000) 1,481,000
----------- -----------
Cash flows from financing:
Note payable 360,000 --
Convertible Debenture 250,000 --
Common Stock issued 100,000 --
Stock options exercised -- 72,000
----------- -----------
Net cash provided by financing 710,000 72,000
----------- -----------
Net change in cash and cash equivalents (655,000) (1,215,000)
Cash and cash equivalents, beginning of year 709,000 2,143,000
----------- -----------
Cash and cash equivalents, end of period $ 54,000 $ 928,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
5
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MIDISOFT CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
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 1996 audited
financial statements included in its Annual Report on Form 10-KSB filed April
15, 1997.
The results of operations for the three and nine months ended September
30, 1997 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,
1997 1996
------------- ------------
OEM $ 405,000 $ 1,600,000
Resellers and other 805,000 734,000
---------- -----------
Subtotal 1,210,000 2,334,000
Less: Allowance for doubtful accounts (243,000) (781,000)
Allowance for sales returns (200,000) (271,000)
---------- -----------
Total accounts receivable $ 767,000 $ 1,282,000
---------- -----------
---------- -----------
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 monthly or quarterly installments. At
September 30, 1997, OEM accounts receivable amounts not yet due were $85,000,
equal to 21% of total OEM receivables compared to $173,000, equal to 11% at
December 31, 1996. Reseller payment terms typically are standardized and
similar to those given software distributors. At September 30, 1997,
reseller accounts receivable amounts not yet due were $339,000, equal to 42%
of total reseller receivables compared to $154,000, equal to 21% at December
31, 1996.
The Company's primary credit concentrations involve domestic and foreign
OEM and reseller customers. Foreign customers are primarily located in
Western Europe, Taiwan, and Japan. Domestic customers comprised $1,031,000
of accounts receivable at September 30, 1997, compared to $1,540,000 at
December 31, 1996. Foreign customers comprised $179,000 of accounts
receivable at September 30, 1997 compared to $794,000 at December 31, 1996.
INCOME TAXES
No income taxes are payable at September 30, 1997, the result of the
Company's year-to-date loss and the result of Federal net operating losses at
December 31, 1996 of approximately $18.1 million that will reduce taxes due
in future periods and expire beginning in 2008. In certain circumstances, as
specified in the Internal Revenue Code, a 50% or more
6
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ownership change by certain combination of the Company's stockholders during
any three-year period would result in limitations on the Company's ability to
utilize its net operating loss carry-forward.
INVENTORIES
Inventories are summarized as follows:
September 30, December 31,
1997 1996
------------- ------------
Raw Materials $ 486,000 $ 760,000
Finished Goods 179,000 287,000
Less: Allowance for obsolescence (86,000) (105,000)
---------- ----------
Total Inventories $ 579,000 $ 942,000
---------- ----------
---------- ----------
CAPITALIZED SOFTWARE AND OTHER COSTS
Capitalized software and other costs are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Purchased software technology, net of accumulated amortization of
$567,000 and $412,000, respectively, in 1997 and 1996 $ 38,000 $ 193,000
Purchased contract software technology, net of accumulated amorti-
zation of $495,000 and $380,000, respectively, in 1997 and 1996 -- 115,000
Capitalized software development costs, net of accumulated amorti-
zation of $577,000 and $430,000, respectively, in 1997 and 1996 -- 147,000
------------- -------------
Total capitalized software $ 38,000 $ 455,000
------------- -------------
------------- -------------
</TABLE>
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
Midisoft is a leading provider of innovative applications and utilities
for the control and use of sound on personal computers. The Company was
founded in 1986 and has developed award-winning audio software products since
that time. Over the past 11 years the total available market for these types
of products has expanded dramatically from a very small segment of PCs used
mainly by computer hobbyists into virtually each computer that ships from
every system manufacturer. Sound on the PC has changed from a differentiating
feature into a standard component on all hardware platforms and product
lines. The emergence of the Internet has amplified this expansion and created
the backbone with which sounds, voice messages and music can now be sent
globally to enhance communication world-wide. As new technologies evolve, the
Company believes it can continue to be a premiere provider of audio control
expertise. 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, (iii) end users,
catalog companies, and businesses and (iv) on-line Internet sales.
Sales to software distributors and resellers, together with direct
sales, represented 63% and 62% of revenues in the three and nine months ended
September 30, 1997, and OEM sales represented 37% and 38% during the same
periods. International sales accounted for 12% and 18% of the Company's
revenues during the three and nine months ended September 30, 1997.
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, 1997, one software distributor individually
accounted for 17% of the Company's total revenues. During the nine months
ended September 30, 1997, no software distributor accounted for greater than
10% of the Company's total revenues.
The Company's revenues include sales of software, software licenses and
services, less returns. 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 and general operating expenses including rent and
insurance. 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. The Company has determined that the
dynamic nature of software technology precludes it from capitalizing software
development in the future.
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 third and fourth quarter
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.
COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 TO 1997
Revenues for the three months ended September 30, 1997 were $767,000, a
decrease of $391,000, or 34%, compared to $1,158,000 for the same period in
1996. Revenues for the first nine months of 1997 were $2,123,000, a
8
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decrease of $38,000, or 2%, compared to $2,161,000 for the same period in
1996. Sales to software distributors and resellers, together with direct
sales were $486,000 and $1,313,000, representing 63% and 62% of revenues in
the three and nine months ended September 30, 1997, compared to $691,000 and
$1,415,000 which represented 60% and 65% of revenues for the same period in
1996. OEM sales of $281,000 and $810,000 represented 37% and 38% in the three
and nine months ended September 30, 1997, respectively. OEM sales of
$468,000 and $746,000 represented 40% and 35% in the three and nine months
ended September 30, 1996, respectively. 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 September 30, 1997 by industry
concerns of the Company's viability and a delay in the Company's new product
for the OEM sales channel. International sales accounted for 12% and 18% of
the Company's revenues for the three and nine months ended September 30, 1997
and accounted for 18% and 17% for the same periods in 1996. The Company
experienced lower retail sales volumes due to the delay in holiday purchasing
within that channel. The Company did not release, as anticipated, the new
strategic product for the OEM market in the third quarter resulting in
reduced sales.
Gross profit for the three months ended September 30, 1997 was $465,000,
a decrease of $105,000, or 18%, compared to $570,000 for the same period the
prior year. Gross profit for the nine months ended September 30, 1997 was
$1,149,000, an increase of $388,000, or 51%, compared to $761,000 for the
same period the prior year. As a percentage of revenues, gross profit
increased to 61% in the three months ended September 30, 1997 from 49% in
1996. As a percentage of revenues, gross profit increased to 54% in the nine
months ended September 30, 1997 from 35% in 1996. Gross profits, in general,
are affected by the mix of OEM licensing revenue versus application products
revenue as well as the mix within application products. Direct costs were
lower in the third quarter of 1997 compared with the same quarter last year
due the distribution of more products via CD-ROM media, lower amortization
costs and reduced labor costs. Software amortization costs for the three
months ended September 30, 1997 fell to $113,000 as compared with $193,000
for the same period during 1996. Software amortization costs for the nine
months ended September 30, 1997 were $417,000, a decrease of $204,000,
compared with $621,000 for the same period during 1996.
Sales and marketing expenses for the three months ended September 30,
1997 were $334,000, a reduction of $389,000, compared to $723,000 for the
same period in the prior year. Sales and marketing expenses for the nine
months ended September 30, 1997 were $1,300,000, a reduction of $1,159,000,
compared to $2,459,000 for the same period in the prior year. As a percentage
of revenues, sales and marketing expenses decreased to 44% in the three
months ended September 30, 1997 from 62% for the same period in 1996. As a
percentage of revenues, sales and marketing expenses decreased to 61% in the
nine months ended September 30, 1997 from 114% for the same period in 1996.
The 1997 expenses reflect a reduction of marketing personnel and a change in
product marketing strategy.
General and administrative expenses for the three months ended September
30, 1997 were $539,000, an increase of $51,000, compared to $488,000 for the
same period of the prior year. General and administrative expenses for the
nine months ended September 30, 1997 were $1,329,000, a decrease of $379,000,
compared to $1,708,000 for the same period of the prior year. As a percentage
of revenues, these expenses for the three months ended September 30, 1997
increased to 70% in 1997 from 42% for the same period in 1996. As a
percentage of revenues, these expenses for the nine months ended September
30, 1997 decreased to 63% in 1997 from 79% for the same period in 1996. The
current expense reflects an increase in legal fees for the AskMe Multimedia
arbitration and costs associated with the delisting of the Company's Common
Stock from the Nasdaq National Market to the Bulletin Board.
Research and development expenses for the three months ended September
30, 1997 were $223,000, a decrease of $21,000, compared to $244,000 for the
same period the prior year. As a percentage of revenues, research and
development expenses increased to 29% in the three months ended September 30,
1997 from 21% for the same period in 1996. Research and development expenses
for the nine months ended September 30, 1997 were $744,000, an increase of
$78,000, compared to $666,000 for the same period the prior year. As a
percentage of revenues, research and development expenses increased to 35% in
the nine months ended September 30, 1997 from 31% for the same period in
1996. The maintenance of stable research and development costs during the
three and nine months ended September 30, 1997 reflects the Company's
continued emphasis on developing new products and enhancing existing
products.
Interest and other income for the three months ended September 30, 1997
was $400 compared to $17,000 for the same period the prior year. Interest
and other income for the nine months ended September 30, 1997 was $6,500
compared to $95,000 for the same period the prior year. The decrease in
interest income in the first half of 1997 reflects a decrease in the amount
of cash available for investments due to use of cash in operations. The
Company incurred interest expense of
9
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$13,600 and 39,500 for the three and nine months ended September 30, 1997 due
to the bank line of credit and preferred stock interest payable, neither of
which was in place during the same periods in 1996.
As of September 30, 1997, the Company employed 25 employees. Of these,
6 are employed in administration, 8 in product development and 11 in sales
and marketing. All of the employees are covered by confidentiality
agreements, and no employee has an employment contract. None of the
Company's employees are represented by a union or other bargaining group.
