AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1996
Registration No. 333-10519
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1 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 No.)
organization) Code Number)
---------------------
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>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==========================================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY (1) OFFERING PRICE (1)(2) REGISTRATION FEE
==========================================================================================================================
<S> <C> <C> <C> <C>
Units, each Unit (the "Units") 1,437,500 $ 7.00 $10,062,500 $ 3,469.55
consisting of one share of
Common Stock, par value $.0001
per share ("Common Stock"), and
one Class A Warrant to purchase
one share of Common Stock ("Class
A Warrant")
- --------------------------------------------------------------------------------------------------------------------------
Common Stock included in the 1,437,000 -- -- --
Units
- --------------------------------------------------------------------------------------------------------------------------
Class A Warrants included in the 1,437,000 -- -- --
Units
- --------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon 1,437,000 $ 9.10 $13,081,250 $ 4,510.42
exercise of the Class A Warrants
included in the Units
- --------------------------------------------------------------------------------------------------------------------------
Representative's Unit Purchase 125,000 $ .0001 $ 100 $ .03
Option
- --------------------------------------------------------------------------------------------------------------------------
Units issuable upon exercise of the 125,000 $ 8.40 $ 1,050,000 $ 362.04
Unit Purchase Option
- --------------------------------------------------------------------------------------------------------------------------
Common Stock included in the 125,000 -- -- --
Units issuable upon exercise of the
Unit Purchase Option
- --------------------------------------------------------------------------------------------------------------------------
Class A Warrants included in the 125,000 -- -- --
Units issuable upon exercise of the
Unit Purchase Option
Common Stock issuable upon 125,000 $ 9.10 $ 1,137,500 $ 392.21
exercise of the Class A Warrants
included in the Units issuable upon
exercise of the Unit Purchase
Option
- --------------------------------------------------------------------------------------------------------------------------
Units issuable upon exercise of the 37,500 $ 7.00 $ 262,500 $ 90.51
Placement Agent's Warrant
- --------------------------------------------------------------------------------------------------------------------------
Common Stock included in the 37,500 -- -- --
Units issuable upon exercise of the
Placement Agent's Warrant
- --------------------------------------------------------------------------------------------------------------------------
Class A Warrants included in the 37,500 -- -- --
Units issuable upon exercise of the
Placement Agent Warrant
- --------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon 37,500 $ 9.10 $ 341,250 $ 117.66
exercise of the Class A Warrants
included in the Units issuable upon
exercise of the Placement Agent
Warrant
- --------------------------------------------------------------------------------------------------------------------------
Units issuable upon exercise of the 375,000 $ 7.00 $ 2,625,000 $ 905.51
Bridge Warrants
- --------------------------------------------------------------------------------------------------------------------------
Common Stock included in the 375,000 -- -- --
Units issuable upon exercise of the
Bridge Warrants
- --------------------------------------------------------------------------------------------------------------------------
Class A Warrants included in the 375,000 -- -- --
Units issuable upon exercise of the
Bridge Warrants
- --------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon 375,000 $ 9.10 $ 3,412,500 $ 1,176.63
exercise of the Class A Warrants
included in the Units issuable upon
exercise of the Bridge Warrants
- --------------------------------------------------------------------------------------------------------------------------
Common Stock issued in the July 273,001 $ 7.00 $ 1,911,000 $ 658.92
1996 Offering
- --------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon 182,004 $ 7.00 $ 1,274,028 $ 439.29
exercise of July 1996 Warrants
issued in the July 1996 Offering
- --------------------------------------------------------------------------------------------------------------------------
<PAGE>
==========================================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY (1) OFFERING PRICE (1)(2) REGISTRATION FEE
==========================================================================================================================
Common Stock issuable upon 27,300 $ 7.00 $ 191,100 $ 65.90
exercise of the July Placement
Warrant
- --------------------------------------------------------------------------------------------------------------------------
Common Stock issuable on 18,200 $ 7.00 $ 127,400 $ 43.93
exercise of July 1996 Warrants
issuable upon exercise of the July
Placement Warrant
- --------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon 106,250 $ 7.00 $ 743,750 $ 256.45
exercise of Investor Warrants
- --------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon 43,333 $ 7.00 $ 303,331 $ 104.59
exercise of Officer Warrants
- --------------------------------------------------------------------------------------------------------------------------
Common Stock for resale by 79,000 $ 7.00 $ 553,000 $ 190.68
certain Selling Securityholders
- --------------------------------------------------------------------------------------------------------------------------
37,009,609 $ 12,784.29
- --------------------------------------------------------------------------------------------------------------------------
TOTAL
- --------------------------------------------------------------------------------------------------------------------------
Previously Paid $ 12,761.36
- --------------------------------------------------------------------------------------------------------------------------
Amount Due $ 22.93
==========================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(o).
(2) Pursuant to Rule 416, there are also being registered such additional
number of Units, shares of Common Stock, and Class A Warrants as may
be issuable, as the case may be, pursuant to the anti-dilution
provisions of the Unit Purchase Option, Class A Warrants, Bridge
Warrants, Placement Agent's Warrant, July 1996 Warrants, July
Placement Warrant, Investor Warrants and Officer Warrants.
================================================================================
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.
================================================================================
<PAGE>
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 412,500 Units and 729,588
shares of Common Stock (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 10, 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 INVEST-
MENT 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 CONTRARY
IS A CRIMINAL OFFENSE.
Price to Public Underwriting Discounts Proceeds to
and Commissions(1) Company(2)
- --------------------------------------------------------------------------------
Per Unit.................. $ $ $
- --------------------------------------------------------------------------------
Total (3)................. $ $ $
================================================================================
(footnotes on following page)
<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), the
other expenses of the Offering payable by the Company (estimated at
$_________) and the consulting fee for the first year after the
closing of the Offering. 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."
--------------------------
Concurrently with the Offering, the Company has registered the
offering of 729,588 shares of Common Stock that are outstanding or issuable upon
the exercise of warrants (the "Selling Securityholder Shares") and 412,500 Units
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 Units
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 375,000 Units and the
Selling Securityholder Shares may not be sold prior to the expiration of 12
months (nine months in the case of 185,750 such shares) after the date of this
Prospectus without the prior written consent of the Representative. 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 412,500 Units and 377,087 of the Selling
Securityholder Shares are issuable. See "Certain Transactions" and "Concurrent
Offering."
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.
RENAISSANCE FINANCIAL SECURITIES CORPORATION
The date of this Prospectus is ___________, 1996
<PAGE>
[PICTURES OF KIOSKS TO COME]
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.
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."
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").
2
<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 37 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. Further 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
3
<PAGE>
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 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
while 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.
4
<PAGE>
THE OFFERING
Securities being offered hereby.............1,250,000 Units, each Unit consis-
ting 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,
$_____ per share) for at least 20
consecutive trading days ending
within 15 days of the date of the
notice of redemption. See
"Description of Securities." The
shares of Common Stock and the Class
A Warrants comprising the Units are
immediately detachable and
separately transferable upon
issuance. See "Underwriting."
Offering Price .............................$_____ 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
- --------------
5
<PAGE>
(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."
(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."
6
<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: As Adjusted(2) Pro forma(1) Historical
-------------- ------------ ----------
<S> <C> <C> <C> <C>
Working capital (deficiency) $ 5,394,200 $ 937,669 $ 246,384 ($ 390,290)
Total assets 6,151,768 1,698,445 1,107,160 343,534
Redeemable preferred stock -- 268,469 393,469 383,906
Accumulated deficit (1,385,201) (1,193,939) (1,193,939) (877,404)
Total stockholders' equity 5,912,169 28,431 (787,854) (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."
7
<PAGE>
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."
8
<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 , $137,000 and
$47,000 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 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."
9
<PAGE>
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 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 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
10
<PAGE>
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 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
11
<PAGE>
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."
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
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<PAGE>
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."
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
13
<PAGE>
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."
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
14
<PAGE>
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 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
15
<PAGE>
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 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 subscribers. 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.
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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 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
17
<PAGE>
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, 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, 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
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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
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<PAGE>
be unrelated to operating results. These fluctuations, as well as general
economic, market and political conditions 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
20
<PAGE>
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 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 412,500 Units and 729,588
Selling Securityholder Shares 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
Selling Securityholder 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. 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 as well as 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
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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) 23,700 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 of the right to
purchase, commencing one year from the date of this Prospectus, 125,000 Units.
The sale of 729,588 Selling Securityholder Shares, as well as 412,500 Units, 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."
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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.
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
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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 ($750,000) 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> <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 (4) ........... 209,000 3.4%
---------- ------
TOTAL ................................................ $6,075,000 100.00%
========== ======
</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.
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(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 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
26
<PAGE>
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."
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."
27
<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 $ --
=========== =========== ===========
Preferredstock, $.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
deficiency) .......................... $ (787,854) $ 28,431 $ 5,912,169
=========== ============ ===========
</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)
28
<PAGE>
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 , (iv) 1,114,587 shares of Common Stock issuable
upon exercise of outstanding options and warrants and the Class A Warrants
issuable upon the 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 $1,283,000, 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:
29
<PAGE>
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- ------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
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%
========= ======= ========== ======
</TABLE>
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 only 145,000 have
been granted to date (which are included in (ii) above). See "Management - 1996
Stock Option Plan," "Description of Securities" and "Underwriting."
30
<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 (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
outstanding 2,897,418 2,894,418 2,894,418 2,894,418
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
BALANCE SHEET DATA: As Adjusted(2) Pro Forma(1) Historical
-------------- ------------ ----------
<S> <C> <C> <C> <C>
Working capital (deficiency) $ 5,394,200 937,669 $ 246,384 $ (390,290)
Total assets 6,151,768 1,698,445 1,107,160 343,534
Redeemable preferred stock -- 268,469 393,469 383,906
Accumulated deficit (1,385,201) (1,193,939) (1,193,939) (877,404)
Total stockholders' equity (capital deficiency) 5,912,169 28,431 (787,854) (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
31
<PAGE>
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."
32
<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.
33
<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.
Expenses for the year ended December 31, 1995 declined to $688,994
from $801,260 in 1994. The decline in 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.
During the year ended December 31, 1995, the general and
administrative expenses declined to $275,440 from $408,158 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 Offering, professional fees and marketing expenses
for OLEBroker(TM) and SmartStreet(TM).
34
<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).
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). The Company's selling expenses declined from $232,418 for the
six months ending June 30, 1995 to $153,781, reflecting a reduction in efforts
to build the Company's consulting, training, and custom development business.
For the six months ended June 30, 1996 and 1995, respectively,
development expenses were either charged to client expense (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 $352,099 from $159,887 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 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.
35
<PAGE>
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.
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."
36
<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.
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<PAGE>
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.
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. Further 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"
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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 while 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
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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
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 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.
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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 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.
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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.
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.
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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, dog
licenses, obtaining public health information, and registering for certain
courses offered by the Department of Health. Information on City government,
directional information and 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 $661,100. Of this amount, $361,100 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
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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 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.
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.
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
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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]
SmartStreet(TM) Kiosk - Opening Screen
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The user has several choices on the Opening Screen to begin the
SmartStreet(TM) experience. The user can:
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]
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)
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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 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
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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 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.
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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.
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.
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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.
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
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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.
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 Screen 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 Screen), both of
which have sold similar kiosks to other municipalities. After fulfillment of the
initial contracts, if the City chooses to install
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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 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,
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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 June 30, 1996, the Company had six full-time and three
temporary employees, all of whom are based in its Hackensack, NJ offices. These
include three in product development, two in sales and marketing, and one 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. Sarna(1) 47 Chairman, Secretary and Director
George J. Febish(1) 48 President, Treasurer and Director
Daniel E. Ryan1(2)(3)(4) 48 Director
Julius Goldfinger(2)(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
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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 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 or 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
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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.
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."
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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 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 "Office 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-Executive Officers .
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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 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.
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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.
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.
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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
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 14, 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>
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
Cyndel & Co., Inc. (5) 242,500 9.4 6.3 5.2
26 Ludlam Avenue
Bayville, New York 11709
Steven Bayern (6) 288,500 11.0 7.5 6.2
26 Ludlam Avenue
Bayville, New York 11709
Daniel E. Ryan (7) 10,000 * * *
c/o ObjectSoft Corporation
Continental Plaza III
433 Hackensack Avenue
Hackensack, New Jersey 07601
Julius Goldfinger (7) 10,000 * * *
c/o ObjectSoft Corporation
Continental Plaza III
433 Hackensack Avenue
Hackensack, New Jersey 07601
Gunther L. Less (8) 0 * * *
c/o ObjectSoft Corporation
Continental Plaza III
433 Hackensack Avenue
Hackensack, New Jersey 07601
</TABLE>
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<PAGE>
<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>
All officers and directors as 1,795,000 64.3 44.5 37.2
a group (4 persons) (4)(7)
</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 - Executive Officer/Stockholder Common Stock Warrants."
(5) 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.]
(6) 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 -Executive Officer/Stockholder Common
Stock Warrants - Placement Agent's Warrant; July Placement Warrant."
(7) 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.
(8) 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.
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<PAGE>
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 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 New Jersey, 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 New Jersey. 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 New Jersey into the Company. The stockholders of ObjectSoft New
Jersey 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 New Jersey was exchanged for a like share of capital stock of the
Company upon the effectiveness of the Merger.
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<PAGE>
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 - Investor Warrants - "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.
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
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<PAGE>
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 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."
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 $273,000. 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.
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<PAGE>
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 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."
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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, (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
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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
holder 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 July 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.
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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."
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
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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.
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 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
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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 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, 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 412,500 Units, and 729,588 shares of Common Stock 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 Selling Securityholder Shares 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, and the holders of the Investor Warrants and 79,500 Selling
Securityholder Shares 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 as well as demand registration
rights that they may exercise commencing one year from the date of this
Prospectus (but commencing two years
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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
=========
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
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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 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.
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 provide 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,
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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 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. 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.
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.
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CONCURRENT OFFERING
Concurrently with the Offering, the Company has registered the
offering of 412,500 Units and 729,588 Selling Securityholder Shares 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 375,000 Units and all the Selling Securityholder Shares of Common Stock 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. 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 412,500 Units and 377,087 of the 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.
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 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 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,
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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.
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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 the two years 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 the two years 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)
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 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
----------- ----------- ----------- -----------
Expenses:
Selling .................. 153,781 232,418 347,189 389,241
Research and development . 62,863
General and administrative 352,099 159,887 275,440 408,158
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
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.
