AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1996
Registration No. 333-10519
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------
OBJECTSOFT CORPORATION
(Name of small business issuer in its charter)
Delaware 7373 22-3091075
(State of other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification
organization) Code Number) No.)
---------------------
Continental Plaza III, 433 Hackensack Avenue, Hackensack, New Jersey 07601
(201)343-9100
(Address and telephone number of principal executive offices)
---------------------
Continental Plaza III, 433 Hackensack Avenue, Hackensack, New Jersey 07601
(Address of principal place of business or intended principal place of business)
---------------------
David E.Y. Sarna, Chairman
ObjectSoft Corporation
Continental Plaza III, 433 Hackensack Avenue, Hackensack, New Jersey 07601
(201)343-9100
(Name, address and telephone number of agent for service)
---------------------
Copies to:
Melvin Weinberg, Esq. C. Walter Stursberg, Jr., Esq.
Parker Chapin Flattau & Klimpl, LLP Stursberg & Veith
1211 Avenue of the Americas 405 Lexington Avenue - Suite 4949
New York, New York 10036 New York, New York 10174-4902
(212) 704-6000 (212) 922-1177
---------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_] __________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_] __________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
_____________________
<PAGE>
================================================================================
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
EXPLANATORY NOTE
This Registration Statement covers the registration of (i)
1,437,500 units ("Units"), including Units to cover over-allotments, if any;
each Unit consisting of one share of Common Stock, $.0001 par value ("Common
Stock"), of ObjectSoft Corporation, a Delaware corporation (the "Company"), and
one redeemable Class A Warrant ("Class A Warrants"), for sale by the Company in
an underwritten public offering and (ii) an additional 1,143,088 shares of
Common Stock and 412,500 Class A Warrants (collectively, the "Selling
Securityholder Securities"), all for resale by the holders thereof or of certain
outstanding warrants (the "Selling Securityholders") from time to time, subject
to the contractual restriction that certain Selling Securityholders may not sell
their Selling Securityholder Securities for periods of nine or 12 months after
the completion of the underwritten offering without the prior written consent of
the representative of the underwriters.
The complete Prospectus relating to the underwritten offering
follows immediately after this Explanatory Note. Following the Prospectus for
the underwritten offering are pages of the Prospectus relating solely to the
Selling Securityholder Securities, including alternative front and back cover
pages and sections entitled "Concurrent Public Offering," "Plan of
Distribution," and "Selling Securityholders" to be used in lieu of the sections
entitled "Concurrent Registration of Common Stock" and "Underwriting" in the
Prospectus relating to the underwritten offering. Certain sections of the
Prospectus for the underwritten offering, such as "Use of Proceeds" and
"Dilution," will not be used in the Prospectus relating to the Selling
Securityholder Securities.
<PAGE>
================================================================================
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
================================================================================
SUBJECT TO COMPLETION, DATED OCTOBER 31, 1996
PROSPECTUS
1,250,000 Units
OBJECTSOFT CORPORATION [LOGO]
Each Unit consisting of one Share
of Common Stock and one Redeemable Class A Warrant
-------------------
ObjectSoft Corporation (the "Company") hereby offers 1,250,000 Units,
each Unit consisting of one share of the Company's common stock, par value
$.0001 per share (the "Common Stock"), and one Redeemable Class A Warrant (the
"Class A Warrants") of the Company (the "Offering"). The shares of Common Stock
and the Class A Warrants comprising the Units are immediately detachable and
separately transferable upon issuance. See "Underwriting."
Each Class A Warrant entitles the holder thereof to purchase one
share of Common Stock at an exercise price of $____ per share (130% of the
initial public offering price per Unit), subject to adjustment, at any time
commencing _________ __, 1997 (one year after the date of this Prospectus) until
_________ __, 2001 (five years after the date of this Prospectus). The Class A
Warrants are redeemable by the Company at a price of $.10 per Class A Warrant
commencing one year after the date of this Prospectus (or earlier with the prior
consent of Renaissance Financial Securities Corporation, the representative of
the Underwriters (the "Representative")), on not less than 30 days prior written
notice to the holders thereof, provided the average closing bid quotation of the
Common Stock as reported on the NASDAQ SmallCap Market ("NASDAQ"), if traded
thereon, or if not traded thereon, the average closing bid quotation of the
Common Stock if listed on a national securities exchange (or other reporting
system that provides last sale prices), has been at least 130% of the then
current exercise price of the Class A Warrants (initially, $_____ per share),
for a period of 20 consecutive trading days ending within 15 days of the date on
which the Company gives notice of redemption. The Class A Warrants will be
exercisable until the close of business on the day immediately preceding the
date fixed for redemption. See "Underwriting" and "Description of Securities -
Class A Warrants."
It is anticipated that the Units will be sold at a price between
$5.00 and $7.00 per Unit. Prior to the Offering, there has been no public market
for the Units, the Common Stock or the Class A Warrants, and there can be no
assurance that any such market will develop after the closing of the Offering or
that, if developed, it will be sustained. The offering price of the Units and
the initial exercise price and other terms of the Class A Warrants were
established by negotiation between the Company and the Representative and do not
necessarily bear any direct relationship to the Company's assets, earnings, book
value per share or other generally accepted criteria of value. See
"Underwriting." The Company has applied for inclusion of the Common Stock and
the Class A Warrants on NASDAQ under the symbols OSFT and OSFTW, respectively.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
ONLY INVESTORS WHO CAN BEAR THE RISK OF LOSS OF THEIR ENTIRE INVESTMENT SHOULD
INVEST. FOR A DESCRIPTION OF CERTAIN RISKS REGARDING AN INVESTMENT IN THE
COMPANY AND IMMEDIATE SUBSTANTIAL DILUTION, SEE "RISK FACTORS"AND "DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARYIS A CRIMINAL OFFENSE.
Concurrently with the Offering, the Company has registered the
offering of 1,143,088 shares of Common Stock that are outstanding or issuable
upon the exercise of warrants and 412,500 Class A Warrants issuable upon the
exercise of warrants (collectively, the "Selling Securityholder Securities")
under the Securities Act, on behalf of certain of its stockholders and holders
of certain warrants (the "Selling Securityholders"), pursuant to a Selling
Securityholder Prospectus included within the Registration Statement of which
this Prospectus forms a part. The Selling Securityholders include the
Representative with respect to 37,500 shares of Common Stock and 37,500 Class A
Warrants issuable upon the exercise of a warrant to purchase Units (the
"Placement Agent's Warrant") granted to the Representative in its capacity as
the placement agent for a private offering, in April - June 1996, of bridge
loans (the "Bridge Loans") and warrants (the "Bridge Loan Offering"). The
Selling Securityholder Securities are not part of this underwritten Offering,
and other than those held by the Representative, may not be sold prior to the
expiration of 12 months (nine months in the case of 185,750 shares) after the
date of this Prospectus without the prior written consent of the Representative.
With respect to the Selling Securityholder Securities subject to the 12-month
lock-up, the Representative has agreed with NASDAQ not to give such consent for
sales during the period of six months after the date of this Prospectus. The
Company will not receive any of the proceeds from the sale of the Selling
Securityholder Securities, but will receive the proceeds of the exercise, if
any, of the various warrants pursuant to which certain of the Selling
Securityholder Securities are issuable. See "Certain Transactions" and
"Concurrent Offering."
================================================================================
Price to Public Underwriting Discounts Proceeds to
and Commissions(1) Company(2)
- --------------------------------------------------------------------------------
Per Unit...............$ $ $
Total (3)..............$ $ $
================================================================================
(continued on following page)
RENAISSANCE FINANCIAL SECURITIES CORPORATION
The date of this Prospectus is ___________, 1996
<PAGE>
(continued from previous page)
(1) Does not include additional compensation to the Underwriters consisting of
(i) a non-accountable expense allowance payable to the Representative equal
to 3% of the gross proceeds of the Offering, of which $50,000 has been paid
by the Company to date, (ii) an option to be granted to the Representative
to purchase 125,000 Units at a price of $____ per Unit (145% of the initial
public offering price of the Units) exercisable for four years commencing
one year from the date of this Prospectus (the "Representative's Unit
Purchase Option") and (iii) a right of first refusal granted to the
Representative, for a period of three years from the date of this
Prospectus, to act as underwriter or placement agent in any public or
private offering or sale of securities made by the Company or its
affiliates and subsidiaries. The Company has agreed to pay to the
Representative, under certain circumstances, a warrant solicitation fee of
5% of the exercise price for each Class A Warrant exercised. The Company
has also agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933 (the "Securities
Act"). See "Underwriting."
(2) After deducting discounts and commissions payable to the Underwriters, but
before payment of the Representative's non-accountable expense allowance
($_______, or $_______ if the Over-allotment Option, defined below, is
exercised in full) and the other expenses of the Offering payable by the
Company (estimated at $_________). See "Underwriting."
(3) The Company has granted the Representative an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 187,500 additional
Units on the same terms set forth above, solely to cover over-allotments,
if any (the "Over-allotment Option"). If this option is exercised in full,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $_________, $_______ and $_________,
respectively. See "Underwriting."
--------------------------
The Units are offered by the Underwriters subject to prior sale,
when, as and if delivered to and accepted by the Underwriters and subject to the
approval of certain legal matters by counsel and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify the Offering and to
reject any order in whole or in part. It is expected that delivery of
certificates representing the Units will be made against payment therefor at the
offices of the Representative, 200 Old Country Road, Mineola, New York 11501, on
or about_________, 1996.
[PICTURES]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS,
THE COMMON STOCK OR THE CLASS A WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
-2-
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE UNITS OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE UNITS OFFERED BY THIS PROSPECTUS TO ANY PERSON TO WHOM, OR BY ANY PERSON IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
UNTIL _____________, 1996 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE UNITS, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------------
TABLE OF CONTENTS
----------------------
Page
Prospectus Summary........................................................... 3
Risk Factors................................................................. 8
Use of Proceeds.............................................................. 25
Dividend Policy.............................................................. 27
Capitalization............................................................... 28
Dilution..................................................................... 29
Selected Financial Data...................................................... 31
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................... 33
Glossary..................................................................... 37
Business..................................................................... 39
Management................................................................... 56
Principal Stockholders....................................................... 63
Certain Transactions......................................................... 65
Description of Securities.................................................... 67
Shares Eligible for Future Sale.............................................. 73
Underwriting................................................................. 75
Concurrent Offering.......................................................... 78
Legal Matters................................................................ 78
Experts...................................................................... 78
Additional Information....................................................... 78
Index to Financial Statements................................................F-1
As of the date of this Prospectus, the Company will become subject to
the reporting requirements of the Securities Exchange Act of 1934 (the "Exchange
Act"), and, in accordance therewith, will file reports, proxy and information
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy and information statements and other
information can be inspected and copied at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following regional offices: New York Regional Office,
Suite 1300, 7 World Trade Center, New York, New York 10048, and Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and
copies of such material may also be obtained by mail from the Public Reference
Section of the Commission at prescribed rates. Electronic registration
statements made though the Electronic Data Gathering Analysis and Retrieval
("EDGAR") System are publicly available through the Commission's Website
(http://www.sec.gov). See "Additional Information."
-3-
<PAGE>
The Company intends to furnish its stockholders with annual reports containing
audited financial statements and such other reports as the Company deems
appropriate or as may be required by law.
ObjectSoft(TM), SmartStreet(TM), OLEBroker(TM), and CafeOLE(TM) are trademarks
of the Company. This Prospectus also includes other trademarks and trade names
of the Company and trademarks, service marks and trade names of other companies,
including ActiveX(TM), a trademark of Microsoft Corporation ("Microsoft").
-4-
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all of the information
contained herein (i) gives effect to the mandatory redemption of the 212,500
outstanding shares of the Company's Series A Preferred Stock upon closing of the
Offering and (ii) assumes that the Over-allotment Option and the
Representative's Unit Purchase Option are not exercised and that no other
outstanding options or warrants to purchase Common Stock are exercised. To aid
the reader, a Glossary of technical terms has been included on page 35 of this
Prospectus.
THE COMPANY
The Company is in the business of providing information and
transaction-based services using proprietary software and off-the-shelf,
reusable software components based on Microsoft's ActiveX(TM) (formerly OLE)
component technology. The Company's strategy is initially to provide information
and services through public access kiosks, known as SmartStreet(TM), over
private networks known as Intranets. The kiosks will be located in high density
pedestrian traffic areas. The first five kiosks were deployed in New York City
in July 1996 under an agreement with the City of New York (the "City"). Kiosk
users are able to obtain information and will be able to obtain documents and
transact certain business without the necessity of interacting directly with
City employees or appearing personally at certain City offices.
In early 1996, as part of its Kiosk Demonstration Project, the City
of New York entered into an agreement with the Company (the "City Agreement") to
develop public kiosks to be located in City offices and other public locations
in an effort to expedite transactions with the City. Under the City Agreement,
the City agreed to lease the first five kiosks, and the Company may deploy
additional kiosks throughout the New York City area at its own risk and expense,
subject to City approval of the kiosk locations. The initial term of the City
Agreement is one year, which may be extended by the City for a period of up to
24 months. Any extension or renewal of the City Agreement will be contingent
upon the City's evaluation of the Kiosk Demonstration Project as a whole and of
the Company's kiosks. Pursuant to the City Agreement, the Company has developed
kiosks through which members of the public can obtain certain information from,
and will be able to transact certain business with, the Buildings Department and
the Department of Health, as well as information about City government and
elected officials and general information about transportation and attractions
in New York.
The kiosks are configured to permit the Company to offer additional
services provided either by the Company or third parties and to sell advertising
on such kiosks. Under the City Agreement, a portion of the revenue, if any,
derived from such services and advertising will be shared with the City. The
Company will seek to provide SmartStreet(TM) services to other municipalities,
states and government agencies and to organizations in the private sector that
provide a large volume of information, records and documents to the public. The
Company may also seek to enter into agreements with the City and other customers
to provide information and services over the Internet, in order to significantly
expand the accessibility of such information and services. To date, the Company
has not entered into any agreements to offer any of the foregoing additional
services or products.
As of August 31, 1996, the Company had received, under the City
Agreement, payments of $158,424, consisting of payment by the City of one
month's $30,090 lease payment and $128,334 of a total of $300,000 due upon the
achievement of certain milestones. As of August 31, 1996, the first five kiosks
were available only to provide City information and did not provide transaction
services or carry any paid advertising or third party services. Consequently, no
revenues had been generated by user transactions or advertising. The kiosks are
expected to be available to conduct City transactions on a fee basis by January
31, 1997.
After its inception in 1990, the Company's activities consisted
initially of consulting, writing, training and custom software development for
various corporate and government clients, including Microsoft, for which
-5-
<PAGE>
it produced technical papers and provided consulting services. In performance of
these activities, the Company developed skills in rapid application development
and a base of courseware and reusable software objects to which it retains
title. In 1995, the Company decided to direct these skills and its expanding
body of reusable software objects toward the development of services through
which it can derive revenue on a "per transaction" basis. It developed and
operates OLEBroker(TM), an Internet-based subscription service that allows
customers to search its database of information about software objects, find the
information needed and at the customer's option, purchase needed objects
on-line. This service is of benefit to customers developing computer programs
for Microsoft Windows. In connection with the development of OLEBroker(TM), the
Company developed significant additional software objects, which it then used in
the development of technology for the kiosk and Internet service delivery
programs. While the Company anticipates that the kiosk and Internet service
delivery programs will constitute the most significant part of its business, it
intends to continue to engage in consulting activities as resources permit and
in the operation of OLEBroker(TM). In selecting consulting opportunities, the
Company will focus primarily on assignments in connection with the sale of kiosk
services or that can otherwise enhance its skill base. The Company believes that
there will continue to be a market for the OLEBroker(TM) service, consisting
primarily of persons involved in computer programming, rather than computer
users in general, as the use of Microsoft Windows programs increases.
ObjectSoft Corporation was incorporated in Delaware in January 1996
and is the surviving corporation of the merger on January 31, 1996 (the
"Merger") between it and its predecessor, ObjectSoft Corporation, a New Jersey
corporation ("ObjectSoft-NJ"), which was incorporated in December 1990. The sole
purpose of the Merger was to effect a change of the corporate domicile of
ObjectSoft-NJ to Delaware. The Company was organized as a wholly-owned
subsidiary of ObjectSoft-NJ; prior to the Merger, the Company conducted no
business unrelated to its organization or to effecting the Merger. Throughout
this Prospectus, the "Company" will, unless the context otherwise requires,
include ObjectSoft-NJ.
The Company's executive offices are located at Continental Plaza III,
433 Hackensack Avenue, Hackensack, New Jersey 07601; its telephone number is
(201) 343-9100; its facsimile number is (201) 343- 0056; its Internet e-mail
address is [email protected]; and its homepage on the World-Wide Web
is at http://www.objectsoftcorp.com.
THE OFFERING
Securities being Offered Hereby........1,250,000 Units, each Unit consisting of
one share of Common Stock and one Class A
Warrant. Each Class A Warrant entitles
the holder thereof to purchase one share
of Common Stock at a price of $ ____ per
share (130% of the initial public
offering price per Unit), subject to
adjustment, at any time commencing one
year after the date of this Prospectus
until five years after the date of this
Prospectus. The Class A Warrants may be
redeemed by the Company commencing one
year from the date of this Prospectus (or
earlier with the consent of the
Representative), upon 30 days notice,
provided the closing bid quotation for
the Common Stock has exceeded 130% of the
exercise price of the Class A Warrants
(initially, $_____ per share) for at
least 20 consecutive trading days ending
within 15 days of the date of the notice
of redemption. See "Description of
Securities."
The shares of Common Stock and the Class
A Warrants comprising the Units are
immediately detachable and separately
transferable upon issuance. See
"Underwriting."
-6-
<PAGE>
Offering Price ........................$_____ per Unit
Common Stock Outstanding
prior to Offering (1)..................2,566,001 shares
Common Stock to be Outstanding after
the Offering (1).......................3,816,001 shares
Class A Warrants to be Outstanding
after the Offering (2).................1,250,000 Class A Warrants
Risk Factors...........................The securities offered hereby involve a
high degree of risk and substantial
dilution to public investors. See "Risk
Factors" and "Dilution."
Use of Proceeds........................Repayment of the Bridge Loans; mandatory
redemption of Series A Preferred Stock;
deployment of 25 additional kiosks in New
York City; expansion of SmartStreet(TM)
and related operations; working capital
and general corporate purposes. See "Use
of Proceeds."
Proposed NASDAQ symbols:
Common Stock........................OSFT
Class A Warrants....................OSFTW
- --------------
(1) Does not include: (i) 1,250,000 shares issuable upon exercise of the Class
A Warrants included in the Units offered hereby, (ii) up to 375,000 shares
included in the Units issuable upon exercise of the Over- allotment Option
and issuable upon exercise of the Class A Warrants included in such Units,
(iii) 250,000 shares included in the Units (and upon exercise of the Class
A Warrants included in such Units) issuable upon exercise of the
Representative's Unit Purchase Option, (iv)143,333 shares issuable upon
exercise of warrants issued to certain present and former members of senior
management (the "Officer Warrants"), (v ) 60,000 shares issuable upon
exercise of options held by consultants, (vi) 106,250 shares issuable upon
exercise of warrants granted to investors in connection with certain prior
financings by the Company (the "Investor Warrants"), (vii) 750,000 shares
included in the Units (and upon exercise of the Class A Warrants included
in such Units) issuable upon exercise of warrants issued to investors in
the Bridge Loan Offering (the "Bridge Warrants"), (viii) 75,000 shares
included in the Units (and upon exercise of the Class A Warrants included
in such Units) issuable upon the exercise of the Placement Agent's Warrant
issued to the Representative in connection with the Bridge Loan Offering,
(ix) 182,004 shares issuable upon exercise of warrants (the "July 1996
Warrants") issued to investors in the Company's July and August 1996
private equity offering (the "July 1996 Offering") of 273,001 units each
consisting of one share of Common Stock and the July 1996 Warrant (the
"July 1996 Units"), (x) 45,500 shares issuable upon exercise of the warrant
(and the July 1996 Warrants issuable upon exercise of such warrant) issued
to the placement agent of the July 1996 Offering (the "July Placement
Warrant"), (xi) 20,000 shares issuable upon the exercise of warrants issued
to a principal stockholder of the Company in connection with the redemption
of the Company's Series B Preferred Stock, and (xii) 250,000 shares
reserved for issuance under the Company's 1996 Stock Option Plan, options
for 145,000 of which have been granted. See "Management," "Certain
Transactions," "Description of Securities" and "Underwriting."
-7-
<PAGE>
(2) Does not include 725,000 Class A Warrants, of which (i) 187,500 are
included in the Units issuable upon the exercise of the Over-allotment
Option, (ii) 125,000 are included in the Units issuable upon the exercise
of the Representative's Unit Purchase Option, (iii) 375,000 are included in
the Units issuable upon the exercise of the Bridge Warrants, and (iv)
37,500 are included in the Units issuable upon the exercise of the
Placement Agent's Warrant. See "Certain Transactions," "Description of
Securities" and "Underwriting."
-8-
<PAGE>
SUMMARY FINANCIAL INFORMATION
(In thousands, except per share amounts)
The summary financial information set forth below is derived from the
financial statements appearing elsewhere in this Prospectus. Such information
should be read in conjunction with such financial statements, including the
notes thereto.
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
-------------------------- --------------------------
STATEMENT OF OPERATIONS DATA: 1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Consulting $ 258,000 $ 282,562 $ 447,976 $ 509,920
Development and Training 37,954 97,900 118,618 245,836
Net loss (300,722) (13,798) (122,400) (45,504)
Net loss applicable to common stock (316,535) (23,361) (141,525) (64,629)
Net loss per share of common stock (0.11) (0.01) (0.05) (0.02)
Weighted average number of common stock 2,897,418 2,894,418 2,894,418 2,894,418
outstanding
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------------------------------- -----------------
BALANCE SHEET DATA: Historical Pro forma(1) As Adjusted(2)
---------- ------------ --------------
<S> <C> <C> <C> <C>
Working capital (deficiency) $ 246,384 $ 937,669 $ 5,394,200 ($ 390,290)
Total assets 1,107,160 1,698,445 6,151,768 343,534
Redeemable preferred stock 393,469 268,469 -- 383,906
Accumulated deficit (1,193,939) (1,193,939) (1,385,201) (877,404)
Total stockholders' equity (787,854) 28,431 5,912,169 (598,844)
(capital deficiency)
</TABLE>
- ------------------
(1) Gives effect to the sale of 273,001 shares of Common Stock and July 1996
Warrants to purchase 182,004 shares of Common Stock in July and August 1996
and the redemption of the Company's Series B Preferred Stock in July 1996.
(2) Assumes an offering price per Unit of $6.00, the midpoint of the range set
forth on the cover page of this Prospectus, and gives effect to (i) the
sale of 1,250,000 Units offered hereby and the application of the estimated
net proceeds therefrom, including the repayment of $1,250,000 principal
amount of the Bridge Loans outstanding, plus accrued interest thereon and
redemption of the Series A Preferred Stock at its liquidation value of
$212,500 plus accrued dividends, (ii) the sale of the July 1996 Units and
the issuance of the July Placement Warrant and (iii) the redemption of the
Series B Preferred Stock at its liquidation value of $125,000 and the
issuance of the warrants to purchase 20,000 shares of Common Stock at $7.00
per share in connection therewith. See "Use of Proceeds" and "Certain
Transactions."
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RISK FACTORS
In addition to the other information in this Prospectus, the
following factors should be carefully considered in evaluating the Company
before purchasing the Units offered by this Prospectus:
LIMITED OPERATING HISTORY; OPERATING LOSSES; ACCUMULATED DEFICIT
The Company was founded in 1990, has only a limited operating history
and recently changed its focus from consulting and training services to
transactional fee-based products and services. Consequently, any analysis of the
Company's prior operations has only minimal relevance to an evaluation of the
Company, its current products and services, and its prospects.
Although the Company has generated revenues from operations, it has
experienced losses. The Company has incurred, and will continue to incur,
significant costs in connection with the development of its Intranet kiosk and
Internet operations, which may result in operating losses. There can be no
assurance that such operations will ultimately generate significant revenues for
the Company or that the Company will achieve profitable operations. As of June
30, 1996, the Company had an accumulated deficit of $1,193,939. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements.
RECENT CHANGE OF OPERATING FOCUS
The Company's Intranet-based SmartStreet(TM) kiosk service business,
as well as its Internet service business (consisting primarily of the operation
of OLEBroker(TM)), have been recently created, are limited in scope and have not
generated significant revenues to date. The operations to which the Company is
now devoting its resources are in the early stages of development. There can be
no assurance that the Company will be successful in attracting new customers or
retaining current customers for its new business divisions or in generating
significant revenues or profits from such business divisions. The Company's
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in their early stage of development,
particularly companies in new and rapidly evolving markets. To address these
risks, the Company must, among other things, respond to competitive
developments, attract, retain and motivate qualified product development and
marketing personnel, continue to upgrade its existing technologies, develop new
technologies and commercialize products and services incorporating such
technologies. There can be no assurance that the Company will be successful in
addressing such risks. The Company may also be required to enter into strategic
alliances to effect cooperative development efforts in order to have the
financial and technical resources to respond to changing market demands on a
timely basis. There can be no assurance that entities with the necessary
technical or financial resources will be willing to enter into such alliances
with the Company on acceptable terms or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business -
ObjectSoft Strategy."
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<PAGE>
RECENT BRIDGE AND EQUITY FINANCINGS; USE OF PROCEEDS TO
REPAY BRIDGE LOANS AND REDEEM PREFERRED STOCK
During the period of April through June 1996, in the Bridge Loan
Offering, the Company issued promissory notes in the aggregate amount of
$1,250,000 and the Bridge Warrants. The Company will be required to amortize the
"original issue discount" incurred in connection with such bridge loans (the
"Bridge Loans") and the issuance of the Bridge Warrants over the period of time
such loans are outstanding. Assuming such Bridge Loans are repaid not later than
October 31, 1996, the Company's financial statements reflected, and will
reflect, amortization of the discount of approximately $77,000, $134,000 and
$57,000 in the three month periods ending June 30, September 30, and December
31, 1996, respectively. The Company incurred a loss for the six months ended
June 30, 1996 and even if it shows earnings from operations for the three months
ending September 30, 1996, it will, in all likelihood, incur a loss for the nine
months ending September 30, 1996. In addition, the issuance, in the July 1996
Offering, of shares of Common Stock and warrants to purchase Common Stock at
prices below the price per Unit of the Units offered hereby reduces the loss per
share for the year ended December 31, 1995 and the six months ended June 30,
1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Certain Transactions" and Note D of the Notes to
Financial Statements.
Approximately $1,566,000 (25.8%) of the net proceeds of the Offering
will be used to repay the Bridge Loans made to the Company during the period of
April through June 1996 and related interest and to redeem the Company's
Outstanding Series A Preferred Stock, and, accordingly, such funds will not be
available to fund future growth. See "Use of Proceeds" and "Certain
Transactions-Recent Financings."
BROAD DISCRETION IN USE OF PROCEEDS
Approximately 28% of the net proceeds of the Offering have been
allocated to deployment of additional kiosks in New York City and approximately
42.8% of the net proceeds have been allocated to expansion of SmartStreet(TM)
and related operations. However, management believes that such operations will
be funded in part by revenues and other sources, such as equipment financing. In
the event such funds become available, of which there can be no assurance, the
funds allocated to such purposes may be reallocated to working capital purposes.
Accordingly, the Company's management will have broad discretion as to the
application of such proceeds. See "Use of Proceeds" and "Business - ObjectSoft
Strategy."
BENEFITS TO AFFILIATES
A portion of the net proceeds of the Bridge Loans, as well as a
portion of the proceeds of the July 1996 Offering, were used to pay a portion of
accrued but unpaid salaries to the executive officers of the Company. To the
extent revenues from future operations are not sufficient to pay the salaries of
such executive officers in full, a portion of the proceeds of the Offering
allocated to expansion or working capital may used to pay such salaries. A
portion of the proceeds of the July 1996 Offering was also used to redeem the
convertible Series B Preferred Stock owned by Cyndel & Co., Inc. ("Cyndel"), a
principal stockholder of the Company. See "Use of Proceeds" and "Certain
Transactions."
DEPENDENCE ON NEW, UNTESTED PRODUCT
The Company has recently refocused its efforts to concentrate on the
development of kiosks based on Internet technology from which it hopes to derive
transaction-based and advertising revenues. In January 1996, the Company entered
into an agreement with the City of New York, as part of the City's Kiosk
Demonstration Project, pursuant to which the Company agreed to install and
operate a minimum of five kiosks at City offices
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<PAGE>
and other locations to provide expedited public access to various City
government services. However, the City has also entered into agreements with two
other entities to install and operate kiosks. The Company installed its first
five kiosks in July 1996, and such kiosks have been operating on a limited basis
since that time.
The Company anticipates that revenues from the kiosks will be
provided by leasing fees paid by the service providers, such as the City, and by
usage fees paid by consumers who obtain City or other services through the
kiosks. Although kiosks are in operation in other municipalities, there can be
no assurance that the Company's kiosks will be able to operate consistently and
efficiently to provide the anticipated services, that members of the general
public will find the kiosks user-friendly, that they will be comfortable with or
be willing to pay the additional cost for the convenience of using the kiosks to
transact business with the City or other service providers by electronic means,
that the City will be satisfied with the results of the operations of the
Company's kiosks, or that even if the kiosks perform adequately, that the City
and other potential users of similar kiosks will not opt for the products of the
Company's competitors. The Company does not have any agreements to provide
kiosks or other Intranet services to any other customers, and its ability to
market such services to other potential customers will be highly dependent on
the success and acceptance of the New York City kiosks. Furthermore, the
municipalities, states and other government agencies that constitute a primary
target market for the Company's kiosks are subject to potentially severe
budgetary constraints and cuts that may limit their ability to fund the
acquisition of new technology such as the kiosks.
In addition, the Company anticipates that a significant portion of
the revenues related to the kiosks will consist of leasing fees and usage fees
derived by providing unrelated transactions, such as restaurant information and
shopping services, to the users of the kiosks and from commercial advertising by
local and national companies and businesses. The Company has engaged only in
negotiating for agreements to provide such services or advertising and has not
as yet entered into any significant agreements. There can be no assurance that
commercial entities will be interested in marketing or advertising their
products and services by means of kiosks providing government services, that
such services or advertising can be sold at rates that will provide significant
revenues to the Company, or that such services or advertising, if commenced,
will prove to be effective and will be continued. See "Business - Products and
Services - SmartStreet(TM) Kiosk Services."
RISKS RELATED TO OLEBROKER(TM) AND CONSULTING AND TRAINING SERVICES
Although the development of the OLEBroker(TM) service included the
development of much of the software used in the development and configuration of
the Company's kiosk technology, the service itself currently generates limited
revenues. The Company believes that while there will continue to be a growing
market for the OLEBroker(TM) service, particularly as the use of Microsoft
Windows programs increases, such market may consist primarily of persons
involved in computer programming, rather than computer users in general.
The Company has historically provided consulting and training
services primarily on a project basis, and long-term continuing projects have
been limited. There can be no assurance that the Company will obtain future
consulting projects. Furthermore, the Company will seek to accept consulting and
training assignments primarily in connection with the sale of kiosk services or
that will otherwise expand its skill base. See "Business - Products and Services
- - OLEBroker(TM) - Consulting, Training and Authoring Services."
UNCERTAINTY OF PRODUCT DEVELOPMENT
It is common for hardware and software as complex and sophisticated
as that employed by the Company in its kiosks to experience errors, or "bugs,"
both during development and subsequent to commercial introduction. As kiosks are
installed in New York City, the Company may identify such problems, either in
the software platforms developed by others or in its proprietary software. There
can be no assurance that all the potential problems will be identified, that any
bugs that are located can be corrected on a timely basis or at all, or that
additional errors will not be located in existing or future products at a later
time or when usage increases. Any
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<PAGE>
such errors could delay commercial introduction or use of existing or new
products and require modifications in systems that have already been installed.
Remedying such errors could be costly and time consuming, and bugs involving the
proprietary software of third parties could require the redesign of the
Company's proprietary software. Delays in debugging or modifying the Company's
products could materially and adversely affect the Company's competitive
position with respect to existing and new technologies and products offered by
its competitors. In particular, delays in remedying existing or newly identified
errors in the Company's kiosks could materially and adversely affect the
Company's ability to achieve significant market penetration with the kiosks.
VULNERABILITY TO TECHNOLOGICAL CHANGES; NEED FOR MARKET ACCEPTANCE
The markets the Company serves are subject to rapid technological
change, changing customer requirements, frequent new product introductions and
evolving industry standards that may render existing products and services
obsolete. As a result, the Company's position in its existing markets or other
markets that it may enter could be eroded rapidly by product advancements by
competitors. The life cycles of the Company's products and services are
difficult to estimate. The Company's future success will depend, in part, upon
its ability to enhance existing products and services and to develop new
products and services on a timely basis. In addition, its products and services
must keep pace with technological developments, conform to evolving industry
standards, particularly client/server and Internet communication and security
protocols, and publishing formats, and address increasingly sophisticated
customer needs. In particular, the success of the Company's kiosks will depend
in large measure on their being user-friendly to the general public and capable
of operating reliably. There can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of new products and services, or that new products
and services and enhancements will meet the requirements of the marketplace and
achieve market acceptance. If the Company is unable to develop and introduce
products and services in a timely manner in response to changing market
conditions or customer requirements, the Company's financial condition and
results of operations would be materially and adversely affected.
COMPETITION
The Company's Intranet kiosk business competes with numerous
companies, including IBM, North Communications, Golden Screens and NCR
(currently a division of AT&T). All of these companies have resources much
greater than those of the Company. The Company's contract with the City of New
York is presently the most significant part of this business. The City has also
awarded demonstration contracts, comparable to the contract awarded to the
Company, to North Communications and Golden Screens. Both North Communications
(through its subsidiary, MetroNet) and DSSI (which awarded a subcontract to
Golden Screens) have supplied kiosks to other municipalities. After fulfillment
of the initial contracts, if the City chooses to install additional kiosks
throughout the City of New York, it may award to others, and not the Company,
the contract to install such additional kiosks. Further, there can be no
assurance that other municipalities or other entities will seek to acquire
kiosks from the Company. In addition, if the use of kiosks provided by the
Company and others proves to be successful in New York City and other
municipalities and locations, additional companies in the software, hardware and
communications areas, among others, may seek to enter the market.
OLEBroker's(TM) competition includes Fawcette Technical Publications,
which offers a website concerning OLE components and which is supported by
advertising revenues. At this time, the site does not offer vendor's help files,
although this could change in the future. Cybersource offers a website called
SoftwareNet for the sale of software, including software components on-line, and
a Canadian subsidiary of Sterling Software also provides objects through
electronic commerce. Objects are generally listed on OLEBroker(TM) on a
non-exclusive basis. While OLEBroker(TM) competes on the basis of the
organization, comprehensiveness and accessibility of its offerings, the barriers
to entry in the field are limited and additional competitors are expected to
enter the field. Many of these will have resources far greater than the Company.
See "Business -- Competition."
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<PAGE>
POSSIBLE DIFFICULTY IN COMPLYING WITH GOVERNMENT CONTRACT REQUIREMENTS
The Company's kiosks are initially being marketed to entities
including municipalities, states and other government agencies, among others. As
governmental authorities, these prospective purchasers are subject to public
contract requirements which vary from one jurisdiction to another and include
regulations relating to insurance coverage, non-discrimination in hiring
practices, access to the disabled, and record-keeping, among other requirements.
Some public contract requirements may be onerous or even impossible for the
Company to satisfy, such as large bonding requirements, and the Company may be
precluded from making sales in these jurisdictions. In addition, public
contracts frequently are awarded only after a formal competitive bidding
process. The process to date has been and may continue to be protracted. Even
following contract award, significant delays in contract implementation are
possible. See "Business - Governmental Regulation."
RELIANCE ON MICROSOFT IN MARKETING
The Company has established a strategic relationship with Microsoft
that it believes is important to its sales, marketing and support activities, as
well as to its product development efforts relating to its kiosks. Microsoft has
provided technical and marketing support to the Company in connection with the
development and marketing of its kiosk services, has exhibited the Company's
kiosks in Microsoft displays at various trade shows and has indicated its
willingness to continue to do so in the future. It has also issued public
statements that included favorable references to the Company's products. Since
1994, the Company has served as regional director of Microsoft's "Developer
Days" program, an on-going series of conferences, the next one of which is
scheduled for the first quarter of 1997, from which the Company derives
publicity and exposure to senior Microsoft personnel. In addition, the Company
also benefits from Microsoft's continued willingness to enter into
non-disclosure agreements with the Company with respect to unannounced Microsoft
products, under which the Company has the opportunity to have advance knowledge
of software technology being developed by Microsoft. There is no assurance that
Microsoft will continue to support the Company's products, continue the
Company's participation in the Developer Days program or enter into such
agreements with the Company in the future. The Company also obtains benefits
from a Cooperation Agreement, under which Microsoft offers customers for certain
of its software products a discounted subscription rate on OLEBroker(TM). The
Cooperation Agreement has an initial one year term that concludes in November
1996. While an extension of the term is currently being negotiated, there is no
assurance that Microsoft in the future will not elect to terminate the
Cooperation Agreement or enter into similar agreements with the Company's
competitors. The Company believes that the non-renewal of the Cooperation
Agreement would not have a material effect on the Company. However, if Microsoft
were to sever its relationships with the Company, the Company's sales and
financial condition could be severely and adversely affected. See "Business -
Products and Services - Relationship with Microsoft."
DEPENDENCE UPON MICROSOFT'S WINDOWS OPERATING SYSTEM
The Company has invested in software built on Microsoft's Internet
Explorer, Windows NT and Windows 95 platforms and written in certain programming
languages designed for these operating systems. To the extent that such
platforms do not remain competitive, the Company might have to expend
significant time and resources to port its software to other platforms. Any
factor adversely affecting the demand for, or use of, Microsoft's Windows
operating system could have an impact on demand for the Company's products or
services causing a material adverse effect on the Company's business, results of
operations and financial condition. Additionally, any changes to the underlying
components of the Windows operating system that would require changes to the
Company's products would materially adversely affect the Company if it were not
able successfully to develop or implement such changes in a timely fashion. See
"Business - Products and Services."
-14-
<PAGE>
DEPENDENCE UPON COMMON CARRIERS AND INTERNET ACCESS PROVIDERS
The Company is also dependent on various regulated common carriers
and unregulated Internet access providers, such as AT&T, Bell Atlantic, NYNEX,
SPRINT and NYSERNET. In the event such carriers or providers cannot timely
respond to the Company's requirements for service, fail to provide reliable
service or increase their rates substantially, the Company's service or
profitability could be adversely effected. See "Business - Products and
Services."
DEPENDENCE ON THE INTERNET
Sales of the Company's Internet-related products and services,
including its OLEBroker(TM) and new or expanded products and services, if any,
will depend in large part upon a robust industry and infrastructure for
providing commercial Internet access and carrying Internet traffic and upon
increased commercial use of the Internet. If the necessary infrastructure or
complementary products are not developed or available to the Company on
reasonable terms, or if development of the Internet as a significant commercial
marketplace is interrupted or delayed, the Company's business, operating results
and financial condition could be materially adversely affected. See "Business -
Products and Services."
LIMITED CUSTOMER BASE
The long term success of the Company's business will depend not only
on the Company's ability to enter into arrangements with municipalities, other
government entities and private entities to make services available through
kiosks and with advertisers to use the kiosks as an advertising medium, but
ultimately upon the willingness of consumers to pay fees to transact business by
means of the kiosks. To date, the Company is operating only five public kiosks,
which were installed pursuant to the agreement with the City of New York and
which have been available for public use for a short period of time. The
decision by the City to acquire kiosks from providers other than the Company
would have a direct and materially adverse effect on the prospects of the
Company and could also decrease the Company's ability to market the kiosks to
other potential service providers and advertisers. In addition, there can be no
assurance that the volume of use by consumers of the kiosks to obtain City
services and conduct other transactions will be sufficient to generate
significant revenues for the Company.
The Company historically has derived a significant portion of its
revenues from a relatively limited number of customers. During the six months
ended June 30, 1996, the City of New York accounted for 56% of the Company's
revenues pursuant to the City Agreement and Microsoft, for which the Company
provided consulting services, accounted for 20% of the Company's revenues.
During 1995, two customers accounted for approximately 56% of the Company's
revenues, and during 1994, four customers accounted for approximately 67% of
revenues. The Company provided consulting and related services, and more
recently, services related to the development of OLEBroker(TM) and Intranet and
kiosk technology, to such customers. There can be no assurance that such
customers or others will retain the Company to install kiosks or provide such
services in the future. Furthermore, no customers of OLEBroker(TM) account for a
material portion of the Company's revenues, and there can be no assurance that
the Company will be able to develop a significant customer base for this
service. See "Business - Customers."
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<PAGE>
RISK OF MANUFACTURING ACTIVITIES
The Company's kiosks involve the design by the Company, and the
engineering and manufacture by subcontractors, of the hardware and graphical
components of the kiosks. Only a limited number of kiosks have been fabricated
to date, so it is difficult for the Company to predict if its current
subcontractors will be able to engineer and produce kiosks on a satisfactory
basis. While the Company believes that it could arrange to have kiosks
fabricated by other subcontractors on comparable terms, there can be no
assurance that the need to establish relationships with other subcontractors
would not result in costs and delays to the Company. The future success of the
Company will depend in part on its ability to retain, and maintain good
relationships with, subcontractors in order to assure the timeliness and quality
of the manufacture of its kiosks. See "Business Products and Services -
SmartStreet(TM) Kiosk Services - SmartStreet(TM) Kiosk Technology."
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have in the past and may in
the future vary significantly depending upon factors such as the timing of
significant orders, which in the past have been, and will in the future be,
delayed from time to time by delays in the contracting process. The potential
customers for the Company's kiosks are expected to include municipalities,
government agencies and large organizations; that is, entities that typically
engage in extended competitive bidding, approval and negotiation procedures with
respect to contracts, with no assurance that the contract will ultimately be
awarded to the Company. Additional factors contributing to variability of
operating results include the pricing and mix of services and products sold by
the Company, terminations of service, new product introductions by the Company
and its competitors, market acceptance of new and enhanced versions of the
Company's products and services, changes in pricing or marketing policies by its
competitors and the Company's responses thereto, the Company's ability to obtain
sufficient vendors, to obtain supplies of sole or limited source components,
changes in the Company's network infrastructure costs, as a result of demand
variation or otherwise, the lengthening of the Company's sales cycle and the
timing of the expansion of the Company's network infrastructure. Variations in
the timing and amounts of revenues and costs could have a materially adverse
effect on the Company's quarterly operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent on the
performance of its executive officers and key employees, and on its ability to
attract key personnel. In particular, the future success of the Company is
dependent upon the personal efforts of the Company's founders, David E. Y. Sarna
and George J. Febish, each of whom is a director and an executive officer of the
Company. Messrs. Sarna and Febish have long-term employment agreements with the
Company. The Company has in place key person life insurance policies, of which
it is the beneficiary, on the lives of Messrs. Sarna and Febish in the amount of
$1,000,000 each. However, the loss of the services of its executive officers or
other key employees could delay the Company's ability to fully implement the
operating strategy, which could have a materially adverse effect on the
business, operating results and financial condition of the Company. See
"Business - ObjectSoft Strategy" and "Management."
ATTRACTION AND RETENTION OF EMPLOYEES AND CONTRACT PROVIDERS
The Company's success will depend in large part upon its ability to
attract, develop, motivate and retain highly skilled technical employees,
particularly software developers, project managers and other senior personnel,
as well as independent providers of creative content for the Company's kiosks
and websites. Qualified project managers and skilled developers with Intranet,
Internet and ActiveX(TM) skills are in particularly great demand and are likely
to remain a limited resource for the foreseeable future. Although the Company
expects to continue to be able to attract and retain sufficient numbers of
highly skilled technical employees, developers, project
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<PAGE>
managers and independent content providers for the foreseeable future, there can
be no assurance that the Company will be able to do so. The loss of some or all
of the Company's project managers and other senior personnel could have a
materially adverse impact on the Company, particularly on its ability to secure
and complete engagements. Other than Messrs. Sarna and Febish, no other senior
personnel have entered into employment agreements obligating them to remain in
the Company's employ for any specific term; however, substantially all key
employees of the Company are parties to nonsolicitation, confidentiality and
noncompetition agreements with the Company. See "Business - Employees" and
"Management."
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success and ability to compete is dependent in part
upon its proprietary technology. While the Company relies on trade secret,
contract, trademark and copyright law to protect its technology, the Company
believes that factors such as the technological and creative skills of its
personnel, new product developments, frequent product enhancements, name
recognition and reliable product maintenance are more essential to establishing
and maintaining a technology leadership position. The Company presently has no
patents or patent applications pending. There can be no assurance that others
will not develop technologies that are similar or superior to the Company's
technology. The source code for the Company's proprietary software is protected
as a trade secret. In addition, because the Company does not sell or license its
technology to third parties, but rather delivers services thorough its kiosks
and OLEBroker(TM), its proprietary software is not disclosed to third parties.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary or to develop similar technology independently. Policing
unauthorized use of the Company's products is difficult. In addition, effective
trade secret and copyright protection may be unavailable or limited in certain
foreign countries. There can be no assurance that the steps taken by the Company
will prevent misappropriation of its technology. In addition, litigation may be
necessary in the future to enforce the Company's intellectual property rights,
to protect the Company's trade secrets, to determine the validity and scope of
the proprietary rights of others, or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
operating results or financial condition.
Certain technology used in the Company's products or services is
licensed or leased from third parties, generally on a nonexclusive basis. While
the licenses involved are primarily "shrink wrap licenses;" that is, licenses
available to anyone who purchases publicly available software programs, the
termination of any of these licenses or leases or the discontinuance of the
underlying programs may have a material adverse effect on the Company's
operations. Replacement of certain technologies licensed or leased by the
Company could be costly and could result in product delays which would
materially and adversely affect the Company's operating results. While it may be
necessary or desirable in the future to obtain other licenses or leases relating
to one or more of the Company's products or services or relating to current or
future technologies, there can be no assurance that the Company will be able to
do so on commercially reasonable terms or at all. See "Business - Proprietary
Rights."
RISK OF SYSTEM FAILURE; SECURITY RISKS; LIABILITY RISKS
The Company's operations are dependent upon its ability, and the
ability of its suppliers, such as AT&T, Bell Atlantic, NYSERNET, SPRINT and
NYNEX, to protect its network infrastructure against damage from fire,
earthquakes, power loss, telecommunications failures and similar events. Despite
precautions taken by the Company and its suppliers, the occurrence of a natural
disaster or other unanticipated problems at the Company's network operations
center or kiosks in the future could cause interruptions in the services
provided by the Company. In addition, failure of the Company's
telecommunications providers to provide the data communications capacity
required by the Company as a result of a natural disaster, operational
disruption or for any other reason could cause interruptions in the services
provided by the Company. Any damage or failure that
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causes interruptions in the Company's operations could have a material adverse
effect on the Company's business, financial condition and results of operations.