The Company believes it maintains good employee relations.
No income taxes are payable at September 30, 1997, the result of the
Company's year-to-date loss and the result of Federal net operating losses at
December 31, 1996 of approximately $18,100,000. 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, 1997, the Company's principal sources of liquidity
included cash and cash equivalents of $54,000 and net accounts receivable of
$767,000. This compares to cash, cash equivalents and short term investments
of $709,000 and net accounts receivable of $1,282,000 at December 31, 1996.
The decline in liquidity and capital resources is the result of negative cash
flow from operations.
The Company's current liabilities at September 30, 1997 were $1,685,000
compared to $1,816,000 at December 31, 1996. As of September 30, 1997,
working capital totaled $82,000.
The Company's operating activities used cash of $1,357,000 for the nine
month period ended September 30, 1997, reflecting a decrease of $1,411,000
compared with the same period in 1996. During the third quarter of 1997, the
Company's net operating activities used cash of $357,000, a decrease of
$743,000, compared with the same period in 1996.
The Company has a $400,000 line of credit with a bank. The borrowings
under the line of credit bear interest at 1% over the bank's prime rate and
are secured by accounts receivable, inventory and general intangibles of the
Company. Among other requirements, the loan agreement requires the Company
to maintain minimum levels of tangible net worth, as defined in the
agreement. The Company is not in compliance with certain of the covenants in
the agreement, but has received a waiver from the bank. As of September 30,
1996, $360,000 had been borrowed on the facility.
The Company has historically financed its operations principally through
the net proceeds from its two public offerings and other equity transactions.
During the quarter ended September 30, 1997, the Company received (i)
$250,000 from the sale of debt instruments which are convertible into Common
Stock at a price of $0.65 per share and (ii) $100,000 from the sale of 62,500
shares of Common Stock. The Company will continue to pursue other financing
arrangements, as needed, to increase its cash reserves in 1997. There can be
no assurance the Company will be capable of raising additional capital or
that the terms upon which such capital will be available to the Company will
be acceptable.
SUBSEQUENT EVENTS
On October 28, 1997, the Company entered into a Securities Purchase
Agreement ("Agreement") with an unrelated third party (the "Lender"). The
Agreement provides for the sale of $2 million of convertible debentures, the
first $500,000 of which were sold on October 28, 1997. The Agreement
provides for the sale of the next $500,000 in debentures on November 28, 1997
and for the sale of the final $1 million in debentures on January 15, 1998.
The Lender also has the right to purchase an additional $2 million of
debentures in $1 million increments on June 15, 1998 and June 15, 1999. The
first $1 million in debentures are convertible into a total of 1,666,667
shares of Common Stock and warrants to purchase an additional 833,333 shares
of Common Stock at a price of $1.50 per share. The second $1 million in
debentures are convertible into a total of 1,250,000 shares of Common Stock
and warrants to purchase an additional 625,000 shares of Common Stock at a
price of $1.50 per share. The debentures bear interest at the rate of 1% per
annum payable in cash or, at the Company's option, in shares of Common Stock.
The Company is obligated to pay a finder's fee of 3% of the money raised as
that money is received by the Company. For so long as the debentures are
outstanding or the Lender owns at least 25% of the Company's outstanding
Common Stock, the Lender shall have the right to (i) approve certain merger
or acquisition transaction, (ii) appoint two of the Company's five directors
and (iii) purchase any equity securities the Company may propose to sell.
The Lender has not yet exercised its right to appoint directors.
10
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None
ITEM 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:
4.5 Form of Securities Purchase Agreement
4.6 Form of Registration Rights Agreement
b) REPORTS ON FORM 8-K:
Report filed on October 31, 1997, concerning the
withdrawal of Ernst & Young LLP as auditors of the Company.
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 10, 1997
BY: /S/ Melinda A. Bryden
---------------------------------
Melinda A. Bryden, Vice President of
Finance and Chief Financial Officer
12
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4.5 FORM OF SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of acceptance
set forth below, is entered into by and between MIDISOFT CORPORATION, a
Washington corporation, with headquarters located at 1605 N.W. Sammamish
Road, Suite 205, Issaquah, Washington 98027 ("Company"), and the undersigned
(the "Buyer").
W I T N E S S E T H
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from
securities registration afforded, INTER ALIA, by Rule 506 under Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"1933 Act"), and/or Section 4(2) of the 1993 Act;
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, 1% Convertible Debentures (the "Debentures"),
of the Company which will be convertible into shares of Common Stock, without
par value per share, of the Company (the "Common Stock"), upon the terms and
subject to the conditions of such Debentures (the Common Stock and the
Debentures sometimes referred to herein as the "Securities"), and the subject
to acceptance of this Agreement by the Company;
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, warrants (the "Warrants") of the Company which
will be exercisable for shares of Common Stock, upon the terms and subject to
the conditions of such Warrants, and the subject to acceptance of this
Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE DEBENTURES; PURCHASE PRICE.
a. INITIAL PURCHASE OF DEBENTURES. The undersigned hereby
agrees to purchase from the Company, the Debentures of the Company, on
October 28, 1997 (the "Purchase Date"), in the principal amount of Five
Hundred Thousand Dollars ($500,000), upon the terms and conditions set forth
herein, and having the terms and conditions and being in substantially the
form attached hereto as Annex I. The purchase price for the Debentures shall
be payable in United States Dollars.
b. FORM OF PAYMENT. The Buyer shall pay the purchase price
for the Debentures by delivering immediately available good funds in United
States Dollars to the Company. Simultaneously with payment by the Buyer of
the purchase price of the Debentures, the Company shall deliver the
Debentures duly executed on behalf of the Company to the Buyer.
c. METHOD OF PAYMENT. Payment of the purchase price for the
Debentures shall be made by wire transfer of currently available funds to:
Imperial Bank
226 Airport Parkway
San Jose, CA 95110
ABA# 122201444
Account No.: 0036-001-003
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Advise: Melinda A. Bryden
Tel: (425) 313-3440
Time is of the essence with respect to such payment, and failure by the
Buyer to make such payment shall allow the Company to cancel this Agreement.
2. BUYER REPRESENTATION, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with, the
Company as follows:
a. The Buyer is purchasing the Debentures and will be acquiring
the shares of Common Stock issuable upon conversion of the Debentures for its
own account for investment only and not as a nominee or agent and not with a
view towards the public sale or distribution thereof and not with a view to
or for sale in connection with any distribution thereof. Buyer represents
that it was not organized for the purpose of purchasing the Securities.
b. The Buyer is (i) an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the 1933 Act
by reason of Rule 501(a)(3), and (ii) experienced in making investments of
the kind described in this Agreement and the related documents, (iii) able,
by reason of the business and financial experience of its officers (if an
entity) and professional advisors (who are not affiliated with or compensated
in any way by the Company or any of its affiliates or selling agents), to
protect its own interests in connection with the transactions described in
this Agreement, and the related documents, and (iv) able to afford the entire
loss of its investment in the Securities.
c. All subsequent offers and sales of the Debentures and the
shares of Common Stock issuable upon conversion of, or issued as dividends
on, the Debentures (sometimes referred to as the "Shares") by the Buyer shall
be made pursuant to registration of the Shares under the 1933 Act or pursuant
to an exemption from registration.
d. The Buyer understands that the Debentures are being offered
and sold, and the Shares are being offered, to it in reliance on specific
exemptions from the registration requirements of United States federal and
state securities laws and that the Company is relying upon the truth and
accuracy of, and the Buyer's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Buyers set
forth herein in order to determine the availability of such exemptions and
the eligibility of the Buyer to acquire the Debentures and to receive an
offer of the Shares.
e. The Buyer and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Debentures and
the offer of the Shares which have been requested by the Buyer, including
Annex II hereto. The Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and have received complete and
satisfactory answers to any such inquiries. Without limiting the generality
of the foregoing, the Buyer has also had the opportunity to obtain and to
review the Company's (1) Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, (2) Quarterly Report on Form 10-Q for the fiscal quarters
ended March 31, 1997 and June 30, 1997, and (3) Current Reports on Form 8-K
dated January 28, 1997 ("SEC Documents").
f. The Buyer understands that its investment in the Securities
involves a high degree of risk.
g. The Buyer understands that no United States federal or state
agency or any other government or governmental agency has passed on or made
any recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized, executed
and delivered on behalf of the Buyer and are valid and binding agreements of
the Buyer enforceable in accordance with their terms, subject
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<PAGE>
as to enforceability to general principles of equity and to bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally.
i. Neither the Buyer, nor any affiliate of the Buyer, has any
present intention of entering into, any put option, short position, or other
similar position with respect to the Debentures or the Shares.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
a. CONCERNING THE SHARES. There are no preemptive rights of any
stockholder of the Company, as such, to acquire the Common Stock.
b. REPORTING COMPANY STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Washington, and has the requisite corporate power to own its properties
and to carry on its business as now being conducted. The Company is duly
qualified a foreign corporation to do business and is in good standing in
each jurisdiction where the nature of the business conducted or property
owned by it makes such qualification necessary other than those jurisdictions
in which the failure to so qualify would not have a material and adverse
effect on the business, operations, properties or condition (financial or
otherwise) of the Company.
c. AUTHORIZED SHARES. The Company has sufficient authorized and
unissued Shares as may be reasonably necessary to effect the conversion of
the Debentures (which term includes the Additional Debentures, as defined
below). The Shares have been duly authorized and, when issued upon
conversion of, or as interest on, the Debentures, will be duly and validly
issued, fully paid and non-assessable and will not subject the holder the
holder thereof to personal liability for the debts and obligations of the
Company by reason of being such holder.
d. SECURITIES PURCHASE AGREEMENT. This Agreement and the
transactions contemplated hereby have been duly and validly authorized by the
Company, this Agreement has been duly executed and delivered by the Company
and this Agreement is a valid and binding agreement of the Company
enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium, and
other similar laws affecting the enforcement of creditors' rights generally;
and the Debentures will be duly and validly authorized and, when executed and
delivered on behalf of the Company in accordance with this Agreement, will be
a valid and binding obligation of the Company in accordance with its terms,
subject to general principles of equity and to bankruptcy, insolvency,
moratorium, or other similar laws affecting the enforcement of creditors'
rights generally.
e. NON-CONTRAVENTION. The execution and delivery of this
Agreement by the Company, the issuance of the Securities, and the
consummation by the Company of the other transactions contemplated by this
Agreement and the Debentures do not and will not conflict with or result in a
breach by the Company of any of the terms or provisions of, or constitute a
default under (i) the article of incorporation or by-laws of the Company,
each as currently in effect, (ii) any indenture, mortgage, deed of trust, or
other material agreement or instrument to which the Company is a party or by
which it or any of its properties or assets are bound, or (iii) to its
knowledge, any existing applicable law, rule or regulation or any applicable
decree, judgment, or order of any court, United States federal or state
regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or assets, except such
conflict, breach or default which would not have a material adverse effect on
the transactions contemplated herein.
f. APPROVALS. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market or the Stockholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities to the
Buyer as contemplated by this Agreement, except for such authorizations,
approvals and consents that have been obtained or waived.