(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)
- ------------------------------------------------------------------
[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.
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.
(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 A) - Summary of Significant Accounting Policies: (continued)
- ------------------------------------------------------------------
[7] Stock options: (continued)
--------------------------
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-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 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.
(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 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, 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.
(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 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
=======
(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 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.
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.
(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 H) - Capital Deficiency: (continued)
- -------------------------------------------
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 Note 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 -
========= =========
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>
(continued)
F-14
<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 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 34.0% 34.0% 34.0% 34.0%
rate
Increase in valuation ...... (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-15
<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.
(continued)
F-16
<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 L) - Concentration of Risk: (continued)
- ----------------------------------------------
[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.
(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-17
<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, 1,250,000 UNITS
IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY OBJECTSOFT
THE COMPANY OR BY THE UNDERWRITER. CORPORATION
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 EACH UNIT CONSISTING OF
OF AN OFFER TO BUY ANY OF THE UNITS ONE SHARE OF COMMON STOCK
OFFERED BY THIS PROSPECTUS TO ANY AND ONE REDEEMABLE
PERSON TO WHOM, OR BY ANY PERSON IN CLASS A WARRANT
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. [LOGO]
TABLE OF CONTENTS
-----------------
Page
Prospectus Summary................. 3
Risk Factors....................... 9
Use of Proceeds.................... 28
Dividend Policy.................... 29 ---------------------------------
Capitalization..................... 30
Dilution........................... 31
Selected Financial Data............ 33 PROSPECTUS
Management's Discussion and
Analysis of Financial Condition ---------------------------------
and Results of Operations........ 34
Glossary........................... 38
Business........................... 41
Management......................... 59
Principal Stockholders............. 67
Certain Transactions............... 68
Description of Securities.......... 71 RENAISSANCE FINANCIAL SECURITIES
Shares Eligible for Future Sale.... 77 CORPORATION
Underwriting....................... 79
Concurrent Offering................ 82
Legal Matters...................... 82 ______________, 1996
Experts............................ 82
Additional Information............. 82
Index to Financial Statements......F-1
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.
====================================== =======================================
<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
412,500 Units
Each Unit consisting of one Share
of Common Stock and one Redeemable Class A Warrant
352,501 SHARES OF COMMON STOCK
377,087 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF
WARRANTS
This Prospectus relates to (i) 412,500 units (the "Units"), each Unit
consisting of one share of the common stock, par value $.0001 per share (the
"Common Stock"), of ObjectSoft Corporation (the "Company") and one Redeemable
Class A Warrant (the "Class A Warrants") of the Company and (ii) 719,588 shares
of Common Stock (the "Selling Securityholder Shares"). The Units and the Selling
Securityholder Shares 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 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 Selling Securityholder Shares, (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) 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."
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 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 Selling Securityholder Shares 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
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
SELLING SECURITYHOLDERS
Up to an aggregate of 412,500 Units and 729,588 Selling
Securityholder Shares may be offered for resale by the Selling Securityholders.
The Units are issuable upon the exercise of the Bridge Warrants issued to
investors in the Bridge Loan Offering and the Placement Agent's Warrant. Of the
Selling Securityholder Shares, 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.
MAXIMUM
NUMBER OF
SELLING SECURITYHOLDERS UNITS TO BE SOLD (1)
----------------------- ---------------------
BRIDGE OFFERING INVESTORS
Renaissance Financial Securities Corporation 37,500 (2)
Nathan Eisen 7,500
Richard, Steven and Kenneth Etra 15,000
William J. Ludwig 15,000
Joseph W. And Ann G. Schantz 7,500
Gregg Gallant 7,500
Mary and Mark Albritton 15,000
Sydney Katz 7,500
Louis Falletta 7,500
Phillip Levien 7,500
Pamda Retirement Trust 15,000
Eric W. Larson 15,000
HRIS Associates, Inc. 15,000
Program Advisors Corporation 7,500
Program Resource Organization, Inc. 7,500
Association of Independent Employers, Ltd. 7,500
Peter S. Morford 7,500
Robert E. Coomes 7,500
Gary G. Hammon 7,500
Sheldon Sisken 7,500
Abraham David 7,500
Bay N. Sayegh 7,500
American Waste Oil Services Corp. 15,000
Gastro Enterology Associates 30,000
Servesting Investment Co. 7,500
Martin Hodas 15,000
Richard Someck 15,000
Roger Testa 30,000
Cyril J. Galagan 15,000
Jack P. Conlon 15,000
Joseph Schanne and Theresa Schanne 15,000
Anthony Quaranta 15,000
------
TOTAL UNITS 412,500
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
<TABLE>
<CAPTION>
MAXIMUM NUMBER
OF SHARES ISSUABLE
ON EXERCISE OF JULY
MAXIMUM NUMBER OF 1996 WARRANTS TO BE
SHARES TO BE SOLD SOLD
----------------- -------------------
JULY 1996 OFFERING INVESTORS
- ----------------------------
<S> <C> <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>
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
<TABLE>
<CAPTION>
MAXIMUM SHARES OWNED
NUMBER OF AFTER THE
SELLING SECURITYHOLDERS SHARES TO BE SOLD OFFERING
----------------------- ----------------- --------
<S> <C> <C>
INVESTOR WARRANT HOLDERS
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>
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
MAXIMUM
NUMBER OF
SELLING SECURITYHOLDERS SHARES TO BE SOLD
OUTSTANDING SHARES
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 Units
issuable upon the exercise of the Bridge Warrants. See "Certain
Transactions - Recent Financings."
(2) Consists of 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. 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."
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 Selling Securityholder Shares) after the
date of this Prospectus without the prior written consent of Renaissance in its
capacity as representative.
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
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.
<PAGE>
[ALTERNATE PROSPECTUS PAGE]
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.
<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, OBJECTSOFT
IF GIVEN OR MADE, SUCH INFORMATION CORPORATION
OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY 412,500 UNITS
THE COMPANY OR BY THE UNDERWRITER. EACH UNIT CONSISTING OF
THIS PROSPECTUS DOES NOT CONSTITUTE ONE SHARE OF COMMON STOCK
AN OFFER TO SELL OR THE SOLICITATION AND ONE REDEEMABLE
OF AN OFFER TO BUY ANY SECURITY CLASS A WARRANT
OTHER THAN THE UNITS OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION 352,501 SHARES OF
OF AN OFFER TO BUY ANY OF THE UNITS COMMON STOCK
OFFERED BY THIS PROSPECTUS TO ANY
PERSON TO WHOM, OR BY ANY PERSON IN 377,087 SHARES OF COMMON STOCK
ANY JURISDICTION IN WHICH IT IS ISSUABLE UPON THE EXERCISE
UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF WARRANTS
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 LOGO
Page
Prospectus Summary................. 3
Risk Factors....................... 9
Use of Proceeds.................... 28
Dividend Policy.................... 29
Capitalization..................... 30
Dilution........................... 31 ---------------------------------
Selected Financial Data............ 33
Management's Discussion and
Analysis of Financial Condition PROSPECTUS
and Results of Operations......... 34
Glossary........................... 38 ---------------------------------
Business........................... 41
Management......................... 59
Principal Stockholders............. 67
Certain Transactions............... 68
Description of Securities.......... 71
Shares Eligible for Future Sale.... 77
Selling Securityholders
Plan of Distribution .............. 79
Concurrent Public Offering......... 82 ______________, 1996
Legal Matters...................... 82
Experts............................ 82
Additional Information............. 82
Index to Financial Statements......F-1
====================================== =======================================
<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*................................. 150,000
Accounting fees and expenses*............................ 75,000
Transfer agent fees*..................................... 3,000
Blue sky fees and expenses (including counsel fees)*..... 40,000
Printing and engraving expenses*......................... 75,000
Miscellaneous*........................................... 57,164
---------
Total............................................. $450,000
=========
- --------------------
* Estimated
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 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.
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
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.
4.1 Form of Representative's Unit Purchase Option agreement
4.2 Specimen Certificate of the Company's Common Stock
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.
10.2 Employment Agreement dated as of July 1, 1996 between the Company
and George J. Febish.
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.
10.12 Agreement with ACORD Corporation dated July 5,1995.
10.13 Form of Investor Warrant.
10.14 Form of Officer Warrant.
10.16 Cyndel Warrant
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)
- ------------------
* To be filed by amendment.
(1) Filed with initial filing of Registration Statement.
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 - 1
<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 10, 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.
SIGNATURE TITLE DATE
/s/ DAVID E. Y. SARNA CHAIRMAN OF THE BOARD OF OCTOBER 10, 1996
- --------------------------- DIRECTORS AND SECRETARY
DAVID E. Y. SARNA (CO-PRINCIPAL EXECUTIVE
OFFICER AND PRINCIPAL
FINANCIAL OFFICER)
* PRESIDENT, TREASURER AND OCTOBER 10, 1996
- --------------------------- DIRECTOR (CO-PRINCIPAL
GEORGE J. FEBISH EXECUTIVE OFFICER AND
PRINCIPAL ACCOUNTING OFFICER)
* DIRECTOR OCTOBER 10, 1996
- ---------------------------
DANIEL E. RYAN
* DIRECTOR OCTOBER 10, 1996
- ---------------------------
JULIUS GOLDFINGER
*BY: S/ DAVID E. Y. SARNA
- ---------------------------
DAVID E.Y. SARNA,
ATTORNEY-IN-FACT
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, an
aggregate of ________
<PAGE>
units (the "Units") consisting of ________ shares of the Company's Common Stock,
par value $.0001 per share ("Common Stock"), purchase price of $ per share (or
$__________ per share net of commissions), and Redeemable Class A Warrants
("Warrant(s)") at a purchase price of $_________ per Unit (or $__________ per
Unit net of commissions), each Warrant 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 (such Units and the shares of Common
Stock and Warrants comprising the Units being referred to herein as the "Firm
Securities"). The Units shall each be comprised of one share of Common Stock and
one Warrant and shall be detachable and separately tradeable immediately upon
issuance.
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 the third
business day following the day that trading commences for the Firm Securities or
at such earlier time as the Underwriters shall determine, or at such other time
as shall be agreed upon by the Representative and the Company, 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 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
2
<PAGE>
and sale of the Firm Securities, the Representative is hereby granted an option
to purchase up to an additional ___________________ Units from the Company
("Over-allotment Option"). Such additional Units are hereinafter referred to as
the "Option Securities." 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." 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.
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 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 and type 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 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
3
<PAGE>
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.
4
<PAGE>
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, 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.
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
5
<PAGE>
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 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.__-________)
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 and the persons listed on Schedule 2.3.1 attached hereto,
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
6
<PAGE>
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 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,
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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 on the business, properties or financial condition of
the Company ("Material Adverse Effect").
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 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.
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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 Stock constitute the
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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 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.
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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 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 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.
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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 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.
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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 qualification 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,
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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.
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,
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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"), 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.
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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
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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 exclusive right with respect to any Intangibles used in the
conduct of its 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 do not 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
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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.
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
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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 the Prospectus which requires the Company to keep the
Registration Statement . 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 file
the Prospectus with the Commission pursuant to the requirements of Rule 424 of
the Regulations.
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
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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 original executed Registration Statements, including exhibits, and all
post-effective amendments thereto and copies of all exhibits filed therewith or
incorporated therein by reference and all original executed consents of
certified experts.
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 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
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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, 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 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.
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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 to 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 SB, (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
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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,
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
on each of the Closing Date and the Option Closing Date, if any, to the extent
not paid at Closing Date, 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
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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 e'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, [$35,000] 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 Public Securities 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 which are not otherwise
specifically provided for in this Section 3.15.1. 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 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
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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 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 tive 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
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existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
3.20 [Reserved]
3.21 Transfer Agent. The Company shall retain Continental Stock
Transfer 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 and, 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.
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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, 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 and to the best of such counsel's knowledge, has all the necessary
authorizations, approvals, orders, licenses, certificates, and permits of and
from all governmental or 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 authorizations, approvals,
orders, licenses, certificates and permits and all federal, state and local law,
rules and regulations, except where the failure to obtain authorizations,
approvals, orders, licenses, certificates and permits would not have a material
adverse effect on it or its operations. The Company has all corporate power and
authority to enter into this Agreement and to carry out the
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provisions and conditions hereof all consents, authorizations, approvals and
orders required in connection herewith have been obtained. 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; 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 and all
applicable state securities or Blue Sky laws 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. The
Securities are not and will not be subject to the preemptive rights of any
holders of any security of the Company or, to such counsel's knowledge, 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
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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 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 exclusive rights of the Company 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
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<PAGE>
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, (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 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
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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 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.
(xii) The Company has adequately insured its properties
against loss or damage by fire or other casualty and maintains, in adequate
amounts.
(xiii) Except as described in the Prospectus, to such
counsel's knowledge, no default exists in the due performance
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and observance of any term, covenant or condition of any material license,
contract, indenture, mortgage, deed of trust, note, loan or credit agreement
known to such counsel, or any material agreement or instrument evidencing an
obligation for borrowed money known to such counsel, or any other material
agreement or instrument to which the Company 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. The Company is not in violation of any term or provision of its
Certificate of Incorporation or By-Laws or of any material franchise, license,
permit, applicable law, rule, regulation, judgment or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over it or any of its
properties or business, except as described in the Prospectus.
(xiv) 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.
(xv) To such counsel's knowledge, except as set forth in
the Prospectuses, there are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or financial consulting
arrangements or any other arrangements, agreements, understandings, payments or
issuances that may affect the Underwriter's compensation, as determined by the
NASD.
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
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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.
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.
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
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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 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
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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.
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
the Underwriters ("controlling person") within the meaning of Section 15 of the
Act or Section
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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 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
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<PAGE>
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
38
<PAGE>
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 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
39
<PAGE>
(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 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 send a
40
<PAGE>
representative to observe each meeting of the Board of Directors. The Company
agrees to give the Representative written notice of each such meeting and to
provide the Representative with an agenda and minutes of the meeting no later
than it gives such notice and provides such items to the other directors.
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 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.
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<PAGE>
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
injured, 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
42
<PAGE>
(ix) if the Underwriters shall have become aware after the date hereof of a
Material Adverse Change, or such adverse material change in general market
conditions as in the Representative's judgment would make it impracticable to
proceed with the offering, sale and/or delivery of the Securities or to enforce
contracts made by the Underwriters for the sale of the Securities.
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.
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 Representative.