Despite the implementation of security measures, the core of the
Company's network infrastructure is vulnerable to computer virus attacks and
other disruptive problems. The Company and Internet access providers have in the
past experienced, and may in the future experience, interruptions in service as
a result of the accidental or intentional actions of Internet users, current and
former employees or others. Unauthorized use could also potentially jeopardize
the security of confidential information stored in the computer systems of the
Company and its customers, which may result in liability of the Company to its
customers and also may deter potential users. Although the Company intends to
continue to implement industry-standard security measures, such measures have
been circumvented in the past, and there can be no assurance that measures
implemented by the Company will not be circumvented in the future. Eliminating
computer viruses and alleviating other security problems may require
interruptions, delays or cessation of service to the Company's customers which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's success will depend upon the capacity, reliability and
security of its network infrastructure, including processing capability and the
facilities and capacity leased from access providers and telecommunications
vendors. The Company must continue to expand and adapt its network
infrastructure as the number of users and the amount of information they wish to
transfer increases, and to meet changing customer requirements. The expansion
and adaptation of the Company's network infrastructure will require substantial
financial, operational and management resources. There can be no assurance that
the Company will be able to expand or adapt its network infrastructure to meet
additional demand or its customers' changing requirements on a timely basis, at
a commercially reasonable cost, or at all. Any failure of the Company to expand
its network infrastructure on a timely basis or adapt it either to changing
customer requirements or to evolving industry standards could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The kiosks that were installed in various locations in New York City
in July 1996 have only been operating for a short time, so the Company has only
limited experience with actual consumer interaction with the kiosks. While the
Company has designed the kiosks to be resistant to vandalism, there can be no
assurance that vandals will not succeed in damaging or disabling the kiosks. In
addition, although the Company believes it is unlikely, users of the kiosks may
seek to hold the Company liable for injuries allegedly incurred in connection
with the use of the kiosks.
While the Company maintains insurance covering , among other things ,
losses resulting from business interruptions caused by system failures, damages
to kiosks or claims by users of the kiosks, with an annual limit of $2,000,000,
and a $5,000,000 umbrella policy, there can be no assurance that such insurance
will provide sufficient coverage or that if there are multiple claims, such
insurance will be not terminated or will be available for terms affordable to
the Company. See "Business - Products and Services."
GOVERNMENT REGULATION; POTENTIAL LIABILITY FOR INFORMATION AND
CONTENT DISSEMINATED THROUGH NETWORK
The Company is not currently subject to direct regulation by the
Federal Communications Commission or any other agency, other than regulations
applicable to businesses generally and businesses doing business with
governmental agencies. In connection with its contract with the City of New York
and future contracts, if any, with the City and other municipalities or
government entities, the Company will have to comply to such regulations,
including bidding procedures and record-keeping, audit, insurance, bonding and
anti-discrimination provisions, among others.
Changes in the regulatory environment relating to the Internet access
industry could have an adverse effect on the Company's business. Due to the
increase in Internet use and publicity, it is possible that laws and
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regulations may be adopted with respect to the Internet, including with respect
to privacy, pricing and characteristics of products or services. The Company
cannot predict the impact, if any, that future laws and regulations or legal or
regulatory changes may have on its business.
The law relating to the liability of on-line services companies and
Internet access providers for information carried on or disseminated through
their systems is currently unsettled. Several private lawsuits seeking to impose
such liability upon on-line services companies and Internet access providers are
currently pending. In addition, legislation has been proposed which would impose
liability for or prohibit the transmission on the Internet of certain types of
information and content. In the event the Company were to make services such as
the one offered through its kiosks available over the Internet, the imposition
upon Internet access providers of potential liability for information carried on
or disseminated through their systems could require the Company to implement
measures to reduce its exposure to such liability, which may require the
expenditure of substantial resources, or to discontinue certain product or
service offerings. The increased attention focused upon liability issues as a
result of these lawsuits and legislative proposals could impact the growth of
Internet use. While the Company carries insurance, it may not be adequate to
compensate the Company in the event the Company becomes liable for information
carried on or disseminated through its systems. Any costs not covered by
insurance incurred as a result of such liability or asserted liability could
have a material adverse effect on the Company's business, financial condition
and results of operations.
CONTINUING CONTROL BY CURRENT MANAGEMENT
Upon completion of the Offering, David E. Y. Sarna, the Company's
Chairman and Co-Chief Executive Officer, and George J. Febish, the Company's
President and Co-Chief Executive Officer, each of whom is a director of the
Company and a principal stockholder of Company, together with The David E. Y.
Sarna Family Trust and The George J. Febish Family Trust (the trusts,
collectively, the "Family Trusts"), will beneficially own, in the aggregate,
approximately 45% of the issued and outstanding shares of Common Stock. As a
result, these stockholders will have effective control over the Company and on
the outcome of any matters submitted to the Company's stockholders for approval,
which influence might not be consistent with the interests of other
stockholders. In addition, if they were to act in concert, they would be able to
elect a majority of the Company's directors, deter or cause a change in control
of the Company and otherwise generally control the Company's affairs. See
"Principal Stockholders."
DILUTION
The Company's present stockholders acquired their shares of the
Company's Common Stock at a cost substantially below the imputed price at which
such shares are being offered in the Offering. Purchasers of the Units offered
hereby will, therefore, suffer an immediate and substantial dilution, in the
amount of $4.42 per share of their investment (assuming an offering price of
$6.00 per Unit and without allocating any value to the Class A Warrants) insofar
as it relates to the resulting tangible book value of the Company's Common Stock
after completion of the Offering. Such dilution amounts to approximately 73.7%
of the initial public offering price. To the extent outstanding warrants and
options to purchase the Company's Units and Common Stock are exercised, there
will be further dilution. See "Dilution."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company's current policy is to own and operate its kiosks, which
may require substantial capital investment. It is the Company's intention to
enter into lease financing arrangements for the kiosks. While the Company has
entered into such an arrangement to cover a portion of the costs of the first
five kiosks, it has not entered into an agreement for such financing for future
kiosks, if any, and there can be no assurance that it will be able to do so on
acceptable terms or at all. The Company believes that the net proceeds from the
Offering,
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together with anticipated revenues from operations, and assuming the
establishment of an acceptable lease financing arrangement, will be sufficient
to meet its presently anticipated working capital and capital expenditure
requirements for at least 24 months. However, if the Company's expectations are
not fulfilled, there can be no assurance that the net proceeds of the Offering
will be sufficient to implement successfully the Company's business plan or meet
its working capital or financing requirements. The Company may need to raise
additional funds through public or private debt or equity financings in order to
take advantage of unanticipated opportunities, including acquisitions of
complementary businesses or technologies, or to develop new products or
otherwise respond to unanticipated competitive pressures. In addition, if the
Company experiences rapid growth, it may require additional funds to expand its
operations or enlarge its organization. In any such event, continued operation
of the Company may be dependent on the ability of the Company to procure
additional financing through sales of additional equity or debt. If the Company
were to issue any equity or convertible debt securities, such issuance could
substantially dilute the interests of the Company's then existing security
holders. Such equity securities may also have rights, preferences or privileges
senior to those of the holders of the Company's Common Stock. There can be no
assurance that additional financing will be available on terms favorable to the
Company, or at all. If adequate funds are not available or are not available on
acceptable terms, the Company may not be able to take advantage of unanticipated
opportunities, develop new products or otherwise respond to unanticipated
competitive pressures. Such inability could have a materially adverse effect on
the Company's business, financial condition and results of operations. See "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" and "Business -
ObjectSoft Strategy."
DIVIDENDS
Other than distributions made prior to 1993, when the Company was a
closely-held "S corporation," the Company has not paid any dividends on its
Common Stock in the past, and does not anticipate that it will declare or pay
any dividends in the foreseeable future. However, the Company's Series A
Preferred Stock currently accrues dividends at the annual rate of 9%. The
Company is obligated to pay all accrued but unpaid dividends on the Series A
Preferred Stock in connection with the redemption of the Series A Preferred
Stock upon closing of the Offering. See "Dividend Policy," "Use of Proceeds" and
"Description of Securities - Preferred Stock."
ARBITRARY DETERMINATION OF OFFERING PRICE
The initial public offering price of the Units and the exercise price
and other terms of the Class A Warrants were determined by negotiations between
the Company and the Representative. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price of the Units
and the exercise price and other terms of the Class A Warrants.
NO PRIOR MARKET FOR THE COMPANY'S SECURITIES; POSSIBLE VOLATILITY
OF MARKET PRICE OF THE COMPANY'S SECURITIES
Prior to the Offering, there has been no public market for the
Company's securities. There can be no assurance that an active public market
will develop or be sustained after the Offering or that the market price of the
Company's securities will not decline below the public offering price. Future
announcements concerning the Company or its competitors, quarterly variations in
operating results, announcements of technological innovations, the introduction
of new products or services or changes in product or service pricing policies by
the Company or its competitors, litigation concerning proprietary rights or
other matters, changes in earnings estimates by analysts or other factors could
cause the market price of the Company's securities to fluctuate substantially.
In addition, stock prices for many technology companies fluctuate widely for
reasons which may be unrelated to operating results. These fluctuations, as well
as general economic, market and political conditions
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such as recessions or military conflicts, may materially and adversely affect
the market price of the Company's securities.
POSSIBLE DELISTING AND RISK OF LOW PRICED SECURITIES
The Company has applied for inclusion of the Common Stock and Class A
Warrants comprising the Units on the NASDAQ SmallCap Market. No assurance can be
given that the Common Stock and the Class A Warrants will qualify for initial
quotation or listing or that the Company will continue to be able to satisfy
certain specified financial tests and market-related criteria required for
continued quotation on NASDAQ following the Offering. If the Company is unable
to satisfy such maintenance criteria in the future, the Common Stock and Class A
Warrants may be delisted from trading on NASDAQ and consequently an investor
could find it more difficult to dispose of, or to obtain accurate quotations as
to the price of, the Company's securities, and the Class A Warrants would no
longer be redeemable.
The Securities Enforcement and Penny Stock Reform Act of 1990
requires additional disclosure relating to the market for penny stocks in
connection with trades in any stock defined as a penny stock. Commission
regulations generally define a penny stock to be an equity security that has a
market price of less than $5.00 per share, subject to certain exceptions. Unless
an exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
In addition, if the Company's securities are not quoted on NASDAQ, or
if the Company does not meet the other exceptions to the penny stock regulations
cited above, trading in the Company's securities would be covered by Rule 15g-9
promulgated under the Exchange Act for non-NASDAQ and non-national securities
exchange listed securities. Under such rule, broker/dealers who recommend such
securities to persons other than established customers and accredited investors
must make a special written suitability determination for each purchaser and
receive the purchaser's written agreement to a transaction prior to sale.
Securities also are exempt from this rule if the market price is at least $5.00
per share.
If the Company's securities become subject to the regulations
applicable to penny stocks, the market liquidity for the Company's securities
could be adversely affected. In such event, such regulations could limit the
ability of broker/dealers to sell the Company's securities and thus the ability
of purchasers of the Company's securities to sell their securities in the
secondary market.
POSSIBLE NEGATIVE EFFECT ON TRADING OF WARRANT SOLICITATION ACTIVITIES OF
REPRESENTATIVE
The Representative may participate in the solicitation of the
exercise of the Class A Warrants. In connection with the solicitation of the
Class A Warrant exercises, unless the Representative is granted an exemption by
the Commission from Rule 10b-6 under the Exchange Act, the Representative and
any other soliciting broker-dealer will be prohibited from engaging in any
market-making activities with respect to the Company's securities for the period
commencing either two or nine business days (depending on the market price of
the Common Stock) prior to any solicitation activity until the later of (i) the
termination of such solicitation activity, (ii) the termination (by waiver or
otherwise) of any right that the Representative or any other soliciting
broker-dealer may have to receive a fee for the exercise of Class A Warrants
following such solicitation. As a result, the Representative or other soliciting
broker-dealer may be unable to provide a market for the Company's securities,
should it desire to do so, during certain periods while the Class A Warrants are
exercisable. In addition, under applicable rules and regulations under the
Exchange Act, any person engaged in the distribution of the Selling
Securityholder Securities may not simultaneously engage in market-making
activities with respect to any securities of the Company for the applicable
"cooling off" period (at least two and possibly nine business days) prior to the
commencement of such distribution. Accordingly, in the event the Representative
is engaged in a distribution of any Selling Securityholder Securities, it will
not be able to make a market in the Company's
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<PAGE>
securities during the applicable restrictive period. Such restrictions may
adversely affect the price and liquidity of the Common Stock and the Class A
Warrants. See "Description of Securities," "Underwriting" and "Concurrent
Offering."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
All of the shares of Common Stock currently issued and outstanding
are "restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act in that such shares were issued and sold by the Company
in private transactions not involving a public offering. In general, under Rule
144 as currently in effect, beginning 91 days after the date hereof, subject to
the satisfaction of certain other conditions, a person, including an affiliate
of the Company, after at least two years have elapsed from the sale by the
Company or any affiliate of the restricted securities, can (along with any
person with whom such individuals is required to aggregate sales) sell, within
any three-month period, a number of shares of restricted securities that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class, or, if the Common Stock is quoted on NASDAQ or a stock exchange, the
average weekly trading volume during the four calendar weeks preceding the sale.
A person who has not been an affiliate of the Company for at least three months,
after at least three years have elapsed from the sale by the Company or an
affiliate of the restricted securities, is entitled to sell such restricted
shares under Rule 144 without regard to any of the limitations described above.
The Company's executive officers, David E. Y. Sarna and George J. Febish, have
agreed not to sell or otherwise transfer any of their shares of Common Stock for
a period of 18 months after the date of this Prospectus without the prior
written consent of the Representative, and the other securityholders of the
Company (including the holders of the Investor Warrants and 79,500 Selling
Securityholder Shares, but not the other Selling Securityholders) have agreed
not to sell any of their shares of Common Stock for a period of nine months
after the date of this Prospectus without the prior written consent of the
Representative. In addition, concurrently with the Offering, the Company is
registering for sale by the Selling Securityholders 1,143,088 shares of Common
Stock and 412,500 Class A Warrants that are outstanding or issuable upon the
exercise of currently exercisable warrants; however, the Selling Securityholders
other than the Representative and the holders of the Investor Warrants and
79,500 shares (which holders are subject to the nine month agreement with the
Representative described above) have agreed not to sell any of such securities
for a period of 12 months after the date of this Prospectus without the prior
written consent of the Representative. Which consent can be given only for sales
beginning six months after the date of this Prospectus. Furthermore, certain
holders of the Company's outstanding Common Stock, warrants and options
(including current and former executive officers) have "piggyback" registration
rights and/or demand registration rights that they may exercise commencing one
year from the date of this Prospectus.
No prediction can be made as to the effect, if any, the future sales
of Common Stock or the availability of Common Stock for future sale will have on
the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock (including shares issued upon exercise of
stock options or warrants) in the public market following the Offering, or the
perception that such sales could occur, could adversely affect prevailing market
prices of the Common Stock. See "Description of Securities - Registration
Rights," "Shares Eligible For Future Sale" and "Underwriting."
EFFECT OF OUTSTANDING WARRANTS, OPTIONS AND CONVERTIBLE SECURITIES
The Company has outstanding warrants to purchase an aggregate of
412,500 Units, all of which are exercisable at a price per Unit below the per
Unit offering price of the Units offered by this Prospectus. In addition,
412,500 shares of Common Stock will be issuable upon the exercise of the Class A
Warrants issuable upon the exercise of such outstanding warrants. The Company
also has outstanding other options and warrants to purchase an aggregate of
656,587 shares of Common Stock (as well as the July Placement Warrant to
purchase (1) 27,300 shares of Common Stock and (2) July 1996 Warrants to
purchase 18,200 shares), of which all except warrants to purchase 20,000 shares
of Common Stock are exercisable at a price below the per share offering price
(assuming no value is ascribed to the Class A Warrants included in the Units) of
the Units offered by this Prospectus. The Company has also agreed to grant to
the Representative the Unit Purchase Option, consisting
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of the right to purchase, commencing one year from the date of this Prospectus,
125,000 Units. The sale of 1,143,088 shares of Common Stock, as well as 412,500
Class A Warrants, has been registered in the Concurrent Offering, and the
Company has granted certain demand and piggyback registration rights to the
holders of certain shares of Common Stock, outstanding options and warrants and
the Representative's Unit Purchase Option. While holders of certain of these
rights (including the Selling Securityholders other than the Representative)
have agreed not to sell the securities issuable upon the exercise of outstanding
options and warrants for nine or 12 months after the date of this Prospectus,
these rights could result in substantial expense to the Company and restrict the
Company's ability to obtain future financing. The exercise of such options and
warrants and the sale of the Common Stock subject to these registration rights
would have a dilutive effect on the Company's stockholders. See "Certain
Transactions," "Description of Securities - Registration Rights," "Underwriting"
and "Concurrent Offering."
ADVERSE EFFECT OF REDEMPTION OF CLASS A WARRANTS
The Company has the right to redeem the Class A Warrants, commencing
one year from the date of the Prospectus (or earlier, with the consent of the
Representative), provided that the average closing bid price of the Common Stock
has exceeded 130% of the then current exercise price of the Class A Warrants
(initially $_____ per share), for a period of 20 consecutive trading days ending
within 15 days prior to the date on which the Company gives notice of
redemption. If the Company gives such notice of redemption, holders of the Class
A Warrants will lose their rights to exercise the Warrants after the date fixed
therein for their redemption. Upon the receipt of a notice of redemption of the
Class A Warrants, the holders thereof would be required to (i) exercise the
Class A Warrants and pay the exercise price at a time when it may
disadvantageous for them to do so, (ii) sell the Class A Warrants at the then
market price, if any, when they might otherwise wish to hold the Class A
Warrants or (iii) accept the redemption price, which is likely to be
substantially less than the market value of the Class A Warrants at the time of
redemption. See "Description of Securities - Class A Warrants."
NECESSITY OF FUTURE REGISTRATION OF CLASS A WARRANTS AND STATE BLUE SKY
REGISTRATION; EXERCISE OF CLASS A WARRANTS
The shares of Common Stock and the Class A Warrants comprising the
Units are immediately detachable and separately transferable upon issuance.
Although Units will not knowingly be sold to purchasers in jurisdictions in
which the Class A Warrants are not registered or otherwise qualified for sale or
exempt, purchasers may buy Class A Warrants in the after-market or may move to
jurisdictions in which the Class A Warrants and the Common Stock underlying the
Class A Warrants are not so registered or qualified or exempt. In this event,
the Company would be unable lawfully to issue Common Stock to those persons
desiring to exercise their Class A Warrants (and the Class A Warrants will not
be exercisable by those persons) unless and until the Class A Warrants and the
underlying Common Stock are registered or qualified for sale in jurisdictions in
which such purchasers reside or an exemption from such registration or
qualification requirements exists in such jurisdictions. There can be no
assurance that the Company will be able to effect any required registration or
qualification.
The Class A Warrants offered hereby will not be exercisable unless
the Company maintains a current registration statement on file with the
Commission either by filing post-effective amendments to the Registration
Statement of which this Prospectus is a part or by filing a new registration
statement with respect to the exercise of such Class A Warrants. The Company has
agreed to use its best efforts to file and maintain, so long as the Class A
Warrants offered hereby are exercisable, a current registration statement with
the Commission relating to such Class A Warrants and the shares of Common Stock
underlying such Class A Warrants. However, there can be no assurance that it
will do so or that such Class A Warrants or such underlying Common Stock will be
or continue to be so registered.
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The value of the Class A Warrants could be adversely affected if a
then current prospectus covering the Common Stock issuable upon exercise of the
Class A Warrants is not available pursuant to an effective registration
statement or if such Common Stock is not registered or qualified for resale or
exempt from registration or qualification in the jurisdictions in which the
holders of Class A Warrants reside. See "Description of Securities - Class A
Warrants."
POSSIBLE NEGATIVE EFFECT OF ANTI-TAKEOVER PROVISIONS, STAGGERED BOARD AND
PROVISIONS RELATING TO STOCKHOLDER ACTIONS
Certain provisions of Delaware law and the Company's Certificate of
Incorporation, as amended, and its Amended and Restated Bylaws could make it
more difficult for a third party to acquire, and could discourage a third party
from attempting to acquire, control of the Company. Certain of these provisions
allow the Company to issue Preferred Stock with rights senior to those of the
Common Stock without any further vote or action by the stockholders, eliminate
the right of stockholders to act by written consent and impose various
procedural and other requirements which could make it more difficult for
stockholders to effect certain corporate actions. The classification of the
Company's Board of Directors could have the effect of delaying a change in
control of the Company. In addition, the Company will have 5,000,000 shares of
authorized Preferred Stock, which the Company could issue in the future without
further stockholder approval and upon such terms and conditions, and have such
rights, privileges and preferences, as the Board of Directors may determine. The
rights of the holder of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of Preferred Stock that may be issued in
the future. The Company has no current plans to issue any additional Preferred
Stock. See "Certain Transactions," "Management - Executive Officers and
Directors and "Description of Securities - Preferred Stock - Delaware Takeover
Statute and Certain Charter Provisions."
LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS
The Certificate of Incorporation, as amended, and the Amended and
Restated Bylaws of the Company contain provisions limiting the liability of
directors of the Company for monetary damages to the fullest extent permissible
under Delaware law. This is intended to eliminate the personal liability of a
director for monetary damages on an action brought by or in the right of the
Company for breach of a director's duties to the Company or its stockholders
except in certain limited circumstances. In addition, the Certificate of
Incorporation, as amended, and the Amended and Restated Bylaws contain
provisions requiring the Company to indemnify directors, officers, employees and
agents of the Company serving at the request of the Company against expenses,
judgments (including derivative actions), fines and amounts paid in settlement.
This indemnification is limited to actions taken in good faith in the reasonable
belief that the conduct was lawful and in or not opposed to the best interests
of the Company. The Certificate of Incorporation, as amended, and the Amended
and Restated Bylaws provide for the indemnification of directors and officers in
connection with civil, criminal, administrative or investigative proceedings
when acting in their capacities as agents for the Company. The foregoing
provisions may reduce the likelihood of derivative litigation against directors
and executive officers and may discourage or deter stockholders or management
from suing directors or executive officers for breaches of their duties to the
Company, even though such an action, if successful, might otherwise benefit the
Company and its stockholders.
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USE OF PROCEEDS
Assuming an offering price per Unit of $6.00, the net proceeds to the
Company from the sale of Units offered hereby, are estimated to be approximately
$6,075,000 ($7,053,750 if the Over-allotment Option is exercised in full), after
deducting estimated underwriting discounts and commissions of $750,000 ($862,500
if the Over-allotment Option is exercised in full) and estimated offering
expenses payable by the Company (approximately $600,000, including the $225,000
($258,750 if the Over-allotment Option is exercised in full) non-accountable
expense allowance to be paid to the Representative). The Company expects to use
the net proceeds (assuming no exercise of the Over-allotment Option) during the
next 24 months as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROPRIATE PERCENTAGE OF
APPLICATION OF PROCEEDS DOLLAR AMOUNT NET PROCEEDS
----------------------- ------------- ------------
<S> <C> <C>
Repayment of Bridge Loans (1) ................................ $1,291,000 21.3%
Redemption of Series A Preferred Stock (2) ................... 275,000 4.5%
Deployment of up to 25 additional kiosks in New York City (3) 1,700,000 28.0%
Further expansion of SmartStreet(TM)and related operations (4) 2,600,000 42.8%
Working capital and general corporate purposes (5) ........... 209,000 3.4%
---------- -------
TOTAL ................................................ $6,075,000 100.0%
========== =======
</TABLE>
- --------------------------
(1) Represents the repayment of outstanding Bridge Loans in the aggregate
principal amount of $1,250,000 plus estimated accrued interest thereon at
the annual rate of 7% to the date of the closing of the Offering. The
Company used the net proceeds of the Bridge Loans to pay for product
development, operating expenses, working capital (including the payment of
accrued but unpaid salaries to the Company's executive officers) and
various expenses related to the Offering. See "Certain Transactions" and
Note D of Notes to Financial Statements.
(2) Represents the mandatory redemption, at $1.00 per share plus estimated
accrued but unpaid dividends at the annual rate of 9%, of the 212,500
outstanding shares of Series A Preferred Stock. See "Description of
Securities - Preferred Stock."
(3) Represents the anticipated expenses related to the customization and
installation of software and communications connections for the additional
kiosks, as well as the fabrication and physical installation of the kiosks
themselves. The Company will seek to finance such expenses by means of
equipment lease financing. The Company obtained such financing for a
portion of the costs associated with the first five kiosks, but has not yet
entered into any such arrangement for the additional kiosks. If it is able
to enter into such an arrangement, some or all of the proceeds allocated to
New York City kiosk deployment will be reallocated to working capital.
(4) Represents the amount that the Company anticipates it will require to
expand its kiosk operations and to otherwise expand its business to develop
and market products and services based on ActiveX(TM) reusable software
objects. The Company believes that the kiosk and related products and
services will generate revenues from lease payments, advertising and
transaction fees. However, as it has only recently
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begun deploying the initial kiosks, it has limited information available as
to the purposes for which kiosks will be used or the mix of revenues that
will result, or as to the features that will be required to be incorporated
in related products. Consequently, it cannot yet specify with certainty the
amounts that will be required to be allocated to fund the development,
fabrication or operation of additional kiosks or related products.
Allocations may vary substantially, and will depend on numerous factors
that the Company cannot now predict, including the availability of
equipment financing, the percentage of development costs that content
providers will finance and the percentage that the Company will be required
to finance, the demand for kiosks or related products for various purposes
(that is: advertising, information dissemination or fee-generating
transactions, or other purposes) and the level and nature of revenues. For
example, a kiosk used primarily to disseminate information or convey
advertising would generate revenues primarily from lease payments or
payments from the advertiser that would be received by the Company on a
regular, predetermined basis, whereas a kiosk used primarily for
transactions would generate revenues from fees, which revenues would not be
as predictable as to amount or time of availability to the Company. The
Company believes that the salaries of current employees, including
executive officers, will be paid primarily from operating revenues and that
additional employees will be hired if and when required by the expansion of
its business. A portion of the proceeds allocated to expansion will also be
used for marketing and possibly to fund receivables, the amounts of which
will also be determined by the purposes for which kiosks and related
products are used. The net proceeds allocated to expansion may also be used
to acquire technology, licenses or companies that complement the business
of the Company, although no such acquisitions are planned or are being
negotiated as of the date of this Prospectus. To the extent the Company is
able to obtain equipment lease financing or enter into other arrangements
to fund future kiosks or related projects, or revenues are generated by
transaction fees from advertising or lease payments or otherwise from
operations, proceeds allocated to expansion will be reallocated to working
capital. See "Business - ObjectSoft Strategy."
(5) Working capital and general corporate purposes will include such items as
administrative and occupancy expenses, professional expenses, insurance
payments and purchases of supplies.
If the Representative exercises its Over-allotment Option in full,
the Company will realize additional net proceeds of approximately $978,750,
which amount will be added to the Company's working capital.
The amount and timing of expenditures for each purpose will depend on
technological, competitive and business developments; determinations as to
commercial potential; the terms of any collaborative arrangements entered into
by the Company for development and licensing; and other factors, many of which
are beyond the Company's control. The Company's current policy is to own and
operate its kiosks, which may require substantial capital investment. It is the
Company's intention to enter into lease financing arrangements for the kiosks.
While the Company has entered into such an arrangement to cover a portion of the
costs of the first five kiosks, it has not entered into an agreement for such
financing for future kiosks, and there can be no assurance that it will be able
to do so on acceptable terms or at all. The Company believes that the net
proceeds from the Offering, together with anticipated revenues from operations
and assuming the establishment of an acceptable lease financing arrangement,
will be sufficient to meet its presently anticipated working capital and capital
expenditure requirements for at least 24 months. In the event the Company's
plans change or its assumptions change or prove to be inaccurate or the proceeds
of the Offering prove to be insufficient to fund operations (due to
unanticipated expenses, delays, problems or otherwise), the Company may find it
necessary or advisable to use portions thereof for other purposes and could be
required to seek additional financing sooner than currently anticipated.
Depending on the Company's progress in the development of its products and
technology, their acceptance by the marketplace, and the state of the capital
markets, the Company may also determine that it is advisable to raise additional
equity capital. The Company has no current arrangements with respect to, or
sources of, additional financing and there can be no assurance that additional
financing will be available to the Company when needed on commercially
reasonable terms or at all. Any inability to obtain additional financing when
needed would have material adverse effect on the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
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<PAGE>
Pending such uses, the net proceeds will be invested in short-term,
investment grade instruments, certificates of deposit or direct or guaranteed
obligations of the United States.
The net proceeds to the Company do not include any proceeds to be
realized by the Company upon the exercise of the Class A Warrants or the Unit
Purchase Option and the resulting issuance of shares of Common Stock. The
Company anticipates that if the Class A Warrants or Unit Purchase Option are
exercised, the proceeds will be used for working capital purposes.
DIVIDEND POLICY
Other than distributions made prior to 1993, when the Company was a
closely-held "S corporation," the Company has never declared or paid cash
dividends on its Common Stock. The Company currently anticipates that it will
retain all available funds for use in the operation of its business, and
therefore does not anticipate paying any cash dividends on the Common Stock in
the foreseeable future. The Company's Series A Preferred Stock currently accrues
dividends at the annual rate of 9%. The Company is obligated to pay all accrued
but unpaid dividends on the Series A Preferred Stock in connection with the
redemption of the Series A Preferred Stock upon closing of the Offering. See
"Use of Proceeds" and "Description of Securities - Preferred Stock."
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<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1996, (i) the
capitalization of the Company, (ii) the pro forma capitalization of the Company,
as adjusted to give effect to the sale in July and August 1996 of 273,001 shares
of Common Stock and July 1996 Warrants to purchase 182,004 shares of Common
Stock and the redemption of the Company's Series B Preferred Stock in July 1996,
and (iii) the capitalization of the Company as further adjusted to give effect
to (A) the sale of the Units in the Offering (assuming an offering price of
$6.00 per Unit) and the receipt by the Company of the estimated net proceeds
therefrom, after deducting estimated underwriting discounts and commissions and
other expenses of the Offering, (B) repayment of the $1,250,000 principal
balance of the outstanding Bridge Loans and the accrued interest thereon, and
(C) the concurrent mandatory redemption of all the outstanding shares of Series
A Preferred Stock.
<TABLE>
<CAPTION>
June 30, 1996
-----------------------------------------
Historical Pro Forma As Adjusted
----------- ----------- -----------
<S> <C> <C> <C>
Note payable ..................................... $ 1,058,738 $ 1,058,738 $ --
=========== =========== ===========
Preferred stock, $.0001 par value;
5,000,000 shares authorized;
212,500 shares of Series A Preferred
Stock issued and outstanding actual and
pro forma; no shares to be issued and
outstanding as adjusted ............... 268,469 268,469 --
1,250 shares of Series B Preferred Stock
issued and outstanding; no shares to be
issued and outstanding pro forma and as
adjusted .............................. 125,000 -- --
----------- ----------- -----------
393,469 268,469 --
=========== =========== ===========
Common stock, $.0001 par value;
20,000,000 shares authorized; 2,293,000
issued and outstanding; 2,566,001
issued and outstanding pro forma;
and 3,816,001 to be issued
and outstanding as adjusted ............. 229 257 382
Capital in excess of par value ................... 405,856 1,222,113 7,296,988
Accumulated deficit (2) .......................... (1,193,939) (1,193,939) (1,385,201)
----------- ----------- -----------
Total stockholders' equity (capital .... $ (787,854) $ 28,431 $ 5,912,169
deficiency) ......................... =========== ============ ==========
</TABLE>
- --------------------
(1) Does not include: (i) 1,250,000 shares of Common Stock issuable upon
exercise of the Class A Warrants included in the Units offered hereby, (ii)
up to 375,000 shares of Common Stock issuable upon exercise of the
Over-allotment Option and the Class A Warrants underlying the
Over-allotment Option, (iii) 250,000 shares of Common Stock issuable upon
the exercise of the Representative's Unit Purchase Option and the Class A
Warrants issuable upon the exercise thereof, and (iv) 1,114,587 shares of
Common Stock issuable upon exercise of outstanding options and warrants and
the Class A Warrants issuable upon the
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<PAGE>
exercise of certain of such warrants. See "Management," "Certain
Transactions," "Description of Securities" and "Underwriting."
(2) Reflects, among other things, the write-off of unamortized note payable
discounts and deferred financing costs amounting to $191,262 upon repayment
of an aggregate of $1,291,000, consisting of the principal and accrued
interest of the Bridge Loans received by the Company in the Bridge Loan
Offering during the period of April though June 1996 and repayable from the
proceeds of the Offering. See "Use of Proceeds."
DILUTION
The unaudited pro forma net tangible book value of the Company as at
June 30, 1996 was a negative $50,855, or $(0.02) per share of Common Stock. "Pro
forma net tangible book value per share of Common Stock" represents the pro
forma book value of the Company's total tangible assets, less its total
liabilities and preferred stock, divided by the number of shares of Common Stock
outstanding (2,566,001 pro forma shares at June 30, 1996, giving pro forma
effect to the sale of the July 1996 Units and redemption of the Series B
Preferred Stock). After giving effect to the sale of the Units offered hereby
(assuming an offering price of $6.00 per Unit and without allocating any value
to the Class A Warrants contained in the Units) and the application of the net
proceeds therefrom, the Company's adjusted net tangible book value of Common
Stock as of June 30, 1996 would have been $6,024,145, or $1.58 per share of
Common Stock. This represents an immediate increase in net tangible book value
per share of Common Stock of $1.60 to existing holders of Common Stock and
immediate dilution in net tangible book value of $4.42 per share to new
investors purchasing Units in the Offering. The following table illustrates the
per share dilution:
Assumed initial public offering price per share.................... $6.00
Pro forma net tangible book value per share of
Common Stock before the Offering................. $ .02)
Increase per share attributable to new investors.... 1.60
-----
Adjusted tangible book value per share of Common Stock
after the Offering ................................ 1.58
-----
Dilution per share to new investors(1)............................. $4.42
=====
- -----------
(1) If the Over-allotment Option is exercised in full, dilution per share to
new investors would be $4.25. The foregoing table does not give any effect
to the possible exercise of any warrants or options.
The following table summarizes, as at June 30, 1996, on a pro forma
basis, the number of shares purchased from the Company, the total consideration
paid and the average price per share paid by the existing stockholders and by
new investors before deduction of underwriting discounts and commissions and
estimated offering expenses:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------- ------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------ ---------- ---------
Existing stockholders 2,566,001 67.24% $1,196,013 13.75% $0.47
New Investors 1,250,000 32.76% $7,500,000 86.25% $6.00
--------- ------- ---------- ------
Total 3,816,001 100.00% $8,696,013 100.00%
========= ======= ========== ======
The foregoing table assumes no exercise of the Over-allotment Option.
The foregoing table also does not include (i) the 250,000 shares of Common Stock
included in the Units issuable upon exercise of the Representative's Unit
Purchase Option and the Class A Warrants issuable upon the exercise of such
option, (ii) the 1,114,587 shares of Common Stock issuable upon exercise of
outstanding warrants and options, or (iii) the 250,000 shares of Common Stock
reserved for issuance upon the exercise of options granted to date or in the
future under the Company's 1996 Stock Option Plan, of which 145,000 have been
granted to date (which are included in (ii) above). See "Management - 1996 Stock
Option Plan," "Description of Securities" and "Underwriting."
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<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below as at December 31, 1995
and for each of the two fiscal years then ended have been derived from the
audited financial statements of the Company. The financial statements of the
Company as at December 31, 1995, and for each of the two fiscal years then
ended, including the notes thereto, and the related report of Richard A. Eisner
& Company, LLP, independent auditors, are included elsewhere in this Prospectus.
The selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of the Company and related notes
thereto included elsewhere in this Prospectus. Data for the six month periods
ended June 30, 1996 and 1995 are derived from unaudited statements, but in the
opinion of management include all adjustments necessary for a fair presentation
of the data. Results for the six month period ended June 30, 1996 may not be
indicative of results expected for the year ending December 31, 1996.
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
------------------------- -----------------------
STATEMENT OF OPERATIONS DATA: 1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Consulting $ 258,000 282,562 $ 447,976 $ 509,920
Development and training 37,954 97,900 118,618 245,836
Net loss (300,722) (13,798) (122,400) (45,504)
Net loss applicable to common stock (316,535) (23,361) (141,525) (64,629)
Net loss per share of common stock (0.11) (0.01) (0.05) (0.02)
Weighted average number of common stock 2,897,418 2,894,418 2,894,418 2,894,418
outstanding
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
------------------------------------- -----------------
BALANCE SHEET DATA: Historical Pro Forma(1) As Adjusted(2)
---------- ------------ --------------
<S> <C> <C> <C> <C>
Working capital (deficiency) $ 246,384 937,669 $ 5,394,200 $ (390,290)
Total assets 1,107,160 1,698,445 6,151,768 343,534
Redeemable preferred stock 393,469 268,469 -- 383,906
Accumulated deficit (1,193,939) (1,193,939) (1,385,201) (877,404)
Total stockholders' equity (capital deficiency) (787,854) 28,431 5,912,169 (598,844)
</TABLE>
- -------------------
(1) Gives effect to the sale of 273,001 shares of Common Stock and July 1996
Warrants to purchase 182,004 shares of Common Stock in July and August 1996
and the redemption of the Company's Series B Preferred Stock in July 1996.
(2) Assumes an offering price per Unit of $6.00, the midpoint of the range set
forth on the cover page of this Prospectus, and gives effect to (i) the
sale of 1,250,000 Units offered hereby and the application of the estimated
net proceeds therefrom, including the repayment of $1,250,000 principal
amount of the Bridge Loans outstanding, plus accrued interest thereon and
redemption of the Series A Preferred Stock at its liquidation value of
$212,500 plus accrued dividends, (ii) the sale of the July 1996 Units and
the issuance of the July Placement Warrant and (iii) the redemption of the
Series B Preferred Stock at its liquidation value of $125,000 and the
issuance of the warrants to purchase 20,000 shares of Common Stock at $7.00
per share in connection therewith. See "Use of Proceeds" and "Certain
Transactions."
-30-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the notes thereto included elsewhere in this Prospectus.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
A number of statements contained in this Prospectus are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties that could
cause actual results to differ materially from those expressed or implied in the
applicable statements. These risks and uncertainties include but are not limited
to: limited operating history; recent establishment of new business divisions;
potential future operating losses; dependence on new untested product; risks
related to technological factors; potential manufacturing difficulties;
dependence on certain third parties and on the Internet; limited customer base;
risk of manufacturing activities; dependence on key personnel and proprietary
technology; risk of system failure, security risks and liability risks;
uncertainty of additional financing; the Company's vulnerability to rapid
industry change and technological obsolescence; the limited nature of its
product life and the uncertainty of market acceptance of the Company's products;
the unproven status of the Company's products in widespread commercial use,
including the risks that the Company's current and future products may contain
errors that would be difficult and costly to detect and correct; uncertainties
with respect to the Company's business strategy; general economic conditions,
and other risks described in this Prospectus. See "Risk Factors."
OVERVIEW
The Company provides information and transaction-based services using
proprietary software and off-the-shelf, reusable software components based on
Microsoft's ActiveX(TM) (formerly OLE) component technology. The Company's
strategy is initially to provide information and services through public access
kiosks, known as SmartStreet(TM), over Intranets. The kiosks are located in high
density pedestrian traffic locations. In addition to developing products and
services for its own account, the Company has in the past provided, and
continues to provide, educational and consulting services related to the
Internet, reusable software components and rapid application development.
Beginning in mid-1994, the Company changed its focus from consulting and
training services to transactional, fee-based and advertising-supported products
and services. The Company has sustained net losses in each of the last two
fiscal years with a net loss of $122,400 in 1995 and a net loss of $45,504 in
1994. For the six months ended June 30, 1996, the Company had a net loss of
$300,722. In September 1995, the Company introduced OLEBroker(TM), its fee-based
website on the Internet. The Company's SmartStreet(TM) kiosks were introduced in
July 1996. The Company has not recognized any significant income to date from
the SmartStreet(TM) kiosk rentals or from OLEBroker(TM). Consequently, any
analysis of the Company's prior operations has only minimal relevance to an
evaluation of the Company, its current products and services and its prospects.
Although the Company anticipates that it will begin to recognize greater
revenues from the SmartStreet(TM) kiosks and from OLEBroker(TM) during the
second half of 1996, it cannot predict the actual timing or amount of such
revenues.
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<PAGE>
RESULTS OF OPERATIONS
The Company commenced operations in December 1990. Through 1994, the
Company derived the majority of its revenues from consulting, custom development
and training. In this connection, beginning in mid- 1994, the Company began
developing a core of reusable software objects. These objects were used in the
development of OLEBroker(TM) and in the Company's SmartStreet(TM) kiosks. In
accordance with the provisions of generally accepted accounting principles
(GAAP), much of the costs associated with this development have been expensed.
Therefore, the Company may be dependent upon obtaining additional
debt financing, raising additional capital and/or achieving sustained profitable
operations or a combination thereof. The Company anticipates that its kiosk
operations are unlikely to produce a positive cash flow until at least early
1997. It is management's opinion that these conditions are a result of the
start-up of operations and are not permanent.
Year ended December 31, 1995 compared to year ended December 31, 1994
During the year ended December 31, 1995 the net loss of the Company
increased to $122,400 ($.05 per share) from $45,504 ($.02 per share) for the
year ended December 31, 1994, reflecting the expensed development and marketing
expenses for OLEBroker(TM).
During the year ended December 31, 1995, revenues declined to
$566,594 from $755,756 for the year ended December 31, 1994. Consulting revenue
declined from $509,920 to $447,976 and development and training revenues
declined from $245,836 to $118,618. These declines were due to the Company's
shift away from fee-based consulting, training, and custom development and
redirection of its resources toward the development of transactional, fee-based
and advertising-supported products and services.
Costs and expenses for the year ended December 31, 1995 declined to
$688,994 from $801,260 in 1994. The decline in costs and expenses reflects a
decline in revenue and management's emphasis on achieving profitability for the
consulting, training, and custom development business of the Company. During the
year ended December 31, 1995, research and development conducted by the Company
aggregated $62,863 as a result of expenditures for object development.
Costs of services for the year ended December 31, 1995 declined to
$429,604 from $571,969 in 1994. This decline is as a result of a decline in
revenue. The difference of the costs of services between the years ended
December 31, 1995 and December 31, 1994 is, on a percentage basis,
inconsequential.
During the year ended December 31, 1995, the general and
administrative expenses declined to $193,025 from $225,430 for the year ended
December 31, 1994, reflecting a temporary decrease in market-building activities
while the Company's new products were in development.
At December 31, 1995, the Company had federal net operating loss
carryforwards of approximately $350,000. A valuation allowance has been recorded
for the entire deferred tax asset as a result of uncertainties regarding the
realization of the asset due to the lack of earnings history of the Company. See
Note I of Notes to Financial Statements.
Six months ended June 30, 1996 compared to six months ended June 30, 1995
During the six months ended June 30, 1996, the net loss of the
Company increased to $300,722 ($.11 per share) from $13,798 ($.01 per share) for
the six months ended June 30, 1995, reflecting increased expenses primarily in
connection with the Bridge Loan Offering, professional fees and marketing
expenses for OLEBroker(TM) and SmartStreet(TM).
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<PAGE>
During the six months ended June 30, 1996, revenues declined to
$295,954 from $380,462 for the six months ended June 30, 1995. Consulting
revenue declined from $282,562 to $258,000 and development and training revenues
declined from $97,900 to $37,954. This decline was due to the Company's shift
away from fee-based consulting training, and custom development and redirection
of those resources to SmartStreet(TM).
Costs and expenses for the six months ended June 30, 1996 increased
to $596,676 from $394,260 for the six months ended June 30, 1995. The increase
in general and administrative costs reflects an increase in expenses related to
SmartStreet(TM).
Cost of services for the six months ended June 30, 1996 increased to
$256,720 from $244,542 for the six months ended June 30, 1995. The reduction in
the gross profit percentages for the six months ended June 30, 1996 as compared
to the six months ended June 30, 1995 was primarily the result of the expensing
of objects built for a specific project that are reusable and the initial costs
of OLEBroker(TM) exceeding the revenue during 1996.
For the six months ended June 30, 1996 and 1995, respectively,
development expenses were either charged to cost of services (if related to
income from one or more clients) or were capitalized in accordance with GAAP.
In the six months ended June 30, 1996, general and administrative
costs increased to $249,160 from $147,763 for the six months ended June 30,
1995, primarily reflecting costs associated with the SmartStreet(TM) kiosk
program and the agreement with the City of New York.
In the six months ended June 30,1996, interest expense increased to
$90,796 from $1,955 in the six months ended June 30, 1995, primarily reflecting
the ratable amortization of the discount and interest on the Bridge Loans. See
"Certain Transactions - Recent Financings."
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of financing for its operations and
working capital requirements has been from sales of its consulting, training and
development services and from certain private placements by the Company of debt
and equity securities. In April through June 1996 the Company sold 12.5 Bridge
Units for a net consideration of $1,105,000 and in July and August 1996, the
Company sold an aggregate of 273,001 July 1996 Units for net consideration of
$816,285. See "Certain Transactions - Recent Financings."
The Company has generated a net loss in each of the last two fiscal
years, with a net loss of $122,400 in 1995 and a net loss of $45,504 in 1994.
For the six months ended June 30, 1996, the Company had a net loss of $300,722.
During the period ended June 30, 1996, the Company's accounts payable and
accounts receivable were significantly greater than in prior periods. The
increase in accounts payable was related to the costs incurred in connection
with financings and with the development of software for the first five kiosks
and fabrication of the such kiosks under the City Agreement during the June 30,
1996 period. The increase in accounts receivable was related to the activities
under the City Agreement. At June 30, 1996, the Company had $424,059 in cash and
working capital of $246,384.
As of June 30, 1996 the Company was committed to spending an
additional $100,000 on the initial five kiosks. In addition it expects to spend
approximately $1,700,000 for hardware and software in connection with the
additional 25 kiosks which it intends to install in the New York City area in
the next six to nine months. The Company intends to lease as much of this
equipment as possible. However, there is no assurance that such equipment lease
financing will be available on favorable terms to the Company or at all. The
Company also plans to increase the number of its employees.