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<PAGE>
g. SEC FILINGS. None of the Company's SEC Documents contained,
at the time they were filed, any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary
to make the statements made therein in light of the circumstances under which
they were made, not misleading.
h. ABSENCE OF CERTAIN CHANGES. Since June 30, 1997, there has
been no material adverse change and no material adverse development in the
business, properties, operations, financial condition, or results of
operations of the Company, except as disclosed in Annex II or in the
documents referred to in Section 2(e) hereof.
i. FULL DISCLOSURE. There is no fact known to the Company (other
than general economic conditions known to the public generally) or as
disclosed in the documents referred to in Section 2(e) hereof, that has not
been disclosed in writing to the Buyer that (i) would reasonably be expected
to have a material adverse effect on the business or financial condition of
the Company or (ii) would reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations pursuant to this
Agreement.
j. ABSENCE OF LITIGATION. Except as set forth in Annex II
hereto, or in the documents referred to in Section 2(e) hereof, which the
Buyer has reviewed, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company, threatened against or affecting the Company,
wherein an unfavorable decision, ruling or finding would have a material
adverse effect on the business or financial condition of the Company or the
transactions contemplated by this Agreement or any of the documents
contemplated hereby or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, this Agreement or any of such other documents.
k. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in Annex II
hereto or in the documents referred to in Section 2(e) hereof, no Event of
Default (or its equivalent term), as defined in the respective agreement to
which the Company is a party, and no event which, with the giving of notice
or the passage of time or both, would become an Event of Default (or its
equivalent term) (as so defined in such agreement), has occurred and is
continuing, which would have a material adverse effect on the Company's
financial condition or results of operations.
l. PRIOR ISSUES. Except as set forth in Annex II, during the
twelve (12) months preceding the date hereof, the Company has not issued any
convertible securities.
3. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the
Debentures have not been and are not now being registered under the
provisions of the 1993 Act and the Shares have not been and are not now being
registered under the 1933 Act, and may not be transferred unless (A)
subsequently registered thereunder or (B) the Buyer shall have delivered to
the Company an opinion of counsel, reasonably satisfactory in form, scope and
substance to the Company, to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms
of said Rule and further, if said Rule is not applicable, any resale of such
Securities under circumstances in which the seller, or the person through
whom the sale is made, may be deemed to be an underwriter, as that term is
used in the 1933 Act, may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (3)
except as set forth in the Registration Rights Agreement executed
simultaneously with this Agreement, neither the Company nor any other person
is under any obligation to register the Securities under the 1933 Act or to
comply with the terms and conditions of any exemption thereunder.
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<PAGE>
b. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that
the Debentures, and the Shares issued to the Holder upon conversion of the
Debentures shall bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the
Debentures and such Shares):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN
OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
c. FILINGS. The Company undertakes and agrees to make all
necessary filings in connection with the sale of the Debentures to the Buyer
under any United States federal, state and local laws and regulations, or by
any domestic securities exchange or trading market, and to provide a copy
thereof to the Buyer promptly after such filing.
d. REPORTING STATUS. So long as the Buyer beneficially owns any
of the Debentures, the Company shall file all reports required to be filed
with the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under
the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination.
e. USE OF PROCEEDS. The Company will use the proceeds from the
sale of the Debentures (excluding amounts paid by the Company for legal fees
and finder's fees in connection with the sale of the Debentures) for internal
working capital purposes, and shall not, directly or indirectly, use such
proceeds for any loan to any other corporation, partnership enterprise or
other person.
f. ADDITIONAL DEBENTURES. Subject to the conditions set forth
below and to the fact that the Buyer has the sole right in Buyer's sole
discretion to fund or not fund the final $2,000,000 hereunder, the Buyer
agrees to purchase an additional $3,500,000 principal amount of Debentures
(the "Additional Debentures) in four tranches of $500,000 on November 28,
1997 and $1,000,000 on each of January 15, 1998, June 15, 1998 and June 15,
1999, upon the terms and conditions set forth herein and in Exhibit A
attached hereto and made a part hereof for all purposes. The Buyer shall
give the Company at least 30 days written notice of its intention not to fund
either or both of the final two $1,000,000 tranches. The Buyer's obligation
to purchase the Additional Debentures on the Additional Closing Dates (as
defined below) shall be contingent upon the representations and warranties of
the Company contained in Section 3 hereof being true and correct in all
material respects as of such Additional Closing Date, and the Company shall
deliver a certificate to such effect to Buyer on each such Additional Closing
Date. Upon issuance, each Additional Debenture shall be deemed to be a
Debenture for purposes of this Agreement and each of the other agreements to
which the Company and the Buyer are parties as contemplated by this Agreement.
g. AVAILABLE SHARES. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, shares of
Common Stock sufficient to yield the number of shares of Common Stock
issuable at conversion as may be required to satisfy the conversion rights of
the Buyer pursuant to the terms and conditions of the Debentures and the
Additional Debentures.
h. DEBT RESTRICTIONS. The Company covenants and agrees that the
bank debt of the Company shall not exceed, at any given point in time prior
to conversion of all of the Debentures which the Buyer holds or has a right
under this Agreement to hold, $400,000, and that the Company shall have no
other debt, including but not limited to the $250,000 debt incurred by the
Company on September 15, 1997, that is superior in right to the rights of the
Buyer under the Debentures held by the Buyer.
i. FIRST OPTION ON EQUITY SECURITIES. The Company covenants and
agrees that for so long as the Buyer beneficially holds or has a right under
this Agreement to hold any of the Debentures, the
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<PAGE>
Company will grant to the Buyer the right of first option, for a period of
thirty (30) days after the Buyer's receipt of written notice of same, to
purchase any equity securities which the Company proposes to issue.
j. APPROVAL OF MERGERS AND ACQUISITIONS. The Company covenants and
agrees that for so long as the Buyer beneficially holds or has a right under
this Agreement to hold any of the Debentures, or holds shares of Common Stock
representing at least 25% of the total issued and outstanding Common Stock of
the Company, all mergers and acquisitions which the Company may undertake shall
require unanimous Board of Directors approval.
4. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the aggregate
purchase price for the Debentures in accordance with Section 1(c) hereof, the
Company will irrevocably instruct its transfer agent to issue Common Stock
from time to time upon conversion of the Debentures in such amounts as
specified from time to time by the Company to the transfer agent, having the
restrictive legend specified in Section 4(b) of this Agreement prior to
registration of the Shares under the 1933 Act, registered in the name of the
Buyer or its nominee and in such denominations to be specified by the Buyer
in connection with each conversion of the Debentures. The Company warrants
that no instruction other than such instructions referred to in this Section
5 and stop transfer instructions to give effect to Section 4(a) hereof prior
to registration and sale of the Shares under the 1933 Act will be given by
the Company to the transfer agent and that the Shares shall otherwise be
freely transferable on the books and records of the Company as and to the
extent provided in this Agreement and applicable law. Nothing in this
Section shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities. If
the Buyer provides the Company with an opinion of counsel reasonably
satisfactory to the Company that registration of a resale by the Buyer of any
of the Securities in accordance with clause (1)(B) of Section 4(a) of this
Agreement is not required under the 1993 Act, the Company shall (except as
provided in clause (2) of Section 4(a) of this Agreement) permit the transfer
of the Securities and, in the case of the Shares, promptly instruct the
Company's transfer agent to issue one or more certificates for Common Stock
without legend in such name and in such denominations as specified by the
Buyer.
b. The Company will permit the Buyer to exercise its right to
convert the Debentures by telecopying an executed and completed Notice of
Conversion to the Company and delivering within three business days
thereafter, the original Notice of Conversion and the Debentures representing
the Shares to the Company by express courier, with a copy to the transfer
agent. Each date on which a Notice of Conversion is telecopies to and
received by the Company in accordance with the provisions hereof shall be
deemed a Conversion Date. The Company will transmit the certificates
representing the Shares issuable upon conversion of any Debentures (together
with the Debentures representing the Shares not so converted) to the Buyer
via express courier, by electronic transfer or otherwise, within three
business days after receipt by the Company of the original Notice of
Conversion and the Debentures representing the Shares to be converted (the
"Delivery Date").
c. In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Company's transfer agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer program, upon request of the Buyer and its compliance
with the provisions contained in this paragraph, so long as the certificates
therefor do not bear a legend and the Buyer thereof is not obligated to
return such certificate for the placement of a legend thereon, the Company
shall use its best efforts to cause its transfer agent to electronically
transmit the Common Stock issuable upon conversion to the Buyer by crediting
the account of Buyer's Prime Broker with DTC through its Deposit Withdrawal
Agent Commission system.
5. DELIVERY INSTRUCTIONS.
The Debentures shall be delivered by the Company pursuant to Section 1(b)
hereof, on a delivery against payment basis, on the Closing Date and on each
Additional Closing Date.