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
43
<PAGE>
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 Underwriter 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
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
44
<PAGE>
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 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.
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<PAGE>
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 nay 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
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<PAGE>
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.
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 general Underwriters
referred to in Schedule I of
the foregoing Underwriting
Agreement.
By:______________________________
Name: Todd M. Spehler
Title: President
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
OBJECTSOFT CORPORATION
I, George J. Febish, being the duly elected President of OBJECTSOFT
CORPORATION, a Delaware corporation (the "Corporation"), do hereby certify as
follows:
(a) The name of the Corporation is ObjectSoft Corporation.
(b) The Certificate of Incorporation is amended by the
addition of an ARTICLE ELEVENTH, ARTICLE TWELFTH and ARTICLE THIRTEENTH to read
as follows:
"ELEVENTH:
(i) ________ At a Meeting of Stockholders in 1996, the
directors shall be divided into two classes, with respect to the time
that they severally hold office, as nearly equal in number as
possible, with 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. Commencing with the 1997
Annual Meeting of Stockholders, directors elected to succeed those
directors whose terms have thereupon expired shall be elected for a
term of office to expire at the second succeeding Annual Meeting of
Stockholders after their election, and upon the election and
qualification of their successors. If the number of directors is
changed, any increase or decrease shall be apportioned among the
classes so as to maintain or attain, if possible, the equality of the
number of directors in each class, but in no case will a decrease in
the number of directors shorten the term of any incumbent director.
If such equality is not possible, the increase or decrease shall be
apportioned among the classes in such a way that the difference in
the number of directors in the classes shall not exceed one.
(ii) _______ Any vacancies in the Board of Directors for
any reason and any newly created directorships resulting by reason of
any increase in the number of directors may be filled only by the
Board of Directors (unless there are no remaining directors), acting
by a majority of the remaining directors then in office, although
less than a quorum, and any directors so chosen shall hold office
until the next election of the class for which such directors have
been chosen and until their successors are elected and qualified.
(iii) Any director, or the entire Board of Directors, may
be removed from
<PAGE>
office at any time, but only for cause and only by the affirmative
vote of the holders of at least 75% of the voting power of all of the
shares of capital stock of the Corporation then entitled to vote
generally in the election of directors, voting together as a single
class.
TWELFTH: Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called
annual or special meeting of stockholders of the Corporation and may
not be effected by any consent in writing by such stockholders.
Special meetings of stockholders of the Corporation may be called
only by (i) 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 (ii) the chairman of
the Board or the president of the Corporation.
THIRTEENTH: In addition to any requirements of the General
Corporation Law of Delaware (and notwithstanding the fact that a
lesser percentage may be specified by the General Corporation Law of
Delaware), the affirmative vote of the holders of at least 75% of the
voting power of all of the shares of capital stock of the Corporation
then entitled to vote generally in the election of directors, voting
together as a single class, shall be required for the stockholders of
the Corporation to amend, alter, change, adopt or repeal Article
Eleventh, Article Twelfth or Article Thirteenth hereof."
(c) The Board of Directors of the Corporation has adopted
resolutions by unanimous written consent setting forth the amendment
herein contained, declaring its advisability and providing that such
resolutions be presented for adoption by a vote at an annual meeting
by the holders of a majority of the shares entitled to vote thereon.
By a vote at the annual meeting of the stockholders of a majority of
the outstanding shares of the Common Stock and Series A Preferred
Stock of the Corporation voting together, such amendment has been
adopted in accordance with Section 242 of the General Corporation Law
of the State of Delaware.
Signed and attested to on 1996.
(Corporate Seal)
/s/ George J. Febish
-------------------------------
George J. Febish, President
Attest:
/s/ David E. Y. Sarna
- ----------------------------
David E. Y. Sarna, Secretary
AMENDED AND RESTATED
BY-LAWS OF
OBJECTSOFT CORPORATION
(A Delaware Corporation)
ARTICLE I
Offices
Section 1. REGISTERED OFFICE. The registered office of the
Corporation within the State of Delaware shall be in the City of Dover, County
of Kent.
Section 2. OTHER OFFICES. The Corporation may also have any office or
offices other than said registered office at such place or places, either within
or without the State of Delaware, as the Board of Directors shall from time to
time determine or the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. PLACE OF MEETINGS. All meetings of the stockholders for
the election of directors or for any other purpose shall be held at any such
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of meeting
or in a duly executed waiver thereof.
Section 2. ANNUAL MEETING. Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the state
of Delaware, and at such time and date as the board of directors, by resolution,
shall determine and as set forth in the notice of the meeting. At each annual
meeting, the stockholders entitled to vote shall elect a board of directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the stockholders of
the Corporation shall be held on such date, and at such time and place either
within or without the State of Delaware and shall be held only for such purpose
or purposes as may be designated by the President or Chairman of the Board of
the Corporation or the Board of Directors and stated in
<PAGE>
the notice of the meeting, in accordance with these By-Laws. Special meetings of
stockholders of the Corporation may be called only by (i) 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 (ii) the President or the Chairman of the Board of
the Corporation.
Section 4. NOTICE OF MEETINGS. Except as otherwise expressly required
by statute, written notice of each annual and special meeting of stockholders
stating the date, place and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each stockholder of record entitled to vote there at not less than ten nor
more than sixty days before the date of the meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice. Notice shall be given personally or by mail and, if by mail, shall be
sent in a postage prepaid envelope, addressed to the stockholder at his address
as it appears on the records of the Corporation. Notice by mail shall be deemed
given at the time when the same shall be deposited in the United States mail,
postage prepaid. Notice of any meeting shall not be required to be given to any
person who attends such meeting, except when such person attends the meeting in
person or by proxy for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, or who, either before or after the meeting, shall submit a
signed written waiver of notice, in person or by proxy. Neither the business to
be transacted at, nor the purpose of, an annual or special meeting of
stockholders need be specified in any written waiver of notice.
Section 5. LIST OF STOCKHOLDERS. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days before
each meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, showing the address of and
the number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city, town or village where the
meeting is to be held, which place shall be specified in the notice of meeting,
or, if not specified, at the place where the meeting is to be held. The list
shall be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
Section 6. QUORUM, ADJOURNMENTS. The holders of a majority of the
voting power of the issued and outstanding stock of the Corporation entitled to
vote thereat, present in person or represented by proxy, shall constitute a
quorum for the transaction of business at all meetings of stockholders, except
as otherwise provided by statute or by the Certificate of Incorporation. If,
however, such quorum shall not be present or represented by proxy at any meeting
of stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented by proxy. At such
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adjourned meeting at which a quorum shall be present or represented by proxy,
any business may be transacted which might have been transacted at the meeting
as originally called. If the adjournment is for more than thirty days, or, if
after adjournment a new record date is set, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
Section 7. ORGANIZATION. At each meeting of stockholders, the
Chairman of the Board, if one shall have been elected, or, in his absence or if
one shall not have been elected, the President shall act as chairman of the
meeting. The Secretary or, in his absence or inability to act, the person whom
the chairman of the meeting shall appoint secretary of the meeting shall act as
secretary of the meeting and keep the minutes thereof.
Section 8. ORDER OF BUSINESS; PROPOSED BUSINESS AT STOCKHOLDERS'
MEETING. The order of business at all meetings of the stockholders shall be as
determined by the chairman of the meeting. No business may be transacted at any
meeting of stockholders, other than business that is either (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board (or any duly authorized committee thereof), which shall include any
stockholder proposals contained in the Corporation's proxy statement made in
accordance with Rule 14a-8 of the Securities and Exchange Act of 1934 or any
successor thereto, (b) otherwise properly brought before the meeting by or at
the direction of the Board (or any duly authorized committee thereof) or (c)
otherwise properly brought before the meeting by any stockholder of the
Corporation (i) who is a stockholder of record on the date of such meeting, on
the date of the giving of the notice provided for in this Section, and on the
record date for the determination of stockholders entitled to vote at such
meeting and (ii) who complies with the procedures set forth in these By-Laws. In
addition to any other applicable requirements, for business to be properly
brought before a meeting by a stockholder or for a stockholder to nominate a
nominee for election as a director of the Corporation, such stockholder must
have given timely notice thereof in properly written form to the Secretary of
the Corporation. For business to be properly brought before an Annual Meeting of
stockholders by a stockholder, such stockholder's notice must be delivered to or
mailed and received by the Secretary at the principal executive offices of the
Corporation not less than one hundred-twenty (120) days nor more than one
hundred fifty (150) days prior to the one year anniversary of the date of the
notice of the Annual Meeting of stockholders that was held in the immediately
preceding year; provided, however, that in the event that the month and day of
the Annual Meeting of stockholders to be held in the current year is changed by
more than thirty (30) calendar days from the one year anniversary of the date
the Annual Meeting of stockholders was held in the immediately preceding year,
and less than one hundred-thirty (130) days' informal notice or other prior
public disclosure of the date of the Annual Meeting in the current year is given
or made to stockholders, notice of such proposed business to be brought before
the meeting by the stockholder to be timely must be so received not later than
the close of business on the tenth (10th) day following the day on which formal
or informal notice of the date of the Annual Meeting of stockholders was mailed
or such other public disclosure was made, whichever first occurs. In the case of
any other meeting, to be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than sixty (60) days nor more than ninety (90) days prior to the
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scheduled date of such meeting; provided, however, that in the event that less
than seventy (70) days notice or prior public disclosure of the date of a
meeting other than the Corporation's annual meeting is given or made to
stockholders, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure of the date of the meeting was made, whichever first occurs.
To be in proper written form, such stockholder's notice shall set forth as to
each matter such stockholder proposes to bring before the meeting (i) a brief
and complete description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting, (ii) the
name and business address and residence address of such stockholder, (iii) the
class and number of shares of the Corporation which are owned beneficially and
of record by such stockholder, (iv) any other information relating to such
person or proposal that is required to be disclosed in solicitations of proxies,
or is otherwise required, in each case pursuant to Regulation 14A promulgated
under the Securities Exchange Act of 1934, (v) any other information that is or
would be required to be disclosed in a Schedule 13D promulgated under the
Securities Exchange Act of 1934 regardless of whether such person would
otherwise be required to file a Schedule 13D, (vi) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names and other information with respect to such person
or persons similar to that provided by such stockholder) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business and (viii) a representation that such stockholder
intends to appear in person or by proxy at the meeting to bring such business
before the meeting. In addition, a person providing notice under this Section
shall supplementally and promptly provide such other information as the
Corporation otherwise requests. No business shall be conducted at the meeting of
the stockholders except business brought before the meeting by a stockholder in
accordance with the procedures set forth in this Section; provided, however,
that, once business has been properly brought before the meeting in accordance
with such procedures, nothing in this Section shall be deemed to preclude
discussion by any stockholder of any such business; provided further, however,
that if the stockholder bringing such matter before the meeting withdraws such
matter, such matter shall no longer be properly before the meeting. The chairman
of a meeting shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting in accordance with the
procedures prescribed by these By-Laws, and if he should so determine, such
business shall not be transacted.
Section 9. VOTING. Except as otherwise provided by statute or the
Certificate of Incorporation, each stockholder of the Corporation shall be
entitled at each meeting of stockholders to one vote for each share of capital
stock of the Corporation standing in his name on the record of stockholders of
the Corporation:
(a) on the date fixed pursuant to the provisions of Section 7
of Article V of these By-Laws as the record date for the determination of the
stockholders who shall be entitled to notice of and to vote at such meeting; or
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(b) if no such record date shall have been so fixed, then at
the close of business on the day next preceding the day on which notice thereof
shall be given, or, if notice is waived, at the close of business on the date
next preceding the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of stockholders may authorize
another person or persons to act for him by a proxy signed by such stockholder
or his attorney-in-fact, but no proxy shall be voted after three years from its
date, unless the proxy provides for a longer period. Any such proxy shall be
delivered to the secretary of the meeting at or prior to the time designated in
the order of business for so delivering such proxies. When a quorum is present
at any meeting, the vote of the holders of a majority of the voting power of the
issued and outstanding stock of the Corporation entitled to vote thereon,
present in person or represented by proxy, shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of statute or of the Certificate of Incorporation or of these By-Laws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question. Unless required by statute, or
determined by the chairman of the meeting to be advisable, the vote on any
question need not be by ballot. On a vote by ballot, each ballot shall be signed
by the stockholder voting, or by his proxy, if there by such proxy, and shall
state the number of shares voted.
Section 10. INSPECTORS. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the chairman of the meeting shall, or if inspectors shall not
have been appointed, the chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the results, and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as an inspector of an election of directors. Inspectors
need not be stockholders.
Section 11. ACTION BY CONSENT. Any action required or permitted to be
taken by the stockholders of the Corporation must be effected at a duly called
annual or special meeting of stockholders of the Corporation and may not be
effected by any consent in writing by such stockholders.
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ARTICLE III
Board of Directors
Section 1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors. The Board of Directors may exercise all such authority and powers of
the Corporation and do all such lawful acts and things as are not by statute or
the Certificate of Incorporation directed or required to be exercised or done by
the stockholders.
Section 2. NUMBER, CLASSIFICATION, QUALIFICATIONS, ELECTION AND TERM
OF OFFICE. The number of directors constituting the initial Board of Directors
shall be not less than three (3) nor more than seven (7). Thereafter, the number
of directors may be fixed, from time to time, by the affirmative vote of a
majority of the entire Board of Directors or by action of the stockholders of
the Corporation. Any decrease in the number of directors shall be effective at
the time of the next succeeding annual meeting of stockholders unless there
shall be vacancies in the Board of Directors, in which case such decrease may
become effective at any time prior to the next succeeding annual meeting to the
extent of the number of such vacancies. Directors need not be stockholders.
Except as otherwise provided by statute or these By-Laws, the directors (other
than members of the initial Board of Directors) shall be elected at the annual
meeting of stockholders. Each director shall hold office until his successor
shall have been elected and qualified, or until his death, or until he shall
have resigned, or have been removed, as hereinafter provided in these By-Laws.