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<PAGE>
The Company anticipates that it will require an additional $2,600,000
to fund its operations, primarily to further expand its SmartStreet(TM) kiosk
operations in the next 24 months and that such funding will be obtained through
the net proceeds of the Offering and from operations. In the event additional
capital is required to fund the Company's operations during such period, such
additional capital may be obtained through anticipated revenue which may be
derived from the Company's operations, principally monthly base charges,
transaction fees and advertising revenues. No assurance can be given that any of
the amounts referred to in this paragraph will be obtained. If such amounts are
not available, the Company could be required to seek additional financing sooner
than currently anticipated. See "Use of Proceeds."
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<PAGE>
GLOSSARY
ALGORITHM - A detailed sequence of actions to perform or to accomplish some
task. The term is named after an Iranian mathematician, Al-Khawarizmi. An
algorithm reaches a result after a finite number of steps. The term is also used
loosely for any sequence of actions (which may or may not terminate).
ActiveX(TM) TECHNOLOGY - Microsoft's implementation of OLE designed to run over
slow Internet links.
APPLETS - A program, written in the Java language, which can be distributed as
an attachment in a World-Wide Web document and executed either by a browser or
server that supports Java.
CLIENT/SERVER COMPUTING - A computer system architecture in which two
independent processors communicate via an established protocol. The client is
typically a single user personal computer with a graphical user interface
operated by the end-user that makes requests to the server. The server typically
runs database software, maintains information and responds to one or more
clients.
FIREWALL - A system that controls the flow of data between an internal network
and the Internet or between internal network segments.
FRAME RELAY - A wide area communications interface. Frame Relay could connect
dedicated lines and X.25 to ATM, SMDS, BISDN and other "fast packet"
technologies. Frame Relay uses the same basic framing and Frame Check Sequence
at layer 2 so current X.25 hardware still works. It adds addressing (a 10 bit
Datalink Connection Identifier (DLCI)) and a few control bits but does not
include retransmissions, link establishment, windows or error recovery. It has
none of X.25's layer 3 (session layer) but adds some simple interface
management. Any layer three protocol can be used inside the layer two Frames.
GRAPHIC USER INTERFACE (GUI) - Interfacing with a computer by manipulating
graphical icons and windows (usually by pointing and clicking a mouse) rather
than using text commands.
HYPERTEXT MARKUP LANGUAGE (HTML) - A page description language used to convey
both content and formatting information about content to a Web browser.
INTEROPERABILITY - The ability of software and hardware on multiple machines
from multiple vendors to communicate.
INTERNET - An open global network of interconnected commercial, educational and
governmental computer networks that utilize a common communications protocol.
INTERNET SERVICE PROVIDER - (ISP) A company which provides other companies or
individuals with access to, or presence on, the Internet. Most ISPs are also
Internet Access Providers; extra services include help with design, creation and
administration of World-Wide Websites, training, and administration of
Intranets.
INTERNET PROTOCOL (IP) - The network layer for the TCP/IP protocol suite widely
used on Ethernet networks, defined in STD 5, RFC 791. IP is a connectionless,
best-effort packet switching protocol. It provides packet routing, fragmentation
and re-assembly through the Datalink layer.
INTRANET - An organization's private network of its local area networks that
utilizes Internet data formats and communications protocols and that may use the
Internet's facilities as the backbone for network communications.
LOCAL AREA NETWORK (LAN) - A group of one or more computers connected together
within a localized environment for the purpose of sharing data and networked
resources such as printers, modems or servers.
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<PAGE>
MICROSOFT WINDOWS - Computer operating systems providing graphical user
interfaces and, in the case of Windows NT, that is optimized for use as a
network server.
OLE - Microsoft's component architecture which competes with OpenDoc and CORBA.
See "Business - Industry Background - Reusable Software Components."
PRIME NUMBERS - numbers divisible only by themselves and one (1).
RAPID APPLICATION DEVELOPMENT (RAD) - a technique for developing software
quickly that makes use of prototyping and reusable software components.
SHRINK WRAP LICENSE - A printed agreement included in product packaging that
typically provides that opening the package indicates the user's acceptance of
its terms and conditions.
UNIVERSAL RESOURCE LOCATOR (URL) - a complete address to reach a site on the
World-Wide Web specifying the protocol and fully qualified address.
WEB BROWSER - Client programs that allow users to browse the Web.
WEB SERVER - A server process running at a website which sends out web pages in
response to requests from remote browsers. If one site runs more than one server
they must use different port numbers.
WEBSITE - Any computer on the Internet running a World-Wide Web server process.
A particular website is identified by the hostname part of a URL.
WIDE AREA NETWORK (WAN) -A communications network that uses commercial
transmission resources to connect geographically dispersed users or LANs.
WORLD-WIDE WEB (Web or WWW) - A network of computer servers that uses a special
communications protocol to link different servers throughout the Internet,
allowing a user to move from document to related document, no matter where it is
stored on the Internet, and permits communication of graphics, video and sound.
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<PAGE>
BUSINESS
The Company is in the business of providing information and
transaction-based services using proprietary software and off-the-shelf,
reusable software components based on Microsoft's ActiveX(TM) (formerly OLE)
component technology. The Company's strategy is initially to provide information
and services through public access kiosks, known as SmartStreet(TM), over
private networks known as Intranets. The kiosks will be located in high density
pedestrian traffic areas. The first five kiosks were deployed in New York City
in July 1996 under an agreement with the City of New York (the "City"). Kiosk
users are able to obtain information and documents and transact certain business
without the necessity of interacting directly with City employees or appearing
personally at certain City offices.
In early 1996, as part of its Kiosk Demonstration Project, the City
of New York entered into an agreement with the Company (the "City Agreement") to
develop public kiosks to be located in City offices and other public locations
in an effort to expedite transactions with the City. Under the City Agreement,
the City agreed to lease the first five kiosks, and the Company may deploy
additional kiosks throughout the New York City area at its own risk and expense,
subject to City approval of kiosk locations. The initial term of the City
Agreement is one year, which may be extended by the City for a period of up to
24 months. Any extension or renewal of the City Agreement will be contingent
upon the City's evaluation of the Kiosk Demonstration Project as a whole and of
the Company's kiosks. Pursuant to the City Agreement, the Company has developed
kiosks through which members of the public can obtain certain information from,
and transact certain buisness with, the Buildings Department and the Department
of Health, as well as information about City government and elected officials
and general information about transportation and attractions in New York.
The kiosks are configured to permit the Company to offer additional
services provided either by the Company or third parties and to sell advertising
on such kiosks. Under the City Agreement, a portion of the revenue, if any,
derived from such services and advertising will be shared with the City. The
Company will seek to provide SmartStreet(TM) services to other municipalities,
states and government agencies and to organizations in the private sector that
provide a large volume of information, records and documents to the public. The
Company may also seek to enter into agreements with the City and other customers
to provide information and services over the Internet, in order to significantly
expand the accessibility of such information and services. To date, the Company
has not entered into any agreements to offer any of the foregoing additional
services or products.
As of August 31, 1996, the Company had received, under the City
Agreement, payments of $158,424, consisting of payment by the City of one
month's $30,090 lease payment and $128,334 of a total of $300,000 due upon the
achievement of certain milestones. As of August 31, 1996, the first five kiosks
were available only to provide City information and did not provide transaction
services or carry any paid advertising or third party services. Consequently, no
revenues had been generated by user transactions or advertising. The kiosks are
expected to be available to conduct City transactions on a fee basis by January
31, 1997.
After its inception in 1990, the Company's activities consisted
initially of consulting, writing, training and custom software development for
various corporate and government clients, including Microsoft, for which it
produced technical papers and provided consulting services. In performance of
these activities, the Company developed skills in rapid application development
and a base of courseware and reusable software objects to which it retains
title. In 1995, the Company decided to direct these skills and its expanding
body of reusable software objects toward the development of services through
which it can derive revenue on a "per transaction" basis. It developed and
operates OLEBroker(TM), an Internet-based subscription service that allows
customers to search its database of information about software objects, find the
information needed and at the customer's option, purchase needed objects
on-line. This service is of benefit to customers developing computer programs
for Microsoft Windows. In connection with the development of OLEBroker(TM), the
Company developed significant additional software objects, which it then used in
the development of technology for the kiosk and Internet service delivery
programs. While the Company anticipates that the kiosk and Internet service
delivery
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programs will constitute the most significant part of its business, it intends
to continue to engage in consulting activities as resources permit and in the
operation of OLEBroker(TM). In selecting consulting opportunities, the Company
will focus primarily on assignments in connection with the sale of kiosk
services or that can otherwise enhance its skill base. The Company believes that
there will continue to be a market for the OLEBroker(TM) service, consisting
primarily of persons involved in computer programming, rather than computer
users in general, as the use of Microsoft Windows programs increases.
INDUSTRY BACKGROUND
INTERNET DEVELOPMENT
In recent years, computers have become increasingly interconnected
through local area networks, wide area networks, and a technology for linking
computers together known as the Internet Protocol (IP), as well as through
various proprietary services. Increasingly, desktop personal computers (PCs)
communicate with larger, shared servers using an arrangement known as
client/server technology, as well as with other PCs on a peer to peer basis. The
Internet, in particular, has experienced explosive growth in recent years as a
means for computers to communicate with each other. While in its initial years,
the Internet was used primarily for the transmission of electronic mail and for
the dissemination of information, a technology called the World Wide Web ("WWW"
or "Web"), a graphical approach to seeking and providing information, has proven
to be very popular, and more than 40,000 websites operate to support Web
browsers.
Recently, CommerceNet, through Nielsen Media Research, conducted the
Internet Demographics Survey, which the companies say is the first
population-projectable survey regarding Internet usage. Among the survey's
findings were these: there is a sizable base of Internet users--some 24 million
people--in the United States and Canada; users of the World Wide Web are
potentially ideal targets for business applications since they were found
typically to be more educated and to have higher incomes than the rest of the
population; and some 2.5 million people have already made purchases using the
Web. The study found that users access the Internet fairly frequently, with 31%
accessing it at least once a day. In addition, Internet users spend an average
of five hours and 28 minutes online per week. The CommerceNet study has been
criticized by some as unrepresentative, in that it over-represents highly
educated individuals and under-represents individuals with less than a high
school education. However, the critics generally acknowledge that even if the
sample is skewed, the overall conclusions, if not their magnitude, are valid.
Leading developers of Web browser software include Netscape, NCSA
Mosaic and Microsoft. Leading developers of software for web servers include
Netscape, O'Reilly and Purveyor. In 1996, Microsoft released an Internet server,
called Internet Information Server, that it subsequently included as part of
Release 4.0 of its NT operating system package.
Internet technology has been enhanced in various ways to permit
conventional applications to interact with users having access to an Internet
connection and a web browser, to effect purchases and other transactions over
the Internet. Such commercial use typically requires custom programming, and
special techniques to provide for an acceptable level of security, given that
the Internet is inherently an insecure network. Visa and Mastercard have
announced standards to support the secure approval of credit card transactions
over the Internet. These standards were developed jointly with Microsoft and
Netscape. Separately, Netscape and VeriFone Inc. announced plans to develop
software to support this standard with Netscape's commerce server software.
DigiCash, N.A., CyberCash, Inc., and First Virtual Holdings have implemented
their own Internet payment systems. The ability to accept payments easily over
the Internet opens up many possibilities; for example, users can pay on a "per
transaction" basis for use of specialized software or for obtaining information
such as documents, price quotations, and the like.
Many vendors, including Microsoft, offer techniques for improving the
level of security on the Internet, including secure servers, firewalls,
encryption techniques and other devices; however, even in the aggregate, these
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techniques are not wholly foolproof and the lack of full security may impede the
growth of commerce on the Internet. New studies using very large Prime Numbers
propose to have keys that all the computing power in the world today would take
over a million years to break. Although this may be drastically reduced by new
techniques in factoring Prime Numbers, finding a pattern to Prime Numbers, or
future computer power growing much more than expected, these new techniques
would offer far greater security than any codes in use today.
In the past year, reusable software components have begun to be
adapted for the Internet. Two strategies have emerged. The first is a language
called Java created by Sun Microsystems for development of "applets" of
downloadable and reusable software components over the Internet. More recently,
Microsoft has developed software to support its ActiveX(TM) technology over the
Internet, and has released a beta version of Visual Basic called Visual Basic
Script for the development and support of ActiveX(TM) components over the
Internet. Microsoft has also signed an agreement with Sun for support of Java
applets in its Internet Explorer, an Internet Browser used by the Company.
INTRANET TECHNOLOGY
Internet software is being used in private networks also. Such usage
is referred to as an Intranet and it is increasingly becoming a part of the
information services delivery strategy of many large organizations. Using
Internet software to organize a private network can provide the same ease of
use, hypertext capabilities, and downloading as does the Internet today.
Intranets can be used to support a broad range of business solutions; that is,
software programs that support business functions. Drawing from the usage of
Internet e-mail and the Internet's World-Wide Web, Intranets can be used to
publish and exchange information within a company.
Additionally, Intranets can be used to make interactive business
applications broadly accessible to a company's users wherever they are located.
This is not just the traditional automating of business processes within a
company. These applications can also tie together business processes between
companies. An example of this would be linking suppliers with a manufacturing
company's inventory system. This inter-company communication can take place by
combining Intranets and the Internet. A new capability, called point-to-point
tunneling protocol (PPTP), makes it feasible for secure business processes to
operate over the Internet. In this connection, according to Microsoft, over 1.2
million people use the Microsoft Office family of web authoring tools.
KIOSK TECHNOLOGY
Kiosks are public access stations that can supply information or
perform transactions. They are becoming more and more common across the United
States and include such applications as custom greeting card machines,
automotive parts look-up centers, music CD-preview stations, museum information
kiosks, and movie ticketing dispensers.
Many kiosks today are self-contained. Others may be linked to a
central site. Kiosks have traditionally used conventional or proprietary
technology. In contrast, the Company's kiosk technology combines the advantages
of Internet and Intranet technology.
REUSABLE SOFTWARE COMPONENTS
Historically, the Company engaged in rapid application development
for others. It was attracted to this field because, as noted by Microsoft,
software development in many companies today accounts for half or more of total
expenditure for information processing. Often, software development takes longer
than expected to complete, and fails to live up to expectations. In "Software's
Chronic Crisis," W. Wayt Gibbs reports that over half of complex software
projects fail (Scientific American, September 1994). Although U.S. corporations
and
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institutions spend an annual $250 billion on software development, the Standish
Group International reports that only 16% of projects come in on budget, on
time, with all the planned features. Fifty-three percent are either over budget,
delayed, have fewer functions than planned, or any combination thereof
(Investor's Business Daily, January 25, 1995). Several techniques have been
developed to remedy this situation, including a trend towards client/server
computing, the use of graphical user interfaces, such as Windows, rapid
application development languages and environments such as Visual Basic,
PowerBuilder and Delphi and SQLWindows, and the development of techniques for
reuse of software components such as OLE and OpenDoc.
Reusable software has been a goal of software developers for many
years, as a means of reducing the cost and time frames for software development.
Programming languages that are "object-oriented" provide facilities that
encourage development of reusable blocks of software called "objects." The
leading languages which support object development are C++ and Smalltalk. Such
objects can be reused only in their own environments, and modest success has
been reported using such tools. More recently, the software community has begun
to develop mechanisms for larger reuse through language- and
platform-independent reusable software components. The goal of reusable software
components is to provide a mechanism for reusing tested objects, without the
necessity for the programmer reusing the code to need to understand the internal
algorithms or structures of the code being reused. This reuse is accomplished by
establishing a "contract" or agreed-upon mechanism for objects to interoperate.
Currently, the leading technology for reusable components is called
Object Linking and Embedding (OLE), now known as ActiveX(TM), and was developed
by Microsoft. It is supported by over 300 independent software vendors (ISVs)
who have developed several thousand reusable objects that are offered for
commercial sale. Many organizations also develop their own reusable software
components that they do not market to others. OLE is a proprietary Microsoft
standard, but it is an open standard in the sense that it is published and
anyone can build components conforming to this standard without payment of fees
to Microsoft and without obtaining a license. Microsoft has recently taken steps
to establish an independent standard-making body for ActiveX(TM) technology.
A competing standard, developed by IBM and Apple and known as
OpenDoc, was contributed to Component Integration Laboratories (CILabs), a
non-profit industry-wide organization and is offered as an "open" cross-platform
standard (that is, it can be used with computers with different operating
systems). Initial supporters of CILabs include Apple, IBM, Novell, Oracle,
SunSoft and Xerox. Microsoft has not endorsed this standard. To date, few
components have been developed to support OpenDoc. Once OpenDoc becomes
available for the Windows platform, an effort which IBM has announced is
underway, additional vendors may be motivated to develop for this specification.
OLE is available for the Windows platforms and the Apple Macintosh
line of computers with support provided by Microsoft. IBM, Microsoft, Computer
Associates, Wang as well as specialized vendors such as Sheridan and Progress
among others, have developed and offer for sale OLE components for these
environments. In addition, Microsoft has licensed several third parties,
including Digital Equipment Corporation, Software AG, and Insignia and Bristol
Technologies to develop support for OLE on Digital's VMS platform, IBM's MVS
mainframes and AS/400 computers, and UNIX platforms, respectively. Microsoft has
estimated that 98% of computers will support OLE by 1998.
A third standard, known as CORBA, a specification endorsed by the
Object Management Group, is designed to allow objects written on different and
otherwise incompatible platforms to interact using software known as object
request brokers (ORBs). ORBs are offered by vendors including Digital, Orbit and
Software AG.
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OBJECTSOFT STRATEGY
Since its founding in 1990, the Company has been active in the field
of rapid application development (RAD). It was an early user of OLE as well as
RAD languages such as Visual Basic. Initially, the Company directed its efforts
to, and derived its revenues principally from, consulting, writing, training and
custom development for clients that included large corporations in the computer,
consulting, banking, manufacturing, cosmetics and apparel industries, among
others, as well as government agencies.
In performance of its consulting and related activities, the Company
developed a base of courseware and software objects to which it retains title.
In 1995, the Company made a strategic decision to leverage its skills in rapid
application development and its expanding body of reusable software objects
toward the development of services through which it can derive revenue on a "per
transaction" basis. In connection with its development of the OLEBroker(TM)
program, the Company developed significant additional software objects which it
then used in the development of technology for the kiosk and Internet service
delivery programs.
The Company's strategy is to focus on development and marketing of
the kiosk and Internet service delivery products. In this regard, it will seek
to enter into strategic alliances with, and provide Intranet and/or Internet
software to, entities that have a need to provide information and documents
contained in proprietary databases to, or conduct a large volume transactions of
transactions with, the general public or specific, but large, audiences in an
expeditious, widely and easily accessible manner. Such entities include
municipalities, other government entities and agencies and large public and
private entities such as publishers, trade and business associations and others.
The Company will seek to develop alliances with software and hardware
manufacturers whose products may be used in or integrated with the software
being developed and marketed by the Company. The Company intends to retain an
ownership interest in the objects it develops in support of such projects.
Wherever possible, the Company also intends to contract, as it has with the City
of New York, to own and operate the services itself.
In addition, the Company will seek to structure its arrangements with
customers to permit it to offer related and unrelated information and services,
particularly to kiosk users who might not otherwise have access to the Internet.
This could include commercial and public service advertising and potentially the
ability to make purchases and conduct other transactions through the Internet.
There can be no assurance that the Company will be able to fully
implement its strategic objectives or that it will be able to successfully
market its kiosk and Internet based transaction services.
PRODUCTS AND SERVICES
SMARTSTREET(TM) KIOSK SERVICES
The Company makes transactional services available via public access
kiosks that combine the advantages of Internet and Intranet technology. Like an
Intranet, the communication between the kiosk and its servers is accomplished
over private, secure lines. Like an Internet, it enables an organization to
interact with the general public, not just its own employees and customers. The
Company anticipates that revenues from the kiosks will be provided by leasing
fees paid by the service providers, such as the City, and by usage fees paid by
consumers who obtain services through the kiosks.
On January 11, 1996 The Company entered into an agreement with The
City of New York (the "City Agreement") to provide a minimum of five kiosks to
transact municipal services as part of the City's Kiosk Demonstration Project.
Services to be provided from these kiosks include access to the records of the
Department of Buildings, certain Department of Health services, including
obtaining copies (for a fee) of birth certificates, death certificates and dog
licenses, obtaining public health information, and registering for certain
courses offered by the Department of Health. Information on City government,
directional information and
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information about New York City's events, museums, tourist attractions, shopping
and similar matters is provided without fee. Kiosks are located in the
Department of Health building at 125 Worth Street in Manhattan, in the Bronx
Borough Hall, in the Municipal Buildings of Brooklyn, and Queens, and in the
Staten Island (St. George) terminus of the Staten Island Ferry. All kiosks
providing City services or information, whether operated by the Company or other
suppliers, carry the City's "CityAccess(TM)" logo.
In connection with the development of the kiosks and the deployment
and operation of the first five kiosks, the City agreed to pay to the Company an
aggregate of $661,080. Of this amount, $361,080 is payable in the form of
monthly payments of $30,090 ($6,018 per kiosk), which were commenced as of
August 1, 1996. The balance of $300,000 is payable in partial amounts as certain
milestones in the development, deployment and operation of the kiosks are
achieved. To date, two of such milestones have been fully achieved and two have
been partially achieved, and $128,334 has been paid to the Company. Of the
$171,666 balance remaining of the payment for development, $50,000 is payable
upon completion of the two partially completed milestones, $76,666 is payable
upon the activation of certain functions, including the ability to conduct fee
transactions, and $45,000 is payable upon acceptance in writing by the City of
"final approval testing" after the kiosks have been fully operational with
certain functions for three months and with certain additional functions for one
month. The kiosks are currently capable of performing fee transactions, subject
only to completion of connections to City facilities, expected to occur by
January 31, 1997. It is anticipated, although there can be no assurance, that
final approval testing will be completed by February, 1997. The Company may also
receive transaction fees in connection with the use of the kiosks by the public
to obtain documents or certain other services. As of August 31, 1996, the first
five kiosks were available only to provide City information and did not provide
transaction services or carry any paid advertising or third party services.
Consequently, no revenues have been generated to date by user transactions or
advertising. The amount of future transaction and advertising revenues, if any,
will depend on user and advertiser acceptance of the kiosks.
The City Agreement has a term of one year after all five kiosks are
installed, and is renewable for up to two years at the option of the City. The
City commenced monthly lease payments as of August 1, 1996. The Company has
certain other rights, including the right to sell advertising and additional
services developed by the Company or third parties. The City Agreement requires
the Company to pay to the City 50% of advertising and third party service
revenues from the first five kiosks and 15% of such revenues from additional
kiosks. The Company plans to exercise these rights and to actively solicit
additional service providers and advertisers.
Pursuant to the City Agreement, the Company has the right to install
additional kiosks in the City, at the Company's risk and expense and subject to
certain conditions including site approval by the City. The City will not be
required to pay additional monthly payments for such kiosks, but it is
anticipated, although there can be no assurance, that use by the public will
generate transaction fees. The Company had commenced evaluating potential sites
and will seek to install up to 25 additional kiosks over the next six to nine
months.
At the time the City Agreement with the Company was executed, the
City also signed similar agreements with two other companies for additional
kiosks. The City expects to evaluate its success with this program and, if it
deems it successful, to issue a Request for Proposals for competitive bidding to
supply additional kiosks throughout the City.
The Company intends to market kiosks to other municipalities,
government agencies and organizations in the private sector. In the future, the
Company may seek to make its transactional services available over the Internet
and to make the Internet available from the Company's public kiosks.
There can be no assurance that the Company's initial kiosks will
perform on a commercial basis as anticipated, that the Company will be able to
install and operate additional kiosks pursuant to the City Agreement, that City
will seek to acquire additional kiosks, that the Company will secure a contract
to supply additional kiosks to the City, that it will succeed in marketing its
kiosks to other potential users, or that it will be able to attract additional
service providers or advertisers to kiosks that may be located in New York City
or elsewhere.
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Operation of SmartStreet(TM) Kiosks
The Company's goal in designing the SmartStreet(TM) kiosks was to
maximize potential use by developing software that would be inviting and easy to
use. The kiosks are designed so that a potential user is attracted to the kiosk
by digital videos played from the upper monitor. Initially these videos will
include an "attract loop," narrated by the noted actor Tony Randall (currently
Director of the National Repertory Theater) and a message from Mayor Rudolph W.
Giuliani, as well as "spot" advertisements. The attract loop explains what can
be done with the kiosks and how to use them, and shows people from many walks of
life using them successfully.
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Once a user approaches the kiosk, he or she is greeted by a message,
and invited to press on the touchscreen to continue. In the future, the Company
expects to make the kiosks accessible in multiple languages. The user is guided
with verbal and on-screen prompts to the various services and categories of
information available from the kiosk. As currently configured, the Opening
Screen is divided into five parts or frames (see Figure 1 below):
1. Multimedia Frame - The upper left corner presents graphics, pictures
of people or places, and "talking heads" to help the user navigate
SmartStreet(TM).
2. Toolbar Frame - SmartStreet(TM)navigation buttons are located just
below the Multimedia Frame. These buttons are always visible and
allow the user, at any time, to:
a) Return to Home Menu
b) Take a survey
c) Get on-screen help in using the kiosk
3. Content Frame - Located to the right of the Multimedia and Toolbar
Frames, this contains the content and menus of the information and
services available on SmartStreet(TM).
4. Footer Frame - Located below the Toolbar Frame and most of the
Content Frame, this contains a place for local advertising and the
keyboard for data input when needed.
5. Volume Frame - Located to the right of the Footer Frame and beneath
the Content Frame, this controls the kiosk volume. When a user walks
away and the kiosk resets itself (after about two minutes of idle
time), it automatically resets the volume to 5 (mid position). A
small feedback area confirms the current setting for the user.
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
(Description - Rectangular box containing: (1) square box on the upper left
corner with a picture of New York State seal as the background and the New York
skyline in the foreground; (2) retangular box on the middle left side containing
pictures of an APPLE with the caption 'home', an APPLE CORE with the caption
'I'm Done' and the Statue of Liberty holding a question mark with the caption 'I
Need Help'; (3) a rectangular box with a black background and the Brooklyn
Bridge and the New York skyline in the foreground with one line of text reading
'Touch Here To Start', the second line of text reading 'Smartstreet', followed
by 'presents...' and 'City Access' on the bottom; and (4) a square box located
at the lower right corner containing a round button with 'VOLUME' at the center
and arrows above and beneath it.
- --------------------------------------------------------------------------------
SmartStreet(TM) Kiosk - Opening Screen
The user has several choices on the Opening Screen to begin the
SmartStreet(TM)experience. The user can:
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1. Touch the Touch Here to Begin link in the Content Frame, the Home
button in the Toolbar Frame, or the graphic in the Content Frame to
jump to the Home Menu (see Figure 2 below).
2. Touch I'm Finished to take a short survey on his or her experience on
the kiosk or leave a message.
3. Touch I Need Help to get online verbal or video help on
a) What is available on the kiosk
b) How to use the kiosk
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
(Description - Rectangular box containing: (1) square box on the upper left
corner with a picture of New York State seal background and the New York skyline
in the foreground; (2) retangular box on the middle left side containing
pictures of an APPLE with the caption 'home', an APPLE CORE with the caption
'I'm Done' and the Statue of Liberty holding a question mark with the caption 'I
Need Help'; (3) a rectangular box with a light speckled background containing
pictures of (i) a KEY with the caption 'Keys To City Hall' and sub-captions of
'City Government-Transportation- Other Kiosks' beneath the caption; (ii) a SIGN
POST with the caption 'Around New York City' and a sub-caption of 'What To
Do-Sports Events-Transportation'; (iii) a V Symbol with the caption 'Coming
Soon' and a sub-caption of 'Information on What's Coming Soon'; (iv) the
MEDICINE Symbol with the caption 'Department of Health' and a sub-caption of
'Birth/Death Certificates - Dog Licenses - Courses'; (v) a TV WITH AN APPLE ON
SCREEN with the caption 'City Access Kiosks' and a sub-caption of 'What You Can
Do at Kiosks'; (vi) a WARNING STANCHION WITH A LIGHT with the caption
'Department of Buildings' and a sub-caption of
'Permits-Violations-Complaints-Applications'; (vii) an AIRSHIP with a caption of
'Kiosks Marketing' and a sub-caption 'Information on Marketing on Streetsmart
Kiosks'; and (viii) a TRAFFIC LIGHT with a caption of 'Transportation' and a
sub-caption of 'Bus-Subway-LIRR-Street Maps'; and (4) a square box located at
the lower right corner containing a round button with 'VOLUME' at the center and
arrows above and beneath it.
- --------------------------------------------------------------------------------
SmartStreet(TM) Kiosk - Home Menu
The Home Menu contains the starting point for each service available
through SmartStreet(TM). The current services are:
1. Keys To City Hall - This service allows a user to look up city
agencies, elected officials and city transportation (see below).
2. Around New York City - This service provides information on New York
City attractions, tours, hospitals, churches, museums, theaters,
sports arenas, etc. Most of the items in this section include maps of
the attraction.
3. Department of Health ("DOH") - DOH services and publications are
listed as well as the ability to print applications for Birth
Certificates, Death Certificates, and Dog Licenses.
4. CityAccess(TM) Kiosks - Lists the location and services available at
all CityAccess(TM) kiosks.
5. Department of Buildings ("DOB") - DOB services include review of
outstanding violations against a building, tracing of ownership
records and review of heat complaint information.
6. Marketing on SmartStreet(TM) - Information on how to contact the
Company.
7. Transportation - Maps and routes for subways, buses and railroads, as
well as street maps.
If a user wants to carry out a transaction for which there is a cost
(such as obtaining a license or an official copy of a document), the user is
advised of the charge and prompted to insert a credit card. The credit card
reader in use is designed so that the user never lets go of the card, for added
security. The transaction request
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is sent to the central server site over a secure frame-relay network. In turn,
the server sends the credit information to a credit authorizer for approval. If
the transaction is declined, the user is advised and invited to submit another
card. If the transaction is accepted, the a reservation is made against the
user's credit line, and the server then proceeds to initiate a transaction with
the City's computers, to which it is connected via private leased lines. Once
the required service has been performed by the City's computers, and a
confirming transaction number sent back, the credit authorizer is again
contacted and the transaction is settled. The authorizer causes the user's
account the be debited, and the merchant accounts of the City and the Company to
be credited for the transaction fee and service fee, respectively. The Company
expects that a credit card transaction capability will be functional by January
31, 1997.
SmartStreet(TM) Kiosk Technology
SmartStreet(TM) kiosks were designed using advanced Internet
technology. This technology allows the kiosks to operate either on a private
Intranet or as an Internet site. The "browser" in the kiosk is Microsoft's
Internet Explorer 3.0 (IE3), and the server is Microsoft's Internet Information
Server 1.1 (IIS). By using IE 3 as an OLE object running full screen, hiding the
Windows environment from the user, the Company was able to present a custom
interface without having to develop custom operating system software or add-ons.
The browser operates in a fashion suitable for use by the general public from a
touch screen. Scroll bars, menus and status areas are turned off, and only
functions which are specifically programmed or permitted are allowed.
IE3 allows the use of new "light-weight" ActiveX(TM) controls and
supports client-side VB Script and Java. IE3 also supports SSL 2.0, SSL 3.0, and
PCT 1.0 security standards as well as advanced HTML Features such as Style
Sheets, Frames & Tables, which convey content to the user at the kiosk. Many of
these pages contain VB Script code to perform functions beyond the scope of
normal HTML. This code uses objects, many of which were initially developed by
the Company in connection with consulting contracts or OLEBroker(TM), to perform
complex tasks on behalf of the kiosk. Some of the tasks these objects perform
are:
1. Printing formatted documents
2. Reading a credit card
3. Printing a receipt
4. Transmitting Credit Card information to a bank for
approval/disapproval
5. Logging and error handling
6. Storing the survey results into a database
7. Adjustment of volume
8. Production of custom maps (in the future)
In addition, many third party ActiveX(TM) controls are or will be
used, including:
1. ESRI's Map Objects (Custom Maps)
2. Wall Data's Rumba (mainframe connections)
3. Microsoft's custom controls and timers (Look and feel of the kiosk)
4. Microsoft Visual Basic's buttons (keyboards)
The Server is built on Windows NT and runs Microsoft Internet
Information Server, which supports "server-side" Visual Basic, and ActiveX(TM)
controls. Microsoft BackOffice is also used for the databases and for system
management. The connection between the remote kiosks (each of which is operated
as a separate LAN) and the Server is accomplished through Frame Relay
connections, and uses equipment manufactured by RAD and by Cisco. The connection
is transmitted via regulated common carriers.
The kiosks were designed to comply with the accessibility
requirements of the Americans with Disabilities Act. The Company used
subcontractors for the design hardware and graphics associated with its kiosks,
and the kiosks are constructed by a subcontractor in accordance with the
specifications developed by the
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Company. They are constructed of hardened steel, with baked-on, vandal-resistant
paint. The touchscreen in use is made of tempered glass for secure and
vandal-resistant operation.
Marketing
To market kiosks successfully, the Company believes it must obtain
the rights to place its kiosks in compelling high-density locations. In
addition, the Company will seek to attract advertisers based on the number and
demographics of "impressions" that the Company can offer to advertisers. To this
end, the Company has commissioned site surveys that will count the actual
population at each existing location. The Company has retained a consultant to
assist the Company in leasing space in favorable locations and on satisfactory
terms. In addition, the Company has retained a media consultant to prepare a
media kit and to target it to suitable advertisers. The Company has retained a
public relations consultant to disseminate news related to its kiosks and to
stimulate demand. Additional marketing efforts focus on identifying
content-providers whose offerings can create additional transaction revenue for
the Company's kiosks. In seeking content-providers, the Company will exhibit at
major trade shows where it will partner with several of its major vendors. For
example, the Company partnered with Dell and Microsoft at the Government
Technology trade show held in Albany, New York in September 1996, and it expects
to participate in similar joint efforts on an ongoing basis. A telemarketing
program has been initiated to target tourist, recreational and similar
facilities to list their facilities on the Company's kiosks. This effort has
been contracted to a telemarketing firm on a commission basis.
The Company's marketing activities are currently performed by its
executive officers and consultants under such officers' supervision. The Company
intends to devote a portion of the proceeds of the Offering to marketing
activities, which may include the employment of one or more dedicated marketing
personnel, as well as the continued engagement of specialized consultants.
OLEBROKER(TM)
The Company's first commercial product for the Internet was
OLEBroker(TM), introduced in November 1995. OLEBroker is an on-line subscription
service for OLE reusable components. This service is operated on the Internet
with the Universal Resource Locator (URL) of http://www.olebroker.com. The
service contains the searchable full text of the help files of OLE and
ActiveX(TM) components that have been provided for listing by component vendors.
In addition, it contains white papers, specifications, standards, training
materials, and news articles. OLEBroker(TM) is designed to be a one stop place
to get information on OLE, as well as to find component needs for particular
purposes.
Component vendors participating in OLEBroker(TM) include: ASP of
Japan, Blue Sky Software, Crescent Division of Progress software, Crystal (a
Seagate Company), Kelro Software, Looking Glass Software, Media Architects,
Microsoft, Pronexus, Protoview, Sheridan Software, Soups, SQA, Stylus
Innovation, Sylvan Ascent, and Texas Instruments.
Microsoft and the Company entered into a Cooperation Agreement on
November 7, 1995 with respect to OLEBroker(TM). The Cooperation Agreement
provides that Microsoft will undertake various promotional activities relating
to OLEBroker(TM), including the distribution of an OLEBroker(TM) subscription
offer in copies of Microsoft's Visual Basic 4.0 and Access Development Toolkit
and in a Magazine supplied to purchasers of Microsoft Visual C++. The Company,
in turn, provides Microsoft with a number of complementary subscriptions and a
discounted price for additional subscriptions. The term of the Cooperation
Agreement is initially one year, and the parties are currently negotiating an
extension of the initial term. The agreement may be renewed for successive
one-year terms upon written agreement of the parties at least two months prior
to the expiration of the then-current term.
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The Company derives revenue related to OLEBroker(TM) from the sale of
subscriptions, and from advertising. Subscribers come from the United States and
approximately 15 other nations and there are currently approximately 120
subscribers. As of June 1996, OLEBroker(TM) subscriptions had a list price of
$199 per year, and an initial price of $129 per year is currently in effect. In
accordance with the Cooperation Agreement, Microsoft customers are entitled to a
discounted subscription rate of $99 per year. In the year ended December 31,
1995 and the six month period ended June 30, 1996, revenues from OLEBroker(TM)
were not significant. The Company believes that while there will continue to be
a growing market for the OLEBroker(TM) service, particularly as the use of
Microsoft Windows programs increases, such market may consist primarily of
persons involved in computer programming, rather than computer users in general.
CONSULTING, TRAINING AND AUTHORING SERVICES
The Company's historical business has been to assist clients in
making the transition from mainframes and minicomputers to client/server and
rapid application development. These services have included training, authoring
and consulting for numerous clients in a variety of industries, including the
insurance, manufacturing and fashion industries, as well as the public sector.
The Company intends to continue to engage in these activities as resources
permit. In selecting opportunities, the Company will focus primarily on
consulting and training assignments in connection with the sale of kiosk
services or that can otherwise enhance its skill base.
Training Services
The Company has provided training courses in subjects including:
* Client/Server Rapid Application Development
* Graphical User Interface Design
* Internet Development
* Automated Testing of Software
* Introductory and Advanced Visual Basic
* Component Development with OLE 2.0
* Help Authoring and Software Documentation
Training fees are typically charged on the basis of per-diem fees of
$2,000 - $3,000 per day and a materials cost, if applicable, plus reimbursement
for out-of-pocket expenses. Most seminars are held at client sites.
Authoring Services
David E. Y. Sarna and George J. Febish, Co-Chief Executive Officers
of the Company, author a monthly column, called Paradigm Shift, focussing on
development, Internet and Intranet issues, for Datamation, a magazine with a
circulation of approximately 225,000 published by Cahners Publishing Company, a
division of Reed Elsevier Inc. In addition, the Company has authored three white
papers for Microsoft covering OLE, Three-tier Client/Server Architecture and
Visual Basic for Enterprise Development, and completed various assignments for
other clients. Fees from these services are negotiated on a project basis.
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Custom Development and Consulting Services
Custom Development and Consulting Services include the design of OLE
objects, as well as complete multimedia systems. Fees for such services are
negotiated either on the basis of hourly billing rates for the staff assigned or
for fixed fees for specified services.
The Company entered into a contract in 1995 with ACORD Corporation, a
non-profit organization, whose members include property and casualty insurers
and about 40,000 independent agents ("ACORD"). ACORD develops and maintains
communications standards for the property and casualty industry. The Company
assisted ACORD in defining AL4, an OLE-based standard and set of objects for
implementing ACORD forms, which comply with 184 standards set by various
regulatory organizations. Developers from ACORD and the Company are creating and
distributing the reusable ACORD knowledge objects for particular insurance
forms. The standard also describes how ACORD's Independent Software Developers
(ISDs) can incorporate these OLE-based objects into their systems. The Company
intends to work with ISDs to assist them in implementing support for AL4 on the
basis of consulting agreements.
RELATIONSHIP WITH MICROSOFT
The Company has established a strategic relationship with Microsoft
that it believes is important to its sales, marketing and support activities, as
well as to its product development efforts relating to its kiosks. Microsoft
supports the Company in marketing its kiosk services, has informally agreed to
exhibit the Company's kiosks in Microsoft displays at various trade shows, such
as the Government Technology Show, which was held in Albany, New York in
September 1996. It has also issued statements that included favorable references
relating to the Company's products. Microsoft has also entered into various
non-disclosure agreements with the Company with respect to unannounced Microsoft
products, under which the Company has the opportunity to have advance knowledge
of software technology being developed be Microsoft. Microsoft has also
provided, and continues to provide, fee-based consulting services to the Company
through Microsoft Consulting.
Since 1994, the Company has served as the regional host and sponsor
of Developer Days, an ongoing series of technical conferences organized and
operated by Microsoft. The Company's President and Chairman serve as Regional
Directors for these events. Although the Company is not directly compensated by
Microsoft for its participation, the Company has derived substantial benefit
from this relationship, including access to senior Microsoft executives, early
disclosure of technology and publicity. The Company will continue to act in this
capacity for the fourth Developer Days conference, currently scheduled for
February 1997.
In November 1995, Microsoft and the Company entered into the
Cooperation Agreement with respect to OLEBroker(TM). The Cooperation Agreement
provides that Microsoft will undertake various promotional activities relating
to the Service including the distribution of a subscription offer in copies of
Microsoft's Visual Basic 4.0, Access Development Toolkit, and in a magazine
supplied to purchasers of Microsoft Visual C++. The Company, in turn, will
provide Microsoft with a number of complementary subscriptions and a discounted
price for additional subscriptions. An extension of the initial term of the
Cooperation Agreement, currently one year, is being negotiated, and the
agreement may be renewed for successive one year terms upon written agreement of
the parties at least two months prior to the expiration of the then current
term. The Company believes that the non-renewal of the Cooperation Agreement
would not have a material effect on the Company. However, if Microsoft were to
sever its relationships with the Company, the Company's sales and financial
condition could be severely and adversely affected.
The Company has also produced technical papers for, and provided
consulting services to, Microsoft.
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COMPETITION
The Company is subject to competition from different sources for its
different services. The Company's Intranet kiosk business competes with numerous
companies, including IBM, North Communications, Golden Screens and NCR
(currently a division of AT&T). All of these companies have resources much
greater than those of the Company. The Company's contract with the City of New
York is presently the most significant part of this business. The City has also
awarded contracts, comparable to the contract awarded to the Company, to North
Communications and DSSI (which awarded a subcontract to Golden Screens), both of
which have sold similar kiosks to other municipalities. After fulfillment of the
initial contracts, if the City chooses to install additional kiosks throughout
the City of New York, it may award to others, and not the Company, the contract
to install such additional kiosks. Further, there can be no assurance that other
municipalities or other entities will seek to acquire kiosks from the Company.
In addition, if the use of kiosks provided by the Company and others proves to
be successful in New York City and other municipalities and locations,
additional companies in the software, hardware and communications areas, among
others, may seek to enter the market. A total of 19 companies competed for the
contracts with the City of New York, many of which can be expected to compete
aggressively in other competitive situations.
OLEBroker's(TM) competition includes Fawcette Technical Publications
("Fawcette"), which offers a web-site about OLE components which is supported by
advertising revenues. At this time, the Fawcette site does not offer vendor's
help files, and does not sell components, although this may change in the
future. Cybersource offers a website called software net for the sale of
software on-line, including components. A Canadian subsidiary of Sterling
Software also provides electronic commerce, and additional competitors are
expected to enter the field as barriers to entry are reduced or eliminated. Many
of these will have resources far greater than the Company.
The Company is subject to competition from different sources for its
different services. In its historical business, the Company competes with the
consulting division of Microsoft, the consulting arms of the "Big Six"
independent public accountants, IBM, EDS, and a host of small and large
consultants, integrators and trainers. Many of these organizations have
significant and long-standing relationships with their clients, and because of
their economies of scale may be able to offer more favorable terms or prices.
CUSTOMERS
The long term success of the Company's business will depend not only
on the Company's ability to enter into arrangements with municipalities, other
government entities and private entities to make services available through
kiosks and with advertisers to use the kiosks as an advertising medium, but
ultimately upon the willingness of consumers to pay fees to transact business by
means of the kiosks. To date, the Company is operating only five public kiosks,
which were installed pursuant to the agreement with the City of New York and
which have been available for public use, on a limited basis, for a short period
of time. The decision by the City to acquire kiosks from providers other than
the Company would have a direct and materially adverse effect on the prospects
of the Company and could also decrease the Company's ability to market the
kiosks to other potential service providers and advertisers. In addition, there
can be no assurance that the volume of use by consumers of the kiosks to obtain
City services and conduct other transactions will be sufficient to generate
significant revenues for the Company.
The Company historically has derived a significant portion of its
revenues from a relatively limited number of customers. During the six months
ended June 30, 1996, the City of New York accounted for 56% of the Company's
revenues pursuant to the City Agreement and Microsoft, for which the Company
provided consulting services, accounted for 20% of the Company's revenues.
During 1995, two customers accounted for approximately 56% of the Company's
revenues, and during 1994, four customers accounted for approximately 67% of
revenues. The Company provided consulting and related services, and more
recently, services related to the development of OLEBroker(TM) and Intranet and
kiosk technology, to such customers. There can be no
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assurance that such customers or others will retain the Company to install
kiosks or provide such services in the future. Furthermore, no customers of
OLEBroker(TM) account for a material portion of the Company's revenues, and
there can be no assurance that the Company will be able to develop a significant
customer base for this service.
PROPRIETARY RIGHTS
The Company's success is highly dependent on its proprietary
technology. The Company views its software as proprietary, and relies on a
combination of trade secret, copyright and trademark laws, non-disclosure
agreements and contractual provisions to establish and protect its proprietary
rights. The Company has no patents or patents pending and has not to date
registered any of its trademarks or copyrights. The Company plans to seek
registrations in the United States for the following trademarks:
SmartStreet(TM), ObjectSoft(TM), OLEBroker(TM) and CafeOLE(TM). In addition, the
Company plans to register certain of these trademarks in principal foreign
jurisdictions.
The source code for the Company's proprietary software is protected
as a trade secret. In addition, because the Company does not sell or license its
technology to third parties, but rather delivers services thorough its kiosks
and OLEBroker(TM), its proprietary software is not disclosed to third parties.
Furthermore, the Company enters into agreements, as appropriate, with employees,
consultants and subcontractors containing provisions relating to confidentiality
and the assignment of inventions and other developments to the Company. However,
despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain and
use information that the Company regards as proprietary. Policing unauthorized
use of the Company's products is difficult, and while the Company is unable to
determine the extent to which piracy of its software products exists, such
piracy can be expected to be a persistent problem, particularly in international
markets and as a result of the growing use of the Internet. In addition, the
laws of some foreign countries either do not protect the Company's proprietary
rights or offer only limited protection for those rights. There can be no
assurance that the steps taken by the Company to protect its proprietary rights
will be adequate or that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technologies or products.