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6. CLOSING DATE.
The date and time of the issuance and sale of the Debentures (the "Closing
Date" or "Additional Closing Date," as the case may be) shall occur no later
than 12:00 Noon, P.S.T. on the first business day after the fulfillment or
waiver of all closing conditions pursuant to Sections 8 and 9 hereof, or such
other mutually agreed to time. The closing shall occur on such date at the
offices of the Company.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the Debentures to
the Buyer pursuant to this Agreement on the Closing Date and on each
Additional Closing Date is conditioned upon:
a. Delivery by the Buyer to the Company of good funds as payment
in full of an amount equal to the purchase price for the Debentures in
accordance with Section 1(c) hereof;
b. The accuracy on the relevant Closing Date or Additional
Closing Date of the representations and warranties of the Buyer contained in
this Agreement, each as if made on such Closing Date or Additional Closing
Date and the performance by the Buyer on or before such Closing Date or
Additional Closing Date of all covenants and agreements of the Buyer required
to be performed on or before such Closing Date or Additional Closing Date;
c. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Debentures on the Closing Date and on each Additional Closing Date is
conditioned upon:
a. Delivery by the Company to Buyer of the Debentures in
accordance with this Agreement;
b. The accuracy in all material respects on the relevant Closing
Date or Additional Closing Date of the representations and warranties of the
Company contained in this Agreement, each as if made on such Closing Date or
Additional Closing Date and the performance by the Company on or before such
Closing Date or Additional Closing Date of all covenants and agreements of
the Company required to be performed on or before such Closing Date or
Additional Closing Date.
9. WARRANTS
On each of the Closing Date, and the November 28, 1997 and the January 15,
1998 Additional Closing Dates, the Company shall issue to Buyer a Warrant for
416,666, 416,667 and 625,000 shares of Common Stock, respectively, on the
terms and in substantially the form as set forth in the Warrant attached
hereto as Annex III.
10. APPOINTMENT OF DIRECTORS
On each of the Closing Date and the January 15, 1998 Additional Closing Date,
and from year to year thereafter for so long as the Buyer beneficially holds
or has a right under this Agreement to hold any of the Debentures, or holds
shares of Common Stock representing at least 25% of the total issued and
outstanding Common Stock of the Company, Buyer shall be entitled to appoint
two directors to the Board of Directors of the Company. During such time as
Buyer has the right to so appoint two directors, the size of the Board shall
remain at 5 members. Each director choice shall be subject to Board approval,
provided that on funding of the first $500,000, the Board shall have
pre-approved Larry Smart, David Weimert, Scott Kimple and Edward M. Fishman
for potential appointment.
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<PAGE>
11. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Washington for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to jurisdiction in King
County, Washington in connection with any dispute arising under this
Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on FORUM NON CONVENIENS, to the
bringing of any such proceeding in such jurisdictions. A facsimile
transmission of this signed Agreement shall be legal and binding on all
parties hereto. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original, and all of which taken together
shall constitute one and the same Agreement. The headings of this Agreement
are for convenience of reference and shall not form part, or affect the
interpretation, of this Agreement. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this
Agreement in any other jurisdiction. This Agreement may be amended only by
an instrument in writing signed by the party to be charged with enforcement
thereof. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
12. NOTICES.
Any notice required or permitted hereunder shall be given in writing (unless
otherwise specified herein) and shall be deemed effectively given, (i) on the
date delivered, (a) by personal delivery, or (b) if advance copy is given by
fax, (ii) three business days after deposit in the United States Postal
Service by regular or certificate mail, or (iii) five business days after
mailing by international express courier if advance copy has been given by
fax, with postage and fees prepaid, addressed to each of the other parties
thereunto entitled at the following addresses, or at such other addresses as
a party may designate by ten days advance written notice to each of the other
parties hereto.
COMPANY: MIDISOFT CORPORATION
1605 N.W. Sammamish Road
Issaquah, WA 98027
Attention: President
Telecopier No.: (425) 391-3422
Telephone No.: (425) 391-3610
with a copy to:
Heller Ehrman White & McAuliffe
6100 Columbia Center
701 Fifth Avenue
Seattle, WA 98104-7098
Attention: Thomas S. Hodge
Telecopier No.: (206) 447-0849
Telephone No.: (206) 447-0900
PURCHASER: At the address set forth on the signature page
of this Agreement.
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The Company's representations and warranties herein shall survive the
execution and delivery of this Agreement and the delivery of the Debentures
and the purchase price therefor, and shall inure to the benefit of the Buyer
and its successors and assigns.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer
or one of its officers thereunto duly authorized as of the date set forth
below.
AGGREGATE INITIAL PRINCIPAL AMOUNT AND PURCHASE PRICE OF SUCH DEBENTURE:
$500,000.
IN WITNESS WHEREOF, each of the undersigned represents that the
foregoing statements are true and correct and that it has caused this
Securities Purchase Agreement to be duly executed on its behalf this 28th day
of October, 1997.
15851 Dallas Parkway, Suite 1120
Dallas, Texas 75248
__________________________________ __________________________________
Address of Subscriber Printed Name of Subscriber
Telecopier No. 214-233-5069 By: ______________________________
Telephone No. 214-233-9003 (Signature of Authorized Person)
__________________________________ __________________________________
Jurisdiction of Incorporation or Printed Name and Title
Organization
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its
behalf.
MIDISOFT CORPORATION
By: __________________________________
Title: _______________________________
Date: ________________________________
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<PAGE>
ANNEX I - FORM OF DEBENTURE
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. AS AMENDED OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER
EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED. No.________ U.S. $500,000/$1,000,000
MIDISOFT CORPORATION
1% CONVERTIBLE DEBENTURE DUE OCTOBER 28 / NOVEMBER 28 /, 2000 / JANUARY 15,
2001/ JUNE 15, 2001/ JUNE 15, 2002
FOR VALUE RECEIVED, the Midisoft corporation (the "Company") promises to
pay to ________, (the registered holder hereof (the "Holder"), the principal
sum of FIVE HUNDRED THOUSAND Dollars (US $500,000) on [October 28, 2000/
November 28, 2000 and the principal sum of ONE MILLION 00/100 Dollars
(US $1,000,000) on January 15, 2001/ June 15, 2001/ June 15, 2002]
(the "Maturity Date") and to pay interest on the principal sum outstanding
from time to time in arrears upon conversion as provided herein on
[October 28, 2000/ November 28, 2000 / January 15, 2001/ June 15, 2001/
June 15, 2002] at the rate of 1% per annum accruing from the date of initial
issuance. Accrual of interest shall commence on the first such business day
to occur after the date hereof until payment in full of the principal sum has
been made or duly provided for. Subject to the provision of Section 4 below,
the principal of, and interest on this Debenture are payable at the option of
the Company, in shares of Common Stock, no par value per share, of the
Company ("Common Stock"), or in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts, at the address of the Holder as designated in writing by the
Holder from time to time. To the extent paid in shares of Common Stock,
interest on this Debenture shall be paid at the Market Price (as hereinafter
defined) of the Common Stock on the Maturity Date. The Company will pay the
principal of and interest upon this Debenture on the Maturity Date, less any
amounts required by law to be deducted, to the registered holder of this
Debenture as of the tenth day prior to the Maturity Date and addressed to
such holder at the last address designated by the Holder in writing. The
forwarding of such check shall constitute a payment of principal and interest
hereunder and shall satisfy and discharge the liability for principal and
interest on this Debenture to the extent of the sum represented by such check.
This Debenture is being issued pursuant to that certain Securities Purchase
Agreement dated October 28, 1997 between the Company and Holder (the
"Purchase Agreement"). This Debenture is subject to the following additional
provisions:
1. The Debentures are exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by
the Holders surrendering the same. No service charge will be made for such
registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of and interest on this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws
or other applicable laws at the time of such payments and Holder shall
execute and deliver all required documentation in connection therewith.
3. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended (the
"Act"),and other applicable state and foreign securities laws. In the event
of any proposed transfer of this Debenture the Company may require, prior to
issuance of a new Debenture in the name of such other person that it receive
reasonable transfer documentation including opinions that the issuance of the
Debenture in such other name does not and will not cause a violation of the
Act or any applicable state or foreign securities laws. Prior to due
presentment for transfer of this Debenture, the Company and any agent of the
Company may treat the person in whose name this Debenture is duly registered
on the Company's Debenture Register as the owner hereof for the
22
<PAGE>
purpose of receiving payment as herein provided and for all other purposes
whether or not this Debenture be overdue, and neither the Company nor any
such agent shall be affected by notice to the contrary.
4. A. Subject to Section 4B and 4C hereof, the Holder of this
Debenture is entitled, at its option to convert at any time the principal
amount of this Debenture, provided that the principal amount is at least US
10,000 (unless if at the time of such election to convert the aggregate
principal amount of all Debentures registered to the Holder is less than Ten
Thousand Dollars (US $10,000), then the whole amount thereof) into shares of
Common Stock of the Company at a conversion price for each share of Common
Stock equal to the price for the October 28, 1997 and November 28, 1997
Debentures of sixty cents ($0.60) per share, the January 15, 1998 Debenture
of eighty cents ($0.80) per share, the June 15, 1998 Debenture of 53% of the
Market Price on the date of issuance of this Debenture (the "Issuance Date")
and the June 15, 1999 Debenture of 63% of the Market Price on the Issuance
Date of this Debenture. As used herein, the Market Price shall be the average
closing bid price of the Common Stock on the five (5) trading days
immediately preceding the Issuance Date, as reported by the National
Association of Securities Dealers, or the closing bid price on the over the
counter market over the five (5) trading days immediately preceding the
Issuance Date, or, in the event the Common Stock is listed on a stock
exchange, the Market Price shall be the closing price on the exchange for the
five (5) trading days immediately preceding the Issuance Date, as reported in
the Wall Street Journal. Conversion shall be effectuated by surrendering the
Debentures to be converted to the Company with the form of conversion notice
attached hereto as Exhibit A, executed by the Holder of the Debenture
evidencing such Holder's intention to convert this Debenture or a specified
portion (as above provided) hereof, and accompanied, if required by the
Company, by proper assignment hereof in blank. Interest accrued or accruing
from the date of issuance to the date of conversion shall at the option of
the Company be paid in cash or Common Stock upon conversion at the Market
Price. No fraction of Shares or scrip representing fractions of shares will
be issued on conversion, but the number of shares issuable shall be rounded
to the nearest whole share. The date on which notice of conversion is given
(the "Conversion Date") shall be deemed to be the date on which the Holder
has delivered this Debenture, with the conversion notice duly executed, to
the Company or, the date set forth in such facsimile delivery of the notice
of conversion if the Debenture is received by the Company within three (3)
business days therefrom. Facsimile delivery of the conversion notice shall
be accepted by the Company at telephone number (425-391-3610); ATTN:
President or Secretary. Certificates representing Common Stock upon
conversion will be within five (5) business days from the date the notice of
conversion with the original Debenture is delivered to the Company.