The Directors shall be classified with respect to the time during which they
shall severally hold office by dividing them into two (2) classes, as provided
in the Certificate of Incorporation, each such class to be as nearly equal in
number as the then total number of Directors constituting the entire Board
permits. At a Meeting of Stockholders in 1996, the directors shall be divided
into two classes (designated Class I and Class II), with respect to the time
that they severally hold office, as nearly equal in number as possible, with the
initial term of office of the Class I directors to expire at the 1997 Annual
Meeting of Stockholders and the initial term of office of the Class II directors
to expire at the 1998 Annual Meeting of Stockholders. Commencing with the 1997
Annual Meeting of Stockholders, directors elected to succeed those directors
whose terms have thereupon expired shall be elected for a term of office to
expire at the second succeeding Annual Meeting of Stockholders after their
election (so that the term of office of one class of Directors shall expire in
each year), and upon the election and qualification of their successors. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain or attain, if possible, the equality of the
number of directors in each class, but in no case will a decrease in the number
of directors shorten the term of any incumbent director. If such equality is not
possible, the increase or decrease shall be apportioned among the classes in
such a way that the difference in the number of directors in the classes shall
not exceed one. Any Directors elected by holders of any preferred stock of the
Corporation voting as a separate class or series under any provisions of the
Certificate of Incorporation or Certificate of Designation establishing such
series shall be classified so that all additional Directors
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are so apportioned among the classes as to make all the classes as nearly equal
in number as possible. Notwithstanding anything herein to the contrary, the term
of office of any Director elected by any holders of the Corporation's preferred
stock voting as a separate class or series shall terminate as provided in the
Certificate of Incorporation or Certificate of Designation establishing such
series, notwithstanding the fact that the term of the other members of any class
in which any such Director is included has not yet expired.
Section 3. PLACE OF MEETINGS. Meetings of the Board of Directors
shall be held at such place or places, within or without the State of Delaware,
as the Board of Directors may from time to time determine or as shall be
specified in the notice of any such meeting.
Section 4. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholder, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
other time or place (within or without the State of Delaware) as shall be
specified in a notice thereof given as hereinafter provided in Section 7 of this
Article III.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such time and place as the Board of Directors may
fix. If any day fixed for a regular meeting shall be a legal holiday at the
place where the meeting is to be held, then the meeting which would otherwise be
held on that day shall be held at the same hour on the next succeeding business
day. Notice of regular meetings of the Board of Directors need not be given
except as otherwise required by statute or these By-Laws.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, if one shall have been
elected, or by two or more directors of the Corporation or by the President.
Section 7. NOTICE OF MEETINGS. Notice of each special meeting of the
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 7, in which notice shall be stated the time and place of the meeting.
Except as otherwise required by these By-Laws, such notice need not state the
purposes of such meeting. Notice of each such meeting shall be mailed, postage
prepaid, to each director, addressed to him at his residence or usual place of
business, by first class mail, at least two days before the day on which such
meeting is to be held, or shall be sent addressed to him at such place by
telegraph, cable, telex, telecopier or other similar means, or be delivered to
him personally or be given to him by telephone or other similar means, at least
twenty-four hours before the time at which such meeting is to be held. Notice of
any such meeting need not be given to any director who shall attend such
meeting, except when he shall attend for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
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Section 8. QUORUM AND MANNER OF ACTION. A majority of the entire
Board of Directors shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, and, except as otherwise expressly
required by statute or the Certificate of Incorporation or these By-Laws, the
act of a majority of the directors present at any meeting at which a quorum is
present shall be the act of the Board of Directors. In the absence of a quorum
at any meeting of the Board of Directors, a majority of the directors present
thereat may adjourn such meeting to another time and place. Notice of the time
and place of any such adjourned meeting shall be given to all of the directors
unless such time and place were announced at the meeting at which the
adjournment was taken, in which case such notice shall only be given to the
directors who were not present thereat. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. The directors shall act only as
a Board and the individual directors shall have no power as such.
Section 9. ORGANIZATION. At each meeting of the Board of Directors,
the Chairman of the Board, if one shall have been elected, or, in the absence of
the Chairman of the Board or if one shall not have been elected, the President
(or, in his absence, another director chosen by a majority of the directors
present) shall act as chairman of the meeting and preside thereat. The Secretary
or, in his absence, any person appointed by the chairman shall act as secretary
of the meeting and keep the minutes thereof.
Section 10. RESIGNATIONS. Any director of the Corporation may resign
at any time by giving written notice of his resignation to the Corporation. Any
such resignation shall take effect at the time specified therein or, if the time
when it shall become effective shall not be specified therein, immediately upon
its receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 11. VACANCIES. Any vacancies in the Board of Directors for
any reason and any newly created directorships resulting by reason of any
increase in the number of directors may be filled only by the Board of Directors
(unless there are no remaining directors), acting by a majority of the remaining
directors then in office, although less than a quorum; provided, however, that
if there are no directors then in office due to a vacancy the stockholders may
elect a successor, and any directors so chosen shall hold office until the next
election of the class for which such directors have been chosen and until their
successors are elected and qualified.
Section 12. REMOVAL OF DIRECTORS. Any director, or the entire Board
of Directors, may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of at least 75% of the voting power
of all of the shares of capital stock of the Corporation then entitled to vote
generally in the election of directors, voting together as a single class.
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Section 13. COMPENSATION. The Board of Directors shall have authority
to fix the compensation, including fees and reimbursement of expenses, of
directors for services to the Corporation in their capacity as directors or
otherwise.
Section 14. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, including an executive committee, each committee to consist of one
or more of the directors of the Corporation. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
addition, in the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting are not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Each such committee shall serve at the
pleasure of the Board of Directors and have such name as may be determined from
time to time by resolution adopted by the Board of Directors. Each committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors.
Except to the extent restricted by statute or the Certificate of
Incorporation, any committee, to the extent provided in the resolution of the
Board of Directors, or in these ByLaws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers that may require it.
Section 15. ACTION BY CONSENT. Unless restricted by the Certificate
of Incorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of the
proceedings of the Board of Directors or such committee, as the case may be.
Section 16. TELEPHONIC MEETING. Unless restricted by the Certificate
of Incorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Participation by such means shall constitute presence in person at a meeting.
Section 17. CONTRACTS AND TRANSACTIONS INVOLVING DIRECTORS. 'No
contract or transaction between the Corporation and one or more of its directors
or officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the
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contract or transaction, or solely because his, her or their votes are counted
for such purpose, if: (1) the material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or (2) the material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (3) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee
thereof, or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IV
Officers
Section 1. NUMBER AND QUALIFICATIONS. The officers of the Corporation
shall be elected by the Board of Directors or the stockholders and shall include
the President, one or more Vice-Presidents, the Secretary and the Treasurer. If
the Board of Directors or the stockholders wish, either may also elect as an
officer of the Corporation a Chairman of the Board and may elect other officers
(including one or more Assistant Treasurers and one or more Assistant
Secretaries) as may be necessary or desirable for the business of the
Corporation. Any two or more offices may be held by the same person, and no
officer except the Chairman of the Board need be a director. Each officer shall
hold office until his successor shall have been duly elected and shall have
qualified, or until his death, or until he shall have resigned or have been
removed, as hereinafter provided in these By-Laws.
Section 2. RESIGNATIONS. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Corporation. Any
such resignation shall .take effect at the time specified therein or, if the
time when it shall become effective shall not be specified therein, immediately
upon receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
Section 3. REMOVAL. Any officer of the Corporation may be removed,
either with or without cause, at any time by the Board of Directors at any
meeting thereof. Such removal shall be without prejudice to a person's contract
rights, if any, but the election as an officer of the Corporation shall not of
itself create contract rights.
Section 4. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one
shall have been elected, shall be a member of the Board, an officer of the
Corporation and, if present, shall preside at each meeting of the Board of
Directors or the stockholders. He shall advise and counsel with the President,
and in the President's absence (or if designated by the Board of Directors as
the co-chief executive officer of the Corporation with the President) with other
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executives of the Corporation, and shall perform such other duties as may from
time to time be assigned to him by the Board of Directors, including but not
limited to those of co-chief executive officer.
Section 5. THE PRESIDENT. The President shall be the chief executive
officer of the Corporation (or, if so designated by the Board of Directors, the
co-chief executive officer with the Chairman). He shall, in the absence of the
Chairman of the Board or if a Chairman of the Board shall not have been elected,
preside at each meeting of the Board of Directors or the stockholders. He shall
have general charge of the business affairs of the Corporation. He may employ or
discharge employees and agents of the Corporation, except such as shall be
appointed by the Board of Directors, and he or she may delegate these powers.
The Board of Directors by resolution from time to time may confer like powers
upon any other person or persons. He shall have the power to appoint any person
to the office of Assistant Secretary of the Corporation, without approval by the
Board of Directors or Assistant Treasurer as he shall determine to be in the
best interests of the Corporation. The President shall perform such other duties
incident to the office of President and chief executive officer and any other
duties as may from time to time be assigned to him by the Board of Directors.
Section 6. VICE-PRESIDENT. Each Vice-President shall perform all such
duties as from time to time may be assigned to him by the Board of Directors or
the President. At the request of the President or in his absence or in the event
of his inability or refusal to act, the Vice-President, or if there shall be
more than one, the Vice-Presidents in the order determined by the Board of
Directors (or if there be no such determination, then the Vice-Presidents in the
order of their election), shall perform the duties of the President, and, when
so acting, shall have the powers of and be subject to the restrictions placed
upon the President in respect of the performance of such duties.
Section 7. TREASURER. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all
the funds and securities of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to
the Corporation from any source whatsoever;
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(e) disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefor;
(f) render to the Board of Directors, whenever the Board of
Directors may require, an account of the financial condition of the Corporation;
and
(g) in general, perform all duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board of Directors.
Section 8. SECRETARY. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for
the purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board of Directors and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all certificates for shares of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are properly
kept and filed; and
(e) in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors.
Section 9. THE ASSISTANT TREASURER. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by either the President or the Board of Directors (or if there be no such
determination, then in the order of their election), shall, in the absence or of
the Treasurer or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the Treasurer and shall perform such other
duties as from time to time may be assigned by the President or the Board of
Directors.
Section 10. THE ASSISTANT SECRETARY. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by
either the President or the Board of Directors (or if there be no such
determination, then in the order of their election), shall, in the absence of
the Secretary or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties as from time to time may be assigned by the President or the Board of
Directors.
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Section 11. DELEGATION OF DUTIES. In case of the absence of any
officer of the Corporation, or for any other reason that the Board of Directors
may deem sufficient, the Board of Directors may confer for the time being the
powers or duties, or any of them, of such officer upon any other officer or upon
any directors.
Section 12. OFFICERS' BONDS OR OTHER SECURITY. If required by the
Board of Directors, any officer of the .Corporation shall give a bond or other
security for the faithful performance of this duties, in such amount and with
such surety as the Board of Directors may require.
Section 13. COMPENSATION. The compensation of the Officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors. An Officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact that he is also a director of
the Corporation.
Section 14. LOANS TO OFFICERS AND EMPLOYEES; GUARANTY OF OBLIGATIONS
OF OFFICERS AND EMPLOYEES. The Corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
Corporation or any subsidiary, including any officer or employee who is a
director of the Corporation or any subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or other assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation.
ARTICLE V
Stock Certificates and Their Transfer
Section 1. STOCK CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board or the President or a
Vice-President and by the Treasurer or an Assistant-Treasurer or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by him in the Corporation. If the Corporation shall be authorized to issue
more than one class of stock or more than one series of any class, the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, or in lieu
of the foregoing, such certificate shall contain a statement that the
Corporation will furnish without charge to each stockholder ho so requests the
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series hereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
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Section 2. FACSIMILE SIGNATURES. Any of or all the signatures on a
certificate may be a facsimile. In case any Officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as it may direct sufficient to indemnify it
against any claim that may be made against the Corporation on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
Section 4. TRANSFERS OF STOCK. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its records; provided, however, that the Corporation shall be
entitled to recognize and enforce any lawful restriction on transfer. Whenever
any transfer of stock shall be made for collateral security, and not absolutely,
it shall be so expressed in the entry of transfer if, when the certificates are
presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
Section 5. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars.
Section 6. REGULATIONS. The Board of Directors may make such
additional rules and regulations, not inconsistent with these By-Laws, as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of stock of the Corporation.
Section 7. FIXING THE RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
shall not be more than sixty nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. A determination of
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stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
If no record date is fixed by the Board of Directors, (1) the record
date for determining stockholders entitled to notice of or to vote at a meeting
stockholders shall be at the close of business on the day next preceding the
date on which notice is given, or, if notice is waived by all stockholders
entitled to vote at the meeting, at the close of business on the day next
preceding the day on which the meeting is held, (2) the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be at the close of business on the day on which the first
written consent is expressed by the filing thereof with the Corporation as
provided in Section 1.9 of these By-Laws, and (3) the record date for
determining stockholders for any other purpose shall be at the close of business
of the day on which the Board of Directors adopts the resolution relating
thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholder shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 8. REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its records as the
owner of shares of stock to receive dividends and to vote as such owner, shall
be entitled to hold liable for calls and assessments a person registered on its
records as the owner of shares of stock, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares of stock on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VI
Indemnification of Directors and Officers
Section 1. GENERAL. The Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he 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 corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he 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 his conduct was unlawful. The
termination of any
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action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of NOLO CONTENDRE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
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
reasonable cause to believe that his conduct was unlawful.
Section 2. DERIVATIVE ACTIONS. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 3. INDEMNIFICATION IN CERTAIN CASES. To the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Sections 1 and 2 of this Article VI, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 4. PROCEDURE. Any indemnification under Sections 1 and 2 of
this Article VI (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
such Sections 1 and 2. Such determination shall be made (a) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (b) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.
Section 5. ADVANCES FOR EXPENSES. Expenses incurred in defending a
civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director, officer, employee or
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agent to repay such amount unless it shall be ultimately determined that he is
entitled to be indemnified by the Corporation as authorized in this Article VI.
Section 6. RIGHTS NOT EXCLUSIVE. The indemnification provided by this
Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 7. INSURANCE. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
Article VI.
Section 8. DEFINITION OF CORPORATION. For the purposes of this
Article VI, references to "the Corporation" include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation so that any person who is or was a, director, officer, employee or
agent of such a constituent corporation or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another, corporation, partnership, joint venture, trust or other enterprise
shall stand in the same position under the provisions of this Article VI with
respect to the resulting or surviving corporation as he would if he had served
the resulting or surviving corporation in the same capacity.
Section 9. DEFINITIONS. For purposes of this Article VI, references
to "other enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer, employee or agent
of the corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this Article VI.
ARTICLE VII
General Provisions
Section 1. DIVIDENDS. Subject to the provisions of statute and the
Certificate of Incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by
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the Board of Directors at any regular or special meeting. Dividends may be paid
in cash, in property or in shares of stock of the Corporation, unless otherwise
provided by statute or the Certificate of Incorporation.