There has been substantial litigation in the software industry
involving intellectual property rights. Although the Company does not believe
that it is infringing the intellectual property rights of others, there can be
no assurance that such claims, if asserted, would not have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, as the Company may acquire or license a portion of the software
included in its products from third parties, its exposure to infringement
actions may increase because the Company must rely upon such third parties for
information as to the origin and ownership of such acquired or licensed
software. Although the Company would intend to obtain representations as to the
origins and ownership of such acquired or licensed software and obtain
indemnification to cover any breach of any such representations, there can be no
assurance that such representations will be accurate or that such
indemnification will provide adequate compensation for any breach of such
representations. In the future, litigation may be necessary to enforce and
protect trade secrets, copyrights and other intellectual property rights of the
Company. The Company may also be subject to litigation to defend against claimed
infringement of the rights of others or to determine the scope and validity of
the intellectual property rights of others. Any such litigation could be costly
and divert management's attention, either of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Adverse determinations in such litigation could result in the loss of the
Company's proprietary rights, subject the Company to significant liabilities,
require the Company to seek licenses from third parties and prevent the Company
from selling its products, any one of which could have a material adverse effect
on the Company's business, financial condition and results of operations.
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FACILITIES
The Company's corporate headquarters were recently relocated to
Hackensack, New Jersey, in a leased facility consisting of approximately 4,300
square feet, which it occupied effective April 1, 1996 under a lease expiring
March 31, 2002. The rent paid by the Company for this office will be
approximately $36,000 for the period commencing April 1, 1996 and ending
December 31, 1996. The Company's rent payment obligations are subject to certain
increases in subsequent periods. See Note K[2] of Notes to Financial Statements.
The Company believes that its new space will be adequate to meet its
requirements through 1997. The Company has made no decision on how to expand, if
necessary, beyond this period.
EMPLOYEES
As of September 30, 1996, the Company had nine full-time and one
temporary employees, all of whom are based in its Hackensack, NJ offices. These
include three in product development, three in management and sales, two in
operations and two in finance and administration. The Company's employees are
not represented by any collective bargaining organization, and the Company has
never experienced a work stoppage and considers its relations with its employees
to be good.
Although the Company expects to increase its full-time staff to 12 or
more, on an "as-needed" basis, the Company intends to continue with its policy
to outsource non-strategic functions such as subscription fulfillment, artwork
development, repetitive testing, maintenance and bookkeeping rather than using
its own staff for these functions.
Other than Messrs. Sarna and Febish, the Company's executive
officers, no other senior personnel have entered into employment agreements
obligating them to remain in the Company's employ for any specific term;
however, substantially all key employees of the Company are parties to
nonsolicitation, confidentiality and noncompetition agreements with the Company.
In addition, independent contractors enter into confidentiality agreements with
the Company.
LEGAL PROCEEDINGS
The Company has not been, and is not currently, involved in any
material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
- ---- --- --------
David E. Y. Sarna1 47 Chairman, Secretary and Director
George J. Febish1 48 President, Treasurer and Director
Daniel E. Ryan1 2 3 4 48 Director
Julius Goldfinger2 4 67 Director
Gunther L. Less 65 Director Nominee
1 Member of Executive Committee.
2 Member of Audit Committee.
3 Member of Compensation Committee.
4 Member of Stock Option Plan Committee.
David E. Y. Sarna together with Mr. Febish founded the Company in
1990. Mr. Sarna has been the Chairman, Co-Chief Executive Officer, Secretary and
a director of the Company since December 1990. He has also been, since 1994, a
Contributing Editor of Datamation magazine. Prior to co-founding the Company,
Mr. Sarna founded Image Business Systems Corporation, a computer software
development company, in 1988. Prior to founding Image Business Systems
Corporation, Mr. Sarna was formerly Executive Vice-President and a co- founder
of International Systems Services Corp. ("ISS"), a computer software company
that developed ISS Three(TM). From 1976 to 1981, Mr. Sarna was employed by Price
Waterhouse & Co., as a management consultant, beginning as a senior consultant
and rising to the position of senior manager. From 1970 to 1976 Mr. Sarna was
employed by IBM Corporation in technical and sales positions. Mr. Sarna began
his professional career at Honeywell in 1968. Mr. Sarna holds a BA degree from
Brandeis University and did graduate work at the Technion - Israel Institute of
Technology. Mr. Sarna is a Certified Systems Professional and a Certified
Computer Programmer. He is the co-author, with Mr. Febish, of PC Magazine
Windows Rapid Application Development (published by Ziff- Davis Press in 1994),
several other books and over 50 articles published in professional magazines.
Mr. Sarna is also the co-inventor of patented software for the recognition of
bar-codes.
George J. Febish together with Mr. Sarna founded the Company in 1990.
Mr. Febish has been the President, Co-Chief Executive Officer, Treasurer and a
director of the Company since December 1990. He has also been, since 1994, a
Contributing Editor of Datamation magazine. Prior to co-founding the Company,
Mr. Febish was Executive Vice President and Chief Operating Officer of Image
Business Systems Corporation, a computer software development company, from 1988
to 1990. Prior to joining Image Business Systems Corporation, Mr. Febish was the
Director of Marketing at ISS, a computer software company that developed ISS
Three(TM). Prior to joining ISS, Mr. Febish was the Eastern Regional Sales
Manager for Bool & Babbage. In 1970, Mr. Febish began his professional career
with New York Life Insurance Company. Mr. Febish holds a BS degree from Seton
Hall University. He is the co-author, with Mr. Sarna, of PC Magazine Windows
Rapid Application Development and the author of numerous published articles.
Daniel E. Ryan has been a director since 1991. Mr. Ryan has been
employed by New York Life Insurance Company since July, 1965 where, since 1981,
he has held the title of Corporate Vice President. Mr. Ryan is the head of the
Service Center Development of New York Life Insurance Company's Information
Systems organization. Mr. Ryan holds an MBA in Computer Science from Baruch
College and a BS/BA in Industrial Management from Manhattan College. Mr. Ryan is
a Certified Systems Professional.
Julius Goldfinger became a director in 1996. Mr. Goldfinger is the
Director, Investment Banking, of Marsh, Block & Company, Inc. He was the founder
and, from September 1995 to September 1996, the Managing Partner of Plowshares
Capital Group ("Plowshares"), a New York based international business
development
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company with interests in the former Soviet Union. Prior to founding Plowshares,
from February 1993 to September 1995, Mr. Goldfinger was Manager of Corporate
Finance at Redstone Securities, Inc. From December 1991 to February 1993, Mr.
Goldfinger was a consultant to Herbert Young Securities, and from July 1989 to
November 1991, Mr. Goldfinger was a consultant to Rosenkrantz, Lyon and Ross
(now Josephthal Lyon & Ross). Other than Plowshares, all of the foregoing
companies are members of the National Association of Securities Dealers, Inc.
Mr. Goldfinger was the manager of the venture capital group at The Bankers Trust
Company and President of Walnut Capital Corp, a Small Business Investment
Company that he co-founded. Mr. Goldfinger holds a BBA from Baruch College, and
he is a Chartered Financial Analyst.
Gunther L. Less has been nominated by the Representative to become a
director of the Company upon completion of the Offering. Mr. Less owns and
operates GLL TV Enterprises, through which he has acted as the producer and host
of "Journey to Adventure," a travel-documentary show that has appeared in
syndication on broadcast and cable television networks for over 35 years. He
also acts as a special media consultant to the airline industry and has held
various executive and consulting positions in the travel industry, including as
an Agency Manager for American Express, President of Planned Travel, Inc., a
subsidiary of Diners Club, Inc., System Sales and Marketing Manager for Avis
Rent-A-Car and Manager-External Affairs for Olympic Airways and personal
consultant to the late Aristotle Onassis, and consultant to Hyatt International
Corporation. He is also a past president of the American Association of Travel
Editors. See "Underwriting."
Executive officers of the Company are elected by the Board of
Directors on an annual basis and serve at the discretion of the Board of
Directors.
Upon the closing of the Offering, the Company will have a classified
Board of Directors consisting of two classes as nearly equal in size as
possible, with staggered two-year terms. It is expected that initially three
directors, David E. Y. Sarna, Julius Goldfinger and Gunther L. Less, will serve
until the 1997 Annual Meeting of Stockholders and two directors, George J.
Febish and Daniel E. Ryan, will serve until the 1998 Annual Meeting of
Stockholders and, thereafter, that directors will be elected to serve two year
terms as their initial terms expire. Directors hold office until the expiration
of their respective terms and until their successors are elected or until death,
resignation or removal. The classification of the Board of Directors could have
the effect of making it more difficult for a third party to acquire, or
discouraging a third party from acquiring, control of the Company. Vacancies on
the Board of Directors may be filled only with the approval of a majority of the
Board of Directors then in office. Furthermore, any director elected by the
stockholders, or by the Board of Directors to fill a vacancy, may be removed
only for cause and by a vote of 75% of the outstanding shares of Common Stock.
See "Description of Securities - Delaware Takeover Statute and Certain Charter
Provisions."
DIRECTOR COMPENSATION
Members of the Board of Directors have not in the past received any
compensation for serving on the Board of Directors. Non-employee directors of
the Company shall each be granted, under the Company's 1996 Stock Option Plan,
(i) an outside director option for 10,000 shares of Common Stock when first
elected to the Board of Directors, and (ii) following each Annual Meeting of
Stockholders (commencing with the 1997 Annual Meeting), outside director options
to purchase 5,000 shares of Common Stock, in each case at an exercise price
equal to the fair market value of the Common Stock on the date of grant, and
exercisable for a term of five years commencing on the date of grant.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established a compensation committee whose sole
member is Daniel E. Ryan. The Company's audit committee consists of Messrs. Ryan
and Goldfinger.
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EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation paid by
the Company during the last three fiscal years ended December 31 to each of its
Co-Chief Executive Officers. Other than the Co-Chief Executive Officers, there
are no employees of the Company whose compensation exceeded $100,000 in 1995.
SUMMARY COMPENSATION TABLE
Name and Principal
Position or Number
in Group Annual Compensation
- ------------------- -------------------
Year Salary(1) Bonus
---- --------- -----
David E. Y. Sarna 1995 $200,000 0
Chairman, Co-Chief 1994 $200,000 0
Executive Officer and 1993 $200,000 0
Secretary
George J. Febish 1995 $200,000 0
President, Treasurer and 1994 $200,000 0
Co-Chief 1993 $200,000 0
Executive Officer
- ---------------
(1) Includes $61,250, and $107,220 that were accrued but not paid to each of
Messrs. Sarna and Febish in 1993 and 1995, respectively. At December 31,
1995, the total amount of compensation accrued but not paid to each of
Messrs. Sarna and Febish, inclusive of prior years, was $195,844. Such
amounts were subsequently paid in full, with $100,000 and $50,000 paid to
each of Messrs. Sarna and Febish from the proceeds of the Bridge Loan
Offering and the July 1996 Offering, respectively, and the balance paid
from operating revenues. See "Use of Proceeds" and "Certain Transactions."
No stock options or warrants were granted to, or exercised by, either
of the individuals named in the Summary Compensation Table during the fiscal
year ended December 31, 1995.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with each of
David E. Y. Sarna and George J. Febish, effective as of July 1, 1996, which
expires on December 31, 2001. The employment agreements each provide for a
current annual base salary of $208,000. Each of the employment agreements also
provides for a bonus of 5% per annum of the Company's Earnings Before
Depreciation, Interest, Taxes and Amortization. In addition, on an annual basis,
the Board of Directors will consider paying an additional bonus to each of
Messrs. Sarna and Febish that is based upon the increase in the Company's gross
revenues, taking into account any increase in the Company's expenses. The annual
base salary under the current agreements may be increased at the discretion of
the Board of Directors. The agreements provide for (i) a severance payment of
the base compensation and bonus of the prior full fiscal year and payment of all
medical, health, disability and insurance
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benefits then payable by the Company for the longer of (a) the remainder of the
term of the employment agreement or (b) 12 months, as well as (ii) the base
compensation and bonus accrued to the date of termination, upon the occurrence
of (x) termination by the Company without cause, (y) termination by the employee
for good reason or (z) a change in control of the Company, if the employee
resigns after the occurrence of the such change in control. Each of the
employment agreements limit the severance payments to an amount that is less
than the amount that would cause an excise tax or loss of deduction under the
rules relating to golden parachutes under the Internal Revenue Code.
OFFICER WARRANTS
Each of David E. Y. Sarna and George J. Febish have entered into a
Warrant and Warrant Agreement with the Company. The Warrant and Warrant
Agreements, dated April 15, 1993 (the "Officer Warrants") provides for the right
of each of them to purchase 50,000 shares of Common Stock at an exercise price
per share of $.50. The Officer Warrants permit the executive's estate to cause
the Company to purchase the underlying shares at the Company's book value per
share. The Officer Warrants provide that the number of shares and the exercise
price are subject to anti-dilution adjustments and grants "piggyback"
registration rights with respect to the underlying shares. See "Description of
Securities - Outstanding Warrants and Options - Officer/Stockholder Warrants;
1996 Stock Option Plan."
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Plan") was approved by the
Company's Board of Directors in 1996. The Company has reserved 250,000 shares of
Common Stock under the Plan. Options granted under the Plan may include those
qualified as incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended, as well as non-qualified options. Key employees as
well as other individuals, such as outside directors, consultants and advisors
who provide necessary services to the Company are eligible to participate in the
Plan. Non-employees and part-time employees may receive only non-qualified
options. Options to purchase an aggregate of 145,000 options have been granted
to date under the Plan, including 50,000 options granted to each of David E. Y.
Sarna and George J. Febish, the Company's Co-Chief Executive Officers .
The Plan will be administered by the Stock Option Committee of the
Board of Directors, which will be comprised solely of non-employee directors
(who are "outside directors" within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code") and "disinterested
persons" within the meaning of Rule 16b-3 under the Exchange Act (the
"Committee")). The Committee can make such rules and regulations and establish
such procedures for the administration of the Plan as it deems appropriate. No
member of the Committee shall be eligible to receive discretionary grants of
options during, and for a period of one year following, their service on the
Committee. The Committee presently consists of Mr. Ryan. The description of the
Plan set forth herein is qualified in its entirety by reference to the text of
the Plan, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus forms a part.
The exercise price for the shares purchased upon exercise of
non-qualified options granted under the Plan is determined by the Committee. The
exercise price of an incentive stock option must be at the fair market value of
the Company's Common Stock on the date of grant (110% of the fair market value
for stockholders who, at the time the option is granted, own more than 10% of
the total combined classes of stock of the Company or any subsidiary). No
employees may exercise more than $100,000 in options held by them in any year.
In addition, non-employee directors of the Company shall each be
granted (i) an outside director option for 10,000 shares of Common Stock upon
adoption of the Plan or when first elected to the Board of Directors after the
adoption of the Plan and (ii) following each Annual Meeting of Stockholders
(commencing with the 1997 Annual Meeting), outside director options to purchase
5,000 shares of Common Stock, in each case at an
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<PAGE>
exercise price equal to the fair market value of the Common Stock on the date of
grant, and exercisable for a term of five years commencing on the date of grant.
No option may have a term of more than ten years (five years for 10%
or greater stockholders and outside directors). Options generally may be
exercised only if the option holder remains continuously associated with the
Company or a subsidiary from the date of grant to the date of exercise. However,
options may be exercised upon termination of employment or upon death or
disability of any employee within certain specified periods.
The following is a general summary of the federal income tax
consequences under current tax law of nonqualified stock options ("NQSOs") and
incentive stock options ("ISOs"). It does not purport to cover all of the
special rules, including special rules relating to persons subject to the
reporting requirements of Section 16 under the Exchange Act who do not hold the
shares acquired upon the exercise of an option for at least six months after the
date of grant of the option and special rules relating to the exercise of an
option with previously-acquired shares, or the state or local income or other
tax consequences inherent in the ownership and exercise of stock options and the
ownership and disposition of the underlying shares.
An optionee will not recognize taxable income for federal income tax
purposes upon the grant of a NQSO or an ISO.
Upon the exercise of a NQSO, the optionee will recognize ordinary
income in an amount equal to the excess, if any, of the fair market value of the
shares acquired on the date of exercise over the exercise price thereof, and the
Company will generally be entitled to a deduction for such amount at that time.
If the optionee later sells shares acquired pursuant to the exercise of a NQSO,
he or she will recognize long-term or short-term capital gain or loss, depending
on the period for which the shares were held. Long-term capital gain is
generally subject to more favorable tax treatment than ordinary income or
short-term capital gain. Proposed legislation would treat long-term capital gain
even more favorably. There can be no assurance, however, that such proposed
legislation will be enacted.
Upon the exercise of an ISO, the optionee will not recognize taxable
income. If the optionee disposes of the shares acquired pursuant to the exercise
of an ISO more than two years after the date of grant and more than one year
after the transfer of the shares to him or her, the optionee will recognize
long-term capital gain or loss and the Company will not be entitled to a
deduction. However, if the optionee disposes of such shares within the required
holding period, all or a portion of the gain will be treated as ordinary income
and the Company will generally be entitled to deduct such amount.
In addition to the federal income tax consequences described above,
an optionee may be subject to the alternative minimum tax, which is payable to
the extent it exceeds the optionee's regular tax. For this purpose, upon the
exercise of an ISO, the excess of the fair market value of the shares over the
exercise price therefor is an adjustment which increases alternative minimum
taxable income. In addition, the optionee's basis in such shares is increased by
such excess for purposes of computing the gain or loss on the disposition of the
shares for alternative minimum tax purposes. If an optionee is required to pay
an alternative minimum tax, the amount of such tax which is attributable to
deferral preferences (including the ISO adjustment) is allowed as a credit
against the optionee's regular tax liability in subsequent years. To the extent
the credit is not used, it is carried forward.
SEP
The Company established in 1990 a simplified employee pension ("SEP")
plan covering all qualified employees. Pursuant to the SEP, employees may elect
to contribute up to 15% of their compensation on a pre-tax basis (up to the
statutory prescribed annual limit ($9,500 in 1996)) to the SEP. The SEP plan is
intended to qualify under Section 408(k) of the Internal Revenue Code.
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KEY-MAN LIFE INSURANCE
The Company currently maintains key man insurance, of which it is the
beneficiary, on the lives of each of David E. Y. Sarna and George J. Febish in
the amount of $1,000,000 each.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation, as amended (the
"Certificate of Incorporation") and its Amended and Restated Bylaws (the
"Bylaws") provides that, except to the extent prohibited by the Delaware General
Corporation Law, its directors shall not be personally liable to the Company or
its stockholders for monetary damages for any breach of fiduciary duty as
directors of the Company. Under Delaware law, the directors have a fiduciary
duty to the Company which is not eliminated by the provisions of the Certificate
of Incorporation and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain available. In
addition, each director will continue to be subject to liability under Delaware
law for breach of the director's duty of loyalty to the Company for acts or
omissions which are found by a court of competent jurisdiction to be not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are prohibited by
Delaware law. This provision also does not affect the directors'
responsibilities under any other laws, such as the Federal securities laws or
state or Federal environmental laws.
The Certificate of Incorporation and Bylaws also provide that the
Company shall indemnify, to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, all of its present and former officers and
directors, and any party agreeing to serve as an officer, director or trustee of
any entity at the Company's request, in connection with any civil or criminal
proceeding threatened or instituted against such party by reason of actions or
omissions while serving in such capacity. Indemnification by the Company
includes payment of expenses in defense of the indemnified party in advance of
any proceeding or final disposition thereof if the indemnified party undertakes
to repay the Company upon an ultimate determination that the indemnified party
was not entitled to indemnification by the Company. This provision also requires
Board of Director approval as a precondition to any indemnification by the
Company for proceedings instituted by the indemnified party. The rights to
indemnification provided in this provision do not preclude the exercise of any
other indemnification rights by any party pursuant to any law, agreement or vote
of the stockholders or the disinterested directors of the Company.
Section 145 of the Delaware General Corporation Law generally allows
the Company to indemnify the parties described in the preceding paragraph for
all expenses, judgments, fines and amounts in settlement actually paid and
reasonably incurred in connection with any proceedings so long as such party
acted in good faith and in a manner reasonably believed to be in or not opposed
to the Company's best interests and, with respect to any criminal proceedings,
if such party had no reasonable cause to believe his or her conduct to be
unlawful. Indemnification may only be made by the Company if the applicable
standard of conduct set forth in Section 145 has been met by the indemnified
party upon a determination made (1) by the Board of Directors by a majority vote
of a quorum of directors who are not parties to such proceedings, or (2) if such
a quorum is not obtainable or if directed by a quorum of disinterested
directors, by independent legal counsel in a written opinion, or (3) by the
stockholders.
The Company will seek to purchase and maintain directors and officers
insurance as soon as the Board of Directors determines practicable, in amounts
that is considers appropriate, insuring the directors and officers against any
liability arising out of their status as such, regardless of whether the Company
has the power to indemnify such persons against such liability under applicable
law.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions or otherwise, the Company
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<PAGE>
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of August 31, 1996, by (i)
each person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director and nominee for director,
(iii) each executive officer and (iv) all officers and directors as a group.
<TABLE>
<CAPTION>
Percentage of Outstanding Shares (1)
------------------------------------
Number of Shares
Name and of Common
Address of Stock Beneficially Before After Concurrent
Beneficial Owners Owned(2) Offering After Offering Offering(3)
- ----------------- ------------------ ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
David E. Y. Sarna (4) 867,500 32.5% 22.2% 18.4%
c/o ObjectSoft Corporation
Continental Plaza III
433 Hackensack Avenue
Hackensack, New Jersey
07601
George J. Febish (4) 907,500 34.0% 23.2% 19.3%
c/o ObjectSoft Corporation
Continental Plaza III
433 Hackensack Avenue
Hackensack, New Jersey
07601
Melvin Weinberg, Esq. (5) 350,000 13.6% 9.2% 7.6%
c/o Parker Chapin Flattau &
Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
The David E. Y. Sarna Family 200,000 7.8% 5.2% 4.3%
Trust/Rachel Sarna (6)
c/o Parker Chapin Flattau &
Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
The George J. Febish Family 150,000 5.9% 3.9% 3.3%
Trust/Janis Febish (7)
c/o Parker Chapin Flattau &
Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Cyndel & Co., Inc. (8) 242,500 9.4% 6.3% 5.2%
26 Ludlam Avenue
Bayville, New York 11709
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Percentage of Outstanding Shares (1)
------------------------------------
Number of Shares
Name and of Common
Address of Stock Beneficially Before After Concurrent
Beneficial Owners Owned(2) Offering After Offering Offering(3)
- ----------------- ------------------ ----------- -------------- -----------
Steven Bayern (9) 288,500 11.0% 7.5% 6.2%
26 Ludlam Avenue
Bayville, New York 11709
Daniel E. Ryan(10) 10,000 * * *
c/o ObjectSoft Corporation
Continental Plaza III
433 Hackensack Avenue
Hackensack, New Jersey
07601
Julius Goldfinger(10) 10,000 * * *
c/o ObjectSoft Corporation
Continental Plaza III
433 Hackensack Avenue
Hackensack, New Jersey
07601
Gunther L. Less (11) 0 * * *
c/o ObjectSoft Corporation
Continental Plaza III
433 Hackensack Avenue
Hackensack, New Jersey
07601
All officers and directors as 1,795,000 64.3% 44.5% 37.2%
a group (4 persons) (4)(10)
</TABLE>
- ------------------------------
* Less than 1%.
(1) Each person's percentage interest is determined assuming that all options,
warrants and convertible securities that are held by such person (but not
by anyone else) and which are exercisable or convertible within 60 days
have been exercised for or converted into Common Stock.
(2) Unless otherwise noted, the Company believes that all persons named have
sole voting and investment power with respect to all shares of Common Stock
listed as owned by them.
(3) Assumes the exercise in full of (i) the Placement Agent's Warrant for
37,500 Units, (ii) the Bridge Warrants for 375,000 Units, (iii) the July
Placement Warrant for 27,300 shares and the July 1996 Warrants issuable
upon the exercise of the July Placement Warrant for 18,200 shares of Common
Stock, (iv) the July 1996 Warrants for 182,004 shares of Common Stock, (v)
the Investor Warrants for 106,250 shares of Common Stock, and (vi) Officer
Warrants for 43,333 shares of Common Stock. See "Concurrent Offering."
(4) Includes, for each of Messrs. Sarna and Febish, immediately exercisable
warrants to purchase 50,000 shares of Common Stock and 50,000 options
granted under the Company's 1996 Stock Option Plan. See "Management - 1996
Stock Option Plan," "Description of Securities - Outstanding Options and
Warrants - Officer/Stockholder Warrants; 1996 Stock Option Plan." Includes,
for Mr. Sarna, 200,000 shares of Common Stock held by The David E. Y. Sarna
Family Trust (the "Sarna Trust"). Rachel
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<PAGE>
Sarna, the wife of Mr. Sarna, is a trustee of the Sarna Trust. Mr. Sarna
disclaims beneficial ownership of the shares of Common Stock held by the
Sarna Trust. Includes, for Mr. Febish, 150,000 shares held by The George J.
Febish Family Trust (the "Febish Trust"). Janis Febish, the wife of Mr.
Febish, is a trustee of the Febish Trust. Mr. Febish disclaims beneficial
ownership of the shares of Common Stock held by the Febish Trust.
(5) Melvin Weinberg, Esq., by virtue of his shared dispositive power as a
trustee over the shares of Common Stock held by both of the Family Trusts,
may be deemed a beneficial owner of a total of 350,000 shares of Common
Stock, representing the aggregate shareholdings of the Family Trusts. The
David E. Y. Sarna Family Trust was set up by Mr. Sarna for the benefit of
his children. Mr. Weinberg and Mrs. Sarna are trustees of the Sarna Trust
and share dispositive power with respect to the shares of Common Stock
owned by the Sarna Trust, but Mrs. Sarna has the sole voting power with
respect to such shares. The George J. Febish Family Trust was set up by Mr.
Febish for the benefit of his children. Mr. Weinberg and Mrs. Febish are
trustees of the Febish Trust and share voting and dispositive power with
respect to the shares of Common Stock owned by the Febish Trust, but Mrs.
Febish has the sole voting power with respect to such shares. Mr. Weinberg
disclaims beneficial ownership of the shares of Common Stock held by the
Family Trusts.
(6) These shares are held by The David E. Y. Sarna Family Trust, of which Mrs.
Sarna and Mr. Weinberg are the trustees. The children of Mr. and Mrs. Sarna
are the sole beneficiaries.
(7) These shares are held by The George J. Febish Family Trust, of which Mrs.
Febish and Mr. Weinberg are the trustees. The children of Mr. and Mrs.
Febish are the sole beneficiaries.
(8) Includes immediately exercisable warrants to purchase 20,000 shares of
Common Stock. Cyndel is engaged in the business of management consulting
and is owned by Steven Bayern and Patrick Kolenik. Mr. Kolenik, the
president of Cyndel, does not own any other securities of the Company.
(9) Includes (i) 222,500 shares of Common Stock and immediately exercisable
warrants to purchase 20,000 shares of Common Stock owned by Cyndel and (ii)
27,300 shares of Common Stock issuable upon the exercise of the July
Placement Warrant issued to Win Capital Corporation, the placement agent of
the July 1996 Offering, and the 18,200 shares issuable upon the exercise of
the July 1996 Warrants included in such option. Mr. Bayern is a 50% owner
and the vice president of Cyndel and the Chairman and approximately 50%
owner of Win Capital Corporation. See "Description of Securities -
Outstanding Options and Warrants - Officer/Stockholder Warrants; 1996 Stock
Option Plan - Placement Agent's Warrant; July Placement Warrant."
(10) Includes, for each of Messrs. Ryan and Goldfinger, immediately exercisable
options to purchase 10,000 shares of Common Stock granted under the
Company's 1996 Stock Option Plan.
(11) Does not include immediately exercisable options to purchase 10,000 shares
of Common Stock to be granted under the Company's 1996 Stock Option Plan at
such time as Mr. Less is elected a director.
CERTAIN TRANSACTIONS
The Company believes that all transactions with affiliates were made
on terms no less favorable to the Company than those available from
non-affiliated third parties. All future transactions between the Company and
its officers, directors or 5% stockholders will be on terms no less favorable
than could be obtained from non-affiliated third parties and will be approved by
a majority of the independent, disinterested directors of the Company.
ISSUANCE AND REDEMPTION OF SERIES B PREFERRED STOCK
In December 1995, Cyndel, a principal stockholder, acquired 1,250
shares of Series B Preferred Stock in consideration of the payment of $125,000
($25,000 of which was paid in January 1996). The Series B Preferred Stock was
convertible into a number of shares of Common Stock equal to a fraction the
numerator of
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which was $100 per share and the denominator of which was 125% of the offering
price per share for the shares of Common Stock in an initial public offering. In
July 1996, the Company used $125,000 of the proceeds of the July 1996 Offering
to redeem the Series B Preferred Stock. In connection with the redemption,
Cyndel received warrants, exercisable for a period of three years, to purchase
20,000 shares of Common Stock at an exercise price of $7.00 per share.
PAYMENT OF DEFERRED OFFICERS' COMPENSATION
Each of Mr. Sarna and Mr. Febish, Co-Chief Executive Officers of the
Company, agreed to defer a portion of his salary for various periods through
1995 until the Company had sufficient working capital to pay them. As of
December 31, 1995, the Company owed Messrs. Sarna and Febish an aggregate of
$391,687, of which $200,000 was paid from the proceeds of the Bridge Loan
Offering, $100,000 was paid from the proceeds of the July 1996 Offering, and the
balance was paid from operating revenues. See "Management - Executive
Compensation" and "Use of Proceeds."
MERGER
The Company is the successor-in-interest to the assets, liabilities
and business of ObjectSoft-NJ, which was merged into the Company in January
1996. The purpose of the Merger was to effect the change of the state of
incorporation of ObjectSoft-NJ. The directors determined that it was in the best
interests of the Company that the Company be re-incorporated in the State of
Delaware. The re-incorporation was effected by a migratory merger of
ObjectSoft-NJ into the Company. The stockholders of ObjectSoft-NJ were duly
noticed and voted in favor of the Merger at a Special Meeting of the
Stockholders held on January 30, 1996. Each share of capital stock of
ObjectSoft-NJ was exchanged for a like share of capital stock of the Company
upon the effectiveness of the Merger.
EXTENSION OF EXPIRATION DATES OF INVESTOR AND OFFICER WARRANTS
The Company has extended to November 29, 1996 the expiration date of
the 106,250 Investor Warrants, which were issued to investors in a private
placement effected between September 1992 and November 1993 in which the
investors acquired the Investor Warrants, the Series A Preferred Stock and
shares of Common Stock. The result is that certain of these warrants will expire
at a date which effectively makes them four year warrants instead of three year
warrants. The resale of the shares issuable upon the exercise of the Investor
Warrants has been registered in the Selling Securityholder Prospectus. In
addition, in consideration of their waiver of the registration rights with
respect to the Offering and their agreement to enter into an 18 month lock-up
agreement with the Representative, the expiration date of the Officer Warrants
held by Messrs. Sarna and Febish was extended to April 30, 2000. See
"Description of Securities - Outstanding Warrants and Options
- -"Officer/Stockholder Warrants" and "Concurrent Offering."
RECENT FINANCINGS
The Company recently completed two financings in the form of private
placements to "accredited investors." In April through June 1996, in the Bridge
Loan Offering, the Company sold 12.5 Bridge Units, each Bridge Unit consisting
of a $100,000 7% Note (the "Bridge Notes") and Bridge Warrants to purchase
30,000 shares of Common Stock or such other securities as might be offered in
the Company's initial public offering. Assuming the Offering is completed, the
Bridge Warrants will be exercisable to purchase Units identical to the Units
offered hereby.
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<PAGE>
Interest on the Bridge Notes is payable semi-annually commencing
December 31, 1996, and the Bridge Notes will mature and be payable in full
within fourteen (14) days of the date of closing of the Offering or September
30, 1997, whichever is earlier. The Bridge Notes may be prepaid in whole or in
part at the option of the Company at any time prior to maturity.
The Bridge Notes are senior unsecured obligations of the Company and
will rank senior in right of payment to all future subordinated indebtedness of
the Company. Although the Bridge Notes are senior obligations of the Company,
the Company does not have any commitments to issue indebtedness to which the
Bridge Notes would be senior in right of payment. The Bridge Notes will be
effectively subordinated to all secured indebtedness of the Company.
The Bridge Warrants are exercisable at a price equal to 70% of the
offering price for securities offered in an initial public offering. The Bridge
Warrant component of each Bridge Unit provides for the purchase either (i) if
the Company completes an initial public offering ("IPO") on or before September
30, 1997, 30,000 shares of Common Stock (the "Shares") or other securities at
70% of the per share or other security price in the IPO exercisable for a period
of three (3) years (the "IPO Securities"), or (ii) if the Company does not
complete an IPO on or before September 30, 1997, 30,000 shares of Common Stock,
exercisable until September 30, 1999 at $3.50 per share. The term of the Bridge
Warrants if exercisable into IPO securities shall be extended for an additional
period, up to one (1) year, equal to the period that lapses between September
30, 1996 and the consummation of the Company's initial public offering on or
before September 30, 1997. If the Offering is completed prior to September 30,
1997, each such Bridge Warrant will be exercisable to purchase 30,000 Units at
$____ per Unit. The Class A Warrants included in such Units will be identical to
the Class A Warrants included in the Units offered in the Offering in all
respects, including the exercise price. The Bridge Warrants have piggyback
registration rights pari passu with other warrant holders. In addition, if the
Bridge Warrants are not included in any registration statement, then the holders
of Bridge Warrants shall have the right to one demand registration, at the cost
of the Company, one year after the Company is public.
The Representative acted as the placement agent for the Bridge Loan
Offering and, in connection with its services as placement agent, received
commissions equal to 8% of the gross proceeds of the Bridge Loan Offering, a
non-accountable expense allowance equal to 2% of the gross proceeds and the
Placement Agent's Warrant to purchase a number of securities equal to 10% of the
number of securities issuable upon the exercise of the Bridge Warrants at an
exercise price equal to 91% of the offering price for securities offered in an
initial public offering. Assuming the Offering is completed, the Placement
Agent's Warrant will entitle the Representative to purchase 37,500 Units at an
exercise price of $____ per Unit for a period of five years commencing on the
date of this Prospectus. The shares of Common Stock and the Class A Warrants
comprising the Units issuable upon the exercise of the Bridge Warrants and the
Placement Agent's Warrant have been registered for resale. See "Concurrent
Offering."
In the July 1996 Offering, the Company sold an aggregate of 273,001
units (the "July 1996 Units") for an aggregate of $955,504, or $3.50 per July
1996 Unit. Each July 1996 Unit consists of one share of Common Stock and one
July 1996 Warrant to purchase two-thirds (2/3) of a share of Common Stock at an
exercise price of $3.00 per 2/3 share (or $4.50 per share). The July 1996
Warrants are exercisable until the later of July 30, 1999 or three years after
the date of this Prospectus (but in no event later than September 30, 2000).
Win Capital Corporation, an affiliate of Cyndel, a principal
stockholder of the Company, acted as the placement agent for the July 1996
Offering and, in connection with its services as placement agent, received
commissions equal to 10% of the gross proceeds of the July 1996 Offering, a
non-accountable expense allowance equal to 3% of the gross proceeds and a
warrant to purchase 27,300 July 1996 Units at an exercise price of $4.50 per
July 1996 Unit for a period of three years commencing upon issuance (the "July
Placement Warrant"). The shares of Common Stock included in the July 1996 Units
and the shares of Common Stock issuable upon the exercise of the July 1996
Warrants contained therein, as well as the shares of Common Stock issuable upon
the exercise of the July Placement Warrant (and the July 1996 Warrants issuable
upon the exercise thereof) have been registered for resale. See "Principal
Stockholders" and "Concurrent Offering."
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<PAGE>
REDEMPTION OF SERIES A PREFERRED STOCK
Pursuant to the terms of the Series A Preferred Stock, upon the
effectiveness of the Offering, all shares of Series A Preferred Stock are
required to be redeemed at $1.00 per share plus all accumulated, but unpaid,
dividends. The Company anticipates that the redemption will require an aggregate
redemption payment of approximately $275,000. See "Use of Proceeds."
DESCRIPTION OF SECURITIES
The Company is authorized to issue up to 20,000,000 shares of Common
Stock, par value $.0001 per share and up to 5,000,000 shares of Preferred Stock,
par value $.0001 per share. The Offering consists of 1,250,000 Units, each Unit
consisting of one share of Common Stock and one Class A Warrant. The Units are
immediately detachable and separately transferable upon issuance.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share
on all matters that are submitted to the stockholders for their approval and
have no cumulative voting rights. Subject to the prior rights of Preferred
Stock, the holders of Common Stock are entitled to receive dividends, if any, as
may be declared by the Board of Directors from funds legally available therefor,
from time to time. Upon liquidation or dissolution of the Company, the remainder
of the assets of the Company will be distributed ratably among the holders of
Common Stock, after the payment of all liabilities and the holders of any
Preferred Stock. The Common Stock has no preemptive or other subscription rights
and there are no conversion or sinking fund provisions with respect to such
shares. All of the outstanding shares of Common Stock are, and the shares
issuable upon exercise of Class A Warrants will be, upon payment of the exercise
price, fully paid and nonassessable. As of August 31, 1996, there were 2,566,001
shares of Common Stock outstanding.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors without the approval of the stockholders of the Company. The Board of
Directors is authorized to issue these shares in different classes and series
and, with respect to each class or series, to determine the dividend rights, the
redemption provisions, conversion provisions, liquidation preferences and other
rights and preferences not in conflict with the Certificate of Incorporation of
the Company or Delaware law. The Board of Directors, without stockholder
approval, could issue Preferred Stock which would adversely affect the voting
and other rights of the holders of Common Stock.
The Company has issued a series of Preferred Stock designated Series
A. There are currently 212,500 shares of Series A Preferred Stock issued and
outstanding. The Series A Preferred Stock accrues cumulative annual dividends,
payable quarterly, at the rate of 9% per annum, based upon the liquidation
value. Upon the closing of the Offering, as required by the terms of the Series
A Preferred Stock, all of the Series A Preferred Stock will be redeemed by the
Company at $1.00 per share plus all accumulated dividends accrued but unpaid.
The Company anticipates that this redemption will require an aggregate
redemption payment of approximately $275,000, which will be paid out of the net
proceeds of the Offering. Following the redemption, no Series A Preferred Stock
will be outstanding. See "Use of Proceeds."
The Company also issued a series of Preferred Stock designated Series
B, with a redemption and liquidation value of $100 per share and issued 1,250
shares of Series B Preferred Stock. The holders of the Series B Preferred Stock
had the right, for the period commencing upon the close of an initial public
offering
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<PAGE>
through December 31, 1997, to convert all of the Series B Preferred Stock into
shares of Common Stock at a conversion price equal to 125% of the per share
offering price of shares of Common Stock in an initial public offering. The
Series B Preferred Stock accrued cumulative annual dividends, payable quarterly,
at the rate of 10% per annum, based upon the liquidation value. The Company was
required, commencing in March 31, 1998, and in each subsequent calendar quarter,
to the extent that the shares of Series B Preferred Stock had not been redeemed
or converted, to redeem at the liquidation value of $100 per share of Series B
Preferred Stock, 12.5% of the outstanding Series B Preferred Stock, until all of
the shares of Series B Preferred Stock had been redeemed. In July 1996, the
Company used a portion of the proceeds of the July 1996 Offering to redeem the
Series B Preferred Stock. See "Certain Transactions."
CLASS A WARRANTS
Each Class A Warrant entitles the holder thereof to purchase one
share of Common Stock at an exercise price of $____ per share (130% of the
initial public offering price per Unit), subject to adjustment, at any time
commencing _________ __, 1997 (one year after the date of this Prospectus) until
_________ __, 2001 (five years after the date of this Prospectus). The Class A
Warrants are redeemable by the Company at a price of $.10 per Class A Warrant
commencing one year after the date of this Prospectus (or earlier with the prior
consent of the Representative) on not less than 30 days prior written notice to
the holders thereof, provided the average closing bid quotation of the Common
Stock as reported on NASDAQ, if traded thereon, or if not traded thereon, the
average closing bid quotation of the Common Stock if listed on a national
securities exchange (or other reporting system that provides last sale prices),
has been at least 130% of the then current exercise price of the Class A
Warrants (initially, $_____ per share), for a period of 20 consecutive trading
days ending within 15 days of the date on which the Company gives notice of
redemption. The Class A Warrants will be exercisable until the close of business
on the day immediately preceding the date fixed for redemption.
The Class A Warrants may be exercised upon surrender of the Class A
Warrant certificate on or prior to the expiration date at the offices of the
warrant agent, with the exercise form on the reverse side of the Class A Warrant
certificate completed and executed as indicated, accompanied by full payment of
the exercise price (by certified check or bank draft payable to the Company) to
the warrant agent for the number of Class A Warrants being exercised. The Class
A Warrant Holders do not have the rights or privileges of holders of Common
Stock.
No Class A Warrant will be exercisable unless at the time of exercise
the Company has filed a current registration statement with the Commission
covering the shares of Common Stock issuable upon exercise of such Class A
Warrant and such shares have been registered or qualified or deemed to be exempt
from registration or qualification under the securities laws of the state of
residence of the holder of such Class A Warrant. The Company will use its best
efforts to have all such shares so registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Class A Warrants, subject to the terms of the Warrant
Agreement. While it is the Company's intention to do so, there can be no
assurance that it will be able to do so.
No fractional shares will be issued upon exercise of the Class A
Warrants. However, if a Warrant Holder exercises all Class A Warrants then owned
of record by him, the Company will pay to such Warrant Holder, in lieu of the
issuance of any fractional share which is otherwise issuable, an amount in cash
based on the market value of the Common Stock on the last trading day prior to
the exercise date.
Commencing one year after the date of this Prospectus, until the
expiration of the exercise period of the Class A Warrants, the Company will pay
the Representative a fee of 5% of the exercise price of each Class A Warrant
exercised, provided, (i) the market price of the Common Stock on the date such
warrant was exercised was greater than the warrant exercise price on that date,
(ii) the exercise of such warrant was solicited by a member of the NASD, (iii)
such warrant was not held in a discretionary account, (iv) the disclosure of
compensation arrangements was made both at the time of the Offering and at the
time of exercise of such warrant,
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(v) the solicitation of the exercise of such warrant was not a violation of Rule
10b-6 under the Exchange Act and (vi) the Representative is designated in
writing as the soliciting NASD member. Unless granted an exemption from Rule
10b-6 by the Commission, the Representative and any other soliciting
broker/dealers will be prohibited from engaging in any market making activities
or solicited brokerage activities with regard to the Company's securities during
the periods prescribed by exemption (xi) to Rule 10b-6 before the solicitation
of the exercise of any Class A Warrant until the later of the terminating of
such solicitation activity or the termination of any right the Representative
and any other soliciting broker/dealer may have to receive a fee for the
solicitation of the Class A Warrants.
OUTSTANDING WARRANTS AND OPTIONS
Investor Warrants
There are currently outstanding warrants to purchase 106,250 shares
of Common Stock (the "Investor Warrants"). The Investor Warrants were issued in
connection with the Company's private placement of its securities in 1992 and
1993. The Investor Warrants are exercisable at $2.00 per share of Common Stock.
The expiration date of the Investor Warrants has been extended to November 29,
1996. The Investor Warrants contain anti-dilution provisions providing for
adjustments of the exercise price and the number of shares underlying the
Investor Warrants upon the occurrence of certain events, including any
recapitalization, reclassification, consolidation, merger, sale, lease or
conveyance of all or substantially all of the assets of the Company, stock
dividend, stock split, stock combination or similar transaction. The resale of
the shares issuable upon the exercise of the Investor Warrants has been
registered in the Selling Securityholder Prospectus. See "Concurrent Offering."
Officer/Stockholder Warrants; 1996 Stock Option Plan
In April 1993 the Company issued common stock warrants to purchase an
aggregate of 143,333 shares of Common Stock, exercisable at $.50 per share of
Common Stock (the "Officer Warrants"). The Officer Warrants were issued to two
executive officers and a former officer of the Company in consideration of their
foregoing salaries in 1992. The Officer Warrants contain anti-dilution
provisions providing for adjustments of the exercise price and the number of
shares underlying the Officer Warrants upon the occurrence of certain events,
including any recapitalization, reclassification, consolidation, merger, sale,
lease or conveyance of all or substantially all of the assets of the Company,
stock dividend, stock split, stock combination or similar transaction. The
holders of the Officer Warrants have the right to cause the Company to register
the Officer Warrants and the shares of Common Stock issuable upon exercise of
the Officer Warrants, if the Company registers any of its securities on a
registration statement filed with the SEC for sale to the general public. The
original expiration date of the Officer Warrants was April 30, 1998. In
consideration of their waiver of the registration rights with respect to the
Offering and their agreement to enter into an 18 month lock-up agreement with
the Representative, the expiration date of the 100,000 Officer Warrants held by
Messrs. Sarna and Febish was extended to April 30, 2000. The resale of the
shares issuable upon the exercise of the other 43,333 Officer Warrants has been
registered in the Selling Securityholder Prospectus. See "Concurrent Offering."
In July 1996, in connection with the redemption of the Company's
Series B Preferred Stock, the Company issued to Cyndel, a principal stockholder
of the Company, warrants to purchase 20,000 shares of the Company's Common Stock
at an exercise price of $7.00 per share. These warrants expire on July 29, 1999
and contain anti-dilution provisions providing for adjustments of the exercise
price and the number of shares underlying such warrants upon the occurrence of
certain events, including any recapitalization, reclassification, consolidation,
merger, sale, lease or conveyance of all or substantially all of the assets of
the Company, stock dividend, stock split, stock combination or similar
transaction.
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As of August 31, 1996, options to purchase an aggregate of 145,000
shares had been granted under the Company's 1996 Stock Option Plan. See
"Management -- 1996 Stock Option Plan."
Consultant Stock Options
In August 1995, the Company issued to a consultant of the Company the
right to acquire up to 100,000 shares of Common Stock, exercisable at $1.00 per
share in consideration of the consultant foregoing the payment of up to $10,000
for services rendered. On September 15, 1995, the consultant accepted the offer.
This option was exercisable at any time from the date of grant until the fifth
anniversary of the date of grant. In May 1996, the agreement with the consultant
was amended, and warrants for 50,000 shares were canceled in consideration of a
cash payment of $5,000.
The Company has also entered into agreements with other consultants
pursuant to which the Company issued to such consultants options to purchase an
aggregate of 10,000 shares of Common Stock exercisable for a period of five
years at an exercise price of $1.00.
Private Placement Warrants
The Company has outstanding 375,000 Bridge Warrants and July 1996
Warrants to purchase 182,004 shares of Common Stock, as described in "Certain
Transactions -- Recent Financings," above.
Placement Agent's Warrant; July Placement Warrant
In connection with Bridge Loan Offering, the Company sold to the
Representative, in its capacity as Placement Agent of such offering, the
Placement Agent's Warrant to purchase a number of Units equal to 10% of Units
issuable upon the exercise of the Bridge Warrants contained in the Bridge Units.