B. (i) Notwithstanding any other provision hereof to the
contrary, at any time prior to the Conversion Date, the Company shall have
the right to redeem all but not less than all of the outstanding principal
amount of the Debentures then held by the Holder for an amount (the
"Redemption Amount") equal to the sum of (i) such outstanding principal of
the Debentures plus all accrued but unpaid interest thereof through the date
the Redemption Price is paid to the Holder (the "Redemption Payment Date"),
plus (ii) the Redemption Premium (as defined below).
(ii) The "Redemption Premium" shall be:
a. if the Redemption Payment Date is not more than 45
days from the Issuance Date, [7%] of the outstanding principal of the
Debentures;
b. if the Redemption Payment Date is more than 45 days
but not more than 90 days from the Issuance Date, [14%] of the outstanding
principal of the Debentures; and
c. if the Redemption Payment Date is more than 90 days
from the Issuance Date, [25%] of the outstanding principal of the Debentures.
23
<PAGE>
(iii) The Redemption Payment shall be paid to the Holder
within ten (10) days from the date of the Notice of Redemption. Furthermore,
in the event such payment is not timely made, any rights of the Company to
redeem the Debenture shall terminate, and the Notice of Redemption shall be
null and void.
C. The Company shall have the right to require, by written notice
to the Holder of this Debenture at least ten (10) days prior to the Maturity
Date, that the Holder of this Debenture exercise its right of conversion with
respect to all or that portion of the principal amount and interest
outstanding on the Maturity Date.
5. No provision of this Debenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of,
and interest on, this Debenture at the time, place, and rate, and in the coin
or currency, herein prescribed. This Debenture and all other Debentures now
or hereafter issued of similar terms are direct obligations of the Company.
6. No recourse shall be had for the payment of the principal of, or
the interest on, this Debenture, or for any claim based hereon, or otherwise
in respect hereof, against any incorporate, shareholder, officer or director,
as such past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the
issue hereof, expressly waived and released.
7. If the Company mergers or consolidates with another corporation or
sells or transfers all or substantially all of its assets to another person
and the holders of the Common Stock are entitled to receive stock, securities
or property in respect of or in exchange for Common Stock, then as a
condition of such merger, consolidated, sale or transfer, the Company and any
such successor, purchaser or transferee agree that the Debenture may
thereafter be converted on the terms and subject to the conditions set forth
above into the kind and amount of stock, securities or property receivable
upon such merger, consolidation, sale or transfer by a holder of the number
of shares of Common Stock into which this Debenture might have been
converted immediately before such merger, consolidation, sale or transfer,
subject to adjustments which shall be as nearly equivalent as may be
practicable. In the event of any proposed merger, consolidation or sale or
transfer of all or substantially all of the assets of the Company (a "Sale"),
the Holder hereof shall have the right to convert by delivering a Notice of
Conversion to the Company within fifteen (15) days of receipt of notice of
such Sale from the Company. In the event the Holder hereof shall elect not
to convert, and without regard to Section 4(b) above, the Company may prepay
all outstanding principal and accrued interest on this Debenture, less all
amounts required by law to be deducted, upon which tender of payment
following such notice, the right of conversion shall terminate.
8. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not
offer, sell or otherwise dispose of this Debenture or the Shares of Common
Stock issuable upon conversion thereof except under circumstances which will
not result in a violation of the Act or any applicable state Blue Sky or
foreign laws or similar laws relating to the sale of securities.
9. The indebtedness evidenced by this Debenture shall be subordinate
and subject in right of payment to the prior payment in full of the Company's
Senior Indebtedness. "Senior Indebtedness " shall mean the principal, unpaid
interest and any other amounts due and owing on (i) indebtedness of the
Company, or indebtedness on which the Company is a guarantor, whether
outstanding on the date hereof or hereafter created, to banks for money
borrowed by the Company or a subsidiary of the Company, whether or not
secured, but in no event in excess of Four Hundred Thousand Dollars
($400,000), and (ii) any deferrals, renewals, refunds or extensions of such
indebtedness or any debentures, notes or other evidence of indebtedness
issued in exchange for such indebtedness, but in no event in excess of Four
Hundred Thousand Dollars ($400,000).
24
<PAGE>
10. This Debenture shall be governed by and construed in accordance
with the laws of the State of Washington for contracts to be wholly performed
in such state and without regard to the principles thereof regarding the
conflict of laws. Each of the parties consents to jurisdiction in King
County, Washington in connection with any dispute arising under this
Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on FORUM NON CONVENIENS, to the
bringing of any such proceeding in such jurisdictions.
11. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal or
interest on this Debenture and such default shall remain unremedied for five
(5) business days after the Company has been notified of the default in
writing by a Holder; or
b. Any of the representations or warranties made by the Company
herein, in the Purchase Agreement, or in any certificate or financial or
other written statements furnished by the Company in connection with the
execution and delivery of this Debenture or the Purchase Agreement shall be
false or misleading in any material respect at the time made; or
c. The Company fails to issue shares of Common Stock to the
Holder or to cause its Transfer Agent to issue shares of Common Stock upon
exercise by the Holder of the conversion rights of the Holder in accordance
with the terms of this Debenture, fails to transfer or to cause its transfer
Agent to transfer any certificate for shares of Common Stock issued to the
Holder upon conversion of this Debenture and when required by the Debenture
or the Purchase Agreement, or fails to remove any restrictive legend or to
cause its Transfer Agent to transfer on any certificate or any shares of
Common Stock issued to the Holder upon conversion of this Debenture as and
when required by this Debenture or the Securities Purchase Agreement and any
such failure shall continue uncured for five (5) business days after the
Company has been notified of such failure in writing by Holder; or
d. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement or
obligation of the Company under this Debenture and such failure shall
continue uncured for a period of thirty (30) days after written notice from
the Holder of such failure; or
e. The Company shall (1) after the date hereof, make an
assignment for the benefit of creditors or commence proceedings for its
dissolution; or (2) apply for or consent to the appointment of a trustee,
liquidation or receiver for all or a substantial part of its property or
business; or
f. A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or
g. Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or control of
the whole or any substantial portion of the properties or assets of the
Company and shall not be dismissed within sixty (60) days thereafter; or
h. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against the Company
and, if instituted against the Company, shall not be dismissed within sixty
(60) days after such institution or the Company shall by any action or answer
approve of, consent to, or acquiesce in any such proceedings or admit the
material allegations of, or default in answering a petition filed in any such
proceeding.
25
<PAGE>
Then, or at any time thereafter, and in each and every such case,
unless such Event of Default shall have been waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any subsequent default),
at the option of the Holder and in the Holder's sole discretion, the Holder
may consider this Debenture immediately due and payable, without presentment,
demand, protest or notice of any kinds, all of which are hereby expressly
waived, anything herein or in any note or other instruments contained to the
contrary notwithstanding, and the Holder may immediately enforce any and all
of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law.
12. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: _____________________, 199__ MIDISOFT CORPORATION
By: _______________________________
___________________________________
(Print Name)
___________________________________
(Title)
26
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $______ of the
principal amount of the above Debenture No. ____ into shares of Common Stock
of MIDISOFT CORPORATION (the "Company") according to the conditions hereof,
as of the date written below. In converting the Debenture No. ______, the
undersigned hereby confirms and acknowledges that the shares of Common Stock
are being acquired solely for the account of the undersigned and not a
nominee for any other party, and that the undersigned will not offer, sell or
otherwise dispose of any such shares of Common Stock, except under
circumstances that will not result in a violation of the Securities Act of
1933, as amended.
Date of Conversion __________________________________________________________
Applicable Conversion Price _________________________________________________
Signature ___________________________________________________________________
[Name]
Address: ____________________________________________________________________
_____________________________________________________________________________
*This original Debenture and Notice of Conversion must be received by the
Company by the third business date following the Date of Conversion.
27
<PAGE>
ANNEX II - EXCEPTIONS TO REPRESENTATIONS
Item 1:
The following vendors have filed complaints against the Company for the
amounts noted. The Company does not dispute any of the amounts as due and
owing. Additional vendors can reasonably be expected to file complaints
against the Company if not paid within the next 30 days.
Ziff Davis Publishing $ 32,941.59 Helm, Helm & Lovejoy, P.S.
Pac Services, Inc. 20,422.95 Helm, Helm & Lovejoy, P.S.
Elgin Syferd 49,812.63 Evergreen Professional
Bruce Carroll 1,311.43 King County District Court
Medius Corporation 23,996.26 Davis Wright Tremaine
Julie Thomas 6,877.50 Ryan, Swanson & Cleveland
Tri-Tec 4,717.47 Owens Davies Mackie
------------
$ 140,079.83
------------
------------
Item 2:
The Company issued $250,000 of subordinated convertible debt on September 15,
1997. Maximum number of shares of Midisoft Common Stock issuable at
conversion is 384,615 based on the conversion rate of $0.65 per share. All
other terms are currently under negotiation.