Section 2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of' Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserves in the manner in which it was created.
Section 3. SEAL. The seal of the Corporation shall be in such form as
shall be approved by the Board of Directors.
Section 4. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed, and once fixed, may thereafter be changed, by resolution of the Board of
Directors.
Section 5. CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.
Section 6. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors
may authorize any officer or officers, agent or agents, in the name and on
behalf of the Corporation, to enter into or execute and deliver any and all
deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
Section 7. VOTING OF STOCK IN OTHER CORPORATIONS. Unless otherwise
provided by resolution of the Board of Directors, the Chairman of the Board or
the President or the Secretary, from time to time, may (or may appoint one or
more attorneys or agents and delegate to them the powers requisite to) cast the
votes which the Corporation may be entitled to cast as a shareholder or
otherwise in any other corporation, or may execute any stockholders' or other
consents in respect thereof, any of whose shares or securities may be held by
the Corporation, at meetings of the holders of the shares or other securities of
such other corporation. In the event one or more attorneys or agents are
appointed, the Chairman of the Board or the President or the Secretary may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent. The Chairman of the Board or the President or the
Secretary may, or may instruct the attorneys or agents appointed to, execute or
cause to be executed in the name and on behalf of the Corporation and under its
seal or otherwise, such written proxies, consents, waivers or other instruments
as may be necessary or proper in the circumstances.
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ARTICLE VIII
Amendments
These By-Laws may be amended or repealed or new bylaws adopted (a) by
action of the stockholders entitled to vote thereon at any annual or special
meeting of stockholders or (b) if the Certificate of Incorporation so provides,
by action of the Board of Directors at a regular or special meeting thereof. Any
by-law made by the Board of Directors may be amended or repealed by action of
the stockholders at any annual or special meeting of stockholders.
Notwithstanding the foregoing, in addition to any requirements of the General
Corporation Law of Delaware (and notwithstanding the fact that a lesser
percentage may be specified by the General Corporation Law of Delaware), the
affirmative vote of the holders of at least 75% of the voting power of all of
the shares of capital stock of the Corporation then entitled to vote generally
in the election of directors, voting together as a single class, shall be
required for the stockholders of the Corporation to amend, alter, change, adopt
or repeal Article Eleventh, Article Twelfth or Article Thirteenth of the
Certificate of Incorporation.
ARTICLE IX
Emergency By-Laws
Section 1. EMERGENCY BY-LAWS. The Emergency By-Laws provided in this
Section 9.1 shall be operative during any emergency in the conduct of the
business of the corporation resulting from an attack on the United States or on
a locality in which the corporation conducts its business or customarily holds
meetings of its Board of Directors or its stockholders, or during any nuclear or
atomic disaster, or during the existence of any catastrophe, or other similar
emergency condition, as a result of which a quorum of the Board of Directors or
a standing committee thereof cannot readily be convened for action
notwithstanding any different provision in the preceding By-Laws or in the
Certificate of Incorporation or in the law. To the extent not inconsistent with
the provisions of this Section, the By-Laws of the Corporation shall remain in
effect during any emergency and upon its termination the Emergency By-Laws shall
cease to be operative. Any amendments of these Emergency By-Laws may make any
further or different provision that may be practical and necessary for the
circumstances of the emergency.
During any such emergency: (A) A meeting of the Board of Directors or
a committee thereof may be called by any officer or director of the Corporation.
Notice of the time and place of the meeting shall be given by the person calling
the meeting to such of the directors as it may be feasible to reach by any
available means of communication. Such notice shall be given at such time in
advance of the meeting as circumstances permit in the judgment of the person
calling the meeting; (B) The director or directors in attendance at the meeting
shall constitute a quorum; (C) The officers or other persons designated on a
list approved by the Board of Directors before the emergency, all in such order
of priority and subject to such conditions and for such period of time (not
longer than reasonably necessary after the termination of the emergency) as may
be provided in the resolution approving the list, shall, to the extent required
to provide a quorum at any
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meeting of the Board of Directors, be deemed directors for such meeting; (D) The
Board of Directors, either before or during any such emergency, may provide, and
from time to time modify, lines of succession in the event that during such
emergency any or all officers or agents of the Corporation shall for any reason
be rendered incapable of discharging their duties; (E) The Board of Directors,
either before or during any such emergency, may, effective in the emergency,
change the head office or designate several alternative head offices or regional
offices, or authorize the officers to do so; and (F) To the extent required to
constitute a quorum at any meeting of the Board of Directors during such an
emergency, the officers of the Corporation who are present shall be deemed, in
order of rank and within the same rank in order of seniority, directors for such
meeting.
No officer, director or employee acting in accordance with any
Emergency By-Laws shall be liable except for willful misconduct.
These Emergency By-Laws shall be subject to repeal or change by
further action of the Board of Directors or by action of the stockholders.
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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 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, up to ______________ (_____________) shares of
Common Stock of the Company, $.0001 par value ("Common Stock"), and/or to
subscribe for, purchase and receive, in whole or in part, (____________)
Redeemable Common Stock Purchase Warrants ("Warrants"). This Purchase Option is
initially exercisable at $ _____ per share of Common Stock and $ ______ per
Warrant purchased; 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 shares of Common Stock
and Warrants 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, depending on the context of a share of Common Stock
or a Warrant. Each Warrant is the same as the warrants that have been registered
for sale to the public pursuant to the Registration Statement ("Public
Warrants"). The shares of Common Stock and Warrants are sometimes collectively
referred to herein as the "Securities." The Holder can purchase, upon exercise
of the Purchase Option, either shares of Common Stock or Warrants or both. If
the Expiration Date is a day on which banking
<PAGE>
institutions are authorized by law to close, then this Purchase Option may be
exercised on the next succeeding day which is not such a day in accordance with
the terms herein. During the period ending on the Expiration Date, the Company
agrees not to take any action that would terminate the Purchase Option.
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 in cash or by certified check or official bank check for the Securities
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, as
amended:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended ("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."
2.3 CASHLESS EXERCISE.
2.3.1 DETERMINATION OF AMOUNT. In lieu of the payment of
the Exercise Price in the manner required by Section 2.1, the Holder shall have
the right (but not the obligation) to pay the Exercise Price for the Securities
being purchased with this Purchase Option upon exercise by the surrender to the
Company of any exercisable but unexercised portion of this Purchase Option
having a "Value" (as defined below), at the close of trading on the last trading
day immediately preceding the exercise of this Purchase Option, equal to the
Exercise Price multiplied by the number of Securities being purchased upon
exercise ("Cashless Exercise Right").
(i) COMMON STOCK. Upon exercise of the Cashless Exercise
Right with respect to the Common Stock, the Company shall deliver to the Holder
(without payment by the Holder of any of the Exercise Price) that number of
shares of Common Stock equal to the quotient obtained by dividing (x) the
"Value" (as defined below) of the portion of the Purchase Option being converted
at the time the Cashless Exercise Right is exercised by (y) the Exercise Price.
The "Value" of the portion of the Purchase Option being converted shall equal
the remainder derived from subtracting (a) the Exercise Price multiplied by the
number of shares of
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Common Stock being converted from (b) the Market Price of the Common Stock
multiplied by the number of shares of Common Stock being converted. As used
herein, the term "Market Price" at any date shall be deemed to be the last
reported sale price of the Common Stock on such date, or, in case no such
reported sale takes place on such day, the average of the last reported sale
prices for the immediately preceding three trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or if any such exchange
on which the Common Stock is listed is not its principal trading market, the
last reported sale price as furnished by the NASD through the Nasdaq National
Market or SmallCap Market, or, if applicable, the OTC Bulletin Board, or if the
Common Stock is not listed or admitted to trading on any of the foregoing
markets, or similar organization, as determined in good faith by resolution of
the Board of Directors of the Company, based on the best information available
to it.
(ii) WARRANTS. Upon exercise of the Cashless Exercise
Right with respect to the Warrants, the Company shall deliver to the Holder
(without payment by the Holder of any of the Exercise Price) that number of
Warrants equal to the quotient obtained by dividing (x) the "Value" (as defined
below) of the portion of the Purchase Option being converted at the time the
Cashless Exercise Right is exercised by (y) the Exercise Price. The "Value" of
the portion of the Purchase Option being converted shall equal the remainder
derived from subtracting (a) the Exercise Price multiplied by the number of
Warrants being converted from (b) the Market Price of the Warrants multiplied by
the number of Warrants being converted. As used herein, the term "Market Price"
at any date shall be deemed to be the last reported sale price of the Warrants
on such date, or, in case no such reported sale takes place on such day, the
average of the last reported sale prices for the immediately preceding three
trading days, in either case as officially reported by the principal securities
exchange on which the Warrants are listed or admitted to trading, or, if the
Warrants are not listed or admitted to trading on any national securities
exchange or if any such exchange on which the Warrants are listed is not its
principal trading market, the last reported sale price as furnished by the NASD
through the Nasdaq National Market or SmallCap Market, or, if applicable, the
OTC Bulletin Board, or if the Warrants are not listed or admitted to trading on
any of the foregoing markets, or similar organization, as determined in good
faith by resolution of the Board of Directors of the Company, based on the best
information available to it.
2.3.2 MECHANICS OF CASHLESS EXERCISE. The Cashless
Exercise Right may be exercised by the Holder on any business day on or after
the Commencement Date and not later than the Expiration Date by delivering the
Purchase Option with a duly executed exercise form attached hereto with the
cashless exercise section completed to the Company, exercising the Cashless
Exercise Right and specifying the total number of Securities will purchase
pursuant to such Cashless Exercise Right.
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
Renaissance Financial Securities Corporation ("Underwriter") or an officer or
partner of any Selected
3
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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 shares of Common Stock and Warrants 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 OF 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 shares of Common Stock and Warrants purchasable hereunder to
which this Purchase Option has not been exercised or assigned.
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 Registration. Reference is made to the Registration Statement
(33-___________) declared effective by the Securities and Exchange Commission on
____________, 1996 ("Registration Statement"). The Company confirms that Section
3 of the Underwriting Agreement, dated _____________________, 1996
4
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("Underwriting Agreement") between the Company and Renaissance Financial
Securities Corporation requires the Company to keep the Registration Statement
current and effective throughout the period ending on the [two-year] anniversary
of the expiration of this Purchase Option ("Registration Period") in order to
allow the Holder to exercise this Purchase Option and sell the Common Stock and
Warrants and shares of Common Stock underlying such Warrants (collectively,
"Registrable Securities") freely, without any additional registration under the
Act and without complying with any exemption therefrom. The Company hereby
confirms, on behalf of each Holder, its agreement to keep the Registration
Statement current and effective throughout the Registration Period and agrees
that each Holder is a third party beneficiary of the Underwriting Agreement with
respect to any provision of the Underwriting Agreement related thereto.
Moreover, if the Company fails to comply with the provisions of this Section
5.1, the Company shall, in addition to any other equitable or other relief
available to the Holder(s), be liable for any and all incidental, special and
consequential damages sustained by the Holder(s).
5.2 TERMS. The Company shall bear all fees and expenses attendant to
comply with Section 5.1, but the Holders shall pay any and all sales commissions
and the expenses of any legal counsel selected by the Holders to represent them
in connection with the sale of the Registrable Securities. The Company agrees to
use its best efforts to qualify or register the Registrable Securities in such
States as are reasonably requested by the Holder(s); provided, however, that in
no event shall the Company be required to register the Registrable Securities in
a State in which such registration would cause (i) the Company to be obligated
to register or license to do business in such State, or (ii) the principal
stockholders of the Company to be obligated to escrow their shares of capital
stock of the Company.
5.3 GENERAL TERMS.
5.3.1 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, as amended ("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 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 Underwriter 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
5
<PAGE>
Section 5 of the Underwriting Agreement pursuant to which the Underwriter has
agreed to indemnify the Company.
5.3.2 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.
5.3.3 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 and underlying the Warrants 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 Section 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 merger or consolidation of the Company with or into another corporation
6
<PAGE>
(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 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
7
<PAGE>
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 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 acknowledgment of receipt to the party to which
notice is given, by registered or certified mail, return receipt requested,
postage
8
<PAGE>
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 Underwriter may deem
necessary or desirable and which the Company and the Underwriter 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.
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
9
<PAGE>
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: _____________________________
Name: David E. Y. Sarna
Title: Chairman of the Board
10
<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 ___ shares of Common Stock and ___ Warrants to
purchase ___ shares of Common Stock of ObjectSoft Corporation and hereby makes
make of $_______ (at the rate of $_____ per share of Common Stock and/or $_____
per Warrant) 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.
OR
--
The undersigned hereby elects irrevocably to exercise the within
Purchase Option and to purchase _____ shares of Common Stock and/or _____
Warrants of ObjectSoft Corporation by surrender of the unexercised portion of
the within Purchase Option (with a "Value" of $______ based on a "Market Price"
of $______). Please issue the Common Stock and Warrants 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.
11
<PAGE>
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
NAME ________________________________
(PRINT IN BLOCK LETTERS)
ADDRESS ___________________________________________________
12
<PAGE>
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 ___________ SHARES OF COMMON STOCK 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.
13
OBJECTSOFT CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
============ ============
Number Shares
OCC
============ ============
SEE REVERSE FOR
CERTAIN DEFINITIONS
- --------------------------------------------------------------------------------
This Certifies that CUSIP 674427 10 9
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.0001
EACH OF THE COMMON STOCK OF
=========================== OBJECTSOFT CORPORATION ==========================
transferablen the books of the Corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
is not valid unless countersigned by the Transfer Agent and registered by the
Registrar.
Witness the seal of the Corporation and the facsimile signature its duly
authorized officers.
Dated:____________________
/s/ David E.Y. Sarna [CORPORATE SEAL] /s/ George J. Febish
CHAIRMAN AND SECRETARY PRESIDENT AND TREASURER
================================================================================
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
TRANSFER AGENT
AND REGISTRAR
______________________________
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenant with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - _______ Custodian _______
(Cust) (Minor)
under Uniform Gifts to Minors
Act ______________
(State)
Additional abbreviations may also be used though not in the above list.
OBJECTSOFT CORPORATION
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof of the
Corporation and the qualifications, limitations, or restrictions of such
preferences and/or rights. This certificate and the shares represented thereby
are issued and shall be held subject to all the provisions of the Certificate of
Incorporation and all amendments thereto and resolutions of the Board of
Directors providing for the issue of shares of Preferred Stock (copies of which
may be obtained from the secretary of the Corporation), to all of which the
holder of this certificate by acceptance hereof assents.