The exercise price of the Placement Agent's Warrant is either (i) in the event
an IPO is completed on or before September 30, 1997, 91% of the per IPO Security
offering price exercisable commencing on or after the consummation of a public
offering and ending on the fifth anniversary thereof or (ii) in the event an IPO
is not completed on or before September 30, 1997, $4.55, exercisable for five
(5) years from the date of issuance. Assuming the Offering is completed prior to
September 30, 1997, the Placement Agent's Warrant will be exercisable at a price
of $____ per Unit. The Placement Agent's Warrant contains anti-dilution
provisions providing for adjustments of the exercise price and the number of
shares underlying the Placement Agent's Warrant upon the occurrence of certain
events, including any recapitalization, reclassification, stock dividend, stock
split, stock combination or similar transaction. None of the securities
underlying the Placement Agent's Warrant will be redeemable. The Placement
Agent's Warrant grants the holders thereof certain registration rights which are
described below.
In connection with the sale of the July 1996 Units, the placement
agent for such sale, Win Capital Corporation , was granted the July Placement
Warrant to purchase 27,300 July 1996 Units at an exercise price of $4.50 per
July 1996 Unit. The July Placement Warrant contains anti-dilution provisions
providing for adjustments of the exercise price and the number of shares
underlying the July Placement Warrant upon the occurrence of certain events,
including any recapitalization, reclassification, stock dividend, stock split,
stock combination or similar transaction. None of the securities underlying the
July Placement Warrant will be redeemable, and the holders of the July Placement
Warrant have certain registration rights, described below.
The resale of the shares of Common Stock issuable upon the exercise
of the Placement Agent's Warrant and the Class A Warrants issuable upon the
exercise thereof, as well as the resale of the shares of Common Stock issuable
upon the exercise of the July Placement Warrant and the July 1996 Warrants
issuable upon the exercise thereof, has been registered for sale in the Selling
Securityholder Prospectus. See "Description of Securities Registration Rights"
and "Concurrent Offering."
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REGISTRATION RIGHTS
Currently, the holders of the Bridge Warrants, the July 1996 Warrants
and the Officer Warrants, as well as the holders of the shares of Common Stock
issued in the July 1996 Offering, have certain rights with respect to the
registration of such shares and the Units and shares of Common Stock issuable
upon the exercise of such warrants under the Securities Act. Under the terms of
the agreements between the Company and the holders of such registrable
securities, if the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other security
holders exercising registration rights, such holders are entitled to notice of
such registration and are entitled to include shares of such Common Stock
therein. The stockholders benefiting from these rights may also require the
Company to file a registration statement under the Securities Act at its expense
with respect to their shares of Common Stock, and the Company is required to use
its best efforts to effect such registration. All of these rights are subject to
certain conditions and limitations, among them the right of the underwriters of
an offering to limit the number of shares included in such registration.
The holders of the Common Stock issuable upon exercise of the
Placement Agent's Warrant have rights similar to those described in the
preceding paragraph. In addition, the right to notice and inclusion in any
registration statement filed by the Company is effective for five years after
the effective date of an initial public offering. The right to demand the
registration of the Common Stock issuable upon exercise of the Placement Agent's
Warrant extends from one year after the closing of the Offering to the fifth
(5th) anniversary of the date of this Prospectus. The holders of the July
Placement Warrants have similar registration rights, except that the right to
demand the registration of Common Stock issuable upon exercise of the July
Placement Warrants extends from two years after the closing of the Offering to
the fifth (5th) anniversary of the date of this Prospectus.
The Units and certain of the shares of Common Stock subject to
registration rights have been registered in the Selling Securityholder
Prospectus. Certain of the Selling Securityholders have agreed not to sell such
shares for periods of nine or 12 months following the date of this Prospectus
without the prior consent of the Representative. See "Shares Eligible for Future
Sale" and "Concurrent Offering."
TRANSFER AGENT AND WARRANT AGENT
Continental Stock Transfer & Trust Company, New York, New York will
act as transfer agent for the Units and the Common Stock and Warrant Agent for
the Class A Warrants.
DELAWARE TAKEOVER STATUTE AND CERTAIN CHARTER PROVISIONS
The Company is subject to Section 203 of the Delaware General
Corporation Law ("Section 203") which, subject to certain exceptions, prohibits
a Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that such
stockholder became an interested stockholder, unless: (i) prior to such date,
the Board of Directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) on or subsequent to such date, the business combination is approved by
the Board of Directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least 66
2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
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In anticipation of, and subject to completion of, the Offering, the
stockholders of the Company have approved an amendment to the Company's
Certificate of Incorporation which provides that the directors of the Company be
classified into two classes as nearly equal in size as possible, with staggered
two-year terms. Assuming the initial public offering occurs in 1996, the initial
term of office of the first class of directors to expire at the 1997 Annual
Meeting of Stockholders and the initial term of office of the second class of
directors to expire at the 1998 Annual Meeting of Stockholders. The Company's
Certificate of Incorporation will further provide that vacancies on the Board of
Directors could be filled only with the approval of a majority of the Board of
Directors then in office. Furthermore, any director elected by the stockholders,
or by the Board of Directors to fill a vacancy, could be removed only for cause
and by a vote of 75% of the combined voting power of the shares of Common Stock
entitled to vote for the election of directors, voting as a single class.
The Company's Certificate of Incorporation and Amended and Restated
Bylaws, after the closing of an initial public offering, will provide that any
action required or permitted to be taken by the stockholders of the Company may
be taken only at a duly called annual or special meeting of the stockholders.
These provisions, if adopted, could have the effect of delaying until the next
stockholders meeting stockholder actions which are favored by the holders of a
majority of the outstanding voting securities of the Company, since special
meetings of stockholders may be called only by (x) the Board of Directors
pursuant to a resolution adopted by a majority of the entire Board of Directors,
either upon motion of a director or upon written request by the holders of at
least 50% of the voting power of all the shares of capital stock of the
Corporation then entitled to vote generally in the election of directors, voting
together as a single class, or (y) the chairman or the president of the
Corporation.
The foregoing provisions, which could be amended only by a 75% vote
of the stockholders, could have the effect of making it more difficult for a
third party to effect a change in the control of the Board of Directors. In
addition, these provisions could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, an interest in the Company which constitutes less than a majority of
the outstanding voting stock of the Company and may make more difficult or
discourage a takeover of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 3,816,001
outstanding shares of Common Stock (assuming no exercise of outstanding options
or warrants). Of these shares, the 1,250,000 shares contained in the Units being
sold to the public in the Offering will be freely tradeable without restrictions
or further registration under the Securities Act, except for any shares held by
"affiliates" of the Company within the meaning of the Securities Act, which will
be subject to the resale limitations of Rule 144. The remaining 2,566,001 shares
held by existing stockholders were issued by the Company in private transactions
in reliance upon one or more exemptions under the Securities Act, are
"restricted securities" as that term is defined in Rule 144 promulgated under
the Securities Act and may be sold in compliance with such Rule, pursuant to
registration under the Securities Act or pursuant to an exemption therefrom.
Generally, under Rule 144, each person holding restricted securities for a
period of two years may, every three months after such two-year holding period,
sell in ordinary brokerage transactions or to market makers an amount of shares
equal to the greater of one percent of the Company's then outstanding Common
Stock or the average weekly trading volume during the four weeks prior to the
proposed sale. In addition, sales under Rule 144 may be made only through
unsolicited "broker's transactions" or to a "market maker" and are subject to
various other conditions. The limitation on the number of shares which may be
sold under the Rule and the "broker's transaction" requirement do not apply to
restricted securities sold for the account of a person who is not and has not
been an "affiliate" of the Company (as that term is defined in the Act) during
the three months prior to the proposed sale and who has beneficially owned the
securities for at least three years.
Under Rule 701 of the Securities Act, employees who purchase shares
upon exercise of options granted prior to the date of this Prospectus are
entitled to sell such shares after the 90th day following the date of this
Prospectus in reliance on Rule 144, without having to comply with the holding
period requirements of Rule 144
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and, in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice provisions of Rule 144. Affiliates are
subject to all Rule 144 restrictions after this 90-day period, but without the
Rule 144 holding period requirement. If all the requirements of Rule 701 are
met, an aggregate of 288,333 shares of Common Stock issuable on exercise of
outstanding vested stock options will be tradeable pursuant to such rule,
subject to the lockup period described below. Such options are exercisable at
prices below the initial public offering price of the Units.
Prior to the Offering, there has been no market for the Common Stock,
and no predictions can be made as to the effect, if any, that sales of shares
under Rule 144 or Rule 701 or the availability of shares for sale will have on
the market prices prevailing from time to time. Sales of substantial amounts of
Common Stock pursuant to Rule 144 could subsequently adversely affect the market
prices of the Common Stock offered hereby. The Company's executive officers,
David E. Y. Sarna and George J. Febish, and the Family Trusts have agreed not to
sell or otherwise transfer any of their shares of Common Stock for a period of
18 months after the date of this Prospectus without the prior written consent of
the Representative, and the other current securityholders (including the holders
of the Investor Warrants and 79,500 Selling Securityholder Shares, but not the
other Selling Securityholders) have agreed not to sell any of their shares of
Common Stock for a period of nine months after the date of this Prospectus
without the prior written consent of the Representative. Upon the expiration of
the nine month period, 612,000 of the outstanding shares of Common Stock will be
eligible for sale under Rule 144, and the balance of the outstanding shares will
become eligible for sale under Rule 144 from time to time thereafter. In
addition, concurrently with the Offering, the Company is registering for sale by
the Selling Securityholders 1,143,088 shares of Common Stock and 412,500 Class A
Warrants that are outstanding or issuable upon the exercise of currently
exercisable warrants; however, the Selling Securityholders other than the
Representative and the holders of the Investor Warrants and 79,500 shares of
Common Stock have agreed not to sell their registered securities for a period of
12 months after the date of this Prospectus without the prior written consent of
the Representative (which consent cannot be given for sales during the period of
six months after the date of this Prospectus, pursuant to a requirement of
NASDAQ), and the holders of the Investor Warrants and 79,500 shares of Common
Stock have agreed not to sell the underlying shares for a period of nine months
from the date of the Prospectus without the consent of the Representative.
Furthermore, certain holders of the Company's outstanding Common Stock, warrants
and options (including current and former executive officers) have "piggyback"
registration rights and/or demand registration rights that they may exercise
commencing one year from the date of this Prospectus (but commencing two years
from the date of this Prospectus with respect to the July Placement Warrants).
See "Risk Factors-Shares Eligible for Future Sale; Effect on Ability to Raise
Capital; No Prior Public Market for the Common Stock; Possible Volatility of
Common Stock Price" and "Concurrent Offering."
UNDERWRITING
The Underwriters listed below, for whom Renaissance Financial
Securities Corporation is acting as the representative (the "Representative"),
have severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company the number of Units, each Unit
consisting of one share of Common Stock and one Class A Warrant, set forth
opposite their respective names:
NAME OF UNDERWRITER NUMBER OF UNITS
------------------- ---------------
Renaissance Financial Securities Corporation
TOTAL
---------
1,250,000
=========
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The Underwriting Agreement provides that the obligations of the
Underwriters are subject to the approval of certain legal matters by counsel and
various other conditions precedent, and that the Underwriters are severally
obligated to purchase all the Units offered hereby (other than the Units covered
by the Over-allotment Option described below), if any are purchased.
The Underwriters have advised the Company that they propose to offer
the Units to the public at the public offering price set forth on the cover page
of this Prospectus and that they may allow to certain dealers concessions not in
excess of $.___ per Unit, of which amount a sum not in excess of $.___ per Unit
may, in turn, be reallowed by such dealers to other dealers. After the initial
public offering, the offering price, discount and reallowance may be changed.
The shares of Common Stock and the Class A Warrant comprising the Units are
immediately detachable and separately transferable upon issuance.
The Representative has advised the Company that the Underwriters do
not intend to sell any Units to accounts for which they exercise discretionary
authority.
The Company also has agreed to pay to the Representative an expense
allowance on a nonaccountable basis equal to 3% of the gross proceeds of the
Offering ($____________ if the Over-allotment Option is not exercised and
$____________if the Over-allotment Option is exercised), $50,000 of which has
been paid to date. The Company also has agreed to pay all expenses in connection
with qualifying the Units offered hereby for sale under the laws of such states
as the Representative may designate and filing the Offering with the National
Association of Securities Dealers, Inc., including fees and expenses of counsel
retained for such purposes by the Underwriters.
The Company has granted the Representative the Over-allotment Option,
which may be exercised within 45 days after the date of this Prospectus, to
purchase up to an additional 187,500 Units solely to cover over-allotments, if
any, at the initial public offering price, less the underwriting discount.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriters against liabilities in connection with
the Offering, including liabilities under the Securities Act.
In connection with the Offering, the Company has agreed to sell to
the Representative, for nominal consideration, the Representative's Unit
Purchase Option to purchase up to an aggregate of 125,000 Units. The
Representative's Unit Purchase Option contains anti-dilution provisions
providing for adjustments of the exercise price and the number of Units
underlying the Representative's Unit Purchase Option upon the occurrence of
certain events, including any recapitalization, reclassification, stock
dividend, stock split, stock combination or similar transaction. None of the
securities underlying the Representative's Unit Purchase Option will be
redeemable. The Representative's Unit Purchase Option is exercisable at a price
per Unit equal to 145% of the initial public offering price of the Units for a
period of four years commencing one year from the date of this Prospectus. The
Class A Warrants included in the Units issuable upon the exercise of the
Representative's Unit Purchase Option will be exercisable at a price equal to
145% of the exercise price of the Class A Warrants included in the Units offered
hereby. The Representative's Unit Purchase Option is not transferrable for a
period of one year after the date of this Prospectus, except to officers and
partners of the Representative or members of the underwriting syndicate or the
selling group, if any, and their officers and partners. The Representative's
Unit Purchase Option grants to the holders thereof certain demand registration
rights on two occasions, of which one will be at the expense of the Company,
with respect to the registration under the Securities Act of the shares
underlying the Unit Purchase Option. In addition, the holders of the Unit
Purchase Option have the right to notice of and inclusion in any registration
statement filed by the Company for seven years after the date of this
Prospectus. These registration rights are subject to certain limitations.
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For the life of the Representative's Unit Purchase Option, the
holders thereof are given, at nominal cost, the opportunity to profit form a
rise in the market price of the Company's securities, with a resulting dilution
in the interest of other stockholders. Further, such holders may be expected to
exercise such options at a time when the Company would in all likelihood be able
to obtain equity capital on terms more favorable than those provided in such
option.
The Representative is also the owner of the Placement Agent's Warrant
to purchase 37,500 Units, and the resale of the Units issuable upon exercise of
the Placement Agent's Warrant has been registered in the Selling Securityholder
Prospectus. See "Certain Transactions - Recent Financings" and "Concurrent
Offering."
The Company has agreed, for a period of 24 months after the date of
this Prospectus, not to issue any shares of Common Stock or preferred stock, or
any warrants, options or other rights to purchase Common Stock without the prior
consent of the Representative, except for issuances (a) upon the exercise of any
options described herein, or existing options, warrants and convertible
securities, or up to 250,000 options to purchase Common Stock (including the
issuance of such underlying shares) under the Company's existing 1996 Stock
Option Plan, ((b) pursuant to and in order to consummate a merger with or
acquisition from an unaffiliated party in a transaction negotiated at arms
length and approved by a majority of the Board of Directors, (c) in a public
offering, at a price not less than 90% of the average of the closing bid prices
of the Common Stock as reported on NASDAQ for the 21 consecutive trading days
immediately preceding the date of the sale (the "Exempt Price"), and (d) in a
private sale at a price not less than 80% of the Exempt Price. The Company's
executive officers, David E. Y. Sarna and George J. Febish and the Family
Trusts, have agreed not to sell or otherwise transfer any of their shares of
Common Stock for a period of 18 months after the date of this Prospectus without
the prior written consent of the Representative, and the other securityholders
of the Company (including the holders of the Investor Warrants but not the other
Selling Securityholders) have agreed not to sell any of their shares of Common
Stock for a period of nine months after the date of this Prospectus without the
prior written consent of the Representative. The Selling Securityholders other
than the Representative and the holders of the Investor Warrants (which holders
are subject to the nine month agreement with the Representative described above)
have agreed not to sell any of their securities for a period of 12 months after
the date of this Prospectus without the prior written consent of the
Representative. Pursuant to a requirement of NASDAQ, the Representative has
agreed, with respect to such Selling Securityholders who are subject to a
12-months lock-up, not to give its consent for sales during a period of six
months after the date of this Prospectus. See "Shares Eligible for Future Sale."
The Company has agreed that for a period of five years from the date
of this Prospectus, if requested by the Representative during such period, to
nominate and use its best efforts to cause the election of a designee of the
Representative as a director of the Company. The Representative has designated
Gunther L. Less as the initial designee. See "Management - Executive Officers
and Directors."
Further, the Underwriting Agreement provides that the Representative
has a right of first refusal, for a period of three years from the date of this
Prospectus, to act as underwriter or placement agent in any public or private
offering or sale of securities made by the Company or its affiliates and
subsidiaries.
Commencing one year after the date of this Prospectus, until the
expiration of the exercise period of the Class A Warrants, the Company will pay
the Representative a fee of 5% of the exercise price of each Class A Warrant
exercised, provided, (i) the market price of the Common Stock on the date such
warrant was exercised was greater than the warrant exercise price on that date,
(ii) the exercise of such warrant was solicited by a member of the NASD, (iii)
such warrant was not held in a discretionary account, (iv) the disclosure of
compensation arrangements was made both at the time of the Offering and at the
time of exercise of such warrant, (v) the solicitation of the exercise of such
warrant was not a violation of Rule 10b-6 under the Exchange Act and (vi) the
Representative is designated in writing as the soliciting NASD member. Unless
granted an exemption from Rule 10b-6 by the Commission, the Representative and
any other soliciting broker/dealers will be prohibited from engaging in any
market making activities or solicited brokerage activities with regard to the
Company's securities during the periods prescribed by exemption (xi) to Rule
10b-6 before the solicitation of the exercise of any Class A Warrant until the
later of the terminating of such solicitation activity or the termination of any
right the Representative and any other soliciting broker/dealer may have to
receive a fee for the solicitation of the Class A Warrants.
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Prior to the Offering, there has been no market for the securities of
the Company. Accordingly, the initial public offering price of the Units and the
exercise price of the Class A Warrants has been determined by negotiation
between the Company and the Representative. Among the factors considered in
determining the initial public offering price and the exercise price of the
Class A Warrants were the Company's results of operations, the Company's current
financial conditions, its future prospects, the state of the markets for its
services, the experience of its management, the economics of the industry in
general, the general condition of the equity securities market and the demand
for similar securities of companies considered comparable to the Company.
CONCURRENT OFFERING
Concurrently with the Offering, the Company has registered the
offering of 1,143,088 Selling Securityholder Shares and 412,500 Class A Warrants
under the Securities Act on behalf of the Selling Securityholders pursuant to a
Selling Securityholder Prospectus included within the Registration Statement of
which this Prospectus forms a part. The Selling Securityholder Securities are
outstanding or issuable upon the exercise of immediately exercisable warrants.
The Selling Securityholders include the Representative with respect to 37,500
Units issuable upon the exercise of the Placement Agent's Warrant. The Selling
Securityholder Securities are not part of the underwritten Offering, however,
and, other than those held by the Representative, all the Selling Securityholder
Securities may not be sold prior to the expiration of 12 months (or nine months,
as to the shares issuable upon the exercise of the Investor Warrants and 79,500
other Selling Securityholder Shares) after the date of this Prospectus without
the prior written consent of the Representative. With respect to the Selling
Securityholder Securities issued or issuable to investors in the Bridge Loan
Offering and in the July 1996 Offering, the Representative has agreed with
NASDAQ not to give its consent for sales during a period of six months after the
date of this Prospectus. The Company will not receive any of the proceeds from
the sale of the Selling Securityholder Securities, but will receive the proceeds
of the exercise, if any, of the various warrants pursuant to which the shares of
Common Stock and Class A Warrants comprising 412,500 Units and 377,087 other
Selling Securityholder Shares are issuable. It is anticipated that when the
Selling Securityholder Securities are eligible for sale free of contractual
restriction described above, they will be offered and sold from time to time in
the over-the-counter market, or otherwise, at prices and terms then prevailing
or at prices related to the then current market price, or in negotiated
transactions.
LEGAL MATTERS
The validity of the Units being offered hereby will be passed upon
for the Company by Parker Chapin Flattau & Klimpl, LLP, New York, New York.
Melvin Weinberg, Esq., a partner of Parker Chapin Flattau & Klimpl, LLP, may be
deemed the beneficial owner of 350,000 shares of Common Stock as a result of his
being a trustee of each of the Family Trusts. Stursberg & Veith, New York, New
York, has acted as counsel for the Underwriters with respect to certain legal
matters in connection with the Offering.
EXPERTS
The financial statements of the Company as at December 31, 1995 and
for each of the two years in the period then ended included in this Prospectus
have been so included in reliance on the report of Richard A. Eisner & Company,
LLP, independent auditors, given on the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 under the Securities Act of 1933, with
respect to the Units offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and such
Units, reference is made to the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other
-74-
<PAGE>
document referred to herein are not necessarily complete, and, in each instance,
if such contract or document is an exhibit to the Registration Statement,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference to such exhibit. The Registration Statement,
including exhibits and schedules thereto, may be inspected without charge and
copied at the public reference facilities of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. and at its Regional Offices at 7 World
Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of such
material may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of fees at rates
prescribed by the Commission. Electronic registrations statements made through
the Electronic Data Gathering Analysis and Retrieval ("EDGAR") System are
publicly available through the Commission's Website (http://www.sec.gov).
Prior to the Offering, the Company has not been subject to the
reporting requirements of the Exchange Act.
The Company will provide without charge to each person who
receives this Prospectus, upon written or oral request of such person, a copy of
any of the information that is incorporated by reference in this Prospectus. Any
such request should be directed to the attention of the Corporate Secretary,
ObjectSoft Corporation, Continental Plaza III, 433 Hackensack Avenue, Hackensack
New Jersey 07601, telephone number (201) 343- 9100.
-75-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors..............................................F-2
Pro Forma Balance Sheet as at
June 30, 1996 (Unaudited); Balance
Sheet as at June 30, 1996 (Unaudited)
and December 31, 1995 ....................................................F-3
Statements of Operations for the
Six Months Ended June 30, 1996 and
1995 (Unaudited) and the Years Ended
December 31, 1995 and 1994................................................F-4
Statements of Changes in Capital
Deficiency for the Six Months Ended
June 30, 1996 (Unaudited) and the Years ended
December 31, 1995 and 1994................................................F-5
Statements of Cash Flows for the Six
Months Ended June 30, 1996 and 1995
(Unaudited) and the Years ended
December 31, 1995 and 1994................................................F-6
Notes to Financial Statements...............................................F-7
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
ObjectSoft Corporation
We have audited the accompanying balance sheet of ObjectSoft
Corporation as at December 31, 1995 and the related statements of operations,
changes in capital deficiency and cash flows for each of the two years in the
period then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the financial position of ObjectSoft
Corporation as at December 31, 1995 and the results of its operations and cash
flows for each of the two years in the period then ended, in conformity with
generally accepted accounting principles.
Florham Park, New Jersey
March 2, 1996
With respect to Note M
August 15, 1996
F-2
<PAGE>
OBJECTSOFT CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
1996 June 30, December 31,
Pro Forma 1996 1995
A S S E T S (Note M[1]) (Unaudited) -----------
----------- ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash .................................................................. $ 1,015,344 $ 424,059 $ 63,995
Accounts receivable, less allowance for doubtful
accounts of $16,200 at December 31, 1995 (Note A[4]) .................. 226,397 226,397 72,602
Prepaid expenses and other current assets ............................. 12,420 12,420 26,579
----------- ----------- -----------
Total current assets ............................................ 1,254,161 662,876 163,176
Equipment, at cost, net of accumulated
depreciation (Notes A[2], B and E) ............................................ 158,854 158,854 23,433
Capitalized software and courseware (Notes A[5] and C) ......................... 191,834 191,834 121,326
Other assets (Note F) .......................................................... 93,596 93,596 35,599
----------- ----------- -----------
TOTAL ..................................................... $ 1,698,445 $ 1,107,160 $ 343,534
=========== =========== ===========
L I A B I L I T I E S
---------------------
Current liabilities:
Current portion of obligations under capital lease (Note E) ........... $ 10,839 $ 10,839 $ 9,210
Accounts payable ...................................................... 150,994 150,994 58,314
Accrued and other liabilities ......................................... 62,972 62,972 94,255
Accrued officer compensation (Note A[1]) .............................. 91,687 191,687 391,687
----------- ----------- -----------
Total current liabilities ................................. 316,492 416,492 553,466
----------- ----------- -----------
Noncurrent liabilities:
Note payable (Note D) ................................................. 1,058,738 1,058,738
Obligations under capital lease (Note E) .............................. 19,205 19,205 3,390
Other liabilities ..................................................... 7,110 7,110 1,616
----------- ----------- -----------
Total noncurrent liabilities .............................. 1,085,053 1,085,053 5,006
----------- ----------- -----------
Preferred stock $.0001 par, authorized 5,000,000 shares:
Series A, 9% cumulative voting; issued and
outstanding 212,500 shares ($212,500 aggregated
liquidation preference plus cumulative dividends) (Note G) ............ 268,469 268,469 258,906
Series B, 10% cumulative non-voting convertible
$.0001 par 1,250 shares issued and outstanding
($125,000 aggregate liquidating preference)
(Notes G and M) ....................................................... 125,000 125,000
----------- ----------- -----------
268,469 393,469 383,906
----------- ----------- -----------
Commitments (Notes K and L)
STOCKHOLDERS' EQUITY/(CAPITAL DEFICIENCY)
-----------------------------------------
(Note H)
Common stock, $.0001 par, authorized 20,000,000 shares
issued and outstanding 2,293,000 shares
and (proforma) 2,566,001 shares ....................................... 257 229 229
Additional paid-in capital ..................................................... 1,222,113 405,856 278,331
Accumulated deficit ............................................................ (1,193,939) (1,193,939) (877,404)
----------- ----------- -----------
Total stockholders' equity (capital deficiency).................. 28,431 (787,854) (598,844)
----------- ----------- -----------
TOTAL ........................................................... $ 1,698,445 $ 1,107,160 $ 343,534
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-3
<PAGE>
OBJECTSOFT CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
-------------------------- --------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues (Note L):
Consulting ............... $ 258,000 $ 282,562 $ 447,976 $ 509,920
Development and training . 37,954 97,900 118,618 245,836
----------- ----------- ----------- -----------
Total revenues ....... 295,954 380,462 566,594 755,756
----------- ----------- ----------- -----------
Costs and expenses:
Costs of Services......... 256,720 244,542 429,604 571,969
Research and development . 62,863
General and administrative 249,160 147,763 193,025 225,430
Interest ................. 90,796 1,955 3,502 3,861
----------- ----------- ----------- -----------
Total expenses ....... 596,676 394,260 688,994 801,260
----------- ----------- ----------- -----------
NET (LOSS) (Note I) .............. $ (300,722) $ (13,798) $ (122,400) $ (45,504)
=========== =========== =========== ===========
Net loss per share ............... $ (0.11) $ (0.01) $ (0.05) $ (0.02)
=========== =========== =========== ===========
Weighted average number
of shares outstanding .... 2,897,418 2,894,418 2,894,418 2,894,418
=========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-4
<PAGE>
OBJECTSOFT CORPORATION
STATEMENTS OF CHANGES IN CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
Common Stock Additional
-------------------------- Paid-in
Shares Amount Capital (Deficit) Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 ......................... 2,275,000 $ 228 $ 255,332 $ (671,250) $ (415,690)
Accretion of dividends on the Series A
preferred stock .......................... (19,125) (19,125)
Net loss ......................................... (45,504) (45,504)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1994 ....................... 2,275,000 228 255,332 (735,879) (480,319)
Accretion of dividends on the Series A
preferred stock .......................... (19,125) (19,125)
Series B preferred stock issuance
costs (Note G[2]) ........................ (2,500) (2,500)
Common stock issued, net of costs ................ 18,000 1 15,499 15,500
Compensatory option granted (Note H) ............. 10,000 10,000
Net loss ......................................... (122,400) (122,400)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 ....................... 2,293,000 229 278,331 (877,404) (598,844)
Warrants issued in connection with bridge
loan, net of costs (Note D) .............. 123,525 123,525
Compensatory warrants granted (Note H) ........... 4,000 4,000
Accretion of dividends on the Series A ........... (9,563) (9,563)
preferred stock
Dividends declared on the Series B preferred stock (6,250) (6,250)
Net loss (unaudited) ............................. (300,722) (300,722)
----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1996 (Unaudited) ............... 2,293,000 $ 229 $ 405,856 $(1,193,939) $ (787,854)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-5
<PAGE>
OBJECTSOFT CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
-------------------------- --------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) ......................................................... $ (300,722) $ (13,798) $ (122,400) $ (45,504)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization ................................ 52,719 24,092 58,056 35,244
Amortization of discount on note payable ..................... 77,263
Provision for doubtful accounts .............................. 9,000 16,200
Stock options issued for services rendered ................... 4,000 10,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable ............................... (137,795) 66,254 67,091 (102,953)
Prepaid expenses and other current assets ......... 14,159 (37,117) 6,311 (1,028)
Other assets ...................................... (8,961) 34,587 34,587 (175)
Increase (decrease) in:
Accounts payable .................................. 92,680 (30,188) (48,332) 82,832
Accrued and other liabilities ..................... (28,914) (104,073) (28,574) 104,100
Accrued officer compensation ...................... (200,000) 58,333 107,220
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities .......................... (426,571) (1,910) 100,159 72,516
----------- ----------- ----------- -----------
Cash flow from investing activities:
Capital expenditures ............................................... (126,258) (399)
Capitalized software and courseware ................................ (109,684) (118,478) (60,757)
----------- ----------- -----------
Net cash (used in) investing activities ........ (235,942) (118,478) (61,156)
----------- ----------- -----------
Cash flow from financing activities:
Proceeds from note payable ......................................... 981,475
Proceeds from issuance of shares and options (Note G[2]) .......... 113,000
Proceeds from issuance of warrants (Note D) ........................ 123,525
Deferred offering costs ............................................ (74,036) (30,250)
Dividends .......................................................... (3,125)
Principal payments on obligations under capital leases ............. (5,262) (3,816) (7,928) (4,663)
----------- ----------- ----------- -----------
Net cash provided by
(used in) financing activities ................ 1,022,577 (3,816) 74,822 (4,663)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH ...................................... 360,064 (5,726) 56,503 6,697
Cash, beginning of period ............................................ 63,995 7,492 7,492 795
----------- ----------- ----------- -----------
CASH, END OF PERIOD .................................................. $ 424,059 $ 1,766 $ 63,995 $ 7,492
=========== =========== =========== ===========
Supplemental disclosures of cash flow
Cash paid during the period:
Interest expense ...................................... $ 1,512 $ 1,955 $ 3,502 $ 3,861
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-6
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information with respect to June 30, 1996 and the six months
ended June 30, 1996 and June 30, 1995 is unaudited)
(NOTE A) - Summary of Significant Accounting Policies:
[1] The Company:
ObjectSoft Corporation(the "Company") is currently engaged in
the business of providing transaction based services over the Internet and
through kiosks, computer software training and consulting.
In January 1996, ObjectSoft Corporation, a New Jersey corporation
merged into a newly formed corporation, ObjectSoft Corporation, a Delaware
corporation. In conjunction with the merger, shares of the preferred and common
stock outstanding were exchanged for the same number of shares of stock, the
shares authorized increased to 5,000,000 preferred and 20,000,000 common and the
par value was reduced to $.0001. This transaction is given retroactive effect in
the accompanying financial statements.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company sustained
substantial operating losses through June 30, 1996. The officer/shareholders of
the Company have agreed not to demand payment of their accrued compensation
until there is sufficient working capital. Upon the sale of the Bridge Units
(see Note D), $200,000 of the accrued officer compensation was paid.
Prior period financial statements have been reclassified to conform
to the present period presentation.
[2] Equipment:
Equipment is carried at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over estimated useful
lives of the assets (three to seven years).
[3] Provision for income taxes:
Deferred income taxes arise from temporary differences resulting
primarily from income and expense items being reported on an accrual basis for
financial reporting purposes and on a cash basis for tax purposes, capitalized
software and net operating loss carryforwards. The Company has available at
December 31, 1995, Federal net operating loss carryforwards of approximately
$350,000 which may be applied against future taxable income through 2010. Upon
consummation of the proposed initial public offering, the Company may be subject
to limitations on its use of the net operating loss carryforwards.
[4] Software revenue recognition policies:
The Company is engaged as a developer in a number of software
transactions. Generally, revenue from generic software is recognized upon
delivery of the software. After the sale, if significant obligations remain or
significant uncertainties exist about customer acceptance of the software,
revenue is deferred until the obligations are satisfied or the uncertainties are
resolved. Revenue from software services is recognized as the services are
performed. Revenue from software leased through the Internet (generally one
year) is deferred and amortized over the lease term. Revenue from custom
software development (included in consulting revenue) is recognized based upon
its percentage completion. At June 30, 1996, $120,000 of unbilled receivables
was included in accounts receivable.
[5] Software and courseware development costs:
The Company capitalizes software development costs when project
technological feasibility is established and concluding when the project is
ready for release. Research and development costs related to software
development are expensed as incurred. Software development costs are amortized
on a straight-line basis over its expected life.
(continued)
F-7
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information with respect to June 30, 1996 and the six months
ended June 30, 1996 and June 30, 1995 is unaudited)
(NOTE A) - Summary of Significant Accounting Policies: (Continued)
[5] Software and courseware development costs: (continued)
The Company capitalizes incremental costs associated with courseware
development which has an estimated economic life of more than one year (not
material through June 30, 1996). The courseware development costs are amortized
on a straight-line basis over its expected life.
[6] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
The Company's policy is to amortize capitalized software costs by the
greater of (a) the ratio that current gross revenues for a product bears to the
total of current and anticipated future gross revenues for that product or (b)
the straight-line method over the remaining estimated economic life of the
product including the period being reported on. It is reasonably possible that
those estimates of anticipated future gross revenues, the remaining economic
useful life of the product or both will be reduced in the near term.
[7] Stock options:
The Company accounts for employee stock options using the intrinsic
value method. Options granted to nonemployees in exchange for services are
accounted for based upon the value of the services received.
[8] Net loss per share:
Net loss per share was computed based on the weighted average number
of shares of common stock outstanding during the year and the net loss increased
by the dividends accruing on the cumulative preferred stock. Since, in 1995 and
1996, certain shares of common stock and common stock equivalents were issued at
less than the anticipated offering price of the proposed initial public
offering, all such shares of common stock were considered outstanding for all
periods presented in accordance with certain rules of the Securities and
Exchange Commission. Fully diluted net loss per share is not shown since it
would be anti-dilutive.
In July 1996, the Company issued units consisting of common stock and
warrants (see Note M[1]) and utilized $125,000 of the proceeds to redeem the
Series B preferred stock. Additionally, the Company anticipates redeeming the
Series A preferred stock and repaying the short term debt with proceeds from the
proposed initial public offering. Had the Series A preferred been retired on
January 1, 1995, the Series B preferred stock not been issued on December 31,
1995 nor the short term debt initiated in 1996 and had the Company issued common
stock instead, the net loss per share for the year ended December 31, 1995 and
the six months ended June 30, 1996 would have been $(0.04) and $ (0.07). These
loss per share computations assume an additional weighted average number of
shares outstanding for the year ended December 31, 1995 and the six months ended
June 30, 1996 of 43,367 and 111,656, respectively.
[9] Interim financial statements:
The accompanying interim financial statements at June 30, 1996 and
for the six months ended June 30, 1996 and 1995 are unaudited. However, in the
opinion of management, all adjustments (consisting solely of normal recurring
adjustments) necessary to be in conformity with generally accepted accounting
principles have been made.
The results of operations and cash flows for the six months ended
June 30, 1996 are not necessarily indicative of the results that may be expected
for the full year ending December 31, 1996.
(continued)
F-8
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information with respect to June 30, 1996 and the six months
ended June 30, 1996 and June 30, 1995 is unaudited)
(NOTE B) - Equipment:
At June 30, 1996 and December 31, 1995, equipment consists of:
June 30, December 31,
1996 1995
-------- --------
Kiosks under construction .................. $107,436
Equipment .................................. 114,113 $ 72,585
-------- --------
221,549 72,585
Accumulated depreciation ................... 62,695 49,152
-------- --------
Total ......... $158,854 $ 23,433
======== ========
Depreciation expense aggregated $13,543, $9,787, $19,573 and $15,818,
for the six months ended June 30, 1996 and 1995 and the years ended December 31,
1995 and 1994, respectively. Included in depreciation expense is depreciation
expense on equipment under capital lease which aggregated $5,657, $4,198, $8,396
and $4,198, for the six months ended June 30, 1996 and 1995 and the years ended
December 31, 1995 and 1994, respectively.
In 1996 and 1994, the Company acquired equipment under capital lease
aggregating $22,706 and $25,188, respectively.
Kiosks under construction represents equipment acquired for the City
of New York agreement (see Note K[1]). This equipment is expected to be put into
service in August 1996.
(NOTE C) - Capitalized Software and Courseware:
The Company developed software which is leased under annual
subscriptions through the Internet. During 1995, the Company capitalized
software development costs of $118,478. Amortization of capitalized software
costs aggregated $9,873 and $29,620 for the year ended December 31, 1995 and six
months ended June 30, 1996, respectively. During 1996, the Company has
capitalized additional software development costs of $109,684. Additionally
amortization of capitalized courseware costs aggregated $9,556, $14,305, $28,610
and $19,426 for the six months ended June 30, 1996 and June 30, 1995 and for the
years ended December 31, 1995 and 1994, respectively.
(NOTE D) - Financing:
In 1996, the Company sold 12.5 bridge units, each consisting of a
$100,000, 7% note and warrants to purchase 30,000 shares of common stock or such
other securities as might be offered in the Company's initial public offering
("IPO Securities"). The notes are due on the earlier of fourteen days of closing
of the initial public offering ("IPO") or September 30, 1997. Additionally, the
placement agent received a warrant to purchase 37,500 shares of common stock or
IPO Securities.
The Company valued the warrants at $138,750. Accordingly, additional
paid-in capital has been credited $123,525 which represents the value of the
warrants less the allocable portion of the offering costs. The short-term note
has been discounted by the value of the warrants and the offering costs. The
discount is being amortized as additional interest expense from the date of
issuance to September 30, 1996, the anticipated maturity date. If the IPO is
completed by September 30, 1997,
(continued)
F-9
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information with respect to June 30, 1996 and the six months
ended June 30, 1996 and June 30, 1995 is unaudited)
(NOTE D) - Financing: - (Continued)
the bridge unit warrants are exercisable into the IPO Securities at 70 percent
of the offering price or, if the IPO is not completed by then, into common stock
at $3.50 per share. These warrants expire September 30, 1999 if the IPO is not
completed by September 30, 1997 or, if the IPO is completed by then, they expire
three years after completion of the IPO. If the IPO is completed by September
30, 1997, the placement agent warrants are exercisable in the IPO Securities at
91 percent of the offering price or, if the IPO is not completed by then, into
the common stock at $4.55 per share. These warrants expire from April 2001
through June 2001 if the IPO is not completed by September 30, 1997 or, if IPO
is completed, they expire five years after its completion.
During the six months ended June 30, 1996, amortization aggregated
$77,263.
(NOTE E) - Obligations Under Capital Lease:
Minimum future lease payments under capital leases expiring through
2001, as of June 30, 1996 are as follows:
Twelve Months
Ending
June 30, Amount
-------- ------
1997 ............................... $16,527
1998 ............................... 8,210
1999 ............................... 7,950
2000 ............................... 5,080
2001 ............................... 4,657
-------
42,424
Less amount representing interest .. 12,380
-------
Present value of net minimum
lease payments ................... 30,044
Less present value of net minimum
lease payments due within one year 10,839
-------
$19,205
=======
Minimum future lease payments under capital leases as of December 31,
1995 are as follows:
Year Ending
December 31,
------------
1996 ............................... $10,488
1997 ............................... 3,496
-------
13,984
Less amount representing interest .. 1,384
-------
Present value of net minimum lease
payments ......................... 12,600
Less present value of net minimum
lease payments due within one year 9,210
-------
$ 3,390
=======
(NOTE F) - Deferred Offering Costs:
The Company has incurred $79,286 of incremental costs in connection
with a proposed initial public offering of its common stock. Upon consummation
of the offering, the deferred offering costs will be charged against the gross
proceeds of the offering or, if not consummated, they will be charged to
expense. The Company will incur substantial additional offering costs.
(NOTE G) - Preferred Stock:
[1] Series A preferred stock:
The Series A 9% cumulative voting preferred stock is redeemable at
any time at the Company's option and must be redeemed at the time of the initial
public offering. The redemption price is $1 per share plus accrued and unpaid
dividends.
(continued)
F-10
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information with respect to June 30, 1996 and the six months
ended June 30, 1996 and June 30, 1995 is unaudited)
(NOTE G) - Preferred Stock: - (Continued)
[1] Series A preferred stock: (continued)
The Company has not declared any dividends. The cumulative unpaid
dividends at June 30, 1996 aggregated $55,969 ($.315 per share of stock issued
in 1992 and $.245 per share of stock issued in 1993).
[2] Series B preferred stock:
In December 1995, the Company issued 1,250 shares of nonvoting
convertible preferred stock for $100,000 in cash and a note for $25,000. The
note was paid in January 1996 and is included in other current assets as of
December 31, 1995. The cumulative dividend on the preferred stock is 10% per
year. During the six months ended June 30, 1996, the Company declared dividends
aggregating $6,250 (at June 30, 1996, $3,125 was included in accrued
liabilities). In July 1996, the Company redeemed the outstanding shares (see
Note M).
(NOTE H) - Capital Deficiency:
As of January 1, 1994, the Company had issued warrants, expiring in
April 1998, to purchase 143,333 shares of common stock at an exercise price of
$0.50 and warrants, expiring in March 1996, to purchase 106,250 shares of common
stock at an exercise price of $2.00. None of these warrants has been exercised.
In 1995, the Board of Directors extended the expiration of the $2.00 warrants
from March 1996 to November 1996.
In 1995, the Company granted an option to purchase 100,000 shares of
common stock at $1.00 per share in exchange for $10,000 of consulting services.
As a result $10,000 was charged to operations and credited to additional paid-in
capital. The options are exercisable through September 2000. In 1996, in
exchange for an additional $5,000 payment to the option holder, the Company
cancelled the option on 50,000 shares.
In 1996, the Company granted a warrant to purchase 10,000 shares of
common stock at $1.00 per share in exchange for $20,000 of professional services
to be rendered during the vesting period. This warrant vests ratably over a ten
month period ending March 1997 and is exercisable through May 2001. During 1996,
the Company recognized expense of $4,000.
The Company has reserved 1,134,587 shares of its common stock for
issuance upon exercise of the outstanding warrants and options.
See Notes M[1] and [2] with regard to warrants and options issued in
July and August 1996.
(NOTE I) - Income Taxes:
The significant components of the Company's deferred tax assets and
liabilities at June 30, 1996 and December 31, 1995 are as follows:
June 30, December 31,
1996 1995
--------- ---------
Accrual to cash adjustment ........ $ 67,000 $ 203,000
Capitalized software and courseware (70,000) (37,000)
Net operating losses carryforward . 424,000 145,000
Valuation allowance ............... (421,000) (311,000)
--------- ---------
Net deferred tax asset ............ $ - 0 - $ - 0 -
========= =========
(continued)
F-11
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information with respect to June 30, 1996 and the six months
ended June 30, 1996 and June 30, 1995 is unaudited)
(NOTE I) - Income Taxes: - (Continued)
The significant components of the provision for income taxes for each
of the six months ended June 30, 1996 and 1995 and the years ended December 31,
1995 and 1994, are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
---------------------- ----------------------
1996 1995 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Accrual to cash adjustment .... $(136,000) $ (15,000) $ 62,000 $ 34,000
Net operating loss carryforward 279,000 19,000 37,000 (19,000)
Capitalized software and
courseware ................. (33,000) 2,000 (35,000) 2,000
Increase in valuation allowance (110,000) (6,000) (64,000) (17,000)
--------- --------- --------- ---------
Provision for income taxes .... $ - 0 - $ - 0 - $ - 0 - $ - 0 -
========= ========= ========= =========
</TABLE>
The difference between the statutory federal income tax rate on the
Company's net loss and the Company's effective income tax rate for each of the
six months ended June 30, 1996 and 1995 and the years ended December 31, 1995
and 1994, respectively, is summarized as follows:
June 30, December 31,
----------------- -------------------
1996 1995 1995 1994
------ ------ ------ ------
Statutory federal income tax
rate..................... 34.0% 34.0% 34.0% 34.0%
Increase in valuation
allowance................ (36.6) (43.5) (39.2) (30.8)
Research and development
credit .................. 7.3
Miscellaneous .............. 2.6 9.5 (2.1) (3.2)
------ ------ ------ ------
Effective income tax rate .. 0.0% 0.0% 0.0% 0.0%
====== ====== ====== ======
(NOTE J) - Employee Benefit Plan:
The Company maintains a noncontributory Employee Savings Plan, in
accordance with the provisions of Section 401(k) of the Internal Revenue Code.
Pursuant to the terms of the plan, participants can defer a portion of their
income through contributions to the Plan.
(NOTE K) - Commitments:
[1] Lease income:
In 1995, the Company entered into an agreement with the City of New
York ("New York") whereby the Company would develop custom software and upon
final acceptance of the software by New York, the Company will initially lease
five kiosks, hardware and software to New York for one year, renewable by New
York for two successive one year terms. The annual rental aggregates $361,080.
Additionally, the Company can earn fees based upon the number of transactions
effectuated in the kiosks. The Company anticipates purchasing additional
hardware related to the kiosks project of approximately $100,000.
(continued)
F-12
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information with respect to June 30, 1996 and the six months
ended June 30, 1996 and June 30, 1995 is unaudited)
(NOTE K) - Commitments: (continued)
[2] Leases:
The Company leases office space and equipment under operating leases
with an initial or remaining term of more than one year expiring through 2002.
Twelve Months
Ending
June 30, Amount
-------- ------
1997 .......... $ 49,908
1998 .......... 58,727
1999 .......... 78,444
2000 .......... 82,640
2001 .......... 86,933
Thereafter..... 162,061
--------
T o t a l...... $518,713
========
Rent expense approximated $24,600, $9,100, $18,300 and $19,200 for
the six months ended June 30, 1996 and June 30, 1995 and for the years ended
December 31, 1995 and December 31, 1994, respectively.