Item 3:
See attached memo.
28
<PAGE>
PRIVILEGED
ATTORNEY WORK PRODUCT
HELLER, EHRMAN, WHITE & MCAULIFFE
M E M O R A N D U M
TO: Louisa Barash
FROM: Brendan Mangan
DATE: October 6, 1997
RE: ASK ME MULTIMEDIA, INC. V. MIDISOFT CORPORATION, American
Arbitration Association # 75 Y 489 00124 97
CC: Melinda Bryden (via fax)
-----------------------------
Following up on your request, below is a summary of the arbitration
claim by Ask Me, dated May 9, 1997.
Midisoft purchased software from Ask Me, known as Super Show & Tell (or
"SST"), in May 1995. In exchange, Ask Me received $1.5 million worth of
unregistered shares of Midisoft stock and a $500,000 "earn out" based on
future sales of SST. Based on the share price as of the date of closing, Ask
Me was to receive 166,667 shares of unregisterd Midisoft common stock.
In its arbitration claim, Ask contends that Midisoft failed to disclose
material information that adversely affected the price of Midisoft shares
after the Ask Me transaction closed. Ask Me also claims that Midisoft failed
to register the shares in a timely manner, and that Ask Me has been injured
by the intervening drop in Midisoft's share price. Ask Me's original demand
included claims for breach of warranty, breach of contract,
misrepresentation, and violation of the Securities Act of 1933, the 1934
Securities Act, and the Racketeer Influenced and Corrupt Organizations Act
("RICO"). The arbitration panel recently granted in part Midisoft's motion
to dismiss certain of Ask Me's claims, including the federal securities
claims and the RICO claim. However, the panel declined to find that Ask Me's
common law claims are barred by the prior settlement of the shareholder class
action against Midisoft. Ask Me seeks direct damages of at least $1.1
million, plus unspecified consequential damages.
Midisoft has denied Ask Me's claims and will defend vigorously and
assert counterclaims. In its response to the arbitration demand, Midisoft
stated: (i) that Ask Me was notified about the first restatement of
Midisoft's financial statements prior to closing, but decided to proceed
anyway; (ii) that Ask Me was advised of the special risks inherent in
accepting consideration in the form of unregistered shares but decided to do
so anyway; (iii) that to avoid the cost of registering its shares, Ask Me
elected not to demand registration (as was its right) and instead waited to
"piggyback" on another registration; (iv) that Ask Me's claim for treble
damages and/or punitive damages pursuant to the RICO statute may be
vulnerable to dismissal as a matter of law; (v) that Midisoft expended
considerable effort to register Ask Me's shares; (vi) that Ask Me owes
$112,500, which it borrowed from Midisoft; and (vii) that Ask Me may be
liable for the proceeds of certain contracts which were assigned to Midisoft
at closing.
The events at issue in Ask Me's arbitration demand occurred under
Midisoft's prior management. Our factual investigation is ongoing. It is
premature to assess the viability of either party's claims and potential
defenses (including those identified above), or the likelihood of any
recovery.
29
<PAGE>
ANNEX III - FORM OF WARRANT
THE REGISTERED OWNER OF THIS WARRANT, BY HIS ACCEPTANCE HEREOF, AGREES THAT
HE WILL NOT SELL, TRANSFER OR ASSIGN THIS WARRANT. TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS
SET FORTH IN ANNEX I TO WARRANT, STATEMENT OF RIGHTS; OF WARRANTHOLDER. NO
TRANSFER OF THESE SECURITIES OR OF THIS CERTIFICATE, OR OF ANY SECURITIES OR
CERTIFICATES ISSUED IN EXCHANGE THEREFOR, SHALL BE EFFECTIVE UNLESS THERE IS
COMPLIANCE WITH THE TERMS AND CONDITIONS OF SUCH RESTRICTIONS.
- -----------------------------------------------------------------------
WARRANT
FOR THE PURCHASE OF [416,666/416,667/625,000] SHARES OF COMMON STOCK OF
MIDISOFT CORPORATION
(A WASHINGTON CORPORATION)
THIS CERTIFIES THAT, for value received, ___________________________________,
as registered owner (the "Owner") of this Warrant, is entitled, subject to
Annex I hereto at any time or from time to time on after
[October 28, 1997/November 28, 1997/January 15, 1998] and at or before 5:00
p.m., Pacific Time, [October 28, 2002November 28, 2002/January 15, 2003],
subject to earlier expiration pursuant to Section 2 of Annex I attached
hereto (the "Expiration Date"), but not thereafter, to subscribe for,
purchase and receive fully paid and nonassessable shares of common stock (the
"Shares") of Midisoft Corporation, a Washington corporation (the
"Corporation"), at the price of $1.50 per Share (the "Exercise Price"), upon
presentation and surrender of this Warrant and upon payment of the Exercise
Price for the Shares to be purchased to the Corporation at the principal
office of the Corporation as more fully described in the Statement of Rights
of Warrantholder, a copy of which is attached as Annex I hereto and by this
reference made a part hereof; provided, however, upon the occurrence of the
events specified in Annex I, the rights granted by this Warrant shall be
terminated or adjusted as specified in Annex I. Upon exercise of this
Warrant, the form of election hereinafter provided must be duly executed and
the instructions for registration of the Shares acquired by such exercise
must be completed. If the subscription rights represented hereby shall not
be exercised at or before the Expiration Date, or such earlier date as may be
applicable pursuant to Section 2 of Annex I, this Warrant shall become and be
void without further force or effect, and all rights represented hereby shall
cease and expire.
Subject to the terms contained herein, this Warrant may be exercised in whole
or in part by execution by the Owner of the form of exercise attached hereto.
In the event of the exercise hereof in part only, the Corporation shall
cause to be delivered to the Owner a new Warrant of like tenor to this
Warrant in the name of the Owner evidencing the right of the Owner to
purchase the number of Shares purchasable hereunder as to which this Warrant
has not been exercised.
In no event shall this Warrant (or the Shares issuable upon full or partial
exercise hereof) be offered or sold except in conformity with the Securities
Act of 1933, as amended.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be signed by
its duly authorized officers.
MIDISOFT CORPORATION
By ___________________________________
President
By ___________________________________
Secretary
30
<PAGE>
Form to be used to exercise Warrant:
EXERCISE FORM
The undersigned hereby elects irrevocably to exercise this within Warrant and
to purchase shares of Common Stock of Midisoft Corporation, called for
hereby, and hereby makes payment of $______________ (at the rate of $1.50 per
share) in payment of the Exercise Price pursuant hereto. Please issue the
shares as to which this Warrant is exercised in accordance with the
instructions given below.
Dated: __________________________, 19__
Signature: ___________________________
Signature Guaranteed: ________________
INSTRUCTIONS FOR REGISTRATION OF SHARES
Name __________________________________
(Print in Block Letters)
Address _______________________________
31
<PAGE>
MIDISOFT CORPORATION
ANNEX I TO WARRANT
STATEMENT OF RIGHTS OF WARRANTHOLDER
1. EXCHANGE OF WARRANT. This Warrant, at any time prior to the
exercise hereof, upon presentation and surrender to the Corporation, may be
exchanged, alone or with other Warrants of like tenor registered in the name
of the same Owner, for another Warrant or other Warrants of like tenor in the
name of such Owner, exercisable for the same aggregate number of Shares as
the Warrant or Warrants surrendered.
2. PURCHASE AND EXERCISE OF WARRANT.
a. THIS WARRANT MAY NOT BE SOLD, ASSIGNED, HYPOTHECATED,
TRANSFERRED, OTHER THAN BY WILL OR PURSUANT TO THE LAWS OF DESCENT AND
DISTRIBUTION. Each certificate for Warrants issued hereunder shall bear a
legend reading substantially as follows:
"TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN ANNEX I TO WARRANT, STATEMENT OF
RIGHTS OF WARRANTHOLDER. NO TRANSFER OF THESE SECURITIES OR OF THIS
CERTIFICATE, OR OF ANY SECURITIES OR CERTIFICATES ISSUED IN EXCHANGE
THEREFOR, SHALL BE EFFECTIVE UNLESS THERE IS COMPLIANCE WITH THE TERMS AND
CONDITIONS OF SUCH RESTRICTIONS."
In case the Owner shall desire to exercise the purchase right
evidenced by this Warrant, the Owner shall surrender this Warrant with the
form of exercise attached hereto duly executed by the Owner, to the
Corporation at the principal office of the Corporation at 1605 NW Sammamish
Road, Suite 205, Issaquah, Washington 98027, attention of the President
accompanied by payment by certified funds, cashier's check or other form of
payment acceptable to the Corporation of the total Exercise Price
(hereinafter defined) for the Shares to be purchased. This Warrant may be
exercised in whole or in part. In case of the exercise hereof in part only
the Corporation will deliver to the Owner a new Warrant of like tenor in the
name of the Owner evidencing the right to purchase the number of Shares as to
which this Warrant has not been exercised. Unless the Corporation receives
an opinion from counsel satisfactory to it that such a legend is not required
in order to assure compliance with the Securities Act of 1933, as amended
(the "1933 Act"), or any applicable state securities laws, each certificate
for Shares issued hereunder shall bear a legend reading substantially as
follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, NOR HAVE THEY BEEN REGISTERED UNDER THE SECURITIES ("BLUE SKY") LAWS
OF ANY STATE. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED, OR
HYPOTHECATED UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 AND UNDER THE APPLICABLE STATE SECURITIES ("BLUE SKY") LAWS OR UNLESS
THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND LAWS IS
ESTABLISHED TO THE SATISFACTION OF THE COMPANY, WHICH MAY NECESSITATE A
WRITTEN OPINION OF SELLER'S COUNSEL SATISFACTORY TO COMPANY COUNSEL.
b. The exercise price (the "Exercise Price") per Share issuable
upon the exercise of this Warrant shall be $1.50.
c. The term of this Warrant (the "Warrant Period") is a five year
period commencing on [October 28, 1997/November 28, 1997/January 15, 1998]
and ending on [October 28, 2002/November 28, 2002/January 15, 2003].