For value received, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-------------------------------------
| |
| |
| |
-------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________ shares of the Capital
stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________________
__________________________________________________________
The signature to this assignment must correspond with the
Notice: name as written upon the face of the certificate in every
particular, without alteration or enlargement or any
change whatever.
Signature(s) Guaranteed:
__________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 1, 1996, by and between OBJECTSOFT
CORPORATION, a Delaware corporation with offices at Continental Plaza III, 433
Hackensack, Avenue, Hackensack, New Jersey 07601 (hereinafter referred to as the
"Company"), and DAVID E. Y. SARNA, an individual residing at 625 North Forest
Drive, Teaneck, New Jersey 07666 (hereinafter referred to as the "Executive").
W I T N E S S E T H :
---------------------
WHEREAS, the Company and the Executive mutually desire to enter into
an Employment Agreement with respect to the Executive's employment by the
Company;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration the receipt of which is
hereby acknowledged, the Company and the Executive hereby agree as follows:
1. EMPLOYMENT OF EXECUTIVE.
The Company hereby employs the Executive as its Chairman
and Co-Chief Executive Officer. Executive hereby accepts such employment with
the Company upon the terms and conditions hereinafter set forth. In his capacity
as Chairman and Co-Chief Executive Officer of the Company, Executive shall have
all of the customary powers, responsibilities and authorities of chief executive
officers of corporations of the size, type and nature of the Company, as they
exist from time to time, including, without limitation, supervision of the
preparation of an operating budget with respect to each fiscal year of the
Company ("Fiscal Year"), which budget (the "Annual Budget") (i) shall set forth
target goals for the Company for each such Fiscal Year and (ii) shall be
submitted to the Board of Directors of the Company for its approval. Executive's
principal office shall be at the principal executive offices of the Company in
Hackensack, New Jersey or such other office in Northern New Jersey to which the
executive offices shall be relocated.
2. SERVICES TO BE RENDERED.
The Executive will devote his full business time and
efforts to the business and affairs of the Company and shall not, during the
term of this Agreement, be engaged in any other business activity that
interferes, in a material manner, with the Executive's ability to comply with
the provisions of this Agreement. The Executive will use his best efforts to
promote the interests of the Company. Notwithstanding the foregoing, the
Executive shall not be precluded from devoting such time to his personal
financial affairs as shall not substantially interfere with his duties
hereunder.
<PAGE>
3. TERM.
The term of this Agreement shall commence as of July 1,
1996, and shall continue to and including December 31, 2001 (the "Employment
Period"), unless sooner terminated as hereinafter provided. The Employment
Period may be extended by the mutual agreement of the Company and the Executive.
4. COMPENSATION.
(a) The Company will compensate the Executive for the
services to be rendered by the Executive hereunder at the per annum rate of Two
Hundred EightThousand Dollars ($208,000) from July 1, 1996 through December 31,
2001 (the "Base Compensation"), payable in accordance with the Company's
customary payroll practices. Additionally, the Base Compensation may be
increased annually as determined by the Board of Directors of the Company.
(b) In addition to the compensation provided in Section
4(a) above, the Company agrees to pay the Executive an annual bonus payment (the
"Basic Bonus Payment") for each of the Fiscal Years during the Employment Period
equal to five percent (5%) of the Company's annual EBITDA (as defined below) for
the subject Fiscal Year. Executive shall be paid his annual Basic Bonus Payment
within 100 days after the end of the subject Fiscal Year. The term "EBITDA"
shall mean, with respect to any subject Fiscal Year, (i) the Company's pre-tax
income for the subject Fiscal Year (determined in accordance with generally
accepted accounting principles, consistently applied), plus (ii) all amounts
deducted for depreciation, amortization and interest (including original issue
discount). The determination of EBITDA for each subject Fiscal Year shall be
made by the independent public accountants then employed by the Company based
upon the audited financial statements of the Company. Such determination shall
be delivered to the Company and Executive within 90 days after the end of the
subject Fiscal Year and shall be conclusive and binding upon the Company and
Executive. In addition, the Board of Directors will consider on an annual basis
granting the Executive an additional bonus based upon the increase in the
Company's Gross Revenues for the current Fiscal Year over the prior Fiscal
Year's Gross Revenues, taking into account any increase in expenses (the
"Additional Bonus Payment", and together with the Basic Bonus Payment
hereinafter referred to as the "Bonus Payment"). The term "Gross Revenues" shall
mean the revenues of the Company for each subject Fiscal Year as reported in the
audited financial statements of the Company for such Fiscal Year as prepared by
the independent public accountants then employed by the Company. The Company
may, from time to time during any fiscal year, make payments to the Executive
against the amount it estimates to be the Bonus Payment which the Executive is
anticipated to receive with respect to such fiscal year.
(c) With respect to Executive's employment hereunder in
the 1996 Fiscal Year, his Bonus Payment shall be equal the product of the amount
which would otherwise be payable to him in respect of such Fiscal Year pursuant
to the preceding subparagraph (b) multiplied by a fraction of which the
numerator is the number of calendar days from July 1 of the 1996 Fiscal Year to
the end of such Fiscal Year and the denominator is 365. Except as otherwise
specified below in
- 2 -
<PAGE>
this Agreement, in the event of the termination of Executive's employment
hereunder for any reason prior to the end of a Fiscal Year, his Bonus Payment in
respect of such Fiscal Year shall be reduced to equal the product of the amount
which would otherwise be payable to him in respect of such Fiscal Year pursuant
to the preceding subparagraph (b) multiplied by a fraction of which the
numerator is the number of calendar days from the beginning of such Fiscal Year
to the date of termination of Executive's employment hereunder and the
denominator is 365.
(d) If prior to December 31, 2001 Executive's employment
is terminated by the Company other than for cause (as defined in Section 8
hereof) and other than due to Executive's death or total disability (as defined
in Section 7(a) hereof) or if Executive terminates his employment for Good
Reason (as defined in Section 4(e) hereof) prior to December 31, 2001, (i)
Executive shall be entitled to receive in cash a lump sum payment from the
Company (the "Severance Payment") payable within 10 days of such termination,
the product of:
(A) the sum of (I) Executive's then current
Base Compensation and (II) the annual Bonus Payment for
the prior Fiscal Year, multiplied by
(B) the greater of (I) the number of calendar
months from the end of the month during which the
termination occurs through December 31, 2001, divided by
12, or (II) one.
and (ii) Executive shall:
(A) be entitled to receive, within 10 days of
the date of termination, in cash a lump sum equal to (I)
any compensation payments deferred by Executive, together
with any applicable interest or other accruals thereon;
(II) any unpaid amounts, as of the date of such
termination, in respect of the Bonus Payment for the
Fiscal Year ending before the Fiscal Year in which such
termination occurs; (III) any payments of Executive's Base
Compensation earned through the date of the termination of
Executive's employment but unpaid by the Company prior to
the termination date; and (IV) an amount in respect of the
Bonus Payment for the Fiscal Year in which such
termination occurs calculated as if Executive had been
employed for the full Fiscal Year and determined under
Section 4(b) hereof on the basis of the Company's EBITDA
for such Fiscal Year being equal to the sum of (x) the
Company's actual EBITDA for the period from the beginning
of such Fiscal Year through the end of the month preceding
the date of termination plus (y) the Company's projected
EBITDA for the remainder of such Fiscal Year as set forth
in the then current version of the Annual Budget for such
Fiscal Year, divided by 12 and multiplied by the number of
months from the beginning of the Fiscal Year in which the
termination of the Executive's employment occurred;
- 3 -
<PAGE>
(B) for the period from the date of termination
of Executive's employment until December 31, 2001, to the
extent allowable under applicable laws and the terms of
such plans, continue to be covered under and participate
in the Company's employee benefit programs, plans and
practices described in Section 5 hereof or under such
other plans of the Company which provide for equivalent
coverage (on an after-tax basis);
(C) have such rights to payments under
applicable plans or programs, including but not limited to
those described in Section 5 hereof, as may be determined
pursuant to the terms of such plans or programs, subject
to the terms of each such agreement; and
(D) be entitled to receive, to the extent
unpaid, reimbursement for all expenses incurred for the
benefit of the Company during the term of his employment
under this Agreement.
(e) For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the following events without Executive's express
prior written consent:
(i) the assignment to Executive by the Company
of duties inconsistent with Executive's positions, duties,
responsibilities, titles and offices as set forth in
Section 1 hereof, or any material reduction by the Company
of Executive's duties or responsibilities or any removal
of Executive from or any failure to elect or re-elect
Executive to any of such positions (including but not
limited to a failure to elect or re-elect Executive as a
director of the Company or the removal of Executive as the
Chairman or Co-Chief Executive Officer of the Company),
except in connection with the termination of Executive's
employment for Cause, as a result of Executive's total
disability (as defined in Section 7(a) hereof), as a
result of Executive's death or by Executive other than for
Good Reason;
(ii) a reduction by the Company in Executive's
Base Compensation or Bonus Payment as in effect at the
commencement of employment hereunder or as the same may be
increased from time to time during the term of this
Agreement;
(iii) a relocation of the Company's principal
executive offices to a location outside of Northern New
Jersey or the Company's requiring Executive to be based
anywhere other than Northern New Jersey, except for
required travel on the Company's business to an extent
substantially consistent with Executive's business travel
obligations on the Commencement Date (as defined below),
or any adverse change in the office assignment or
secretarial and other support accorded to Executive on the
Commencement Date;
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<PAGE>
(iv) a failure by the Company to continue in
effect any benefit or compensation plan or stock option
plan (including any pension, profit sharing, bonus, life
insurance, health, accidental death or dismemberment or
disability plan) existing on the commencement of the
Employment Period (the "Commencement Date") and in which
Executive participates after the Commencement Date (and,
in the case of plans adopted after the Commencement Date
and providing a type of benefit not provided by the
Company on the Commencement Date, at the respective dates
of adoption of such plans) without providing for or
establishing plans or arrangements providing Executive
with substantially similar benefits, or the taking of any
action by the Company which would adversely affect
Executive's participation in or reduce Executive's
benefits under any of such plans;
(v) the taking of any action by the Company
which would deprive Executive of any material fringe
benefit enjoyed by Executive on the Commencement Date (or
in the case of a fringe benefit not provided to Executive
by the Company on the Commencement Date, at the respective
dates of first providing such fringe benefits to any
management personnel), or the failure by the Company to
provide Executive with the number of paid vacation weeks
to which Executive is entitled hereunder;
(vi) the failure by the Company to obtain the
specific assumption of this Agreement by any successor or
assign of the Company or any person acquiring a
substantial portion of the assets of the Company or,
following any such assumption, assignment or acquisition
by an entity other than an affiliate of the Company, the
occurrence of any event which Executive believes, acting
in good faith, will impair his duties, responsibilities or
benefits under this Agreement;
(vii) any material breach by the Company of any
provision of this Agreement; or
(viii) the occurrence of a Change of Control
(as hereinafter defined).
(f) For purposes of this Agreement, a Change in Control
shall result from the transfer or issuance, after the date hereof, to any
person(s) and their affiliates by the Company or the then existing holders of
Company securities of such securities the ownership of which, when aggregated
with any other securities held by such person(s) and their affiliates, results
in the ownership or the beneficial ownership of 50% or more of the Common Stock
of the Company either directly or indirectly. Notwithstanding the foregoing, for
purposes of this Section 4(f), a transfer by the Executive and/or George Febish,
without the approval of a majority of the Board of Directors of the Company,
shall not be considered in determining whether or not a Change of Control shall
have occurred.
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<PAGE>
(g) Notwithstanding the foregoing, if the Executive would
be subject to an excise tax under Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code") with respect to the payments required pursuant to
Section 4(b) (taking into account all "parachute payments" (within the meaning
of Section 280G of the Code) payable to Executive whether pursuant to this
Agreement or otherwise), the amount payable pursuant to Section 4(d) hereof
shall be reduced by the smallest amount necessary to avoid such excise tax. Any
such reduction shall first be made to the Severance Payment. The Severance
Payment enumerated in Section 4(d) shall be computed at "present value", as that
term is defined in the Code.
(h) A Severance Payment shall be paid to Executive 10 days
following the Executive's termination of his employment hereunder. The dollar
amount of any Severance Payment payable to Executive shall be calculated as of
the date of his termination.
(i) In the event of an action or dispute between the
Executive and the Company with respect to the compensation payments to be made
to the Executive pursuant to this Section, if the Executive shall prevail in
such actions, by court decision, arbitration, settlement or otherwise, the
Company shall be obligated to make a charitable contribution in the amount of
$300,000.00 to a public or private charitable organization which shall be
designated by the Executive.
5. BENEFITS.
(a) The Executive shall be entitled to participate in the
regular bonus (including the Company's Key Employee Bonus Plan as in effect from
time to time), pension, profit-sharing, health, life, disability and other
benefit programs of the Company in effect from time to time on the same basis
that other senior executive officers of the Company participate therein. The
Executive shall be entitled, for the term hereof, to a reasonable annual
vacation generally in accordance with the policies of the Company in effect from
time to time, but not less than four (4) weeks per annum. The Executive shall be
entitled to a car leased by the Company for his use substantially equivalent in
cost to an Acura Legend and a cellular telephone, including any monthly costs
associated with the telephone. The Executive shall also be entitled to a modern
state-of-the art lap top computer and to a high-speed connection to the
Company's local area network, an Internet connection, a telefax line and machine
(or computer) at his residence.
(b) Without limiting the foregoing benefits to which
Executive shall be entitled as referred to in subparagraph (a) above, Executive
shall receive the following:
(i) The benefits of an employment disability
policy providing benefits up to an amount equal to his Base Compensation, to the
extent available to the Company at a reasonable cost, with any and all premiums
therefor being payable by the Company. The Company will also pay to the
Executive an amount equal to the income taxes (federal, state and local)
Executive will be presumed to pay (at highest marginal rates) on the premiums
paid for such disability insurance (not taking into account any deductions,
losses or personal circumstances of Executive); and
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<PAGE>
(ii) The ownership of a term life insurance
policy (with any and all premiums therefor being payable by the Company), the
beneficiaries of which may be as directed by the Executive and the death benefit
for which is not less than Two Million Dollars ($2,000,000).