[3] Employment agreements:
Effective July 1996, the Company entered into employment agreements
with two key executives expiring in December 2001. Under the terms of the
agreements, the aggregate initial annual compensation is $208,000 per executive.
Additionally, the agreements include provisions for bonuses (aggregating the sum
of 5 percent of earnings before depreciation, interest, taxes and amortization
and other amounts, if any, to be determined by the board of directors),
increases in compensation and severance payment based upon certain events.
(NOTE L) - Concentration of Risk:
[1] Revenues:
For the six months ended June 30, 1996 and June 30, 1995, 76 percent
of revenues were derived from two customers and 48 percent of revenues were
derived from one customer, respectively. For the years ended December 31, 1995
and December 31, 1994, 56 percent of revenues were derived from two customers
and 67 percent of revenues were derived from four customers, respectively.
[2] Microsoft Corporation:
The Company's software is generally based upon Microsoft Windows
technology. Additionally, it has established a strategic relationship with
Microsoft that management believes is important to its sales, marketing and
support and product development activities. Accordingly, any change in this
relationship or any factor adversely affecting the demand for, or the use of,
Microsoft's Windows operating system could have a negative impact on demand for
the Company's products and services. Additionally, changes to the underlying
components of the Windows operating system would require changes to the
Company's products and could result in the loss of sales if the Company did not
implement changes in a timely manner.
[3] Cash:
The Company places its cash in banking institutions, which cash may
at times, be in excess of the FDIC insurance limit.
(continued)
F-13
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information with respect to June 30, 1996 and the six months
ended June 30, 1996 and June 30, 1995 is unaudited)
(NOTE M) - Subsequent Events:
[1] Private placement equity offering:
In August 1996, the Company issued 273,001 units consisting of one
share of common stock and a warrant to purchase two-thirds of a share of common
stock at an exercise price of $3.00 per two-thirds share. The Company received
proceeds of $816,285, net of estimated offering costs of $139,215. Concurrently,
the Company redeemed all of the outstanding shares of the Series B preferred
stock in exchange for $125,000 and warrants to purchase 20,000 shares of common
stock at an exercise price of $7.00 per share. Both issues of the warrants
expire the earlier of September 2000 or three years after the effective date of
the Company's initial public offering. Additionally, $100,000 of the accrued
officer compensation is to be paid from the net proceeds.
[2] Stock Option Plan:
In August 1996, the Company adopted a stock option plan under which
250,000 shares of common stock are reserved for issuance upon exercise of either
incentive or nonincentive stock options which may be granted from time to time
by the Board of Directors to employees and others. The Company granted options
on 145,000 shares at exercise prices ranging from $2.50 to $3.50 per share,
expiring July 2001.
F-14
<PAGE>
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
(Description - Rectangular box containing: (1) A square box on the upper left
corner with a picture of New York State seal background and the New York skyline
in the foreground. (2) A retangular box on the middle left side containing
pictures of an APPLE with the caption 'home', an APPLE CORE with the caption
'I'm Done' and the Statue of Liberty holding a question mark with the caption 'I
Need Help'. (3) A rectangular box with a light speckled background containing
pictures of (i) a KEY with the caption 'Keys To City Hall' and sub-captions of
'City Government-Transportation- Other Kiosks' beneath the caption; (ii) a SIGN
POST with the caption 'Around New York City' and a sub-caption of 'What To
Do-Sports Events-Transportation'; (iii) a V Symbol with the caption 'Coming
Soon' and a sub-caption of 'Information on What's Coming Soon'; (iv) the
MEDICINE Symbol with the caption 'Department of Health' and a sub-caption of
'Birth/Death Certificates - Dog Licenses - Courses'; (v) a TV WITH AN APPLE ON
SCREEN with the caption 'City Access Kiosks' and a sub-caption of 'What You Can
Do at Kiosks'; (vi) a WARNING STANCHION WITH A LIGHT with the caption
'Department of Buildings' and a sub-caption of
'Permits-Violations-Complaints-Applications'; (vii) an AIRSHIP with a caption of
'Kiosks Marketing' and a sub-caption 'Information on Marketing on Streetsmart
Kiosks'; and (viii) a TRAFFIC LIGHT with a caption of 'Transportation' and a
sub-caption of 'Bus-Subway-LIRR-Street Maps'. (4) A square box located at the
lower right corner containing a round button with 'VOLUME' at the center and
arrows above and beneath it.
- --------------------------------------------------------------------------------
SmartStreet CityAccess kiosk Main Menu
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
(Description - Rectangular box containing: (1) A square box on the upper left
corner with a picture of New York State seal background and the New York skyline
in the foreground. (2) A retangular box on the middle left side containing
pictures of an APPLE with the caption 'home', an APPLE CORE with the caption
'I'm Done' and the Statue of Liberty holding a question mark with the caption 'I
Need Help'. (3) A rectangular box with a light watermark background of a nurse
holding a child. This box contains a picture of the MEDICINE Symbol with the
main caption of 'Department of Health' centered at the bottom and sub-captions
of 'Health Services', 'Health Publications', 'Health Academy' and 'Licenses and
Certificates' to the right of the box. To the left of the box is the following
paragraph: "The Department of Health promotes and protects the health and
quality of life of City residents by enforcing compliance with the City Health
Code and operating a broad range of public health programs and services to
monitor, prevent, and control disease."
- --------------------------------------------------------------------------------
SmartStreet CityAccess kiosk Menu for New York City Department of Health
<PAGE>
================================================================================
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
================================================================================
SUBJECT TO COMPLETION, DATED OCTOBER __, 1996
ALTERNATE PROSPECTUS
OBJECTSOFT CORPORATION
377,087 Shares of Common Stock
1,143,088 Shares of Common Stock and 412,500 Class A Warrants
issuable upon the exercise of Warrants
This Prospectus relates to (i) 1,143,088 shares of the common stock,
par value $.0001 per share (the "Common Stock"), of ObjectSoft Corporation (the
"Company") and (ii) 412,500 Redeemable Class A Warrant (the "Class A Warrants")
of the Company. Such shares of Common Stock and Class A Warrants are
collectively referred to herein as the "Selling Securityholder Securities," and
the holders of the Selling Securityholder Securities and the warrants
exercisable for certain of the Selling Securityholder Securities are
collectively referred to herein as the "Selling Securityholders." The 412,500
Class A Warrants and 412,500 of the shares of Common Stock are issuable, in the
form of units (the "Units"), each Unit consisting of one share of Common Stock
and one Class A Warrant. The Units are issuable upon the exercise of (1) 375,000
warrants (the "Bridge Warrants") issued to investors in a private placement by
the Company in April through June, 1996 (the "Bridge Loan Offering") and (2)
37,500 warrants issued to Renaissance Financial Securities Corporation
("Renaissance") in its capacity as placement agent of the Bridge Loan Offering
(the "Placement Agent's Warrant"). Of the other 729,588 shares of Common Stock
to which this Prospectus is related, (1) 273,001 shares are issued and
outstanding and were issued to investors in a private placement by the Company
in July and August 1996 (the "July 1996 Offering"), (2) 182,004 shares are
issuable upon the exercise of warrants issued to the investors in the July 1996
Offering ( the "July 1996 Warrants"), (3) 45,500 shares are issuable upon the
exercise of a warrant (and the July 1996 Warrants issuable upon the exercise
thereof) issued to Win Capital Corporation ("Win Capital") in its capacity as
placement agent of the July 1996 Offering (the "July Placement Warrant"), (4)
106,250 shares are issuable upon the exercise of warrants issued by the Company
in connection with certain private placements in 1992 and 1993 (the "Investor
Warrants"), (5) 43,333 shares are issuable upon the exercise of warrants
originally issued to a former executive officer of the Company (the "Officer
Warrants") and (6) 79,500 shares are held by certain stockholders of the
Company. See "Selling Securityholders" and "Plan of Distribution." The Selling
Securityholders (other than Renaissance) have agreed not to sell any Selling
Securityholder Securities for a period of 12 months (or nine months, in the case
of the holders of the Investor Warrants and 79,500 Selling Securityholder shares
of Common Stock) from the date of this Prospectus without the prior written
consent of Renaissance, in its capacity as representative of the Underwriters
(the "Representative") of the Company's underwritten initial public offering
(the "Offering"). See "Plan of Distribution" and "Concurrent Public Offering."
With respect to the Selling Securityholder Securities subject to the 12-month
lock-up, the Representative has agreed with NASDAQ not to give such consent for
sales during the six month period after the date of this Prospectus.
The shares of Common Stock and Class A Warrants that comprise the
Units are immediately detachable and separately transferable. Each Class A
Warrant entitles the holder thereof to purchase one share of Common Stock at an
exercise price of $____ per share, subject to adjustment, at any time commencing
_________ __, 1997 (one year after the date of this Prospectus) until _________
__, 2001 (five years after the date of this Prospectus). The Class A Warrants
are redeemable by the Company at a price of $.10 per Class A Warrant commencing
one year after the date of this Prospectus (or earlier with the prior consent of
the Representative), on not less than 30 days prior written notice to the
holders thereof, provided the average closing bid quotation of the Common Stock
as reported on the NASDAQ SmallCap Market ("NASDAQ"), if traded thereon, or if
not traded thereon, the average closing bid quotation of the Common Stock if
listed on a national securities exchange (or other reporting system that
provides last sale prices), has been at least 130% of the then current exercise
price of the Class A Warrants (initially, $____ per share), for a period of 20
consecutive trading days ending within 15 days of the date on which the Company
gives notice of redemption. The Class A Warrants will be exercisable until the
close of business on the day immediately preceding the date fixed for
redemption. See "Description of Securities - Class A Warrants."
The Selling Securityholder Securities may be sold from time to time
by the Selling Securityholders or by their transferees. The distribution of the
Selling Securityholder Securities by the Selling Securityholders may be effected
in one or more transactions that may take place on the over-the-counter market,
including ordinary brokers' transactions, privately negotiated transactions or
through sales to one or more dealers for resale of such securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market
A-1
<PAGE>
prices or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Securityholders. The
Selling Securityholders may, but are not obligated to, effect transactions
through or to Renaissance.
The Selling Securityholders, and intermediaries through whom such
securities are sold, may be deemed underwriters within the meaning of the
Securities Act of 1933 (the "Securities Act") with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act.
The Company will not receive any of the proceeds from the sale of the
Selling Securityholder Securities by the Selling Securityholders. In the event
the Placement Agent's Warrant and all of the Bridge Warrants and the other
warrants exercisable to acquire shares of Common Stock are exercised in full,
the Company will receive gross proceeds of $__________. See "Selling
Securityholders" and "Plan of Distribution."
On the date of this Prospectus, a registration statement under the
Securities Act with respect to the "Offering") of 1,250,000 Units, through the
Underwriters for which Renaissance is the Representative, was declared effective
by the Securities and Exchange Commission (the "Commission"). The Company will
receive net proceeds of approximately $__________ from the Offering (assuming no
exercise of the Representative's Over-allotment Option) after payment of
underwriting discounts and commissions and estimated expenses of the Offering.
See "Concurrent Public Offering."
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. See
"Risk Factors" immediately following the "Prospectus Summary" section.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1996
A-2
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE UNITS OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE UNITS OFFERED BY THIS PROSPECTUS TO ANY PERSON TO WHOM, OR BY ANY PERSON IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
----------------------
TABLE OF CONTENTS
----------------------
Page
----
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 25
Dividend Policy........................................................... 27
Capitalization............................................................ 28
Dilution.................................................................. 29
Selected Financial Data................................................... 31
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................ 33
Glossary.................................................................. 37
Business.................................................................. 39
Management................................................................ 56
Principal Stockholders.................................................... 63
Certain Transactions...................................................... 65
Description of Securities................................................. 67
Shares Eligible for Future Sale........................................... 73
Selling Security holders..................................................
Plan of Distribution......................................................
Underwriting.............................................................. 75
Concurrent Public Offering................................................ 78
Legal Matters............................................................. 78
Experts................................................................... 78
Additional Information.................................................... 78
Index to Financial Statements............................................. F-1
As of the date of this Prospectus, the Company will become subject to
the reporting requirements of the Securities Exchange Act of 1934 (the "Exchange
Act"), and, in accordance therewith, will file reports, proxy and information
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy and information statements and other
information can be inspected and copied at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following regional offices: New York Regional Office,
Suite 1300, 7 World Trade Center, New York, New York 10048, and Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and
copies of such material may also be obtained by mail from the Public Reference
Section of the Commission at prescribed rates. Electronic registration
statements made though the Electronic Data Gathering Analysis and Retrieval
("EDGAR") System are publicly available through the Commission's Website
(http://www.sec.gov). See "Additional Information."
A-3
<PAGE>
The Company intends to furnish its stockholders with annual reports containing
audited financial statements and such other reports as the Company deems
appropriate or as may be required by law.
ObjectSoft(TM), SmartStreet(TM), OLEBroker(TM), and CafeOLE(TM) are trademarks
of the Company. This Prospectus also includes other trademarks and trade names
of the Company and trademarks, service marks and trade names of other companies,
including ActiveX(TM), a trademark of Microsoft Corporation ("Microsoft").
A-4
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
SELLING SECURITYHOLDERS
Up to an aggregate of 1,143,088 shares of Common Stock and 412,500
Class A Warrants may be offered for resale by the Selling Securityholders. The
Class A Warrants and 412,500 shares of Common Stock are issuable in the form of
412,500 immediately separable Units upon the exercise of the Bridge Warrants
issued to investors in the Bridge Loan Offering and the Placement Agent's
Warrant. Of the other 729,588 Selling Securityholder shares of Common Stock,
273,001 shares are issued and outstanding and were issued to investors in the
July 1996 Offering, 182,004 shares are issuable upon the exercise of the July
1996 Warrants, 45,500 shares are issuable upon the exercise of the July
Placement Warrant (and the July 1996 Warrants issuable upon the exercise
thereof), 106,250 shares are issuable upon exercise of the Investor Warrants,
43,333 shares are issuable upon exercise of the Officer Warrants and 79,500
shares are held by certain stockholders of the Company.
The following table sets forth certain information with respect to
each Selling Securityholder for whom the Company is registering Selling
Securityholder Securities for resale to the public. The Company will not receive
any of the proceeds from the sale of such securities. Renaissance acted as the
Representative of the Underwriters of the Offering. A principal of Win Capital
is also a principal of Cyndel & Co., Inc., a principal stockholder of the
Company. Other than as described with respect to Renaissance and Win Capital, to
the Company's knowledge, there are no material relationships between any of the
Selling Securityholders and the Company, nor have any such material
relationships existed within the past three years.
Other than Renaissance, which will own the Unit Purchase Option after
completion of the Offering, and the holders of the Investor and Officer
Warrants, no Selling Securityholder currently owns securities of the Company
other than the Selling Securityholder Securities or warrants exercisable to
purchase Selling Securityholder Securities. Assuming all of the Selling
Securityholder Securities are issued and sold, and based on the securities of
the Company currently owned by the Selling Securityholders, no Selling
Securityholder, with the possible exception of Renaissance, will beneficially
own 1% or more of the Company's Common Stock.
<TABLE>
<CAPTION>
MAXIMUM MAXIMUM NUMBER OF
NUMBER OF CLASS A WARRANTS
BRIDGE OFFERING INVESTORS SHARES TO BE SOLD (1) TO BE SOLD (1)
------------------------- --------------------- -----------------
<S> <C> <C>
Renaissance Financial Securities Corporation 37,500(2) 37,500(2)
Nathan Eisen 7,500 7,500
Richard, Steven and Kenneth Etra 15,000 15,000
William J. Ludwig 15,000 15,000
Joseph W. And Ann G. Schantz 7,500 7,500
Gregg Gallant 7,500 7,500
Mary and Mark Albritton 15,000 15,000
Sydney Katz 7,500 7,500
Louis Falletta 7,500 7,500
Phillip Levien 7,500 7,500
Pamda Retirement Trust 15,000 15,000
Eric W. Larson 15,000 15,000
HRIS Associates, Inc. 15,000 15,000
Program Advisors Corporation 7,500 7,500
Program Resource Organization, Inc. 7,500 7,500
Association of Independent Employers, Ltd. 7,500 7,500
Peter S. Morford 7,500 7,500
Robert E. Coomes 7,500 7,500
Gary G. Hammon 7,500 7,500
A-5
<PAGE>
MAXIMUM MAXIMUM NUMBER OF
NUMBER OF CLASS A WARRANTS
BRIDGE OFFERING INVESTORS SHARES TO BE SOLD (1) TO BE SOLD (1)
------------------------- --------------------- -----------------
Sheldon Sisken 7,500 7,500
Abraham David 7,500 7,500
Bay N. Sayegh 7,500 7,500
American Waste Oil Services Corp. 15,000 15,000
Gastro Enterology Associates 30,000 30,000
Servesting Investment Co. 7,500 7,500
Martin Hodas 15,000 15,000
Richard Someck 15,000 15,000
Roger Testa 30,000 30,000
Cyril J. Galagan 15,000 15,000
Jack P. Conlon 15,000 15,000
Joseph Schanne and Theresa Schanne 15,000 15,000
Anthony Quaranta 15,000 15,000
-------- -------
TOTAL UNITS 412,500 412,500
----------- ======== =======
</TABLE>
A-6
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
<TABLE>
<CAPTION>
MAXIMUM NUMBER
OF SHARES ISSUABLE
ON EXERCISE OF JULY
MAXIMUM NUMBER OF 1996 WARRANTS TO BE
JULY 1996 OFFERING INVESTORS SHARES TO BE SOLD SOLD
- ---------------------------- ----------------- -------------------
<S> <C> <C>
Win Capital Corporation (3) 27,300 18,200
Lawrence Dell Aquila 3,572 2,381
David Barron 10,000 6,667
Louis Chapman and Elaine Chapman 3,000 2,000
Michael Damiani and Beverly Damiani 5,000 3,333
Seymour Fertig 7,143 4,762
Theodore Kaplan & Selma Kaplan 8,000 5,334
Edgar Lindbloom 10,000 6,667
Thomas J. Luisi 9,000 6,000
Donald Markowitz 12,000 8,000
Gary O'Leary 10,000 6,667
PAMCO General Contracting Corp. 5,000 3,334
Pension Solutions 10,000 6,667
Nicholas Ponzio 7,143 4,762
Jeffrey Reizner 5,000 3,334
Samuel Richman 3,000 2,000
Charles Ruppman 25,000 16,667
Rose Salvato 16,000 10,667
James R. Smith 22,000 14,667
John H. Smith 5,000 3,333
Stourbridge Investment Ltd. 62,143 41,429
Suan Investments Inc. 30,000 20,000
Faye Zelmanovicz 5,000 3,333
------- -------
TOTAL 300,301 200,204
======= =======
</TABLE>
A-7
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
<TABLE>
<CAPTION>
MAXIMUM
NUMBER OF SHARES OWNED
SHARES TO BE AFTER THE
INVESTOR WARRANT HOLDERS SOLD OFFERING
------------------------ ---- --------
<S> <C> <C>
Harold Greenberg 3,125 6,250
Gennaro P. Vanacore 3,125 6,250
Estate of Aaron Ascher 12,500 25,000
Harmat Capital Corp. 3,125 25,000
Greenberg Associates 3,125 6,250
John Farbman 6,250 12,500
Scott Berman 6,250 12,500
George Mourges 12,500 25,000
Agamemnon R. Mourges 12,500 25,000
Marshall N. Cyrlin 6,250 12,500
Herbert Cyrlin 6,250 12,500
Josephine Chast 3,125 6,250
John P. Philis and Peter S. Philis, JTWROS 6,250 12,500
Elogeanne Grossman 3,125 6,250
Anthony Larosa 3,125 6,250
Catherine A. Lavin 6,250 12,500
Debra and Wesley Oler 3,125 6,250
Daniel Shapiro 3,125 6,250
Jerome Braunstein 3,125 6,250
----- -----
TOTAL INVESTOR WARRANTS 106,250
TOTAL SHARES OWNED AFTER OFFERING 212,500(4)
OFFICER WARRANT HOLDERS
Alice F. Wein 21,666 18,750
Arthur Wein 21,667 18,750
------ ------
TOTAL OFFICER WARRANTS 43,333(5)
TOTAL SHARES OWNED AFTER OFFERING 37,500
</TABLE>
A-8
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
MAXIMUM
NUMBER OF
SHARES TO BE
OUTSTANDING SHARES SOLD
------------------ ----
Gregory Lavin 2,500
Leslie Seiff 2,500
Bruce Seiff 2,500
Stanley Simon 2,000
Sylvia Bageac 2,000
William F. Yetman 1,000
Dr. Michael Smart 5,000
Barbara Bean Hemmer 4,000
Regent Capital Group 10,000
Aaron Lehman 18,000
Goldman, Zolotorofe & Corcoran, P.C. 20,000
David I. Grauer 10,000
------
TOTAL SHARES 79,500
======
- ----------
(1) Except as to Renaissance, as described in note (2) below, consists of
Common Stock and Class A Warrants comprising Units issuable upon the
exercise of the Bridge Warrants. See "Certain Transactions - Recent
Financings."
(2) Consists of Common Stock and Class A Warrants comprising Units issuable
upon the exercise of the Placement Agent's Warrant. Does not include
250,000 shares of Common Stock included in the Units (and issuable upon the
exercise of the Class A Warrants contained in such Units) issuable upon the
exercise of the Representative's Unit Purchase Option to be issued to
Renaissance in connection with the Offering, which option is not
exercisable until one year after the date of this Prospectus. Assuming all
of the Selling Securityholder Securities are issued and sold and no other
shares of Common Stock are issued (upon the exercise of any Class A
Warrants, other outstanding options and warrants or otherwise) by the
Company, Renaissance by virtue of its ownership of the Representative's
Unit Purchase Option, will be deemed to own, as of __________ __, 1997,
approximately 5.2% of the Company's Common Stock. See "Certain Transactions
- Recent Financings" and "Concurrent Public Offering."
(3) Consists of shares issuable upon the exercise of the July Placement Warrant
and upon the exercise July 1996 Warrants issuable upon such exercise of the
July Placement Warrant. Does not include 222,500 shares of Common Stock and
immediately exercisable warrants to purchase 20,000 shares of Common Stock
owned by Cyndel. See "Principal Stockholders" and "Certain Transactions -
Recent Financings."
(4) Does not include 212,500 shares of Series A Preferred Stock, which are
being redeemed from the proceeds of the Offering.
(5) Does not include shares issuable upon the exercise of 100,000 Officer
Warrants held by David E.Y. Sarna and George J. Febish, executive officers
of the Company, which shares have not been registered for resale. See
"Description of Securities - Outstanding Warrants and Options -
Officer/Stockholder Warrants; 1996 Stock Option Plan."
A-9
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
PLAN OF DISTRIBUTION
The sale of the Selling Securityholder Securities by the Selling
Securityholders may be effected from time to time in transactions (which may
include block transactions by or for the amount of the Selling Securityholders)
in the over-the-counter market or in negotiated transactions, through the
writing of options on the securities, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale or at negotiated prices.
The Selling Securityholders may effect such transactions by selling
their securities directly to purchasers, through broker-dealers acting as agents
for the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer may
exceed customary commissions). The Selling Securityholders may, but are not
obligated to, effect transaction through or to Renaissance.
Each Selling Securityholder, other than Renaissance, has agreed not
to sell, transfer or otherwise dispose publicly of the Selling Securityholder
Securities for a period of 12 months (or nine months, in the case of the holders
of the Investor Warrants and 79,000 shares of Common Stock) after the date of
this Prospectus without the prior written consent of Renaissance in its capacity
as representative. Which consent can be given for sales of Selling
Securityholder Securities beginning six months after the date of this
Prospectus.
Under applicable rules and regulations under the Securities Exchange
Act of 1934 ("Exchange Act"), any person engaged in the distribution of the
Selling Securityholder Warrants may not simultaneously engage in market making
activities with respect to any securities of the Company during the applicable
"cooling-off" period (at least two, and possibly nine, business days) prior to
the commencement of such distribution. Accordingly, in the event the Renaissance
is engaged in a distribution of Selling Securityholder Securities, it will not
be able to make a market in the Company's securities during the applicable
restrictive period. In addition, each Selling Securityholder desiring to sell
Selling Securityholder Securities will be subject to the applicable provisions
of the Exchange Act and the rules and regulations thereunder, including without
limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing of the
purchases and sales of shares of the Company's securities by such Selling
Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sale might be deemed to be underwriters within the meaning
of Section 2(11) of the Securities Act and any commission received by them and
any profit on the resale of the securities might be deemed to be underwriting
discounts and commissions under the Securities Act.
CONCURRENT PUBLIC OFFERING
p
On the date of this Prospectus, a Registration Statement was declared
effective under the Securities Act with respect to an underwritten offering by
the Company of 1,250,000 Units by the Company and up to 187,500 additional Units
to cover over-allotments, if any. The initial offering price of the Units in the
Offering was $____, and such Units were identical to the Units being offered by
certain Selling Securityholders pursuant to this Prospectus.
Renaissance, a Selling Securityholder, acted as Representative of the
Underwriters of the Offering and, in connection therewith, was granted an option
(the "Representative's Unit Purchase Option") to purchase up to 125,000 Units at
an exercise price equal to 145% of the initial public offering price of the
Units sold in the Offering. The Class A Warrants included in the Units issuable
upon the exercise of the Representative's Unit Purchase Option will not be
redeemable by the Company and will be exercisable at a price equal to 145% of
the exercise price of the Class A Warrants included in the Units offered in the
Offering.
A-10
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") provides, in general, that a Delaware corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than a
derivative action by or in the right of the corporation ) by reason of the fact
that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. In the case of a
derivative action, a Delaware corporation may indemnify any such person against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudicated to be liable to the corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or any other court in which such action is brought determines such
person is fairly and reasonably entitled to indemnity for such expenses. Article
Ninth of the Company's Certificate of Incorporation and Article VI of the
Company's Amended and Restated Bylaws provide that the Company shall indemnify
all persons whom the Company shall have power to indemnify under such Section to
the fullest extent permitted by such Section. In addition, Article Eighth of the
Company's Certificate of Incorporation provides, in general, that no director of
the Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL (which provides that, under certain circumstances, directors may be
jointly and severally liable for willful or negligent violations of the DGCL
provisions regarding the payment of dividends or stock repurchases or
redemptions), or (iv) for any transaction from which the director derived an
improper personal benefit.
Section 5 of the Underwriting Agreement (Exhibit 1.1) provides for
indemnification by the underwriter of directors, officers and controlling person
of the Company for certain liabilities, including certain liabilities under the
Securities Act of 1933, under certain circumstances.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses of the offering, other than underwriting discounts and
commissions, are as follows:
Securities and Exchange Commission registration fee....... $ 12,761
NASD filing fee........................................... 4,201
NASDAQ entry fees......................................... 7,875
Legal fees and expenses*.................................. 130,000
Accounting fees and expenses*............................. 60,000
Transfer agent fees*...................................... 3,000
Blue sky fees and expenses (including counsel fees)*...... 40,000
Printing and engraving expenses*.......................... 60,000
Miscellaneous*............................................ 23,163
--------
Total.............................................. $314,000
========
- --------------------
* Estimated
II - 1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following sets forth certain information regarding sales of
securities of the Company issued within the past three years, which were not
registered pursuant to the Securities Act of 1933 (the "Securities Act").
Pursuant to a private placement of securities effected between
September 1992 and November 1993 (the "1992 Private Placement"), the Company
sold 17 units ("Units") to 19 investors, each of whom subscribed to purchase
such Units, at a price of $25,000 per Unit, each Unit consisting of (i) 12,500
shares of Common Stock, (ii) 12,500 shares of Preferred Stock and (ii) a warrant
to purchase 6,250 shares of Common Stock. The securities were issued in reliance
on the exemption from registration provided by Section 4(2) of the Securities
Act.
On October 4, 1993, the Company issued 222,500 shares of Common Stock
to Cyndel & Co., Inc. for an aggregate of $10,000. The securities were issued in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act.
On April 15, 1993, the Company issued to David E. Y. Sarna, Chairman,
Co-Executive Officer and Secretary of the Company, George J. Febish, President,
Co-Executive Officer and Treasurer and Arthur Wein, a former officer of the
Company, warrants to purchase 50,000, 50,000 and 43,333 shares of Common Stock,
respectively, in consideration of forgone salary in 1992. In consideration of
their waiver of the registration rights with respect to the Offering and their
agreement to enter into an 18 month lock-up agreement with the Representative,
the expiration date of the Officer Warrants held by Messrs. Sarna and Febish was
extended to April 30, 2000. The securities were issued in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act.
On August 22, 1995 the Company granted Benjamin Borneman, a
consultant to the Company, the right to exchange his right to cash payments
under his retainer agreement for an option to acquire up to 100,000 shares of
Common Stock at an exercise price of $1.00 per share and up to 240,000 shares of
Common Stock at an exercise price of $2.00 per share. On September 15, 1995 Mr.
Borneman exercised his right to receive the option for 100,000 shares of Common
Stock at an exercise price of $1.00 per share expiring on the fifth anniversary
of the date of grant. This option is immediately exercisable; however, in May
1996, the option was canceled as to 50,000 shares in consideration of a cash
payment of $5,000. Mr. Borneman's right to acquire an option for 240,000 shares
of Common Stock expired on December 31, 1995. The securities were issued in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act.
On December 29, 1995, the Company issued to Cyndel & Co., Inc. 1,250
shares of Preferred Stock to be designated Series B Preferred Stock in
consideration of $100,000 in cash and a promissory note in the amount of $25,000
due on January 30, 1996. The securities were issued in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act.
On December 28, 1995, the Company issued to Aaron Lehman 18,000
shares of Common Stock in consideration of $18,000 in cash. No sales commissions
were paid in connection with such offerings. The securities were issued in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act.
During the period April through June 1996, the Company sold 12.5
Bridge Units to accredited investors, each Bridge Unit consisting of a $100,000
7% Note (the "Bridge Notes") and warrants to purchase 30,000 shares of Common
Stock or such other securities as might be offering in the Company's initial
public offering. Assuming the Offering is completed, the Bridge Warrants will be
exercisable to purchase Units identical to the Units offered hereby. Interest on
the Bridge Notes is payable semi-annually commencing December 31, 1996, and the
Bridge Notes will mature and be payable in full within fourteen (14) days of the
date of closing of the
II - 2
<PAGE>
Offering or September 30, 1997, whichever is earlier. The Bridge Warrants are
exercisable at a price equal to 70% of the offering price for securities offered
in an initial public offering. Each Unit Warrant is for the purchase either (i)
if the Company completes an initial public offering ("IPO") on or before
September 30, 1997, 30,000 shares of Common Stock (the "Shares") or other
securities at 70% of the per share or other security price in the IPO
exercisable for a period of three (3) years (the "IPO Securities"), or (ii) if
the Company does not complete an IPO on or before September 30, 1997, 30,000
shares of Common Stock, exercisable until September 30, 1999 at $3.50 per share.
The term of the Bridge Warrants if exercisable into IPO securities shall be
extended for an additional period, up to one (1) year, equal to the period that
lapses between September 30, 1996 and the consummation of the Company's initial
public offering on or before September 30, 1997. If the Offering is completed
prior to September 30, 1997, the Bridge Warrants will be exercisable to purchase
30,000 Units at $____ per Unit. In connection with Bridge Loan Offering, the
Company sold to the Representative, in its capacity as Placement Agent of such
offering, a warrant (the "Placement Agent's Warrant") to purchase a number of
Units equal to 10% of Units issuable upon the exercise of the Bridge Warrants
contained in the Bridge Units. The exercise price of the Placement Agent's
Warrant is either (i) in the event an IPO is completed on or before September
30, 1997, 91% of the per IPO Security offering price exercisable commencing on
or after the consummation of a public offering and ending on the fifth
anniversary thereof or (ii) in the event an IPO is not completed on or before
September 30, 1997, $4.55, exercisable for five (5) years from the date of
issuance. Assuming the Offering is completed prior to September 30, 1997, the
Placement Agent's Warrant will be exercisable at a price of $____ per Unit. The
securities were issued in reliance on the exemptions from registration provided
by Rule 506 of Regulation D promulgated under the Securities Act and Section
4(2) of the Securities Act.
In July and August 1996, the Company sold , to accredited investors,
an aggregate of 273,001 units (the "July 1996 Units") for an aggregate of
$955,504, or $3.50 per July 1996 Unit. Each July 1996 Unit consisting of one
share of Common Stock and a warrant (the "July 1996 Warrants") to purchase
two-thirds (2/3) of a share of Common Stock at an exercise price of $3.00 per
2/3 share (or $4.50 per share). The July 1996 Warrants are exercisable until the
later of July 30, 1999 or three years after the date of this Prospectus (but in
no event later than September 30, 2000. In connection with the sale of the July
1996 Units, the placement agent for such sale, Win Capital Corporation, was
granted a warrant to purchase 27,300 July 1996 Units at an exercise price of
$4.50 per July 1996 Unit (the "July Placement Warrant"). The securities were
issued in reliance on the exemptions from registration provided by Rule 506 of
Regulation D promulgated under the Securities Act and Section 4(2) of the
Securities Act.
In July 1996, the Company redeemed the 1,250 shares of Series B
Preferred Stock held by Cyndel & Co., Inc. and in connection therewith, issued
to Cyndel warrants exercisable for a period of three years, to purchase 20,000
shares of Common Stock at an exercise price of $7.00 per share. The securities
were issued in reliance on the exemption from registration provided by Section
4(2) of the Securities Act.
On May 7, 1996, the Company issued a warrant to Morton Getman, a
consultant to the Company, for 10,000 shares of Common Stock. The warrants
granted to Mr. Getman vest at the rate of 1,000 per month and are exercisable at
a price of $1.00 per share.
Other than as described above, during the three years immediately
preceding the date hereof, no sales by the Company of its securities were
consummated.
II - 3
<PAGE>
ITEM 27. EXHIBITS.
The following exhibits are filed as part of this registration
statement:
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
1.1 Form of Underwriting Agreement.
2.1 Certificate of Ownership and Merger of ObjectSoft Corporation (a
New Jersey corporation) into the Company. (1)
2.2 Plan of Merger of ObjectSoft Corporation (a New Jersey
corporation) into the Company. (1)
3.1(a) Certificate of Incorporation of the Company. (1)
3.1(b) Form of Amendment to Certificate of Incorporation of the Company,
to be filed with the Secretary of State of Delaware preceding the
closing of the Offering (2)
3.2(a) By-laws of the Company. (1)
3.2(b) Form of Amended and Restated Bylaws of the Company, to become
effective upon closing of the Offering. (2)
4.1 Form of Representative's Unit Purchase Option agreement
4.2 Specimen Certificate of the Company's Common Stock (2)
4.3 Form of Class A Warrant Agreement, including form of Class A
Warrant. (1)
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP as to the legality
of securities being registered
10.1 Employment Agreement dated as of July 1, 1996 between the Company
and David E.Y. Sarna. (2)
10.2 Employment Agreement dated as of July 1, 1996 between the Company
and George J. Febish. (2)
10.3 1996 Stock Option Plan. (1)
10.4 Form of Bridge Loan Promissory Note. (1)
10.5 Form of Bridge Loan Warrant. (1)
10.6 Form of Warrant Agreement with placement agent for Bridge Loan
Offering. (1)
10.7 Form of Subscription Agreement and Investment Representation of
Investor with each of the investors in the July 1996 Offering.
(1)
10.8 Form of July 1996 Warrant Agreement. (1)
10.9 Form of Warrant Agreement with placement agent for July 1996
Offering. (1)
10.10 Agreement, dated January 11, 1996, as amended, with the City of
New York (Department of Information Technology and
Telecommunications). (1)
10.11 Cooperation Agreement with Microsoft Corporation, dated November
7, 1995. (2)
10.12 Agreement with ACORD Corporation dated July 5,1995. (2)
10.13 Form of Investor Warrant. (2)
10.14 Form of Officer Warrant. (2)
10.16 Cyndel Warrant (2)
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP (included in the
their opinion filed as Exhibit 5.1).
24.1 Power of Attorney. (1)
99.1 Consent of Gunther L. Less
- ------------------
(1) Filed with initial filing of Registration Statement.
(2) Filed with Amendment No. 1.
II - 4
<PAGE>
ITEM 28. UNDERTAKINGS.
The Company hereby undertakes to provide to the underwriter at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The Company hereby undertakes that it will:
(1) For determining any liability under the Securities Act of 1933
(the "Act"), treat the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act as part of this registration statement as of the time the
Commission declared it effective;
(2) For determining any liability under the Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and the offering of such securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling persons of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling persons in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II - 5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the Company certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of New
York, State of New York, on October __, 1996.
OBJECTSOFT CORPORATION
BY: /S/ DAVID E. Y. SARNA
---------------------------
DAVID E. Y. SARNA, CHAIRMAN
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ DAVID E. Y. SARNA CHAIRMAN OF THE BOARD OF DIRECTORS AND October 30, 1996
- --------------------------- SECRETARY (CO-PRINCIPAL EXECUTIVE OFFICER
DAVID E. Y. SARNA AND PRINCIPAL FINANCIAL OFFICER)
* PRESIDENT, TREASURER AND DIRECTOR (CO- October __, 1996
- --------------------------- PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL
GEORGE J. FEBISH ACCOUNTING OFFICER)
* DIRECTOR October __, 1996
- ---------------------------
DANIEL E. RYAN
* DIRECTOR October __, 1996
- ---------------------------
JULIUS GOLDFINGER
*BY: /S/ DAVID E.Y. SARNA
-------------------------
DAVID E.Y. SARNA,
ATTORNEY-IN-FACT
</TABLE>
II - 6
OBJECTSOFT CORPORATION
1,250,000 Units
Each Unit Consisting of One Share of Common Stock
and One Redeemable Class A Warrant
UNDERWRITING AGREEMENT
New York, New York
_________ __, 1996
Renaissance Financial Securities Corporation
200 Old Country Road - Suite 400
Mineola, NY 11501
As Representative of the Underwriters
named in Schedule I hereto.
Ladies and Gentlemen:
The undersigned, ObjectSoft Corporation, a Delaware corporation (the
"Company"), hereby confirms its agreement with the underwriters named in
Schedule I hereto (the "Underwriters"), including Renaissance Financial
Securities Corporation (being referred to herein variously as "you" or the
"Representative") and for which you have advised us you have been authorized to
execute this Agreement as Representative, as follows:
1. Purchase and Sale of Securities.
1.1 Firm Securities.
1.1.1 Purchase of Firm Securities. On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to the several
Underwriters, in the respective amounts set forth opposite their names on
Schedule I hereto, and the Underwriters, severally, and not jointly, agree to
purchase, an aggregate of 1,250,000 units (the "Units") consisting of 1,250,000
shares of the Company's Common Stock, par value $.0001 per share ("Common
Stock"), and 1,250,000 Redeemable Class A Warrants ("Warrant(s)") at a purchase
price of $ _____ per Unit (or $ _______ per Unit net of commissions). Each
Warrant shall be exercisable to purchase one share of Common Stock at an initial
exercise price of $7.80 per share commencing on _______________ (one year after
the Effective Date (as defined hereinafter)) and ending on the five-year
anniversary of the Effective Date. The Units shall each be comprised of
<PAGE>
one share of Common Stock and one Warrant and shall be detachable and separately
tradeable immediately upon issuance. The (Units and the shares of Common Stock
and Warrants comprising the Units are referred to herein as the "Firm
Securities").
1.1.2 Payment and Delivery. Delivery and payment for the Firm
Securities shall be made at 10:00 A.M., New York time, on _____________________
, 1996, or at such other time, if any, as permitted under applicable federal and
state securities laws, at the offices of the Representative or at such other
place as shall be agreed upon by the Representative and the Company. The hour
and date of delivery and payment for the Firm Securities are called the "Closing
Date." Payment for the Firm Securities shall be made on the Closing Date at the
Representative's election by certified or bank cashier's check(s) in New York
Clearing House funds, payable to the order of the Company upon delivery to you
of certificates (in form and substance satisfactory to the Representative)
representing the Firm Securities for the respective accounts of the several
Underwriters. The Firm Securities shall be registered in such name or names and
in such authorized denominations as the Representative may request in writing at
least two full business days prior to the Closing Date. The Company will permit
the Representative to examine and package the Firm Securities for delivery at
least one full business day prior to the Closing Date. The Company shall not be
obligated to sell or deliver the Firm Securities except upon tender of payment
by the Underwriters for all the Firm Securities.
1.2 Over-Allotment Option.
1.2.1 Option Securities. For the purposes only of covering any
over-allotments in connection with the distribution and sale of the Firm
Securities, the Representative is hereby granted an option to purchase up to an
additional 187,500 Units (and the shares of Common Stock and Warrants comprising
such Units) from the Company ("Over-allotment Option"). Such additional Units
(and the shares of Common Stock and Warrants comprising such Units) are
hereinafter referred to as the "Option Securities." The purchase price to be
paid for the Option Securities will be the same price per Option Security as the
price per Firm Security set forth in Section 1.1.1 hereof. The Firm Securities
and the Option Securities are, together with the shares of Common Stock issuable
upon exercise of the Warrants, hereinafter referred to collectively as the
"Public Securities."
1.2.2 Exercise of Option. The Over-allotment Option granted
pursuant to Section 1.2.1 hereof may be exercised by the Representative as to
all or any part of the Option Securities (but only in the form of Units) at any
time, from time to time, within forty-five days after the effective date of the
Registration Statement ("Effective Date"). The Representative will not be under
any obligation to purchase any Option Securities prior to the exercise of the
Over-allotment Option. The Over-allotment Option granted hereby may be exercised
by the giving of oral notice to the Company from the Representative, which must
be confirmed by a letter or telecopy setting forth the number of Option
Securities to be purchased, the date and time for delivery of and payment for
the Option Securities and stating that the Option Securities referred to therein
are to be used only for the purpose of covering over-allotments in connection
with the distribution and sale of the Firm Securities. If such notice is given
at least two full business days prior to the Closing Date, the date set forth
therein for such delivery and payment will be the Closing Date. If such notice
is given thereafter, the date
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set forth therein for such delivery and payment will not be earlier than five
full business days after the date of the notice. If such delivery and payment
for the Option Securities does not occur on the Closing Date, the date and time
of the closing for such Option Securities will be as set forth in the notice
(hereinafter the "Option Closing Date"). Upon exercise of the Over-allotment
Option, the Company will become obligated to convey to the Representative, and,
subject to the terms and conditions set forth herein, the Representative will
become obligated to purchase, the number of Option Securities specified in such
notice.
1.2.3 Payment and Delivery. Payment for the Option Securities
will be at the Representative's election by certified or bank cashier's check(s)
in New York Clearing House funds, payable to the order of the Company at the
offices of the Representative or at such other place as shall be agreed upon by
the Representative and the Company upon delivery to you of certificates
representing such securities for the account of the Representative. The
certificates representing the Option Securities to be delivered will be in such
denominations and registered in such names as the Representative requests not
less than two full business days prior to the Closing Date or the Option Closing
Date, as the case may be, and will be made available to the Representative for
inspection, checking and packaging at the aforesaid office of the Company's
transfer agent or correspondent not less than one full business day prior to
such Closing Date.
1.3 Representative's Purchase Option.
1.3.1 Purchase Option. The Company hereby agrees to issue and
sell to the Representative (and/or its designees) on the Closing Date, in
exchange for a check in the amount of $100, an option ("Representative's
Purchase Option") at an initial exercise price of $ _______ per Unit
("Representative's Units") at an initial exercise price of $ _____ per
Representative's Unit. The Representative's Purchase Option is exercisable for a
four-year period commencing on the one-year anniversary of the Effective Date.
The Representative's Purchase Option, the Representative's Units, the shares of
Common Stock (the "Representative's Shares") and the Warrants (the
"Representative's Warrants") constituting the Representative's Units and the
shares of Common Stock issuable upon exercise of the Representative's Warrants
are hereinafter referred to collectively as the "Representative's Securities."
The Public Securities and the Representative's Securities are hereinafter
referred to collectively as the "Securities."
1.3.2 Payment and Delivery. Delivery and payment for the
Representative's Purchase Option in the names and denominations designated by
the Representative shall be made on the Closing Date.
2. Representations and Warranties of the Company. The Company represents
and warrants to the Representative as follows:
2.1 Filing of Registration Statement.
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2.1.1 Pursuant to the Act. The Company has filed with the
Securities and Exchange Commission ("Commission") a registration statement and
an amendment or amendments thereto, on Form SB-2 (Reg. No. 333-10519), including
any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Public Securities under the Securities Act of 1933 ("Act"),
which registration statement and amendment or amendments have been prepared by
the Company in conformity with the requirements of the Act, and the rules and
regulations ("Regulations") of the Commission under the Act. Except as the
context may otherwise require, such registration statement, as amended, on file
with the Commission at the time the registration statement becomes effective
(including the prospectus, financial statements, schedules, exhibits and all
other documents filed as a part thereof or incorporated therein and all
information deemed to be a part thereof as of such time pursuant to paragraph
(b) of Rule 430A of the Regulations), is hereinafter called the "Registration
Statement," and the form of the final prospectus dated the Effective Date (or,
if applicable, the form of final prospectus filed with the Commission pursuant
to Rule 424(b) or Rule 430A of the Regulations), is hereinafter called the
"Prospectus."
2.1.2 Pursuant to the Exchange Act. The Company has filed with
the Commission a registration statement on Form 8-A (File No. 000-21565)
providing for the registration under the Securities Exchange Act of 1934
("Exchange Act"), of the Public Securities.
2.2 No Stop Orders, Etc. Neither the Commission nor, to the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the Company's knowledge, threatened to institute any proceedings with
respect to such an order.
2.3 Disclosures in Registration Statement. At the time the
Registration Statement became effective and at all times subsequent thereto up
to the Closing Date:
2.3.1 Securities Act Representation and 10b-5 Representation:
The Registration Statement and the Prospectus will contain, with respect to the
Company, all material statements which are required to be stated therein in
accordance with the Act and the Regulations, and will in all material respects
conform to the requirements of the Act and the Regulations. Neither the
Registration Statement, nor any amendment or supplement thereto, on the
Effective Date, contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading and that on the Closing Date, the Prospectus
and any amendment or supplement thereto will not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. When any Preliminary Prospectus was first filed with the
Commission (whether filed as part of the Registration Statement for the
registration of the Securities or any amendment thereto or pursuant to Rule
424(a) of the Regulations) and when any amendment thereof or supplement thereto
was first filed with the Commission, such Preliminary Prospectus and any
amendments thereof and supplements thereto, at the time such filing was made,
complied in all material respects with the applicable provisions of the Act and
the Regulations. The representation and warranty made in this Section 2.3.1 does
not apply
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to statements made or statements omitted in reliance upon and in conformity with
written information furnished to the Company by the Underwriters expressly for
use in the Registration Statement or Prospectus or any amendment thereof or
supplement thereto ("Underwriters' Information").