32
<PAGE>
3. DISPOSITION OF SECURITIES
a. The registered owner of this Warrant, by acceptance hereof,
agrees that, before any disposition is made of any Warrant or underlying
Share, the Owner shall give written notice to the Corporation describing
briefly the manner of any such proposed disposition. No such disposition
shall be made unless and until:
b. The Corporation has received an opinion from counsel for the
Owner of said securities stating that no registration under the 1933 Act or
any state securities law is required with respect to such disposition; or
c. A registration statement or post-effective amendment to a
registration statement under the 1933 Act has been filed by the Corporation
and made effective by the Securities and Exchange Commission covering such
proposed disposition and the securities have been registered under the
appropriate state securities laws or an exemption from registration is
available.
4. SHARE DIVIDENDS RECLASSIFICATION; REORGANIZATION PROVISIONS.
a. If, prior to the expiration of this Warrant by exercise or by
its terms, the Corporation shall issue shares of Common Stock as a share
dividend or subdivide the number of outstanding shares of Common Stock into a
greater number of shares, then, in either of such cases, the Exercise Price
per Share purchasable pursuant to this Warrant in effect at the time of such
action shall be proportionately increased; and conversely, if the Corporation
shall contract the number of outstanding shares of Common Stock by combining
such shares into a smaller number of shares, then, in such case, the Exercise
Price per Share purchasable pursuant to this Warrant in effect at the time of
such action shall be proportionately increased and the number of Shares at
that time purchasable pursuant to this Warrant shall be proportionately
decreased. If the Corporation shall, at any time during the life of this
Warrant declare a dividend payable in cash on its shares of Common Stock and
shall at substantially the same time offer to its shareholders a right to
purchase new shares of Common Stock form the proceeds of such dividend or for
an amount substantially equal to the dividend, all shares of Common Stock so
issued shall, for the purpose of this Warrant, be deemed to have been issued
as a share dividend. Any dividend paid or distributed upon the Common Stock
in shares of any other class of securities convertible into Common Stock
shall be treated as a dividend paid in Common Stock to the extent that shares
of Common Stock are issuable upon the conversion thereof.
b. If, prior to the expiration of this Warrant by exercise or by
its terms, the Corporation shall be recapitalized by reclassifying its
outstanding shares of Common Stock into shares with a different par value, or
the Corporation or a successor corporation shall consolidate or merge with or
convey all or substantially all of its or of any successor corporation's
property and assets to any other corporation or corporations (any such
corporation being included within the meaning of the term "successor
corporation" used above in the event of any consolidation or merger of any
such corporation with, or the sale of all or substantially all of the
property of any such corporation to another corporation or corporations), the
Owner of this Warrant shall thereafter have the right to purchase, upon the
basis and on the terms and conditions and during the time specified in this
Warrant, in lieu of the Shares theretofore purchasable upon the exercise of
this Warrant, such shares, securities, or assets as may be issued or payable
with respect to, or in exchange for, the number of Shares theretofore
purchasable upon the exercise of this Warrant had such recapitalization,
consolidation, merger or conveyance not taken place, and, in any such event,
the rights of the Owner of this Warrant to an adjustment in the number of
Shares purchasable upon the exercise of this Warrant as herein provided shall
continue and be preserved in respect of any shares, securities, or assets
which the Owner of this Warrant becomes entitled to purchase.
c. If: (i) the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a dividend
payable otherwise than in cash, or any other distribution in respect of the
Common Stock (including cash), pursuant to, without limitation, any spin-off,
split-off, or distribution of the Corporation's assets; or (ii) the
Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them to subscribe for or purchase any shares of any
class or to receive any other rights; or (iii) in the
33
<PAGE>
event of any classification, reclassification, or other reorganization of the
shares which the Corporation is authorized to issue, consolidation or merger
of the Corporation with or into another corporation, or conveyance of all or
substantially all of the assets of the Corporation, or (iv) in the event of
the voluntary or involuntary dissolution, liquidation or winding up of the
Corporation; then, and in any such case, the Corporation shall mail to the
Owner of this Warrant, at least thirty (30) days prior thereto, a notice
stating the date or expected date on which a record is to be taken for the
purpose of such dividend, distribution or rights, or the date on which such
classification, reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation, or winding up as the case may be, will
be effected. Such notice shall also specify the date or expected date, if
any is to be fixed, as of which holders of record shall be entitled to
participate in such dividend, distribution, or rights, or shall be entitled
to exchange their shares of Common Stock for securities or other property
deliverable upon such classification, Reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up, as
the case may be.
d. If the Corporation, at any time while this Warrant shall
remain unexpired and unexercised, shall sell all or substantially all of its
property, dissolve, liquidate, or wind up its affairs, the Owner of this
Warrant may thereafter receive upon exercise hereof, in lieu of each Share
which it would have been entitled to receive, the same kind and amount of any
securities or assets as may be issuable, distributable, or payable upon any
such sale, dissolution, liquidation, or winding up with respect to each
Common Share of the Corporation.
5. RESERVATION OF SHARES ISSUABLE ON EXERCISE OF WARRANTS. The
Corporation will, at all times, reserve and keep available out of its
authorized shares, solely for issuance upon the exercise of this Warrant such
number of shares of Common Stock and other shares as from time to time shall
be issuable upon the exercise of this Warrant.
6. LOSS, THEFT, DESTRUCTION OR MUTILATION. Upon receipt by the
Corporation of evidence satisfactory to it (in the exercise of its reasonable
discretion) of the ownership of and the loss, theft, destruction, or
mutilation of this Warrant, the Corporation will execute and deliver, in lieu
thereof, a new Warrant of like tenor.
7. WARRANTHOLDER NOT A SHAREHOLDER. The Owner of this Warrant, as
such, shall not be entitled by reason of this Warrant to any rights
whatsoever of a shareholder of the Corporation.
DATED this _____ day of __________________, 199__.
MIDISOFT CORPORATION
By: ______________________________________________
President
34
<PAGE>
EXHIBIT 4.6 FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of October 28, 1997, by and between Midisoft Corporation, a Washington
corporation (the "Company"), and ____________________ (the "Holder") in
connection with that certain Securities Purchase Agreement between Holder and
the Company of even date herewith (the "Purchase Agreement").
In consideration of the mutual covenants set forth in this Agreement and
for other good an valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and the Undersigned, pursuant to
the covenants and conditions contained herein, hereby agree as follows:
AGREEMENT
1. DEFINITIONS For purposes of this Agreement:
(a) The term "Commission" shall mean the U.S. Securities and
Exchange Commission or any U.S. federal agency at the time administering the
Securities Act;
(b) The term "Common Stock" shall mean the common stock of the
Company;
(c) The term "Debentures" shall mean the 1% Convertible Debentures
of the Company issued to _______________ pursuant to the Purchase Agreement;
(d) The term "register," "registered," and "registration" refer to
a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration
or ordering of effectiveness of such registration statement or document;
(e) The term "Registrable Securities" shall mean Common Stock that
has not been registered for sale to the public under the Securities Act and
is issued upon conversion of the Debentures and the related Warrants;
(f) The term "Registration Expenses" and "Selling Expenses" shall
mean the expenses described in Section 5 hereof;
(g) The term "Securities Act" shall mean the U.S. Securities Act
of 1933, as amended;
(h) The term "Exchange Act" shall mean the U.S. Securities
Exchange Act of 1934, as amended; and
(i) The term "Holder" means any person owning or having the right
to acquire Registrable Securities who is a party to this Agreement and any
assignee thereof in accordance with this Agreement.
2. SHELF REGISTRATION. The Company shall use its reasonable best
effort to file a registration statement on Form S-3 (or any successor
short-form registration statement adopted by the Commission for the resale of
securities) or any related qualification or compliance with respect to not
less than the number of shares of Common Stock into which the Debentures
would be convertible at the time of filing (plus such indeterminable number
of additional shares of Common Stock as may become issuable upon conversion
of the
35
<PAGE>
Debentures resulting from any antidilution adjustments) within thirty (30)
days following the Initial Closing Date under the Purchase Agreement. In
connection therewith, the Company will:
(a) Promptly give notice of the proposed registration, and any
related qualification or compliance, to all Holders.
(b) As soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all of such Holder's Registrable
Securities.
(c) The Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2: (i) if
the Company is not qualified as a registrant entitled to use Form S-3 (or any
similar successor form of registration statement); or (ii) if the Company
shall furnish to the Holders a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 or similar registration to be declared
effective at such time, in which event the Company shall have the right to
defer the request for effectiveness of the registration statement for a
period of not more than sixty (60) days.
3. OBLIGATIONS TO THE COMPANY. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective no later than ninety (90)
days after the Initial Closing Date. Upon the request of the Holders of a
majority of the Registrable Securities registered thereunder, the Company
shall keep such registration statement effective for up to one hundred eighty
(180) days.
(b) Prepare and file with the Commission such amendments and
supplements to the registration statement, and to the prospectus used in
connection with the registration statement, as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition of
all Registrable Securities covered by the registration statement.
(c) Furnish to the holders of each Registrable Securities such
numbers of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents as they may reasonably request, in order to facilitate the
disposition of their Registrable Securities covered by the registration
statement.
(d) Use its best efforts to register and qualify the Registrable
Securities covered by such registration statement under the securities laws
of such states as shall be reasonably requested by the holders of such
securities; PROVIDED, HOWEVER, that the Company shall not be required to
qualify to do business or to file a general consent to service a process in
any such state; and PROVIDED, FURTHER, that (anything in this Agreement to
the contrary notwithstanding with respect to the bearing of expenses) if any
state in which the Registrable Securities shall be qualified shall require
that all or any portion of the Registration Expenses (as defined in Section
5) be borne by selling shareholders, then to the extent required by that
state, such Registration Expenses shall be payable by the selling
shareholders pro rata.