6. EXPENSES.
The Company shall reimburse the Executive against
appropriate vouchers or other receipts for business expenses reasonably incurred
by him in the performance of his duties pursuant to the terms hereof.
7. DEATH AND DISABILITY.
(a) In the event of the death of the Executive during the
Employment Period, the Executive's employment hereunder shall automatically
terminate, and in the event of the total disability of the Executive, the
Executive's employment hereunder may terminate at the option of the Board of
Directors of the Company. Upon any such termination in accordance with this
Section 7 the Executive, or the estate of the Executive (as the case may be),
shall be entitled to receive his Base Compensation and Bonus Payment, in each
case in the amount thereof which accrued to the date of death or total
disability. The Bonus Payment shall be in each case calculated as if Executive
had been employed for the full Fiscal Year and determined under Section 4(b)
hereof on the basis of the Company's EBITDA for such Fiscal Year being equal to
the sum of (x) the Company's actual EBITDA for the period from the beginning of
such Fiscal Year through the end of the month preceding the date of termination
plus (y) the Company's projected EBITDA for the remainder of such Fiscal Year as
set forth in the then current version of the Annual Budget for such Fiscal Year,
divided by 12 and multiplied by the number of months from the beginning of the
Fiscal Year in which the termination of the Executive's employment occurred to
the date of death or total disability of the Executive.
For purposes of this Agreement, "total disability" shall
mean the Executive's incapacity due to health reasons (supported by the opinion
of a physician mutually satisfactory to both the Executive and the Board of
Directors of the Company) which prevents the Executive from substantially
performing his duties hereunder for a period of 180 consecutive days.
8. CAUSE.
The Board of Directors of the Company may terminate the
Executive's employment hereunder, by a written notice setting forth the "Cause"
for such termination.
For purposes of this Agreement, the term "Cause" shall
mean: (a) the failure of the Executive to in any material respect perform his
duties pursuant to Section 2 hereof as determined by such Board of Directors,
which failure is not cured within twenty (20) days following notice thereof to
the Executive, (b) a breach in any material respect by the Executive of any
other material provision hereof, or (c) if the Executive shall be convicted of,
or plead guilty or nolo
- 7 -
<PAGE>
contendere to, a felony relating to a crime involving moral turpitude or shall
have committed acts of fraud or embezzlement against the Company. Upon any such
termination, the Executive shall be entitled to receive his Base Compensation
and his Bonus Payment prorated in accordance with Sections 4(b) and 4(c) of this
Agreement.
9. NON-COMPETITION.
(a) During the period of Executive's employment by the
Company (the "Non-Competition Period"), the Executive agrees that he will not,
anywhere in the United States, directly or indirectly enter into or participate
in (whether as owner, partner, shareholder, officer, director, salesman,
consultant, employee or otherwise) any business which is in competition with the
Business or any other material business in which the Company or any of its other
subsidiaries may engage after the date hereof, without having first obtained the
Company's prior written consent; provided, however, that (a) the Company
specifically acknowledges and agrees that the Executive may own up to 5% of the
outstanding equity securities of any entity that is subject to the public
reporting requirements of the Securities Exchange Act of 1934, as amended.
(b) The Non-Competition Period shall be extended to
include the period of one-year following termination of Executive's employment
(i) by the Company for "Cause", or (ii) by the Executive (if other than for Good
Reason).
(c) The Executive shall not at any time within a period of
one (1) year following the termination of his employment, without the prior
written consent of the Company, directly or indirectly (i) solicit, request,
cause or induce any person who is at the time, or twelve months prior thereto
had been, an Executive of or a consultant to the Company, to leave the employ of
or terminate his relationship with the Company, or (ii) solicit the employment,
engagement or association with, or endeavor to entice away from the Company to
any business that is competitive with any of the businesses engaged in by the
Company during the time that the Executive, any such person.
10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Subject in all respects to the provisions of, and as
contemplated by, clause (a) of Section 9 hereof, the Executive shall at all
times, both during and after the Employment Period, hold in a fiduciary capacity
for the benefit of the Company and each of its subsidiaries, and shall not use
or disclose or permit the use of or the disclosure to any third party, any and
all trade secrets, information, knowledge and data not generally known to, or
easily obtainable by, the public that he may have learned, discovered,
developed, conceived, originated or prepared during or as a result of his
relationship with the Company or any of its subsidiaries (as a stockholder or
otherwise) or any predecessor-in-interest to any of the Company's or any of its
subsidiaries' business or assets with respect to the operations, business, New
Technology, affairs, products, technology or services of the Company or any of
its subsidiaries.
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<PAGE>
(b) The Executive acknowledges that any breach of the
provisions of Sections 9 and 10 hereof can cause irreparable harm to the Company
and its subsidiaries for which the Company and its subsidiaries would have no
adequate remedy at law. In the event of a breach or threatened breach by the
Executive of any of such provisions, in addition to any and all other rights and
remedies it may have under this Agreement or otherwise, the Company or any of
its subsidiaries, as the case may be, may immediately seek any judicial action
it deems necessary, including, without limitation, temporary and preliminary
injunctive relief.
11. RIGHTS TO TECHNOLOGY.
(a) The property rights in and to all items of New
Technology, as defined below herein, shall be deemed to have been created for
the Company as work for hire and are and shall be the sole and exclusive
property of the Company, and the Executive does hereby agree that he will make
full and prompt disclosure to the Company of any and all such New Technology.
For the purposes of this Agreement, the term "New Technology" shall mean each
and every invention, discovery and development, device, design, apparatus,
practice, method, product, item of know-how, improvement, process, item of
technical knowledge, formula, trade secret, trade name and modification, whether
or not patentable, trademarkable or copyrightable, which were made, developed or
first reduced to practice by the Executive (whether acting alone or with others)
during the term of his employment hereunder (the "Technology Term"), and which
relate primarily to the Company's business.
(b) During the Technology Term, and at any time and from
time to time thereafter, the Executive shall (i) execute all documents requested
by the Company to assign to the Company all of his right, title and interest in
and to any New Technology and to confirm the complete ownership by the Company
of such New Technology, (ii) execute any and all documents requested by the
Company for filing and prosecuting applications for patents, design patents,
trademarks or copyrights for or with respect to the New Technology, and (iii)
render to the Company all assistance that it may request, including the giving
of testimony in any suit, action or proceedings before any court of appropriate
jurisdiction, including, but not limited to, any governmental or
quasi-governmental agency or other regulatory body, in order to obtain, maintain
and protect the Company's rights and ownership interests with respect to the New
Technology.
12. NOTICE.
Any notice required hereunder shall be delivered by hand,
sent by facsimile, or sent by registered or certified mail, addressed to the
other party hereto at its address set forth above or at such other address as
notice thereof shall have been given in accordance with the provisions of this
Section 12. Any such notice shall become effective (a) when mailed, three days
after having been deposited in the mails, postage prepaid, and (b) in the case
of delivery by hand or facsimile, upon delivery.
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<PAGE>
13. AGREEMENT; AMENDMENT.
This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto and represents their
entire understanding and agreement with respect to the subject matter hereof.
This Agreement can be amended, supplemented or changed, and any provision hereof
can be waived, only by written instrument making specific reference to this
Agreement which is signed by the party against whom enforcement of any such
amendment, supplement, modification or waiver is sought. Any waiver of any
breach of this Agreement shall not be construed to be a continuing waiver or
consent to any subsequent breach by any party hereto.
14. WAIVER NOT CONSENT.
Any waiver of any breach of this Agreement shall not be
construed to be a continuing waiver or consent to any subsequent breach by any
party hereto.
15. SEVERABILITY.
In the event of the invalidity or unenforceability of any
one or more provisions of this Agreement, such illegality or unenforceability
shall not affect the validity or enforceability of the other provisions hereof
and such other provisions shall be deemed to remain in full force and effect.
16. ASSIGNMENT; BINDING EFFECT.
This Agreement is not assignable without the prior written
consent of each party hereto. This Agreement shall be binding upon and shall
inure to the benefit of the Company and the Executive and their respective
heirs, legal representatives, successors and assigns.
17. SECTION HEADINGS.
The Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
18. GOVERNING LAW.
This Agreement shall be construed and governed in
accordance with the laws of the State of New York.
19. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day and year first above written.
OBJECTSOFT CORPORATION
By: /s/ George J. Febish
---------------------------------
George J. Febish, President
/s/ David E. Y. Sarna
---------------------------------
David E. Y. Sarna
Agreed to by the Compensation Committee of the Board of Directors:
/s/ Daniel E. Ryan
- -----------------------------
Daniel E. Ryan
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EMPLOYMENT AGREEMENT
AGREEMENT, dated as of July 1, 1996, by and between OBJECTSOFT
CORPORATION, a New Jersey corporation with offices at Continental Plaza III, 433
Hackensack, Avenue, Hackensack, New Jersey 07601 (hereinafter referred to as the
"Company"), and GEORGE J. FEBISH, an individual residing at 678 Alexander Court,
River Vale, New Jersey 07675 (hereinafter referred to as the "Executive").
W I T N E S S E T H :
---------------------
WHEREAS, the Company and the Executive mutually desire to enter into
an Employment Agreement with respect to the Executive's employment by the
Company;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration the receipt of which is
hereby acknowledged, the Company and the Executive hereby agree as follows:
1. EMPLOYMENT OF EXECUTIVE.
The Company hereby employs the Executive as its President
and Co-Executive Officer. Executive hereby accepts such employment with the
Company upon the terms and conditions hereinafter set forth. In his capacity as
President and Co-Chief Executive Officer of the Company, Executive shall have
all of the customary powers, responsibilities and authorities of chief executive
officers of corporations of the size, type and nature of the Company, as they
exist from time to time, including, without limitation, supervision of the
day-to-day operations of the Company. Executive's principal office shall be at
the principal executive offices of the Company in Hackensack, New Jersey or such
other office in Northern New Jersey to which the executive offices shall be
relocated.
2. SERVICES TO BE RENDERED.
The Executive will devote his full time and efforts to the
business and affairs of the Company and shall not, during the term of this
Agreement, be engaged in any other business activity that interferes, in a
material manner, with the Executive's ability to comply with the provisions of
this Agreement. The Executive will use his best efforts to promote the interests
of the Company. Notwithstanding the foregoing, the Executive shall not be
precluded from devoting such time to his personal financial affairs as shall not
substantially interfere with his duties hereunder.
3. TERM.
The term of this Agreement shall commence on July 1, 1996,
and shall continue to and including December 31, 2001 (the "Employment Period"),
unless sooner terminated
<PAGE>
as hereinafter provided. The Employment Period may be extended by the mutual
agreement of the Company and the Executive.
4. COMPENSATION.
(a) The Company will compensate the Executive for the
services to be rendered by the Executive hereunder at the rate of Two Hundred
Eight Thousand Dollars ($208,000) from July 1, 1996 through December 31, 2001
per annum (the "Base Compensation"), payable in accordance with the Company's
customary payroll practices. Additionally, the Base Compensation may be
increased annually as determined by the Board of Directors of the Company.
(b) In addition to the compensation provided in Section
4(a) above, the Company agrees to pay the Executive an annual bonus payment (the
"Basic Bonus Payment") for each of the fiscal years during the Employment Period
equal to five percent (5%) of the Company's annual EBITDA (as defined below) for
the subject Fiscal Year. Executive shall be paid his annual Basic Bonus Payment
within 100 days after the end of the subject Fiscal Year. The term "EBITDA"
shall mean, with respect to any subject Fiscal Year, (i) the Company's pre-tax
income for the subject Fiscal Year (determined in accordance with generally
accepted accounting principles, consistently applied), plus (ii) all amounts
deducted for depreciation, amortization and interest (including original issue
discount). The determination of EBITDA for each subject Fiscal Year shall be
made by the independent public accountants then employed by the Company based
upon the audited financial statements of the Company. Such determination shall
be delivered to the Company and Executive within 90 days after the end of the
subject Fiscal Year and shall be conclusive and binding upon the Company and
Executive. In addition, the Board of Directors will consider on an annual basis
granting the Executive an additional bonus based upon the increase in the
Company's Gross Revenues for the current Fiscal Year over the prior Fiscal
Year's Gross Revenues, taking into account any increase in expenses (the
"Additional Bonus Payment", and together with the Basic Bonus Payment
hereinafter referred to as the "Bonus Payment"). The term "Gross Revenues" shall
mean the revenues of the Company for each subject Fiscal Year as reported in the
audited financial statements of the Company for such Fiscal Year as prepared by
the independent public accountants then employed by the Company. The Company
may, from time to time during any fiscal year, make payments to the Executive
against the amount it estimates to be the Bonus Payment which the Executive is
anticipated to receive with respect to such fiscal year.
(c) With respect to Executive's employment hereunder in
the 1996 Fiscal Year, his Bonus Payment shall be equal the product of the amount
which would otherwise be payable to him in respect of such Fiscal Year pursuant
to the preceding subparagraph (b) multiplied by a fraction of which the
numerator is the number of calendar days from July 1 of the 1996 Fiscal Year to
the end of such Fiscal Year and the denominator is 365. Except as otherwise
specified below in this Agreement, in the event of the termination of
Executive's employment hereunder for any reason
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<PAGE>
prior to the end of a Fiscal Year, his Bonus Payment in respect of such Fiscal
Year shall be reduced to equal the product of the amount which would otherwise
be payable to him in respect of such Fiscal Year pursuant to the preceding
subparagraph (b) multiplied by a fraction of which the numerator is the number
of calendar days from the beginning of such Fiscal Year to the date of
termination of Executive's employment hereunder and the denominator is 365.