2.3.2 Disclosure of Contracts. The description in the
Registration Statement and the Prospectus of contracts and other documents is
accurate and presents fairly the information required to be disclosed and there
are no contracts or other documents required to be described in the Registration
Statement or the Prospectus or to be filed with the Commission as exhibits to
the Registration Statement which have not been so described or filed. Except as
otherwise disclosed in the Prospectus, each contract or other instrument
(however characterized or described) to which the Company is a party or by which
its property or business is or may be bound or affected and (i) which is
referred to in the Prospectus, or (ii) is material to the business of the
Company has been duly and validly executed, is in full force and effect in all
material respects and is enforceable in accordance with its terms, except (i) as
such enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (ii) as enforceability of
any indemnification provision may be limited under federal and state laws, and
(iii) that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to the equitable defenses and to the discretion
of the court before which any proceeding therefor may be sought. None of such
contracts or instruments has been assigned by the Company and the Company, to
the best of its knowledge, is not in default thereunder and, to the Company's
knowledge, no event has occurred which, with the lapse of time or the giving of
notice, or both, would constitute a default thereunder (except as otherwise
disclosed in the Prospectus). None of the material provisions of such contracts
or instruments violates or will result in a violation of any existing applicable
law, rule, regulation, judgment, order or decree of any governmental agency or
court having jurisdiction over the Company, or any of its respective assets,
including, without limitation, those relating to environmental laws and
regulations, except where such violation will not have a Material Adverse
Effect. For purposes of this Agreement "Material Adverse Effect" shall be
defined as a material adverse effect on the business, properties or financial
condition of the Company.
2.3.3 Prior Securities Transactions. No securities of the
Company have been sold by the Company or by or on behalf of, or for the benefit
of, any person or persons controlling, controlled by, or under common control
with the Company within the three years prior to the date hereof, except as
disclosed in the Registration Statement and except as to 40,000 shares
transferred by David E. Y. Sarna in private transactions.
2.4 Changes After Dates in Registration Statement.
2.4.1 No Material Adverse Change. At the time the Registration
Statement becomes effective and at all times subsequent thereto, up to the
Closing Date, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise specifically
stated therein, (i) there has been no material adverse change in the condition,
financial or otherwise, or in the results of operation, business or business
prospects of the Company ("Material Adverse Change"), including, but not limited
to, a material loss or interference with its business from
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fire, storm, explosion, flood or other casualty, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, whether or not arising in the ordinary course of business, and (ii)
there have been no transactions entered into by the Company, other than those in
the ordinary course of business, which are material with respect to the
condition, financial or otherwise, or the results of its operations, business or
business prospects.
2.4.2 Recent Securities Transactions, Etc. Subsequent to the
respective dates as of which information given in the Registration Statement and
the Prospectus, and except as may otherwise be indicated or contemplated herein
or therein, the Company has not (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money; or (iii)
declared or paid any dividend or made any other distribution on or in respect to
its capital stock.
2.5 Independent Accountants. Richard A. Eisner & Company LLP, whose
reports are filed with the Commission as part of the Registration Statement, are
independent accountants as required by the Act and the Regulations.
2.6 Financial Statements. The financial statements, including the
notes thereto and supporting schedules included in the Registration Statement
and Prospectus, fairly present the financial position and the results of
operations of the Company at the dates and for the periods to which they apply;
and such financial statements have been prepared in conformity with generally
accepted accounting principles, consistently applied throughout the periods
involved except that unaudited interim financial statements are subject to year
end adjustments and may be without notes; and the supporting schedules, if any,
included in the Registration Statement present fairly the information required
to be stated therein.
2.7 Authorized Capital; Options; Etc. The Company had at the date or
dates indicated in the Prospectus duly authorized, issued and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
Based on the assumptions stated in the Registration Statement and the
Prospectus, the Company will have on the Closing Date the adjusted stock
capitalization set forth therein. Except as set forth in the Registration
Statement and the Prospectus, on the Effective Date there are, and on the
Closing Date there will be, no options, warrants, or other rights to purchase or
otherwise acquire any authorized but unissued shares of Common Stock of the
Company or any security convertible into shares of Common Stock of the Company,
or any contracts or commitments to issue or sell shares of Common Stock or any
such options, warrants, rights or convertible securities.
2.8 Valid Issuance of Securities; Etc.
2.8.1 Outstanding Securities. All issued and outstanding
securities of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; the holders thereof have no rights of rescission
with respect thereto; and none of such securities were issued in violation of
the preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company. The outstanding options and warrants
to purchase shares of Common
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Stock constitute the valid and binding obligations of the Company, enforceable
in accordance with their terms, except (i) as such enforceability may be limited
by bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (ii) as enforceability of any indemnification provision may be
limited under federal and state laws, and (iii) that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
the equitable defenses and to the discretion of the court before which any
proceeding therefor may be sought. The authorized Common Stock and outstanding
options and warrants to purchase shares of Common Stock conform in all material
respects to all statements relating thereto contained in the Registration
Statement and the Prospectus. The offers and sales of the outstanding Common
Stock, options and warrants to purchase shares of Common Stock were at all
relevant times either registered under the Act and registered or qualified under
the applicable state securities or Blue Sky Laws or exempt from such
registration requirements.
2.8.2 Securities Sold Pursuant to this Agreement. The Securities
have been duly authorized and, when issued and paid for, will be validly issued,
fully paid and non-assessable; the Securities are not and will not be subject to
the preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company; and all corporate actions required to
be taken for the authorization, issuance and sale of the Securities have been
duly and validly taken. When issued, the Representative's Purchase Option, the
Representative's Warrants and the Warrants will constitute valid and binding
obligations of the Company to issue and sell, upon exercise thereof and payment
therefor, the number and type of securities of the Company called for thereby
and the Representative's Purchase Option, the Representative's Warrants and the
Warrants are enforceable against the Company in accordance with their respective
terms, except (i) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (ii) as enforceability of any indemnification provision may be
limited under federal and state laws, and (iii) that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
the equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
2.8.3 Series A Preferred Stock. All outstanding shares of the
Company's Series A Preferred Stock will be redeemed at $1.00 per share plus all
accumulated dividends accrued but unpaid on the consummation of the sale of the
Firm Securities and, upon such redemption, such holders of the Series A
Preferred Stock shall have no rights with respect to the Company, and the
Company shall have no obligations to such holders.
2.8.4 Series B Preferred Stock. All outstanding shares of the
Company's Series B Preferred Stock were redeemed by the Company in July 1996,
and the prior holders of the Series B Preferred Stock have no further rights
with respect to the Company and the Company has no obligations to such holders.
2.9 Registration Rights of Third Parties. Except as set forth in the
Prospectus, no holders of any securities of the Company or of any options or
warrants of the Company exercisable for or convertible or exchangeable into
securities of the Company have the right to require the Company
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to register any such securities of the Company under the Act or to include any
such securities in a registration statement to be filed by the Company.
2.10 Validity and Binding Effect of Agreements. This Agreement, the
employment agreements with each of David E. Y. Sarna ("Sarna") and George Febish
("Febish") ("Employment Agreements"), the Representative's Purchase Option and
the Warrant Agreement (as hereinafter defined) have been duly and validly
authorized by the Company and constitute, or when executed and delivered will
constitute, the valid and binding agreements of each of the Company, Sarna and
Febish, as the case may be, enforceable against each of them in accordance with
their respective terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (ii) as enforceability of any indemnification provision may be
limited under the federal and state securities laws, (iii) that the provisions
of confidentiality and non-competition provisions of agreements may be deemed to
violate public policy or be otherwise not enforceable in whole or in part, and
(iv) that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to the equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
2.11 No Conflicts, Etc. The execution, delivery, and performance by
the Company of this Agreement, the consummation by the Company of the
transactions herein contemplated and the compliance by the Company with the
terms hereof do not and will not, with or without the giving of notice or the
lapse of time or both, (i) result in a breach of, or conflict with any of the
terms and provisions of, or constitute a default under, or result in the
creation, modification, termination or imposition of any lien, charge or
encumbrance upon any of its property or assets pursuant to the terms of any
indenture, mortgage, deed of trust, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which it is a party or by which it may be bound
or to which any of its property or assets is subject; (ii) result in any
violation of the provisions of its Certificate of Incorporation or By-Laws;
(iii) violate any existing applicable law, rule, regulation, judgment, order or
decree of any governmental agency or court, domestic or foreign, having
jurisdiction over it or its operations or any of its properties or business; or
(iv) have a Material Adverse Effect on any permit, license, certificate,
registration, approval, consent, license or franchise concerning it or its
operations; except in the case of (i) or (iii), where such default, breach,
violation or effect, either singly or in the aggregate, would not have a
Material Adverse Effect.
2.12 No Defaults; Violations. Except as described in the Prospectus,
no default exists in the due performance and observance of any term, covenant or
condition of any material license, contract, indenture, mortgage, deed of trust,
note, loan or credit agreement, or any other agreement or instrument evidencing
an obligation for borrowed money, or any other material agreement or instrument
to which the Company, or any of its subsidiaries, if any, is a party or by which
the Company may be bound or to which any of the properties or assets of the
Company is subject, except in each case where such default would not have a
Material Adverse Effect. Neither the Company nor any of its subsidiaries, if
any, is in violation of any term or provision of its Certificate of
Incorporation or By-Laws or in violation of any franchise, license, permit,
applicable law, rule, regulation, judgment
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or decree of any governmental agency or court, domestic or foreign, having
jurisdiction over it or its operations, properties or business, except as
described in the Prospectus and except where such violation would not have a
Material Adverse Effect.
2.13 Corporate Power; Licenses; Consents.
2.13.1 Conduct of Business. The Company has all requisite
corporate power and authority, and has all necessary authorizations, approvals,
orders, licenses, certificates and permits of and from all governmental
regulatory officials and bodies to own or lease its properties and conduct its
business as described in the Prospectus, and is and has been doing business in
compliance with all such material authorizations, approvals, orders, licenses,
certificates and permits and all federal, state and local laws, rules and
regulations, except where the failure to have such authorizations, approvals,
orders, licenses, certificates or permits to conduct its business in accordance
therewith would not have a Material Adverse Effect.
2.13.2 Transactions Contemplated Herein. The Company has all
corporate power and authority to enter into this Agreement and to carry out the
provisions and conditions hereof, and all consents, authorizations, approvals
and orders required in connection therewith have been obtained. No consent,
authorization or order of, and no filing with, any court, government agency or
other body is required for the valid issuance, sale and delivery of the
Securities pursuant to this Agreement, the Warrant Agreement and the
Representative's Purchase Option, and as contemplated by the Prospectus, except
with respect to applicable federal and state securities laws.
2.14 Title to Property; Insurance. Subject to the qualifications set
forth in the Prospectus, the Company has good and marketable title to, or valid
and enforceable leasehold estates in, all items of real and personal property
(tangible and intangible) owned or lease by it, free and clear of all liens,
encumbrances, claims, security interests, defects and restrictions of any
material nature whatsoever, other than those referred to in the Prospectus,
liens for taxes not yet due and payable and liens of an immaterial nature
arising by operation of law. The Company has insured its properties against loss
or damage by fire, other casualty and other insurance in amounts and on terms as
is usually maintained by similarly situated companies engaged in the same or
similar business.
2.15 Litigation; Governmental Proceedings. Except as set forth in the
Prospectus, there is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding pending or, to the
Company's knowledge, threatened against, or involving the properties or business
of the Company which if determined adversely to the Company, might have a
Material Adverse Effect or which question the validity of the capital stock of
the Company or this Agreement or of any action taken or to be taken by the
Company pursuant to, or in connection with, this Agreement. There are no
outstanding orders, judgments or decrees of any court, governmental agency or
other tribunal naming the Company and enjoining the Company from taking, or
requiring the Company, to take, any action, or to which the Company, or its
respective properties or business, is bound or subject.
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2.16 Good Standing. The Company has been duly organized and is
validly existing as a corporation and is in good standing under the laws of its
state of incorporation. The Company is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which ownership or
leasing of any properties or the character of its operations requires such
qualification or licensing, except where the failure to qualify would not have a
Material Adverse Effect.
2.17 Taxes. The Company has filed all returns (as hereinafter
defined) required to be filed with taxing authorities prior to the date hereof
or has duly obtained extensions of time for the filing thereof. The Company has
paid all taxes (as hereinafter defined) shown as due on such returns that were
filed and has paid all taxes imposed on or assessed against it, except where the
failure to so pay would not have a Material Adverse Effect. The provisions for
taxes payable, if any, shown on the financial statements filed with or as part
of the Registration Statement are sufficient for all accrued and unpaid taxes,
whether or not disputed, and for all periods to and including the dates of such
financial statements. Except as disclosed in writing to the Underwriters, (i) no
issues have been raised (and are currently pending) by any taxing authority in
connection with any of the returns or taxes asserted as due from the Company,
and (ii) no waivers of statutes of limitation with respect to the returns or
collection of taxes have been given by or requested from the Company. The term
"taxes" mean all federal, state, local, foreign, and other net income, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, lease, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, windfall profits, customs,
duties or other taxes, fees, assessments, or charges of any kind whatever,
together with any interest and any penalties, additions to tax, or additional
amounts with respect thereto. The term "returns" means all returns,
declarations, reports, statements, and other documents required to be filed in
respect of taxes.
2.18 Employee Options. Except as disclosed in the Prospectus, no
shares of Common Stock are eligible for sale pursuant to Rule 701 promulgated
under the Act in the 12-month period following the Effective Date.
2.19 Transactions Affecting Disclosure to NASD. Except as disclosed
in the letters from Stursberg & Veith to the NASD (as defined below), dated
_____________________ and ______________________ (copies of which have been
provided to and reviewed by the Company):
2.19.1 Finder's Fees. Except as disclosed in the Prospectus, the
Company has not entered into any agreements, nor made any payments for, nor is
aware of any claims for, arrangements or understandings for, services in the
nature of a finder's or origination fee with respect to the sale of the
Securities hereunder.
2.19.2 Payments Within Twelve Months. Except as set forth in the
Registration Statement, the Company has not made any direct or indirect payments
(in cash, securities or otherwise) to (i) any person, as a finder's fee,
investing fee or otherwise, in consideration of such person raising capital for
the Company or introducing to the Company persons who provided capital to the
Company, (ii) to any member of the National Association of Securities Dealers,
Inc. ("NASD"),
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or (iii) to any person or entity that has any direct or indirect affiliation or
association with any NASD member, within the twelve month period prior to the
date on which the Registration Statement was filed with the Commission ("Filing
Date") or thereafter, other than payments to the Representative.
2.19.3 Use of Proceeds. None of the net proceeds of the offering
will be paid by the Company to any NASD member or any affiliate or associate of
any NASD member, except as set forth in the Prospectus or as specifically
authorized herein.
2.19.4 Insiders' NASD Affiliation. Except as set forth in the
Prospectus, no officer or director of the Company or owner of five (5%) percent
or more of any of the Company's Common Stock has any direct or indirect
affiliation or association with any NASD member. The Company will advise the
Representative and the NASD if the Company becomes aware that any 5% or greater
stockholder of the Company is or becomes an affiliate or associated person of an
NASD member participating in the distribution.
2.20 Foreign Corrupt Practices Act. Neither the Company nor, to the
best of the Company's knowledge, any of its officers, directors, employees,
agents or any other person acting on behalf of the Company has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, or official
or employee of any governmental agency or instrumentality of any government
(domestic or foreign) or any political party or candidate for office (domestic
or foreign) or other person who was, is, or may be in a position to help or
hinder the business of the Company (or assist it in connection with any actual
or proposed transaction) which (i) might subject the Company to any damage or
penalty in any civil, criminal or governmental litigation or proceeding, (ii) if
not given in the past, might have had a Materially Adverse Effect on the assets,
business or operations of the Company as reflected in any of the financial
statements contained in the Prospectus or (iii) if not continued in the future,
might have a Material Adverse Effect on the assets, business, operations or
prospects of the Company. The Company's internal accounting controls and
procedures are sufficient to cause the Company to comply with the Foreign
Corrupt Practices Act of 1977, as amended.
2.21 Nasdaq Eligibility. As of the Effective Date, the Public
Securities have been approved for quotation on the Nasdaq SmallCap Market.
2.22 Intangibles. Subject to the qualifications set forth in the
Prospectus, the Company owns or possesses the requisite licenses or rights to
use all trademarks, service marks, service names, trade names, patents and
patent applications, copyrights and other rights (collectively, "Intangibles")
described as being licensed to or owned by it in the Registration Statement. The
Intangibles which have been registered by the Company, if any, in the United
States Patent and Trademark Office have been fully maintained and are in full
force and effect. There is no claim or action by any person pertaining to, or
proceeding pending or to the best knowledge of the Company, threatened and the
Company has not received any notice of conflict with the asserted rights of
others which challenges its rights as described in the Prospectus with respect
to any Intangibles used in the conduct of its
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business except as described in the Prospectus. The Company has not received
notice of any claim that the Intangibles and the Company's current products,
services and processes infringe on any intangibles held by any third party. To
the Company's knowledge, no others have infringed upon the Intangibles of the
Company.
2.23 Relations with Employees.
2.23.1 Employee Matters. The Company is in compliance in all
material respects with all federal, state and local laws and regulations
respecting the employment of its employees and employment practices, terms and
conditions of employment and wages and hours relating thereto, except where the
failure to so comply would not have a Material Adverse Effect. There are no
pending investigations involving the Company by the U.S. Department of Labor or
any other governmental agency responsible for the enforcement of such federal,
state or local laws and regulations. There is no unfair labor practice charge or
complaint against the Company pending before the National Labor Relations Board
or any strike, picketing, boycott, dispute, slowdown or stoppage pending or,
threatened against or involving the Company or any predecessor entity, and none
has ever occurred. No question concerning representation exists respecting the
employees of the Company and no collective bargaining agreement or modification
thereof is currently being negotiated by the Company. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements, if any, of the Company.
2.23.2 Employee Benefit Plans. Other than as set forth in the
Registration Statement, the Company does not maintain, sponsor or contribute to,
or is it required to contribute to, any program or arrangement that is an
"employee" pension benefit plan," an "employee welfare benefit plan," or a
"multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company has not, at any time, maintained
or contributed to a defined benefit plan, as defined in Section 3(35) of ERISA.
If the Company does maintain or contribute to a defined benefit plan, any
termination of the plan on the date hereof would not give rise to liability
under Title IV of ERISA. No ERISA Plan (or any trust created thereunder) has
engaged in a "prohibited transaction" within the meaning of Section 406 of ERISA
or Section 4975 of the Internal Revenue Code of 1986, as amended ("Code"), which
could subject the Company to any tax penalty for prohibited transactions and
which has not adequately been corrected. Any ERISA Plan is in compliance with
all material reporting, disclosure and other requirements of the Code and ERISA
as they relate to any such ERISA Plan. Determination letters have been received
from the Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multi-employer plan."
2.24 Officers' Certificate. Any certificate signed by any duly
authorized officer of the Company and delivered to you or to counsel for the
Underwriters shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
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2.25 Warrant Agreement. At the Closing (as hereinafter defined) the
Company will enter into a warrant agreement with respect to the Warrants and the
Representative's Warrants substantially in the form filed as an exhibit to the
Registration Statement ("Warrant Agreement") with Continental Stock Transfer &
Trust Company, in form and substance satisfactory to the Representative,
providing for, among other things, no redemption of the Warrants without the
giving of prior written notice to the Representative and in accordance with the
Warrant Agreement for the payment of a warrant solicitation fee, if applicable,
as contemplated by Section 3.10 hereof.
2.26 Agreements With Insiders and Others. The Company has caused to
be duly executed lock-up agreements, in substantially the form presented to the
Representative, pursuant to which (i) Messrs. Sarna and Febish agree not to sell
any securities of the Company for eighteen (18) months following the Effective
Date without the prior written consent, (ii) certain persons, as described in
the Prospectus, who beneficially own or hold the outstanding Common Stock or
Warrants or options to purchase Common Stock of the Company agree not to sell
any securities of the Company owned by them (either pursuant to Rule 144 of the
Regulations or otherwise) for a period of nine (9) months following the
Effective Date except with the consent of the Representative and (iii) certain
persons who beneficially own or hold warrants to purchase shares of Common Stock
and/or shares of Common Stock purchased from the Company in the Bridge Offering
or the July 1996 Offering, as defined in the Prospectus agree not to sell any
Warrants or shares of Common Stock owned by them (either pursuant to Rule 144 of
the Regulations or otherwise) for a period of twelve (12) months following the
Effective Date except with the consent of the Representative.
2.27 Employment Agreements. The Company has entered into an
Employment Agreement with each of Messrs. Sarna and Febish in substantially the
same form as set forth as exhibits to the Registration Statement, for a term
commencing on July 1, 1996 and ending on December 31, 2001.
2.28 Representative's Purchase Option. At the Closing, the Company
will execute and deliver the Representative's Purchase Option to the
Representative substantially in the form filed as an exhibit to the Registration
Statement.
3. Covenants of the Company. The Company covenants and agrees as follows:
3.1 Amendments to Registration Statement. The Company will deliver
to the Representative, prior to filing, any amendment or supplement to the
Registration Statement or Prospectus proposed to be filed after the Effective
Date and not file any such amendment or supplement to which the Representative
shall reasonably object.
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3.2 Federal Securities Laws.
3.2.1 Compliance. During the time when (i) a Prospectus is
required to be delivered under the Act so far as necessary to permit the
continuance of sales or of dealings in the Public Securities; and (ii) a
prospectus (a "Warrant Exercise Prospectus") is required to be delivered under
the Act so far as necessary to permit the exercise of the Warrants,
Representative's Warrants and the Representative's Purchase Option; the Company
will use all reasonable efforts to comply with all requirements imposed upon it
by the Act, the Regulations and the Exchange Act and by the regulations under
the Exchange Act, as from time to time in force, in accordance with the
provisions hereof and as set forth in the Prospectus. If at any time when a
Prospectus or a Warrant Exercise Prospectus relating to the Public Securities or
the Representative's Securities is required to be delivered under the Act and,
any event shall have occurred as a result of which, in the opinion of counsel
for the Company or counsel for the Underwriters, such Prospectus, as then
amended or supplemented, includes an untrue statement of material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Representative promptly and
prepare and file with the Commission, subject to Section 3.1 hereof, an
appropriate amendment or supplement in accordance with Section 10 of the Act.
3.2.2 Filing of Final Prospectus. The Company will comply with
the requirements of Rule 424(b) or Rule 430A of the Regulations, as the case may
be, with respect to filing the Prospectus with the Commission.
3.2.3 Exchange Act Registration. For a period of five years from
the Effective Date, the Company will use its best efforts to maintain the
registration of the Common Stock and the Warrants under the provisions of the
Exchange Act.
3.3 Blue Sky Filing. The Company will endeavor in good faith, in
cooperation with the Representative, at or prior to the time the Registration
Statement becomes effective to qualify the Public Securities for offering and
sale under the securities laws of such jurisdictions as the Representative may
reasonably designate, provided that no such qualification shall be required in
any jurisdiction where, as a result thereof, the Company would be subject to
service of general process or to taxation as a foreign corporation doing
business in such jurisdiction. In each jurisdiction where such qualification
shall be effected, the Company will, unless the Representative agrees that such
action is not at the time necessary or advisable, use all reasonable efforts to
file and make such statements or report at such times as are or may be required
by the laws of such jurisdiction.
3.4 Delivery to Underwriters of Prospectuses. The Company will
deliver such number of (i) Prospectuses to the Underwriters and (ii) Warrant
Exercise Prospectuses to the Warrantholders as needed, without charge, from time
to time during the period when such prospectuses are required to be delivered
under the Act. Additionally, the Company will deliver, as soon as the
Registration Statement or any amendment or supplement thereto becomes effective,
two conformed Registration
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Statements, including exhibits, and all post-effective amendments thereto and
copies of all exhibits filed therewith or incorporated therein by reference.
3.5 Events Requiring Notice to Underwriters. The Company will notify
the Representative immediately and confirm the notice in writing (i) filing of
any post-effective amendment to the Registration Statement, (ii) of the issuance
by the Commission of any stop order or of the initiation, or the threatening, of
any proceeding for that purpose, (iii) of the issuance by any state securities
commission of any proceedings for the suspension of the qualification of the
Public Securities for offering of sale in any jurisdiction or of the initiation,
or the threatening, of any proceeding for that purpose, (iv) of the mailing and
delivery to the Commission for filing of any amendment or supplement to the
Registration Statement or Prospectus, (v) of the receipt of any comments or
request for any additional information from the Commission, and (vi) of the
happening of any event during the period described in Section 3.4 hereof which,
in the judgment of the Company, makes any statement of a material fact made in
the Registration Statement or the Prospectus untrue or which requires the making
of any changes in the Prospectus in order to make the statements therein, in
light of the circumstances under which they were made, not misleading or which
requires the making of any changes in the Registration Statement in order to
make the statements therein not misleading. If the Commission or any state
securities commission shall enter a stop order or suspend such qualification at
any time, the Company will make every reasonable effort to obtain promptly the
lifting of such order.
3.6 Review of Financial Statements. For a period of five years from
the Effective Date (provided that during such period the Securities of the
Company are registered under Section 12 of the Exchange Act), the Company, at
its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three fiscal quarters prior to the announcement of quarterly
financial information, the filing of the Company's Form 10-Q quarterly report
and the mailing of quarterly financial information to stockholders.
3.7 Unaudited Financials. The Company will furnish to the
Representative as early as practicable subsequent to the date hereof and at
least two full business days prior to the Closing Date, a copy of the latest
available unaudited interim financial information of the Company (which in no
event shall be as of a date more than sixty days prior to the Effective Date)
which have been read by the Company's independent accountants, as stated in
their letter to be furnished pursuant to Section 4.3 hereof.
3.8 Secondary Market Trading and Standard & Poor's. The Company will
take all necessary and appropriate actions to achieve accelerated publication in
Standard and Poor's Corporation Records Corporate Descriptions (as soon as
practicable after the Effective Date) and to maintain such publication with
updated quarterly information for a period of five years from the Effective
Date, including the payment of any necessary fees and expenses. The Company
shall take such action as may be reasonably requested by the Representative to
obtain a secondary market
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trading exemption in such States as may be requested by the Representative,
including the payment of any necessary fees and expenses.
3.9 Nasdaq Maintenance. For a period of five years from the date
hereof, the Company will use its best efforts to maintain the quotation by the
Nasdaq SmallCap Market of the Common Stock and, if outstanding, the Warrants.
3.10 Warrant Solicitation and Registration of Common Stock Underlying
the Warrants.
3.10.1 Warrant Solicitation Fees. The Company hereby engages the
Representative on a non-exclusive basis, as its agent for the solicitation of
the exercise of the Warrants and the additional warrants being concurrently
registered under the Registration Statement. The Company, at its cost, will (i)
assist the Representative with respect to such solicitation, if requested by the
Representative and will (ii) provide the Representative, and direct the
Company's transfer and warrant agent to provide to the Representative, lists of
the record and, to the extent known, beneficial owners of the Warrants.
Commencing one year from the Effective Date, the Company will pay the
Representative a commission of five percent of the Warrant exercise price for
each Warrant exercised, payable on the date of such exercise, on the terms
provided for in the Warrant Agreement, if allowed under the rules and
regulations of the NASD and only if the Representative has provided bona fide
services to the Company in connection with the exercise of such Warrant. In
addition to soliciting, either orally or in writing, the exercise of Warrants,
such services may also include disseminating information, either orally or in
writing, to the Warrantholders about the Company or the market for the Company's
securities, and assisting in the processing of the exercise of Warrants. The
Representative may engage sub-agents in its solicitation efforts. The Company
will disclose the arrangement to pay such solicitation fees to the
Representative in the Warrant Exercise Prospectus.
3.11 [Reserved]
3.12 Reports to the Representative.
3.12.1 Periodic Reports, Etc. For a period of five years from
the Effective Date, the Company will furnish to the Representative copies of
such financial statements and other periodic and special reports as the Company
from time to time furnishes generally to holders of any class of its securities,
and promptly furnish to the Representative (i) a copy of each periodic report
the Company shall be required to file with the Commission, (ii) a copy of every
press release released by the Company, (iii) copies of each Form SR, (iv) a copy
of each Form 8-K or Schedules 13D, 13G, 14D-1 or 13E-4 received or prepared by
the Company, and (v) such additional documents and information with respect to
the Company and the affairs of any future subsidiaries of the Company as the
Representative may from time to time reasonably request.
3.12.2 Transfer Sheets and Weekly Position Listings. For a
period of five years from the Closing Date, the Company will furnish to the
Representative at the Company's sole expense such transfer sheets and position
listings of the Company's securities as the Representative may request,
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including the daily, weekly and monthly consolidated transfer sheets of the
transfer agent of the Company and the weekly security position listings of the
Depository Trust Co.
3.13 [Reserved]
3.14 Application of Net Proceeds. The Company will apply the net
proceeds from the offering received by it in a manner consistent with the
application described under the caption "USE OF PROCEEDS" in the Prospectus.
3.15 Payment of Expenses.
3.15.1 General Expenses. The Company hereby agrees to pay all
expenses incident to the performance of the obligations of the Company under
this Agreement, including but not limited to (i) the preparation, printing,
filing, delivery and mailing (including the payment of postage with respect to
such mailing) of the Registration Statement, the Prospectus and the Preliminary
Prospectuses and the printing and mailing of this Agreement and related
documents, including the cost of all copies thereof and any amendments thereof
or supplements thereto supplied to the Representative in quantities as may be
required by the Representative, (ii) the printing, engraving, issuance and
delivery of the shares of Common Stock, the Warrants and the Representative's
Purchase Option, including any transfer or other taxes payable thereon, (iii)
the qualification of the Public Securities and under state or foreign securities
or Blue Sky laws, including the filing fees under such Blue Sky laws, the costs
of printing and mailing the "Preliminary Blue Sky Memorandum," and all
amendments and supplements thereto, fees of Representative's Blue Sky counsel,
which fees shall not exceed an aggregate of $15,000 for ten states, $1,500 for
each additional state and a total of not more than $40,000, and disbursements of
such counsel, and fees and disbursements of local counsel, if any, retained for
such purpose and approved by the Company, and a one-time fee of $2,500 payable
to the Representative's counsel for the preparation of the Secondary Market
Trading Survey, (iv) costs associated with applications for assignments of a
rating of the Public Securities by qualified rating agencies, (v) filing fees,
costs and expenses (including fees and disbursements for the Representative's
counsel) incurred in registering the offering with the NASD, (vi) costs not to
exceed, in the aggregate, $10,000 for placing "tombstone" advertisements in The
Wall Street Journal, The New York Times and a third publication which may be
selected by the Representative and transaction lucite cubes or similar
commemorative items in a style and quantity as reasonably requested by the
Representative, (vii) fees and disbursements of the transfer and warrant agent,
(viii) the Company's expenses associated with "due diligence" meetings arranged
by the Representative, (ix) the preparation, binding and delivery of four sets
of transactions "bibles," in form and style satisfactory to the Representative,
(x) any listing of the Common Stock and the Warrants on Nasdaq SmallCap Market,
as the case may be, or any listing in Standard & Poor's and (xi) all other costs
and expenses incident to the performance of its obligations hereunder. Since an
important part of the public offering process is for the Company to
appropriately and accurately describe both the background of the principals of
the Company and the Company's competitive position in its industry, the Company
will pay for an investigative search firm of the Representative's choice to
conduct an investigation of principals of the Company mutually selected by the
Representative and the Company (this amount
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will be credited against the Representative's non-accountable expense allowance
if the offering is consummated as provided herein). The Representative may
deduct from the net proceeds of the offering payable to the Company on the
Closing Date, or the Option Closing Date, if any, the expenses set forth herein
to be paid by the Company to the Representative and/or to third parties.
3.15.2 Non-Accountable Expenses. The Company further agrees
that, in addition to the expenses payable pursuant to Section 3.15.1, it will
pay to the Representative a non-accountable expense allowance equal to three
(3%) percent of the gross proceeds received by the Company from the sale of the
Public Securities, of which $50,000 has been paid to date, and the Company will
pay the balance on the Closing Date and any additional monies owed attributable
to the Option Securities or otherwise on the Option Closing Date by certified or
bank cashier's check or, at the election of the Representative, by deduction
from the proceeds of the offering contemplated herein. If the offering
contemplated by this Agreement is not consummated for any reason whatsoever then
the Company's liability for payment to the Representative of the non-accountable
expense allowance shall be equal to the sum of the Representative's actual
out-of-pocket expenses (including, but not limited to, counsel fees, "roadshow"
and due diligence expenses). The Representative shall retain such part of the
non-accountable expense allowance previously paid as shall equal its actual
out-of-pocket expenses, not to exceed $50,000, except in the case of fraud or
willful misconduct on the part of the Company in which event, if the amount
previously paid is insufficient to cover such actual out-of-pocket expenses, the
Company shall remain liable for and promptly pay any other actual out-of-pocket
expenses. If the amount previously paid exceeds the amount of the actual
out-of-pocket expenses, the Representative shall promptly remit to the Company
any such excess.
3.16 [Reserved]
3.17 [Reserved]
3.18 Stabilization. Neither the Company, nor, to its knowledge, any
of its employees, directors or stockholders has taken or will take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result in, under the Exchange Act or
otherwise, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Public Securities.
3.19 Internal Controls. The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in accordance with
management's general or specific authorization, (ii) transactions are recorded
as necessary in order to permit preparation of financial statements in
accordance with generally accepted accounting principles and to maintain
accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
3.20 [Reserved]
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3.21 Transfer Agent. The Company shall retain Continental Stock
Transfer & Trust Company as its transfer agent for the Common Stock and the
Warrants. For a period of one year following the Effective Date, the Company
will not switch transfer agents without the Representative's consent, which
shall not be unreasonably withheld.
3.22 Sale of Securities. To the extent that the Company is legally
permitted to do so, it shall not permit or cause a private or public sale or
private or public offering of any of its securities (in any manner, including
pursuant to Rule 144 under the Act) owned nominally or beneficially by the
officers, directors and shareholders owning beneficially more than one (1%)
percent of the outstanding shares of Common Stock of the Company (the
"Insiders") if such offering or sale would be in violation of the Insider's
"lock-up" agreement with the Representative.
4. Conditions of Underwriters' Obligations. The obligations of the
Underwriters to purchase and pay for the Securities, as provided herein, shall
be subject to the continuing accuracy of the representations and warranties of
the Company as of the date hereof and as of each of the Closing Date and the
Option Closing Date, if any, to the accuracy of the statements of officers of
the Company made pursuant to the provisions hereof and to the performance by the
Company of its obligations hereunder and to the following conditions:
4.1 Regulatory Matters.
4.1.1 Effectiveness of Registration Statement. The Registration
Statement shall have become effective not later than 5:00 P.M., New York time,
on the date of this Agreement (or at such later date or time as to which you may
agree in writing). At each of the Closing Date and the Option Closing Date, no
stop order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for the purpose shall have been instituted or
shall be pending or contemplated by the Commission, and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of Stursberg & Veith, counsel to the Underwriters.
4.1.2 NASD Clearance. By the Closing Date, the Representative
shall have received clearance from the NASD as to the amount of compensation
allowable or payable to the Underwriters as described in the Registration
Statement.
4.1.3 No Blue Sky Stop Orders. No order suspending the sale of
the Securities in any jurisdiction designated by you pursuant to Section 3.3
hereof shall have been issued either on the Closing Date or the Option Closing
Date, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
4.2 Company Counsel Matters.
4.2.1 Opinion of Counsel. On the Closing Date, the Underwriters
shall have received the favorable opinion of Parker Chapin Flattau & Klimpl, LLP
("PCF&K"), counsel to the Company,
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dated the Closing Date, addressed to the Representative, and in form and
substance (consistent with the provisions set forth below) satisfactory to
Stursberg & Veith, counsel to the Underwriters, to the effect that:
(i) The Company has been duly organized and is validly existing
as a corporation and is in good standing under the laws of its state of
incorporation and is duly qualified and licensed and in good standing as a
foreign corporation in each jurisdiction in which it owns or leases any real
property or the character of its operations requires such qualification or
licensing, except where the failure to qualify would not have a Material Adverse
Effect.
(ii) The Company has all requisite corporate power and authority
to own or lease its properties and conduct its business as described in the
Prospectus. The Company has all corporate power and authority to enter into this
Agreement and to carry out the provisions and conditions hereof. To the best of
such counsel's knowledge, no consents, approvals, authorizations or orders of,
and no filing with any court or governmental agency or body (other than such as
may be required under the Act and applicable Blue Sky laws), is required for the
valid authorization, issuance, sale and delivery of the Securities and the
consummation of the transactions and agreements contemplated by this Agreement,
the Warrant Agreement and the Representative's Purchase Option, other than all
such authorizations, approvals, consents, orders, registrations, licenses and
permits which have been duly obtained and are in full force and effect and have
been disclosed to the Underwriters and other than the continuing effectiveness
of the Registration Statement and the delivery of the Prospectus as contemplated
therein.
(iii) All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and non-assessable;
to the best of such counsel's knowledge the holders thereof have no rights of
rescission with respect thereto, except as may have been previously disclosed to
the Representative, and to the best of such counsel's knowledge none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company. The outstanding options and warrants to purchase shares of Common Stock
constitute the valid and binding obligations of the Company, enforceable in
accordance with their terms. The offers and sales of the outstanding Common
Stock and options and warrants to purchase shares of Common Stock were at all
relevant times either registered under the Act or exempt from such registration
requirements. The authorized and outstanding capital stock of the Company is as
set forth under the caption "Capitalization" in the Prospectus.
(iv) The Securities have been duly authorized and, when issued
and paid for, will be validly issued, fully paid and non-assessable. To the best
of such counsel's knowledge, the Securities are not and will not be subject to
the preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company. All corporate action required to be
taken for the authorization, issuance and sale of the Securities has been duly
and validly taken. When issued, the Representative's Purchase Option, the
Representative's Warrants and the Warrants will constitute valid and binding
obligations of the Company to issue and sell, upon exercise thereof
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and payment therefor, the number and type of securities of the Company called
for thereby and such Warrants, the Representative's Purchase Option, and the
Representative's Warrants, when issued, in each case, will be enforceable
against the Company in accordance with their respective terms, except (a) as
such enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (b) as enforceability of any
indemnification provision may be limited under federal and state laws, and (c)
that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to the equitable defenses and to the discretion
of the court before which any proceeding therefore may be brought. The
certificates representing the Securities are in due and proper form.
(v) To such counsel's knowledge, except as set forth in the
Prospectus, no holders of any securities of the Company or of any options,
warrants or securities of the Company exercisable for or convertible or
exchangeable into securities of the Company have the right to require the
Company to register any such securities of the Company under the Act or to
include any such securities in a registration statement to be filed by the
Company.
(vi) To such counsel's knowledge, there is no claim or action by
any person pertaining to, or proceeding, pending threatened, which challenges
the rights of the Company, as described in the Prospectus, with respect to any
Intangibles used in the conduct of its business (including without limitation
any such licenses or rights described in the Prospectus as being owned or
possessed by the Company).
(vii) This Agreement, the Warrant Agreement and the
Representative's Purchase Option have each been duly and validly authorized and,
when executed and delivered by the Company, will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except (a) as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (b) as enforceability of any indemnification provisions may be
limited under the federal and state securities laws, and (c) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(viii) The execution, delivery and performance by the Company of
this Agreement, the Representative's Purchase Option and the Warrant Agreement,
the issuance and sale of the Securities, the consummation of the transactions
contemplated hereby and thereby and the compliance by the Company with the terms
and provisions hereof and thereof, do not and will not, with or without the
giving of notice or the lapse of time, or both, (a) to such counsel's knowledge,
conflict with, or result in a breach of, any of the terms or provisions of, or
constitute a default under, or result in the creation or modification of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of any of the Company pursuant to the terms of, any material mortgage,
deed of trust, note, indenture, loan, contract, commitment or other material
agreement or instrument, to which it is a party or by which it or any of its
properties or assets may be bound, (b) result in any violation of the provisions
of the Company's Certificate of Incorporation or By-Laws,
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(c) to such counsel's knowledge, violate any statute or any material judgment,
order or decree, rule or regulation applicable to the Company of any court,
domestic or foreign, or of any federal, state or other regulatory authority or
other governmental body having jurisdiction over any of the Company's or its
properties or assets, or (d) to such counsel's knowledge, have a Material
Adverse Effect on any material permit, certification, registration, approval,
consent, license or franchise of the Company.
(ix) The Registration Statement and the Prospectus and any
post-effective amendments or supplements thereto (other than the financial
statements, schedules and data included therein, as to which no opinion need be
rendered) comply as to form in all material respects with the requirements of
the Act and Regulations. The Securities and all other securities issued or
issuable by the Company conform in all respects to the description thereof
contained in the Registration Statement and the Prospectus. The descriptions in
the Registration Statement and the Prospectus of statutes, regulations,
government classifications, contracts and other documents have been reviewed by
us, and, based upon such review, are accurate in all material respects and
present fairly the information required to be disclosed. To such counsel's
knowledge, no statute or regulation or legal or governmental proceeding required
to be described in the Prospectus is not described as required, nor are any
contracts or documents known to counsel, of a character required to be described
in the Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement not so described or filed as required.
(x) Counsel has participated in conferences with officers and
other representatives of the Company, representatives of the independent public
accountants for the Company and representatives of the Representative at which
the contents of the Registration Statement, the Prospectus and related matters
were discussed and although such counsel is not passing upon and does not assume
any responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus (except as otherwise set
forth in this opinion), no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or any
amendment or supplement thereto, as of the date of such opinion, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
(it being understood that such counsel need express no opinion with respect to
the financial statements and schedules and other financial and statistical data
or any technical data included in the Registration Statement or Prospectus), and
that on the Closing Date, the Prospectus and any amendment or supplement thereto
will contain any untrue statement or a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(xi) The Registration Statement is effective under the Act, and,
to such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Act or applicable state
securities laws.
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(xii) To such counsel's knowledge, except as set forth in the
Prospectus, there is no action, suit or proceeding before or by any court of
governmental agency or body, domestic or foreign, now pending, or threatened
against the Company, which might result in any material and adverse change in
the condition (financial or otherwise), business or prospects of the Company, or
might materially and adversely affect the properties or assets thereof.
Unless the context clearly indicates otherwise, the term "Company" as
used in this Section 4.2.1 shall include each subsidiary, if any, of the
Company. The opinion of counsel for the Company and any opinion relied upon by
such counsel for the Company shall include a statement to the effect that it may
be relied upon by counsel for the Representative.
4.2.2 [Reserved]
4.2.3 Option Closing Date Opinion of Counsel. On any Option
Closing Date, the Underwriters shall have received the favorable opinions of
PCF&K, counsel to the Company, dated the Option Closing Date addressed to the
Representative and in the form and substance (consistent with the provisions set
forth herein) satisfactory to Stursberg & Veith, counsel to the Underwriters,
which opinion shall be substantially the same in scope and substance as the
opinion you received on the Closing Date, except that such opinion, where
appropriate, shall cover the Option Securities rather than the Firm Securities.
4.2.4 Reliance. In rendering such opinion, such counsel may rely
(i) as to matters involving the application of laws other than the laws of the
United States and jurisdictions in which they are admitted, to the extent such
counsel deems proper and to the extent specified in such opinion, if at all,
upon an opinion or opinions (in form and substance reasonably satisfactory to
Underwriters' counsel) of other counsel reasonably acceptable to Underwriters'
counsel, familiar with the applicable laws, and (ii) as to matters of fact, to
the extent they deem proper, on certificates or other written statements of
officers of departments of various jurisdiction having custody of documents
respecting the corporate existence or good standing of the Company, provided
that copies of any such statements or certificates shall be delivered to
Underwriters' counsel if requested. The opinion of counsel for the Company shall
include a statement to the effect that it may be relied upon by counsel for the
Underwriters in its opinion delivered to the Underwriters.
4.2.5 Secondary Market Trading Survey. On the Effective Date the
Underwriters shall have received the Secondary Market Trading Survey.
4.3 Cold Comfort Letter. At the time this Agreement is executed and
at each of the Closing Date and the Option Closing Date, if any, you shall have
received a letter, addressed to the Representative and in form and substance
satisfactory in all respects (including the non-material nature of the changes
or decreases, if any, referred to in clause (iii) below) to you and to Stursberg
& Veith, counsel for the Underwriters, from Richard A. Eisner & Company LLP
dated as of the date of this Agreement and as of the Closing Date and the Option
Closing Date.
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<PAGE>
4.4 Officers' Certificates.
4.4.1 Officers' Certificate. At each of the Closing Date and the
Option Closing Date, if any, the Representative shall have received a
certificate of the Company signed by the Chairman of the Board or the President,
Chief Financial Officer and the Secretary of the Company, dated the Closing Date
or the Option Closing Date, as the case may be, respectively, to the effect that
the Company has performed or complied with by the Company prior to and as of the
Closing Date, or the Option Closing Date, as the case may be, and that the
conditions set forth in Section 4.5 hereof have been satisfied as of such date
and that, as of closing Date and the Option Closing Date, as the case may be,
the representations and warranties of the Company set forth in Section 2 hereof
are true and correct. In addition, the Representative will have received a
certificate signed by the Chairman of the Board of the Company in connection
with information supplied by the Company to counsel for the Underwriters to be
supplied to state securities commissions.
4.4.2 Secretary's Certificate. At each of the Closing Date and
the Option Closing Date, if any, the Representative shall have received a
certificate of the Company signed by the Secretary of the Company, dated the
Closing Date or the Option Closing Date, as the case may be, respectively,
certifying (i) that the By-Laws and Certificate of Incorporation of the Company
are true and complete, have not been modified and are in full force and effect,
(ii) that the resolutions relating to the public offering contemplated by this
Agreement are in full force and effect and have not been modified, (iii) all
correspondence between the Company or its counsel and the Commission, (iv) all
correspondence between the Company or its counsel and the NASD concerning
inclusion on Nasdaq and (v) as to the incumbency of the officers of the Company.
The documents referred to in such certificate shall be attached to such
certificate.
4.5 No Material Changes. Prior to and on each of the Closing Date
and the Option Closing Date, if any, (i) there shall have been no Material
Adverse Change since the Effective Date, (ii) the Company shall not be in
default under any provision of any instrument relating to any outstanding
indebtedness which default would have a Material Adverse Effect, (iii) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in or contemplated by the Registration Statement
and Prospectus, (iv) no action suit or proceeding, at law or in equity, shall
have been pending or threatened against the Company, or affecting any of its
property or business before or by any court or federal or state commission,
board or other administrative agency wherein an unfavorable decision, ruling or
finding may have a Materially Adversely Effect, except as set forth in the
Registration Statement and Prospectus, (v) no stop order shall have been issued
under the Act and no proceedings therefor shall have been initiated or
threatened by the Commission, and (vi) the Registration Statement and the
Prospectus and any amendments or supplements thereto contain all material
statements which are required to be stated therein in accordance with the Act
and the Regulations and conform in all material respects to the requirements of
the Act and the Regulations, and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto contains any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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<PAGE>
4.6 Delivery of Agreements. The Company has delivered to the
Representative executed copies of the Representative's Purchase Option.