(e) In the event of a public offering, on the closing date thereof
if such Registrable Securities are being sold through underwriters, or, if
such securities are not being sold through underwriters, on the date that the
registration statement with respect to such Registrable Securities becomes
effective, the Company shall furnish (i) an opinion dated such date, of
counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the holders of
Registrable Securities requesting registration of
36
<PAGE>
Registrable Securities and (ii) a letter dated such date, from the
independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the holders requesting registration of such
Registrable Securities.
(f) Notwithstanding the above, no holder of Registrable Securities
shall be entitled to include such Registrable Securities in any registration
pursuant to this Agreement unless such selling holder shall furnish to the
Company such information regarding such holder, the securities held by such
holder, and the intended method of disposition of such Registrable Securities
held by such holder, as shall be required to effect the registration of such
securities held by such holder.
4. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to any selling Holder that such selling Holder shall furnish to the
Company such information regarding itself, the Registrable Securities held by
it and the intended method of disposition of such securities as shall be
reasonably required to effect the registration of its Registrable Securities
and to execute such documents in connection with such registration as the
Company may reasonably request.
5. DEFINITION OF EXPENSES.
(a) "REGISTRATION EXPENSES" shall mean all expenses, incurred by
the Company in complying with Sections 2 and 8 hereof, including, without
limitation, registration and filing fees, printing expenses, accounting fees
and disbursements of counsel for the Company, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees) of the
Company which would be paid in any event by the Company) and the fees and
disbursements of one special counsel for the participating holders designated
by the majority in interest thereof.
(b) "SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale, and all fees and disbursements of
separate counsel for any holder other than as set forth in Section 5(a).
6. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant
Section 2 of this Agreement shall be borne by the Company, except to the
extent required by any applicable state securities laws. All Selling Expenses
shall be borne by the holders of the securities so registered pro rata on the
basis of the number of shares so registered.
7. DELAY OF REGISTRATION. No Holder shall have any right to seek or
to obtain a court order restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Agreement.
8. INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, each underwriter (as defined in the Securities
Act), each of the partners, officers, agents, employees and directors of each
Holder and underwriter and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities (joint or several) to
which they may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omission or violations (collectively, a
"Violation"):
37
<PAGE>
(i) any untrue statement or alleged untrue statement of
a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto,
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make
the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any state securities law or
any rule or regulation promulgated under the Securities Act, the
Exchange Act or any state securities law;
and the Company will reimburse each such Holder, underwriter, partner,
officer, agent, employee or director or controlling person, subject to the
provisions of Section 8(c), for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 8(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable in any
such case for any such loss, claim, damage, liability or action to the extent
that it arises out of or is based upon a Violation that occurs in reliance
upon and in conformity with written information furnished expressly for use
in connection with such registration by, or on behalf of, any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each underwriter, each other Holder,
each of the officers, directors, agents and employees of each of the
foregoing persons, and each person, if any, who controls the Company, or an
underwriter or another Holder within the meaning of the Securities Act
against any losses, claims, damages or liabilities (joint or several) to
which they may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by, or on behalf of, such Holder expressly for use in connection
with such registration; and each such Holder will reimburse any legal or
other expenses reasonably incurred by the Company, an underwriter,
underwriters' counsel, or another Holder (or any partner, agent, employee,
director, officer, or controlling person of such person), in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section
8(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 8
deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly notified, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if, in the opinion of
counsel for the indemnifying party, representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate due
to actual or potential differing interest between such indemnified party and
any other party represented by such counsel in such proceeding. It is
understood, however, that the indemnifying parties shall, in connection with
any one such action, suit or proceeding or separate but substantially similar
or related actions, suits or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of only one separate firm of attorneys at any
time for all indemnified persons. The failure to deliver written notice to
the indemnifying party within a reasonable period of time of the commencement
of any such action shall relieve such indemnifying party of any liability to
the indemnified party under this Section 9 to the extent prejudicial to its
38
<PAGE>
ability to defend such action, but the omission so to deliver written notice
to the indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section 8.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in this Section 8
is for any reason held to be unenforceable although applicable in accordance
with its terms, the Company and the selling Holders shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by the Company and the
selling Holders, in such proportion as is appropriate to reflect the relative
fault of and benefits to the Company on the one hand and the selling Holders
on the other (in such proportions that the selling Holders are severally, not
jointly, responsible for the balance), in connection with the statements or
omissions that resulted in such losses, claims damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative benefits to the indemnifying party and indemnified parties shall be
determined by reference to, among other things, the total proceeds received
by the indemnified party and indemnified parties in connection with the
offering to which such losses, claims, damages, liabilities or expenses
relate. The relative fault of the indemnifying party and indemnified parties
shall be determined by reference to, among other things, whether the action
in question, including any untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact, has been made
by, or relates to information supplied by, such indemnifying party or the
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other method if such allocation does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 8, if the total
price at which the Registrable Securities of a selling Holder were offered to
the public exceeds the amount of any damages which such selling Holder would
otherwise have been required to pay by reason of an untrue statement or
omission, such selling Holder shall not be required to contribute any amount
in excess of the total price at which the Registrable Securities of such
selling Holder were offered to the public.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purpose of this Section 8, each person, if
any, who controls a Holder within the meaning of Section 15 of the Securities
Act and directors and officers of a Holder shall have the same rights to
contribution as such Holder, and each director of the Company, each officer
of the Company who signed the registration statement and each person, if any,
who controls the Company within the meaning of Section 15 of the Securities
Act shall have the same rights to contribution as the Company.
(e) The Company and each selling Holder will provide such
additional indemnification and contribution as is reasonably required by the
underwriters, if any, and as is customarily contained in underwriting
agreements and which may differ from the provisions above.
9. REPORTS UNDER THE SECURITIES ACT. With a view to making available
to the Holders the benefits of Commission Rule 144 promulgated under the
Securities Act and any other rule or regulation of the Commission that may at
any time permit a Holder to sell securities of the Company to the public
without registration, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Commission Rule 144, at all times after ninety (90)
days after the effective date of the first registration statement filed by
the Company for the offering of its securities to the general public;
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
39
<PAGE>
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon written request (i) a written
statement by the Company that it has complied with the reporting requirements
of Commission Rule 144 (at any time after ninety (90) days after the
effective date of the first registration statement filed by the Company), the
Securities Act and the Exchange Act (at any time after it has become subject
to such reporting requirements), or that it qualifies as a registrant whose
securities may be resold pursuant to Form S-3 (at any time it so qualifies),
(ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company, and (iii) such
other information as may be reasonably requested in availing any Holder of
any rule or regulation of the Commission that permits the selling of any such
securities without registration or pursuant to such form.
10. AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given without the written consent of the Company and the
Holders of a majority in amount of the outstanding Registrable Securities;
PROVIDED HOWEVER, that no amendment, modification or supplement or waiver or
consent to the departure with respect to the provisions of Sections 3, 5, 6,
7 or 8 hereof shall be effective as against any Holder of Registrable
Securities unless consented to in writing by such Holder of Registrable
Securities. Notice of any amendment, modification or supplement to this
Agreement adopted in accordance with this Section 10 shall be provided by the
Company to each Holder of Registrable Securities at least thirty (30) days
prior to the effective date of such amendment, modification or supplement.
11. NOTICES. All notices, demands and other communications called for
or required by this Agreement shall be in writing and shall be addressed to
the parties at their respective addresses stated below or to such other
address as a party may subsequently designate by ten (10) days' advance
written notice to the other parties. Communications hereunder shall be
deemed to have been received (i) upon delivery in person, (ii) five days
after mailing it by U.S. certified mail, return receipt requested and postage
prepaid, (iii) the second business day after depositing it with a commercial
overnight carrier which provides written verification of delivery or (iv) the
day of transmission by telefacsimile if sent before 2:00 p.m. recipient's
time provided that a copy of such notice is sent on the same day by U.S.
certified mail, return receipt requested and postage prepaid, with an
indication that the original was sent by facsimile and the date of its
transmittal.
To a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of
this Section 11 which address initially is, with respect to each Holder, the
address set forth next to such Holder's name attached hereto, or (ii) if to
the Company, at Midisoft Corporation, 1605 N..W. Sammamish Road, Suite 205,
Issaquah, Washington, 98027 Attention: President, or such other address as
the Company shall notify the Holders in writing.
12. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders. If any successor, assignee or transferee of
any Holder shall acquire Registrable Securities, in any manner, whether by
operation of law or otherwise, such Registrable Securities shall be held
subject to all of the terms of this Agreement, and by taking and holding such
Registrable Securities such person shall be entitled to receive the benefits
hereof and shall be conclusively deemed to have agreed to be bound by all of
the terms and provisions hereof. Notwithstanding the foregoing provisions of
this Section 12, a transferee of Registrable Securities shall not be deemed
to be a party to, and shall not be bound by or entitled to the benefits of,
the provisions of this Agreement, if immediately following the transfer of
the Registrable Securities to such transferee, the further disposition of
such Registrable Securities by the transferee is not restricted under the
Securities Act.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
40
<PAGE>
14. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF WASHINGTON WITHOUT GIVING EFFECT
TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
16. SPECIFIC PERFORMANCE. The parties hereto acknowledge that there
would be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to
any other remedy to which it may be entitled at law or in equity, shall be
entitled to compel specific performance of the obligations of any other party
under this Agreement in accordance with the terms and conditions of this
Agreement in any court of the United States or any State thereof having
jurisdiction.
17. ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. This Agreement supersedes
all prior agreements and understandings between the parties with respect to
such subject matter.
18. SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded
from this Agreement, and the balance of this Agreement shall be interpreted
as if such provision were so excluded and shall be enforceable in accordance
with its terms.
THE COMPANY:
MIDISOFT CORPORATION
BY: ____________________________________
ITS: ___________________________________
HOLDER:
PRINT NAME: ____________________________
___________________________________
BY: ___________________________________
ITS: ___________________________________
10
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 54,000
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<RECEIVABLES> 1,210,000
<ALLOWANCES> 443,000
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0
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