4.7 Opinion of Counsel for Underwriters. All proceedings taken in
connection with the authorization, issuance or sale of the Securities as herein
contemplated shall be reasonably satisfactory in form and substance to you and
to Stursberg & Veith, counsel to the Underwriters, and you shall have received
from such counsel a favorable opinion, dated the Closing Date and the Option
Closing Date, if any, with respect to such of these proceedings as you may
reasonably require. On or prior to the Effective Date, the Closing Date and the
Option Closing Date, as the case may be, counsel for the Underwriters shall have
been furnished such documents, certificates and opinions as they may reasonably
require for the purpose of enabling them to review or pass upon the matters
referred to in this Section 4.7, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions herein contained.
5. Indemnification.
5.1 Indemnification of Representative.
5.1.1 General. Subject to the conditions set forth below, the
Company agrees to indemnify and hold harmless the Underwriters, their directors,
officers, agents and employees and each person, if any, who controls any
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, against any and all loss, liability,
claim, damage and expense whatsoever (including but not limited to any and all
legal or other expenses reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever) to which they or any of them may become subject under the Act, the
Exchange Act or any other statute or at common law or otherwise or under the
laws of foreign countries, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in (i) any Preliminary
Prospectus, the Registration Statement or the Prospectus (as from time to time
each may be amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
securities of the Company issued or issuable upon exercise of the
Representative's Purchase Option; or (iii) any application or other document or
written communication (in this Section 5 collectively called "application")
executed by the Company or based upon written information furnished by the
Company in any jurisdiction in order to qualify the Securities under the
securities laws thereof or filed with the Commission, any state securities
commission or agency, Nasdaq or any securities exchange; or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, unless such statement or omission
was made in reliance upon, and in strict conformity with, written information
furnished to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in any Preliminary Prospectus, the Registration
Statement or Prospectus, or any amendment or supplement thereof, or in any
application, as the case may be; provided, however, that the foregoing indemnity
agreement with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting such
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<PAGE>
losses, claims, damages or liabilities purchased Public Securities, or any
person controlling such Underwriter, if a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Public Securities to such person, and if
the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage or liability. The Company agrees
promptly to notify the Representative of the commencement of any litigation or
proceedings against the Company or any of its officers, directors or controlling
persons in connection with the issue and sale of the Securities or in connection
with the Registration Statement or Prospectus.
5.1.2 Procedure. If any action is brought against any
Representative or controlling person in respect of which indemnity may be sought
against the Company pursuant to Section 5.1.1, such Underwriter shall promptly
notify the Company in writing of the institution of such action and the Company
shall assume the defense of such action, including the employment and fees of
counsel (subject to the approval of such Underwriter(s)) and payment of actual
expenses. The Underwriters or controlling person shall have the right to employ
its or their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person
unless (i) the employment of such counsel shall have been authorized in writing
by the Company in connection with the defense of such action, or (ii) the
Company shall not have employed counsel to have charge of the defense of such
action, or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are different
from or additional to those available to the Company (in which case the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events the fees and expenses of
not more than one additional firm of attorneys selected by such Underwriter(s)
and controlling person, as a single group, shall be borne by the Company.
Notwithstanding anything to the contrary contained herein, if such
Underwriter(s) or controlling person shall assume the defense of such action as
provided above, the Company shall have the right to approve the terms of any
settlement of such action which approval shall not be unreasonably withheld.
5.2 Indemnification of the Company. Each Underwriter severally
agrees to indemnify and hold harmless the Company, each of its directors, each
nominee (if any) for director named in the Prospectus, each of its officers who
have signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, from and against any and all loss,
liability, claim, damage and expense as described in the foregoing indemnity
from the Company to the Underwriters, as incurred, but only with respect to
untrue statements or omissions, or alleged untrue statements or omissions
directly relating to the transactions effected by such Underwriter in connection
with this offering or made in any Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment or supplement thereto or in any
application in reliance upon, and in strict conformity with, written information
furnished to the Company with respect to such Underwriter by or on behalf of
such Underwriter expressly for use in such Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment or supplement thereto or
in any such
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<PAGE>
application. In case any action shall be brought against the Company or any
other person so indemnified based on any Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment or supplement thereto or
an application, and in respect of which indemnity may be sought against any
Underwriter, such Underwriter shall have the rights and duties given to the
Company, and the Company and each other person so indemnified shall have the
rights and duties given to the Underwriters by the provisions of Section 5.1.2.
5.3 Contribution.
5.3.1 Contribution Rights. In order to provide for just and
equitable contribution under the Act in any case in which (i) any person
entitled to indemnification under this Section 5 makes claim for indemnification
pursuant hereto but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 5 provides for indemnification in such case, or (ii) contribution
under the Act, the Exchange Act or otherwise may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 5, then, and in each such case, the Company and the Underwriters shall
contribute to the aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by said indemnity agreement incurred by the Company and
the Underwriters, as incurred, in such proportions that the Underwriters are
responsible for that portion represented by the percentage that the underwriting
discount appearing on the cover page of the Prospectus bears to the initial
offering price appearing thereon and the Company is responsible for the balance;
provided, that, no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. Notwithstanding
the provisions of this Section 5.3, no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Public Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay in respect of such losses, liabilities,
claims, damages and expenses. For purposes of this Section, each director,
officer and employee of the Underwriters and the Company, and each person, if
any, who controls an Underwriter and the Company within the meaning of Section
15 of the Act shall have the same rights to contribution as the Underwriter and
the Company respectively.
5.3.2 Contribution Procedure. Within fifteen days after receipt
by any party to this Agreement (or its representative) of notice of the
commencement of any action, suit or proceeding, such party will, if a claim for
contribution in respect thereof is to be made against another party
("contributing party"), notify the contributing party of the commencement
thereof, but the omission to so notify the contributing party will not relieve
it from any liability which it may have to any other party other than for
contribution hereunder. In case any such action, suit or proceeding is brought
against any party, and such party notifies a contributing party or its
representative of the commencement thereof within the aforesaid fifteen days,
the contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified. Any
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<PAGE>
such contributing party shall not be liable to any party seeking contribution on
account of any settlement of any claim, action or proceeding which was effected
by such party without the written consent of such contributing party. The
contribution provisions contained in this Section are intended to supersede, to
the extent permitted by law, any right to contribution under the Act, the
Exchange Act or otherwise available.
6. [Reserved]
7. Additional Covenants.
7.1 Board Designee. For a period of five years from the Effective
Date, the Representative shall have the right to designate one nominee for
director of the Company, which nominee must be reasonably acceptable to the
Company, and the Company will use its best efforts to have such nominee elected
a director of the Company. Such nominee need not be the same person for the
entire period; provided, however, that no more than one such nominee of the
Representative shall be a director at any time during the period.
7.2 [Reserved]
7.3 [Reserved]
7.4 Press Releases. The Company will not issue a press release or
engage in any other publicity until 25 days after the Effective Date without the
Representative's prior written consent unless counsel for the Company advises
the Company that the issuance of any such press release is required by law or
the rules of the NASD.
7.5 [Reserved]
7.6 Compensation and Other Arrangements. The Company hereby agrees
that for a period of three years from the Effective Date, all the compensation
and other arrangements between the Company and its executive officers, directors
and affiliates shall be approved by a compensation committee of the Company's
Board of Directors, a majority of whom are not employed by the Company.
8. Representations and Agreements to Survive Delivery. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Dates and such representations, warranties and
agreements of the Underwriters and Company, including the indemnity agreements
contained in Section 5 hereof, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Underwriters,
the Company or any controlling person, and shall survive termination of this
Agreement or the issuance and delivery of the Securities to the Underwriters
until the earlier of the expiration of any applicable statute of limitations and
the seventh
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<PAGE>
anniversary of the later of the Closing Date or the Option Closing Date, if any,
at which time the representations, warranties and agreements shall terminate and
be of no further force and effect.
9. Effective Date of This Agreement and Termination Thereof.
9.1 Effective Date. This Agreement shall become effective on the
Effective Date at the time that the Registration Statement is declared
effective. The time of the initial public offering, for the purpose of this
Section 9 shall mean the time, after the Registration Statement becomes
effective, of the release by you for publication of the first newspaper
advertisement which is subsequently published relating to the Public Securities
or the time, after the Registration Statement becomes effective, when the Public
Securities are first released by you for offering by the Underwriters or dealers
by letter or telegram, whichever shall first occur. You may prevent this
Agreement from becoming effective without liability to any other party, except
as noted below, by giving the notice indicated below in this Section 9 before
the time this Agreement becomes effective. The Representative agrees to give the
Company notice of the commencement of the offering described herein.
9.2 Termination. The Representative shall have the right to
terminate this Agreement at any time prior to any Closing Date, (i) if any
domestic or international event or act or occurrence has materially disrupted,
or in your opinion will in the immediate future materially disrupt, general
securities markets in the United States; or (ii) if trading on the New York
Stock Exchange, the American Stock Exchange or in the over-the-counter market
shall have been suspended, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices for securities shall have been fixed, or
maximum ranges for prices for securities shall have been required on the
over-the-counter market by the NASD or by order of the Commission or any other
government authority having jurisdiction, or (iii) if the United States shall
have become involved in a war or major hostilities, or (iv) if a banking
moratorium has been declared by a New York State or federal authority, or (v) if
a moratorium on foreign exchange trading has been declared which materially
adversely impacts the United States securities market, or (vi) if the Company
shall have sustained a material loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether or
not such loss shall have been insured, will, in your opinion, make it
inadvisable to proceed with the delivery of the Securities, or (vii) if either
David E. Y. Sarna or George Febish shall no longer serve the Company in his
present capacity, or (viii) if the Company has breached in any material respect
any of its representations, warranties or obligations hereunder, or (ix) if any
material adverse change has occurred, since the respective dates of which
information is given in the Registration Statement and the Prospectus, in the
earnings, business, prospects or condition (financial or otherwise) of the
Company, whether or not arising in the ordinary course of business, or (x) if
any adverse material change occurs in the financial or securities markets beyond
the normal fluctuations in the United States since the date of this Agreement.
9.3 Notice. If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 9, the
Company shall be notified on the same day as such election is made by you by
telephone or telecopy, confirmed by letter.
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<PAGE>
9.4 Expenses. In the event that this Agreement shall not be carried
out for any reason, within the time specified herein or any extensions thereof
pursuant to the terms herein, the obligations of the Company to pay the expenses
related to the transactions contemplated herein shall be governed by Section
3.15 hereof.
9.5 Indemnification. Notwithstanding any contrary provision
contained in this Agreement, any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 shall not be in any way effected by such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
10. Substitution of Underwriters.
10.1 Substitution. If any Underwriter defaults in its obligation to
purchase the number of Units which it has agreed to purchase under this
Agreement, you shall be obligated to purchase all of the Units not purchased by
the defaulting Underwriter unless such purchase shall cause you to be in
violation of net capital requirements of Rule 15c3-1 of the Exchange Act, in
which case you, and any other Underwriter satisfactory to you who so agree,
shall have the right, but shall not be obligated, to purchase (in such
proportions as may be agreed upon among them) such Units. If, within 48 hours
after such default by any Underwriter, you or the other Underwriters
satisfactory to you do not elect to purchase the Units which the defaulting
Underwriter or Underwriters agree but failed to purchase, then the Company shall
be entitled to a further period of 48 hours within which to procure another
party or parties to purchase the Units which the defaulting Underwriter or
Underwriters agreed but failed to purchase. If the Company is unable to arrange
for the purchase of such Shares as provided in this Section 10.1, then this
Agreement shall terminate without liability on the part of any non-defaulting
Underwriter or the Company except for (i) the payment by the Company of expenses
as provided by Section 3.15.1, (ii) the payment by the Company of accountable
expenses as provided by Section 3.15.2, and (iii) the indemnity and contribution
agreements of the Company and the Underwriters provided by Section 5.
10.2 Further Matters. Nothing contained herein shall relieve a
defaulting Underwriter of any liability it may have for damages caused by its
default. If the other Underwriters satisfactory to you are obligated or agree to
purchase the units of a defaulting Underwriter, either you or the Company may
postpone the Closing Date for up to seven banking days in order to effect any
changes that may be necessary in the Registration Statement, any Preliminary
Prospectus or the Prospectus or in any other document or agreement, and to file
promptly any amendments to the Registration Statement, or any amendments or
supplements to any Preliminary Prospectus or the Prospectus, which in your
opinion may thereby be made necessary.
11. Miscellaneous.
11.1 Notices. All communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be mailed,
delivered or telecopied and confirmed
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If to the Representative:
Renaissance Financial Securities Corporation
200 Old Country Road
Suite 400
Mineola, NY 11501
Attention: Todd M. Spehler
Fax: (516) 294-0072
Copy to:
Stursberg & Veith
405 Lexington Avenue
Suite 4949
New York, NY 10174-4902
Attention: C. Walter Stursberg, Jr., Esq.
Fax: (212) 922-0995
If to the Company:
ObjectSoft Corporation
Continental Plaza III
433 Hackensack Avenue
Hackensack, NJ 07601
Attention: Mr. David E. Y. Sarna
Fax: (201) 343-0056
Copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036
Attention: Melvin Weinberg, Esq.
Fax: (212) 704-6288
11.2 Headings. The headings contained herein are for the sole purpose
of convenience of reference and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
11.3 Amendment. This Agreement may only be amended by a written
instrument executed by each of the parties hereto.
11.4 Entire Agreement. This Agreement (together with the other
agreements and documents being delivered pursuant to or in connection with this
Agreement) constitutes the entire agreement
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<PAGE>
of the parties hereto with respect to the subject matter hereof, and supersede
all prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
11.5 Binding Effect. This Agreement shall inure solely to the benefit
of and shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 5 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained.
11.6 Governing Law; Jurisdiction. This Agreement shall be governed by
and construed and enforced in accordance with the law of the State of New York,
without giving effect to conflicts of law. The Company hereby agrees that any
action, proceeding or claim against it arising out of, relating in any way to
this Agreement shall be brought and enforced in the courts of the State of New
York, New York County or the Federal District Court of the United States of
America for the Southern District of New York, and irrevocably submits to such
jurisdictions, which jurisdictions shall be exclusive. The Company hereby waives
any objection to such exclusive jurisdiction and that such courts represent an
inconvenient forum. To the extent permitted by law, any such process or summons
to be served upon the Company may be served by transmitting a copy thereof by
registered or certified mail, return receipt requested, postage prepaid,
addressed to it at the address set forth in Section 10 hereof. To the extent
permitted by law, such mailing shall be deemed personal service and shall be
legal and binding upon the Company in any action, proceeding or claim. The
Company agrees that the prevailing party(ies) in any such action shall be
entitled to recover from the other party(ies) all of its reasonable attorneys'
fees and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
11.7 Execution in Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
11.8 Waiver, Etc. The failure of any of the parties hereto to at any
time enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provision, nor to in any way effect the
validity of this Agreement or any provision hereof or the right of any of the
parties hereto to thereafter enforce each and every provision of this Agreement.
No wavier of any breach, non-compliance or non-fulfillment of any of the
provisions of this Agreement shall be effective unless set forth in a written
instrument executed by the party or parties against whom or which enforcement of
such waiver is sought; and no waiver of any such breach, non-compliance or
non-fulfillment shall be construed or deemed to be a waiver of any other or
subsequent breach, non-compliance or non-fulfillment.
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<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
OBJECTSOFT CORPORATION
By:
-------------------------
Name: David E. Y. Sarna
Title: Chairman of the Board
Accepted as of the date first above written.
New York, New York
RENAISSANCE FINANCIAL SECURITIES
CORPORATION, Acting on its own behalf
and as Representative of the several
Underwriters referred to in Schedule I
of the foregoing Underwriting Agreement.
By:
-------------------------------
Name: Todd M. Spehler
Title: President
33
<PAGE>
SCHEDULE I
Name Number of Units
- ---- ---------------
---------
TOTAL 1,250,000
34
THE REGISTERED HOLDER OF THIS PURCHASE OPTION BY ITS ACCEPTANCE HEREOF, AGREES
THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS PURCHASE OPTION EXCEPT AS HEREIN
PROVIDED.
VOID AFTER 5:00 P.M. EASTERN TIME,___________, 2001.
PURCHASE OPTION
FOR THE PURCHASE OF
SHARES OF COMMON STOCK
AND
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
OF
OBJECTSOFT CORPORATION
(A DELAWARE CORPORATION)
1. Purchase Option.
THIS CERTIFIES THAT, in consideration of $100 duly paid by or on
behalf of RENAISSANCE FINANCIAL SECURITIES CORPORATION ("Holder"), as registered
owner of this Purchase Option, to OBJECTSOFT CORPORATION ("Company"), Holder is
entitled, at any time or from time to time at or after one year from the date
hereof ("Commencement Date"), and at or before 5:00 p.m., Eastern
Time,_____________, 2001 ("Expiration Date"), but not thereafter, to subscribe
for, purchase and receive, in whole or in part, __________ Units.
This Purchase Option is issued pursuant to an Underwriting Agreement
dated ______________, 1996 between the Company and the Underwriters, for whom
Renaissance Financial Securities Corporation ("Renaissance") is acting as
Representative in connection with a public offering through the Underwriters
(the "Public Offering") of (i) 1,250,000 Units (the "Units") each Unit
consisting of one share of Common Stock, par value $.0001 (the "Common Stock")
and one redeemable Class A warrant (the "Warrants"), and (ii) pursuant to the
Representative's over-allotment option (the "Over-allotment Option"), an
additional 187,500 Units. The Warrants will be issued pursuant to, and subject
to the terms and conditions set forth in, an agreement between the Company, the
Underwriters and Continental Stock Transfer & Trust Company (the "Warrant
Agreement").
This Purchase Option is initially exercisable at $ _____ per Unit;
provided, however, that upon the occurrence of any of the events specified in
Section 6 hereof, the rights granted by this Purchase Option, including the
exercise price and the number of Units to be received upon such exercise, shall
be adjusted as therein specified. The term "Exercise Price" shall mean the
initial exercise price or the adjusted exercise price of a Unit. Each Unit shall
be identical to the Units that have been registered for sale to the public (the
"Public Units") pursuant to the Company's Registration Statement on Form SB-2
(File No. 333-10519), as declared effective by the Securities and Exchange
Commission on ____________ , 1996 (the "Registration Statement"), and the
Warrants included in the Units shall be identical to the warrants included in
the Public Units. The Units and the constituent shares of Common Stock and
Warrants are sometimes collectively referred to herein as the "Securities." If
the Expiration Date is a day on which banking institutions are authorized by law
to close, then this Purchase Option may be exercised on the next succeeding day
which
<PAGE>
is not such a day in accordance with the terms herein.
2. Exercise.
2.1 Exercise Form. In order to exercise this Purchase Option, the
exercise form attached hereto must be duly executed and completed and delivered
to the Company, together with this Purchase Option and payment of the Exercise
Price, together with applicable stock transfer taxes, if any, and delivery to
the Company of a duly executed agreement signed by the person(s) designated in
the purchase form to the effect that such person(s) agree(s) to be bound by the
provisions of Section 5 hereof. This Purchase Option shall be deemed to have
been exercised, in whole or in part to the extent specified, immediately prior
to the close of business on the date this Purchase Option is surrendered and
payment is made in accordance with the foregoing provisions of this Section 2.1,
and the person or persons in whose name or names the certificates for the
Securities shall be issuable upon such exercise shall become the holder or
holders of record of such Common Stock and Warrants at that time and date in
cash or by certified check or official bank check for the Units being purchased.
If the subscription rights represented hereby shall not be exercised at or
before 5:00 p.m., Eastern time, on the Expiration Date this Purchase Option
shall become and be void without further force or effect, and all rights
represented hereby shall cease and expire.
2.2 Legend. Unless registered under the Act, each certificate for
Securities purchased under this Purchase Option shall bear a legend as follows
unless such Securities have been registered under the Securities Act of 1933:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933 ("Act")
or applicable state law. The securities may not be offered
for sale, sold or otherwise transferred except pursuant to
an effective registration statement under the Act, or
pursuant to an exemption from registration under the Act
and applicable state law."
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3. Transfer.
3.1 General Restrictions. The registered Holder of this Purchase
Option, by its acceptance hereof, agrees that it will not sell, transfer or
assign or hypothecate this Purchase Option prior to __________________, 1997 to
anyone other than (i) an officer or partner of such Holder, (ii) an officer of
an Underwriter or an officer or partner of any Selected Dealer in connection
with the Company's public offering with respect to which this Purchase Option
has been issued, or (iii) any Selected Dealer. On or after _______________,
1997, transfers to others may be made subject to compliance with, or exemptions
from, applicable securities laws. In order to make any permitted assignment, the
Holder must deliver to the Company the assignment form attached hereto duly
executed and completed, together with the Purchase Option and payment of all
transfer taxes, if any, payable in connection therewith. The Company shall
immediately transfer this Purchase Option on the books of the Company and shall
execute and deliver a new Purchase Option or Purchase Options of like tenor to
the appropriate assignee(s) expressly evidencing the right to purchase the
aggregate number of Units purchasable hereunder or such portion of such number
as shall be contemplated by any such assignment.
3.2 Restrictions Imposed by the Act. This Purchase Option and the
Securities underlying this Purchase Option shall not be transferred unless and
until (i) the Company has received the opinion of counsel for the Holder
reasonably satisfactory to the Company that this Purchase Option or the
Securities, as the case may be, may be transferred pursuant to an exemption from
registration under the Act and applicable state law, the availability of which
is established to the reasonable satisfaction of the Company (the Company hereby
agreeing that the opinion of Stursberg & Veith shall be deemed satisfactory
evidence of the availability of an exemption), or (ii) a registration statement
relating to such Purchase Option or Securities, as the case may be, has been
declared effective by the Securities and Exchange Commission and compliance with
applicable state law.
4. New Purchase Options to be Issued.
4.1 Partial Exercise or Transfer. Subject to the restrictions in
Section 3 hereof, this Purchase Option may be exercised or assigned in whole or
in part. In the event of the exercise or assignment hereof in part only, upon
surrender of this Purchase Option for cancellation, together with the duly
executed exercise or assignment form and funds sufficient to pay any Exercise
Price and/or transfer tax, the Company shall cause to be delivered to the Holder
without charge a new Purchase Option of like tenor to this Purchase Option in
the name of the Holder evidencing the right of the Holder to purchase the
aggregate number of Units purchasable hereunder to which this Purchase Option
has not been exercised or assigned.
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4.2 Lost Certificate. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Purchase Option and of reasonably satisfactory indemnification and payment of
all related expenses, the Company shall execute and deliver a new Purchase
Option of like tenor and date. Any such new Purchase Option executed and
delivered as a result of such loss, theft, mutilation or destruction shall
constitute a substitute contractual obligation on the part of the Company.
5. Registration Rights.
5.1 If any 51% holder (as defined below) shall give notice to the
Company at any time during the four-year period beginning one year from
___________ , 1996 (other than a time when the holders of the Securities or the
shares of Common Stock issuable upon exercise of the Warrants (the "Warrant
Shares," collectively with the Securities, the "Registrable Securities") are
already covered for sale or resale by an effective and current registration
statement that permits the method of distribution desired by the holders
thereof) to the effect that such Holder desires to register under the Act any
Registrable Securities, under such circumstances that a public distribution
(within the meaning of the Act) of any such Registrable Securities will be
involved (and the Registration Statement or any new registration statement under
which such Registrable Securities are registered shall have ceased to be
effective or the Prospectus contained therein shall have ceased to be current),
then the Company will as promptly as practicable after receipt of such notice,
but not later than 30 days after receipt of such notice, at the Company's
option, file a post effective amendment to the current Registration Statement or
a new registration statement pursuant to the Act to the end that the Registrable
Securities may be publicly sold under the Act as promptly as practicable
thereafter and the Company will use its best efforts to cause such registration
to become and remain effective as provided herein (including the taking of such
steps as are reasonably necessary to obtain the removal of any stop order);
provided, that such 51% holder shall furnish the Company with appropriate
information in connection therewith as the Company may reasonably request; and
provided, further, that the Company shall not be required to file such a
post-effective amendment or registration statement pursuant to this Section 5.1
on more than two occasions; and provided, further, that the registration rights
of the 51% holder under this Section 5.1 shall be subject to the "piggyback"
registration rights of other holders of securities of the Company to include
such securities in any registration statement or post-effective amendment filed
pursuant to this Section 5.1. The Company will use its best efforts to maintain
such registration statement or post-effective amendment current under the Act
for a period of at least 120 days from the effective date thereof. The Company
shall supply prospectuses in order to facilitate the public sale of the
Registrable Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in up to 10 states that such holder reasonably
designates and furnish indemnification in the manner provided in Section 5.5.1
hereof, provided that, without limiting the foregoing, the Company shall not be
obligated to execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction.
5.2 The Holder may, in accordance with Section 5.1, at his/her/its
option, and subject to the limitations set forth in Section 1) hereof, request
the registration of any of the Registrable Securities in a filing made by the
Company prior to the acquisition of the Securities upon exercise of this
Purchase Option. The Holder may thereafter exercise this Purchase Option at any
time or from time to time subsequent to the effectiveness under the Act of the
registration statement which relates to the Common Stock underlying the Purchase
Option and Warrants included therein.
5.3 The term "51% holder," as used in this Section 5, shall include
any owner or combination of owners of the Purchase Option or Registrable
Securities of the aggregate number of shares of Common Stock and Warrant Shares
included in and underlying the Purchase Option and Registrable Securities held
of record by it or them, would constitute a majority of the aggregate of such
shares of
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Common Stock and Warrant Shares underlying the Purchase Option and Registrable
Securities as of the date of the initial issuance of the Purchase Option.
5.4 The following provisions of this Section 5 shall also be
applicable:
5.4.1 Within ten (10) days after receiving any notice
pursuant to Section 5.1, the Company shall give notice to the other Holders of
the Purchase Option or Registrable Securities, advising that the Company is
proceeding with such post-effective amendment or registration and offering to
include therein the Registrable Securities of such other Holders, provided that
they shall furnish the Company with all information in connection therewith as
shall be necessary or appropriate and as the Company shall reasonably request in
writing. Following the effective date of such post-effective amendment or
registration statement, the Company shall, upon the request of any Holder of
Registrable Securities, forthwith supply such number of prospectuses meeting the
requirements of the Act, as shall be reasonably requested by such Holder. The
Company shall use its best efforts to qualify the Registrable Securities for
sale in up to 10 states as the 51% holder shall reasonably designate at such
times as the registration statement is effective under the Act; provided, that,
without limiting the foregoing, the Company shall not be obligated to execute or
file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
5.4.2 The Company shall comply with the one request for
registration made by the 51% holder pursuant to Section 5.1 hereof at the
Company's own expense and without charge to any holder of the Registrable
Securities, but the expenses of registration pursuant to the second request, if
any, for registration pursuant to Section 5.2 shall be borne by the Company and
the Holders of Registrable Securities included therein in proportion to the
aggregate offering prices of the securities being offered by the Company
included therein and the aggregate offering price of the Registrable Securities
included therein. Notwithstanding the foregoing, any Holder whose Registrable
Securities are included in any such registration statement pursuant to this
Section 5 shall, however, bear the fees of any counsel retained by such Holder
and any transfer taxes or underwriting discounts or commissions applicable to
the Registrable Securities sold by such Holder pursuant thereto.
5.4.3 Notwithstanding anything to the contrary contained
herein, the Company shall have the right at any time after it shall have given
written notice pursuant to Section 5.1 (irrespective of whether a written
request for inclusion of any Registrable Securities shall have been made) to
elect not to file or to delay any such proposed registration statement or post
effective amendment thereto, or to withdraw the same after the filing but prior
to the effective date thereof. In addition, the Company may delay the filing of
any registration statement or post effective amendment requested pursuant to
Section 5.1 hereof by not more than 120 days if the Company, prior to the time
it would otherwise have been required to file such registration statement or
post-effective amendment thereto, determines in good faith that the filing of
the registration statement would require the disclosure of non-public material
information that, in its judgment, would be detrimental to the Company if so
disclosed or would otherwise adversely affect a financing, acquisition,
disposition, merger or other material transaction.
5.5 General Terms.
5.5.1 Indemnification. The Company shall indemnify the
Holder(s) of the Registrable Securities to be sold pursuant to the Registration
Statement hereunder and each person, if any, who controls such Holders within
the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange
Act of 1934 ("Exchange Act"), against all loss, claim, damage, expense or
liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement but only to the same
extent and with the same
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<PAGE>
effect as the provisions pursuant to which the Company has agreed to indemnify
the Underwriter contained in Section 5 of the Underwriting Agreement between the
Underwriters and the Company, dated the Effective Date. The Holder(s) of the
Registrable Securities to be sold pursuant to such registration statement, and
their successors and assigns, shall severally, and not jointly, indemnify the
Company, against all loss, claim, damage, expense or liability (including all
reasonable attorneys' fees and other expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished by or on behalf of such Holders, or their successors
or assigns, in writing, for specific inclusion in such registration statement to
the same extent and with the same effect as the provisions contained in Section
5 of the Underwriting Agreement pursuant to which the Underwriters have agreed
to indemnify the Company.
5.5.2 Exercise of Warrants. Nothing contained in this
Purchase Option shall be construed as requiring the Holder(s) to exercise their
Purchase Options or Warrants prior to or after the initial filing of any
registration statement or the effectiveness thereof.
5.5.3 Documents to be Delivered by Holder(s). Each of the
Holder(s) participating in any of the foregoing offerings shall furnish to the
Company a completed and executed questionnaire provided by the Company
requesting information customarily sought of selling securityholders.
6. Adjustments.
6.1 Adjustments to Exercise Price and Number of Securities. The
Exercise Price and the number of shares of Common Stock underlying the Purchase
Option shall be subject to adjustment from time to time as hereinafter set
forth:
6.1.1 Stock Dividends-Recapitalization, Reclassification,
Split-Ups. If after the date hereof, and subject to the provisions of Section
6.3 below, the number of outstanding shares of Common Stock is increased by a
stock dividend payable in shares of Common Stock or by a split-up,
recapitalization or reclassification of shares of Common Stock or other similar
event, the, on the effect date thereof, the number of shares of Common Stock
issuable on exercise of the Purchase Option shall be increased in proportion to
such increase in outstanding shares.
6.1.2 Aggregation of Shares. If after the date hereof, and
subject to the provisions of ection 6.3, the number of outstanding shares of
Common Stock is decreased by a consolidation, combination or reclassification of
shares of Common Stock or other similar event, then, upon the effective date
thereof, the number of shares of Common Stock issuable on exercise of the
Purchase Option shall be decreased in proportion to such decrease in outstanding
shares.
6.1.3 Adjustments in Exercise Price. Whenever the number
of shares of Common Stock purchasable upon the exercise of the Purchase Option
is adjusted, as provided in this Section 6.1, the Exercise Price shall be
adjusted (to the nearest cent) by multiplying such Exercise Price immediately
prior to such adjustment by a fraction (x) the numerator of which shall be the
number of shares of Common Stock purchasable upon the exercise of this Purchase
Option immediately prior to such adjustment, and (y) the denominator of which
shall be the number of shares of Common Stock so purchasable immediately
thereafter.
6.1.4 Replacement of Securities upon Reorganization, etc.
In case of any reclassification or reorganization of the outstanding shares of
Common Stock other than a change covered by Section 6.1.1. hereof or which
solely affects the par value of such shares of Common Stock, or in the case of
any
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<PAGE>
merger or consolidation of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or reorganization
of the outstanding shares of Common Stock), or in the case of any sale or
conveyance to another corporation or entity of the property of the Company as an
entirety or substantially as an entirety in connection with which the Company is
dissolved, the Holder of this Purchase Option shall have the right thereafter
(until the expiration of the right of exercise of this Purchase Option) to
receive upon the exercise hereof, for the same aggregate Exercise Price payable
hereunder immediately prior to such event, the kind and amount of shares of
stock or other securities or property (including cash) receivable upon such
reclassification, reorganization, merger or consolidation, or upon a dissolution
following any such sale or other transfer, by a Holder of the number of shares
of Common Stock of the Company obtainable upon exercise of this Purchase Option
immediately prior to such event; and if any reclassification also results in a
change in shares of Common Stock covered by Section 6.1.1, then such adjustment
shall be made pursuant to Sections 6.1.1, 6.1.3 and this Section 6.1.4. The
provisions of this Section 6.1.4 shall similarly apply to successive
reclassifications, reorganizations, mergers or consolidations, sales or other
transfers.
6.1.5 Changes in Form of Purchase Option. This form of
Purchase Option need not be changed because of any change pursuant to this
Section, and Purchase Options issued after such change may state the same
Exercise Price and the same number of shares of Common Stock and Warrants as are
stated in the Purchase Options initially issued pursuant to this Agreement. The
acceptance by any Holder of the issuance of new Purchase Options reflecting a
required or permissive change shall not be deemed to waive any rights to a prior
adjustment or the computation thereof.
6.1.6 Changes in Underlying Warrants. The Company agrees
that the Warrants are governed by the terms of the Company's Warrant Agreement,
dated ___________, 1996, including the anti-dilution provisions contained
therein.
6.2 [Intentionally Omitted]
6.3 Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
or fractional Warrants upon the exercise or transfer of the Purchase Option, nor
shall it be required to issue scrip or pay cash in lieu of any fractional
interests, it being the intent of the parties that all fractional interests
shall be eliminated by rounding any fraction up or down to the nearest whole
number of Warrants, shares of Common Stock or other securities, properties or
rights.
7. Reservation and Listing. The Company shall at all times reserve and
keep available out of its authorized shares of Common Stock, solely for the
purpose of issuance upon exercise of the Purchase Options or the Warrants, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Purchase Options and payment of the Exercise Price
therefor, all shares of Common Stock and other securities issuable upon such
exercise shall be duly and validly issued, fully paid and non-assessable and not
subject to preemptive rights of any stockholder. The Company further covenants
and agrees that upon exercise of the Warrants underlying the Purchase Options
and payment of the respective Warrant exercise price therefor, all shares of
Common Stock and other securities issuable upon such exercises shall be duly and
validly issued, fully paid and non-assessable and not subject to preemptive
rights of any stockholder. As long as the Purchase Options shall be outstanding,
the Company shall use its best efforts to cause (i) shares of Common Stock
issuable upon exercise of the Purchase Options and the Warrants, and (ii) the
Warrants underlying the Purchase Options to be listed (subject to official
notice of issuance) on all
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<PAGE>
securities exchange (or, if applicable on Nasdaq) on which the Common Stock or
the Public Warrants issued to the public in connection herewith are then listed
and/or quoted.
8. Certain Notice Requirements.
8.1 Holder's Right to Receive Notice. Nothing herein shall be
construed as conferring upon the Holders the right to vote or consent or to
receive notice as a stockholder for the election of directors or any other
matter, or as having any rights whatsoever as a stockholder of the Company. If,
however, at any time prior to the expiration of the Purchase Options and their
exercise, any of the events described in Section 8.2 shall occur, then, in one
or more of said events, the Company shall given written notice of such event at
least fifteen days prior to the date fixed as a record date or the date of
closing the transfer books for the determination of the stockholders entitled to
such dividend, distribution, conversion or exchange of securities or
subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notice shall specify such record date or
the date of the closing of the transfer books, as the case may be.
8.2 Events Requiring Notice. The Company shall be required to give
the notice described in this Section 8 upon one or more of the following events:
(i) if the Company shall take a record of the holders of its shares of Common
Stock for the purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or distribution payable
otherwise than out of retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books of the Company, or (ii)
the Company shall offer to all the holders of its Common Stock any additional
shares of capital stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, or any option, right or
warrant to subscribe therefor, or (iii) a dissolution, liquidation or winding up
of the Company (other than in connection with a consolidation or merger) or a
sale of all or substantially all of its property, assets and business shall be
proposed.
8.3 Notice of Change in Exercise Price. The Company shall, promptly
after an event requiring a change in the Exercise Price pursuant to Section 6
hereof, send notice to the Holders of such event and change ("Price Notice").
The Price Notice shall describe the event causing the change and the method of
calculating same and shall be certified as being true and accurate by the
Company's President and Chief Financial Officer.
8.4 Transmittal of Notices. All notices, requests, consents and other
communications under this Purchase Option shall be in writing and shall be
deemed to have been duly made on the date of delivery if delivered personally or
sent by overnight courier, with acknowledgement of receipt to the party to which
notice is given, by registered or certified mail, return receipt requested,
postage prepaid and properly addressed as follows: (i) if to the registered
Holder of the Purchase Option, to the address of such Holder as shown on the
books of the Company, or (ii) if to the Company, to its principal executive
office.
9. Miscellaneous.
9.1 Amendments. The Company and the Underwriter may from time to time
supplement or amend this Purchase Option without the approval of any of the
Holders in order to cure any ambiguity, to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable and which the Company and the Representative deem shall
not adversely affect the interest of the Holders. All other modifications or
amendments shall require the written consent of the party against whom
enforcement of the modification or amendment is sought.
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<PAGE>
9.2 Headings. The headings contained herein are for the sole purpose
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Purchase
Option.
9.3 Entire Agreement. This Purchase Option (together with the other
agreements and documents being delivered pursuant to or in connection with this
Purchase Option) constitutes the entire agreement of the parties hereto with
respect to the subject matter hereof, and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof.
9.4 Binding Effect. This Purchase Option shall inure solely to the
benefit of and shall be binding upon, the Holder and the Company and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Purchase Option or any provisions
herein contained.
9.5 Governing Law; Submission to Jurisdiction. This Purchase Option
shall be governed by and construed and enforced in accordance with the laws of
the State of New York, without giving effect to conflict of laws. The Company
hereby agrees that any action, proceeding or claim against it arising out of, or
relating in any way to this Purchase Option shall be brought and enforced in the
courts of the State of New York or of the United States of America for the
Southern District of New York, and irrevocably submits to such jurisdiction,
which jurisdiction shall be exclusive. The Company hereby waives any objection
to such exclusive jurisdiction and that such courts represent an inconvenient
forum. Any process or summons to be served upon the Company may be served by
transmitting a copy thereof by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
8 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the Company in any action, proceeding or claim. The Company agrees
that the prevailing party(ies) in any such action shall be entitled to recover
from the other party(ies) all of its reasonable attorneys' fees and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
9.6 Waiver, Etc. The failure of the Company or the Holder to at any
time enforce any of the provisions of this Purchase Option shall not be deemed
or construed to be a waiver of any such provision, nor to in any way affect the
validity of this Purchase Option or any provision hereof or the right of the
Company or any Holder to thereafter enforce each and every provision of this
Purchase Option. No waiver of any breach, non-compliance or non-fulfillment of
any of the provisions of this Purchase Option shall be effective unless set
forth in a written instrument executed by the party or parties against whom or
which enforcement of such waiver is sought; and no waiver of any such breach,
non-compliance or non-fulfillment shall be construed or deemed to be a waiver of
any other or subsequent breach, non-compliance or non-fulfillment.
9.7 Execution in Counterparts. This Purchase Option may be executed
in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the parties hereto.
IN WITNESS WHEREOF, the Company has caused this Purchase Option to be
signed by its duly authorized officer as of the ______ day of _______________,
1996.
OBJECTSOFT CORPORATION
By: /s/ David E. Y. Sarna
-----------------------------
Name: David E. Y. Sarna
Title: Chairman of the Board
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<PAGE>
Form to be used to exercise Purchase Option:
ObjectSoft Corporation
Continental Plaza, Building 3
433 Hackensack Avenue
Hackensack, N.J. 07601
Date:
The undersigned hereby elects irrevocably to exercise the within
Purchase Option and to purchase Units, consisting of ________ shares of Common
Stock and _________ Warrants to purchase ________ shares of Common Stock of
ObjectSoft Corporation and hereby makes $ ____________ at the rate of $ ________
per Unit in payment of the Exercise Price pursuant thereto. Please issue the
Common Stock and Warrants as to which this Purchase Option is exercised in
accordance with the instructions given below.
---------------------------
Signature
- -----------------------------
Signature Guaranteed
NOTICE: THE SIGNATURE TO THIS FORM MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE WITHIN PURCHASE OPTION IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY
BANK, OTHER THAN A SAVINGS BANK, OR BY A TRUST COMPANY OR BY A FIRM HAVING
MEMBERSHIP ON A REGISTERED NATIONAL SECURITIES EXCHANGE.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
NAME
------------------------------------------------------------
(PRINT IN BLOCK LETTERS)
ADDRESS
------------------------------------------------------------
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Form to be used to assign Purchase Option:
ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER TO EFFECT A TRANSFER OF THE
WITHIN PURCHASE OPTION):
FOR VALUE RECEIVED,_____________________________________ DOES HEREBY
SELL, ASSIGN AND TRANSFER UNTO ___________________________ THE RIGHT TO PURCHASE
_________ UNITS OF OBJECTSOFT CORPORATION ("COMPANY") EVIDENCED BY THE WITHIN
PURCHASE OPTION AND DOES HEREBY AUTHORIZE THE COMPANY TO TRANSFER SUCH RIGHT ON
THE BOOKS OF THE COMPANY.
DATED:___________________
_______________________________
SIGNATURE
NOTICE: THE SIGNATURE TO THIS FORM MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE WITHIN PURCHASE OPTION IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
-11-
[PARKER CHAPIN FLATTAU & KLIMPL, LLP]
[LETTERHEAD]
October 30, 1996
ObjectSoft Corporation
Continental Plaza III
433 Hackensack Avenue
Hackensack, NJ 07601
Re: ObjectSoft Corporation
Gentlemen:
We have acted as counsel to ObjectSoft Corporation (the "Company") in
connection with its filing of a registration statement on Form SB-2 (File No.
333-10519, the "Registration Statement") covering (i) 1,437,500 Units, including
187,500 Units subject to an over-allotment option, each Unit consisting of (A)
one share of Common Stock, $.0001 par value (the "Common Stock") and (B) one
redeemable Class A Warrant (the "Class A Warrants"), with each Class A Warrant
entitling the holder to purchase one share of Common Stock; (ii) an option (the
"Unit Purchase Option") to the representative of the underwriters described in
the Registration Statement to purchase 125,000 additional Units; (iii) 375,000
Units issuable upon the exercise of certain bridge warrants (the "Bridge
Warrants"); (iv) 37,500 Units issuable upon the exercise of a placement agent's
warrant (the "Placement Agent Warrant"); (v) 182,004 shares of Common Stock
issuable upon the exercise of warrants issued by the Company in July 1996 (the
"July Warrants"); (vi) 45,500 shares of Common Stock issuable upon the exercise
of certain placement warrants issued by the Company in July 1996 (the "July
Placement Warrant") and the July 1996 Warrants issuable upon the exercise of the
July Placement Warrant; (vii) 106,250 shares of Common Stock issuable upon the
exercise of warrants issued by the Company in 1992 and 1993 to certain investors
(the "Investor Warrants"); (viii) 43,333 shares of Common Stock issuable upon
the exercise of certain officer warrants (the "Officer Warrants"), and (ix)
352,001
<PAGE>
ObjectSoft Corporation
October 30, 1996
Page 2
shares of Common Stock held by certain stockholders (the "Outstanding
Stockholder Shares"), all as more particularly described in the Registration
Statement.
In our capacity as counsel to the Company, we have examined the
Company's Certificate of Incorporation and By-laws, as amended to date, and the
minutes and other corporate proceedings of the Company.
Melvin Weinberg, a partner of Parker Chapin Flattau & Klimpl, LLP,
may be deemed the beneficial owner of 350,000 shares of Common Stock as a result
of being a Trustee of each of The David E.Y. Sarna Family Trust and The George
J. Febish Family Trust.
With respect to factual matters, we have relied upon statements and
certificates of officers of the Company. We have also reviewed such other
matters of law and examined and relied upon such other documents, records and
certificates as we have deemed relevant hereto. In all such examinations we have
assumed conformity with the original documents of all documents submitted to us
as conformed or photostatic copies, the authenticity of all documents submitted
to us as originals and the genuineness of all signatures on all documents
submitted to us.
On the basis of the foregoing, we are of the opinion that:
(i) the shares of Common Stock included in the Units
covered by the Registration Statement have been validly authorized
and will, when sold as contemplated by the Registration Statement, be
legally issued, fully paid and non-assessable;
(ii) the Class A Warrants included in the Units covered by
the Registration Statement, and the Class A Warrants issuable upon
exercise of the Unit Purchase Option, the Bridge Warrants and the
Placement Agent Warrant, will, when sold as contemplated by the
Registration Statement, constitute legal, valid and binding
obligations of the Company;
(iii) the shares of Common Stock issuable upon exercise of
the foregoing Class A Warrants, the Unit Purchase Option, the Bridge
Warrants, the Placement Agent Warrant, the July 1996 Warrant, the
July Placement Warrant, the Investor Warrants and the Officer
Warrants, respectively, will, upon issuance and payment in accordance
with the terms of the Class A Warrants, Unit Purchase Option, Bridge
Warrants, Placement Agent's Warrant,
<PAGE>
ObjectSoft Corporation
October 30, 1996
Page 3
July 1996 Warrants, July Placement Warrant, Investor Warrants and
Officer Warrants, respectively, be legally issued, fully paid and
non-assessable, and
(iv) the Outstanding Stockholder Shares of Common Stock
covered by the Registration Statement have been validly authorized
and legally issued, and are fully paid and non-assessable. .
We hereby consent to the filing of this option as an exhibit to the
Registration Statement and to the reference made to us under the caption "Legal
Matters" in the prospectus constituting part of the Registration Statement.
Very truly yours,
/s/ PARKER CHAPIN FLATTAU & KLIMPL, LLP
PARKER CHAPIN FLATTAU & KLIMPL, LLP
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Form
SB-2 of our report dated March 2, 1996 (with respect to Note M August 15, 1996),
on the financial statements of ObjectSoft Corporation as at December 31, 1995
and for the two years then ended. We also consent to the reference to our firm
under the captions "Selected Financial Data" and "Experts."
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
Florham Park, New Jersey
October __, 1996
CONSENT OF NOMINEE FOR DIRECTOR
I consent to the inclusion in this registration statement on Form
SB-2, under the captions "Management" and "Underwriting," of the reference to me
as a nominee for director of ObjectSoft Corporation.
/s/ Gunther L. Less
Gunther L. Less
Sarasota, Florida
October __, 1996