(d) If prior to December 31, 2001 Executive's employment
is terminated by the Company other than for cause (as defined in Section 8
hereof) and other than due to Executive's death or total disability (as defined
in Section 7(a) hereof) or if Executive terminates his employment for Good
Reason (as defined in Section 4(e) hereof) prior to December 31, 2001, (i)
Executive shall be entitled to receive in cash a lump sum payment from the
Company (the "Severance Payment") payable within 10 days of such termination,
the product of:
(A)the sum of (I) Executive's then current Base
Compensation and (II) the annual Bonus Payment for the
prior Fiscal Year, multiplied by
(B) the greater of (I) the number of calendar
months from the end of the month during which the
termination occurs through December 31, 2001, divided by
12, or (II) one.
and (ii) Executive shall:
(A) be entitled to receive, within 10 days of
the date of termination, in cash a lump sum equal to (I)
any compensation payments deferred by Executive, together
with any applicable interest or other accruals thereon;
(II) any unpaid amounts, as of the date of such
termination, in respect of the Bonus Payment for the
Fiscal Year ending before the Fiscal Year in which such
termination occurs; (III) any payments of Executive's Base
Compensation earned through the date of the termination of
Executive's employment but unpaid by the Company prior to
the termination date; and (IV) an amount in respect of the
Bonus Payment for the Fiscal Year in which such
termination occurs calculated as if Executive had been
employed for the full Fiscal Year and determined under
Section 4(b) hereof on the basis of the Company's EBITDA
for such Fiscal Year being equal to the sum of (x) the
Company's actual EBITDA for the period from the beginning
of such Fiscal Year through the end of the month preceding
the date of termination plus (y) the Company's projected
EBITDA for the remainder of such Fiscal Year as set forth
in the then current version of the Annual Budget for such
Fiscal Year, divided by 12 and multiplied by the number of
months from the beginning of the Fiscal Year in which the
termination of the Executive's employment occurred;
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<PAGE>
(B) for the period from the date of termination
of Executive's employment until December 31, 2001, to the
extent allowable under applicable laws and the terms of
such plans, continue to be covered under and participate
in the Company's employee benefit programs, plans and
practices described in Section 5 hereof or under such
other plans of the Company which provide for equivalent
coverage (on an after-tax basis);
(C) have such rights to payments under
applicable plans or programs, including but not limited to
those described in Section 5 hereof, as may be determined
pursuant to the terms of such plans or programs, subject
to the terms of each such agreement; and
(D) be entitled to receive, to the extent
unpaid, reimbursement for all expenses incurred for the
benefit of the Company during the term of his employment
under this Agreement.
(e) For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the following events without Executive's express
prior written consent:
(i) the assignment to Executive by the Company
of duties inconsistent with Executive's positions, duties,
responsibilities, titles and offices as set forth in
Section 1 hereof, or any material reduction by the Company
of Executive's duties or responsibilities or any removal
of Executive from or any failure to elect or re-elect
Executive to any of such positions (including but not
limited to a failure to elect or re-elect Executive as a
director of the Company or the removal of Executive as the
President or Co-Chief Executive Officer of the Company),
except in connection with the termination of Executive's
employment for Cause, as a result of Executive's total
disability (as defined in Section 7(a) hereof), as a
result of Executive's death or by Executive other than for
Good Reason;
(ii) a reduction by the Company in Executive's
Base Compensation or Bonus Payment as in effect at the
commencement of employment hereunder or as the same may be
increased from time to time during the term of this
Agreement;
(iii) a relocation of the Company's principal
executive offices to a location outside of Northern New
Jersey or the Company's requiring Executive to be based
anywhere other than Northern New Jersey, except for
required travel on the Company's business to an extent
substantially consistent with Executive's business travel
obligations on the Commencement Date (as defined below),
or any adverse change in the office assignment or
secretarial and other support accorded to Executive on the
Commencement Date;
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<PAGE>
(iv) a failure by the Company to continue in
effect any benefit or compensation plan or stock option
plan (including any pension, profit sharing, bonus, life
insurance, health, accidental death or dismemberment or
disability plan) existing on the commencement of the
Employment Period (the "Commencement Date") and in which
Executive participates after the Commencement Date (and,
in the case of plans adopted after the Commencement Date
and providing a type of benefit not provided by the
Company on the Commencement Date, at the respective dates
of adoption of such plans) without providing for or
establishing plans or arrangements providing Executive
with substantially similar benefits, or the taking of any
action by the Company which would adversely affect
Executive's participation in or reduce Executive's
benefits under any of such plans;
(v) the taking of any action by the Company
which would deprive Executive of any material fringe
benefit enjoyed by Executive on the Commencement Date (or
in the case of a fringe benefit not provided to Executive
by the Company on the Commencement Date, at the respective
dates of first providing such fringe benefits to any
management personnel), or the failure by the Company to
provide Executive with the number of paid vacation weeks
to which Executive is entitled hereunder;
(vi) the failure by the Company to obtain the
specific assumption of this Agreement by any successor or
assign of the Company or any person acquiring a
substantial portion of the assets of the Company or,
following any such assumption, assignment or acquisition
by an entity other than an affiliate of the Company, the
occurrence of any event which Executive believes, acting
in good faith, will impair his duties, responsibilities or
benefits under this Agreement;
(vii) any material breach by the Company of any
provision of this Agreement; or
(viii) the occurrence of a Change of Control
(as hereinafter defined).
(f) For purposes of this Agreement, a Change in Control
shall result from the transfer or issuance, after the date hereof, to any
person(s) and their affiliates by the Company or the then existing holders of
Company securities of such securities the ownership of which, when aggregated
with any other securities held by such person(s) and their affiliates, results
in the ownership or the beneficial ownership of 50% or more of the Common Stock
of the Company either directly or indirectly. Notwithstanding the foregoing, for
purposes of this Section 4(f), a transfer by the Executive and/or David E. Y.
Sarna, without the approval of a majority of the Board of Directors of the
Company, shall not be considered in determining whether or not a Change of
Control shall have occurred.
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<PAGE>
(g) Notwithstanding the foregoing, if the Executive would
be subject to an excise tax under Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code") with respect to the payments required pursuant to
Section 4(b) (taking into account all "parachute payments" (within the meaning
of Section 280G of the Code) payable to Executive whether pursuant to this
Agreement or otherwise), the amount payable pursuant to Section 4(d) hereof
shall be reduced by the smallest amount necessary to avoid such excise tax. Any
such reduction shall first be made to the Severance Payment. The Severance
Payment enumerated in Section 4(d) shall be computed at "present value", as that
term is defined in the Code.
(h) A Severance Payment shall be paid to Executive 10 days
following the Executive's termination of his employment hereunder. The dollar
amount of any Severance Payment payable to Executive shall be calculated as of
the date of his termination.
(i) In the event of an action or dispute between the
Executive and the Company with respect to the compensation payments to be made
to the Executive pursuant to this Section, if the Executive shall prevail in
such actions, by court decision, arbitration, settlement or otherwise, the
Company shall be obligated to make a charitable contribution in the amount of
$300,000.00 to a public or private charitable organization which shall be
designated by the Executive.
5. BENEFITS.
(a) The Executive shall be entitled to participate in the
regular bonus (including the Company's Key Employee Bonus Plan as in effect from
time to time), pension, profit-sharing, health, life, disability and other
benefit programs of the Company in effect from time to time on the same basis
that other senior executive officers of the Company participate therein. The
Executive shall be entitled, for the term hereof, to a reasonable annual
vacation generally in accordance with the policies of the Company in effect from
time to time, but not less than four (4) weeks per annum. The Executive shall be
entitled to a car leased by the Company for his use substantially equivalent in
cost to an Acura Legend and a cellular telephone, including any monthly costs
associated with the telephone. The Executive shall also be entitled to a modern
state-of-the art lap top computer and to a high-speed connection to the
Company's local area network, an Internet connection, a telefax line and machine
(or computer) at his residence.
(b) Without limiting the foregoing benefits to which
Executive shall be entitled as referred to in subparagraph (a) above, Executive
shall receive the following:
(i) The benefits of an employment disability
policy providing benefits up to an amount equal to his Base Compensation, to the
extent available to the Company at a reasonable cost, with any and all premiums
therefor being payable by the Company. The Company will also pay to the
Executive an amount equal to the income taxes (federal, state and local)
Executive will be presumed to pay (at highest marginal rates) on the premiums
paid for such disability insurance (not taking into account any deductions,
losses or personal circumstances of Executive); and
- 6 -
<PAGE>
(ii) The ownership of a term life insurance
policy (with any and all premiums therefor being payable by the Company), the
beneficiaries of which may be as directed by the Executive and the death benefit
for which is not less than Two Million Dollars ($2,000,000).
6. EXPENSES.
The Company shall reimburse the Executive against
appropriate vouchers or other receipts for business expenses reasonably incurred
by him in the performance of his duties pursuant to the terms hereof.
7. DEATH AND DISABILITY.
(a) In the event of the death of the Executive during the
Employment Period, the Executive's employment hereunder shall automatically
terminate, and in the event of the total disability of the Executive, the
Executive's employment hereunder may terminate at the option of the Board of
Directors of the Company. Upon any such termination in accordance with this
Section 7 the Executive, or the estate of the Executive (as the case may be),
shall be entitled to receive his Base Compensation and Bonus Payment, in each
case in the amount thereof which accrued to the date of death or total
disability. The Bonus Payment shall be in each case calculated as if Executive
had been employed for the full Fiscal Year and determined under Section 4(b)
hereof on the basis of the Company's EBITDA for such Fiscal Year being equal to
the sum of (x) the Company's actual EBITDA for the period from the beginning of
such Fiscal Year through the end of the month preceding the date of termination
plus (y) the Company's projected EBITDA for the remainder of such Fiscal Year as
set forth in the then current version of the Annual Budget for such Fiscal Year,
divided by 12 and multiplied by the number of months from the beginning of the
Fiscal Year in which the termination of the Executive's employment occurred to
the date of death or total disability of the Executive.
For purposes of this Agreement, "total disability" shall
mean the Executive's incapacity due to health reasons (supported by the opinion
of a physician mutually satisfactory to both the Executive and the Board of
Directors of the Company) which prevents the Executive from substantially
performing his duties hereunder for a period of 180 consecutive days.
8. CAUSE.
The Board of Directors of the Company may terminate the
Executive's employment hereunder, by a written notice setting forth the "Cause"
for such termination.
For purposes of this Agreement, the term "Cause" shall
mean: (a) the failure of the Executive to in any material respect perform his
duties pursuant to Section 2 hereof as determined by such Board of Directors,
which failure is not cured within twenty (20) days following notice thereof to
the Executive, (b) a breach in any material respect by the Executive of any
other
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<PAGE>
material provision hereof, or (c) if the Executive shall be convicted of, or
plead guilty or nolo contendere to, a felony relating to a crime involving moral
turpitude or shall have committed acts of fraud or embezzlement against the
Company. Upon any such termination, the Executive shall be entitled to receive
his Base Compensation and his Bonus Payment prorated in accordance with Sections
4(b) and 4(c) of this Agreement.
9. NON-COMPETITION.
(a) During the period of Executive's employment by the
Company (the "Non-Competition Period"), the Executive agrees that he will not,
anywhere in the United States, directly or indirectly enter into or participate
in (whether as owner, partner, shareholder, officer, director, salesman,
consultant, employee or otherwise) any business which is in competition with the
Business or any other material business in which the Company or any of its other
subsidiaries may engage after the date hereof, without having first obtained the
Company's prior written consent; provided, however, that (a) the Company
specifically acknowledges and agrees that the Executive may own up to 5% of the
outstanding equity securities of any entity that is subject to the public
reporting requirements of the Securities Exchange Act of 1934, as amended.
(b) The Non-Competition Period shall be extended to
include the period of one-year following termination of Executive's employment
(i) by the Company for "Cause", or (ii) by the Executive (if other than for Good
Reason).
(c) The Executive shall not at any time within a period of
one (1) year following the termination of his employment, without the prior
written consent of the Company, directly or indirectly (i) solicit, request,
cause or induce any person who is at the time, or twelve months prior thereto
had been, an Executive of or a consultant to the Company, to leave the employ of
or terminate his relationship with the Company, or (ii) solicit the employment,
engagement or association with, or endeavor to entice away from the Company to
any business that is competitive with any of the businesses engaged in by the
Company during the time that the Executive, any such person.
10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Subject in all respects to the provisions of, and as
contemplated by, clause (a) of Section 9 hereof, the Executive shall at all
times, both during and after the Employment Period, hold in a fiduciary capacity
for the benefit of the Company and each of its subsidiaries, and shall not use
or disclose or permit the use of or the disclosure to any third party, any and
all trade secrets, information, knowledge and data not generally known to, or
easily obtainable by, the public that he may have learned, discovered,
developed, conceived, originated or prepared during or as a result of his
relationship with the Company or any of its subsidiaries (as a stockholder or
otherwise) or any predecessor-in-interest to any of the Company's or any of its
subsidiaries' business or assets with respect to the operations, business, New
Technology, affairs, products, technology or services of the Company or any of
its subsidiaries.
- 8 -
<PAGE>
(b) The Executive acknowledges that any breach of the
provisions of Sections 9 and 10 hereof can cause irreparable harm to the Company
and its subsidiaries for which the Company and its subsidiaries would have no
adequate remedy at law. In the event of a breach or threatened breach by the
Executive of any of such provisions, in addition to any and all other rights and
remedies it may have under this Agreement or otherwise, the Company or any of
its subsidiaries, as the case may be, may immediately seek any judicial action
it deems necessary, including, without limitation, temporary and preliminary
injunctive relief.
11. RIGHTS TO TECHNOLOGY.
(a) The property rights in and to all items of New
Technology, as defined below herein, shall be deemed to have been created for
the Company as work for hire and are and shall be the sole and exclusive
property of the Company, and the Executive does hereby agree that he will make
full and prompt disclosure to the Company of any and all such New Technology.
For the purposes of this Agreement, the term "New Technology" shall mean each
and every invention, discovery and development, device, design, apparatus,
practice, method, product, item of know-how, improvement, process, item of
technical knowledge, formula, trade secret, trade name and modification, whether
or not patentable, trademarkable or copyrightable, which were made, developed or
first reduced to practice by the Executive (whether acting alone or with others)
during the term of his employment hereunder (the "Technology Term"), and which
relate primarily to the Company's business.
(b) During the Technology Term, and at any time and from
time to time thereafter, the Executive shall (i) execute all documents requested
by the Company to assign to the Company all of his right, title and interest in
and to any New Technology and to confirm the complete ownership by the Company
of such New Technology, (ii) execute any and all documents requested by the
Company for filing and prosecuting applications for patents, design patents,
trademarks or copyrights for or with respect to the New Technology, and (iii)
render to the Company all assistance that it may request, including the giving
of testimony in any suit, action or proceedings before any court of appropriate
jurisdiction, including, but not limited to, any governmental or
quasi-governmental agency or other regulatory body, in order to obtain, maintain
and protect the Company's rights and ownership interests with respect to the New
Technology.
12. NOTICE.
Any notice required hereunder shall be delivered by hand,
sent by facsimile, or sent by registered or certified mail, addressed to the
other party hereto at its address set forth above or at such other address as
notice thereof shall have been given in accordance with the provisions of this
Section 12. Any such notice shall become effective (a) when mailed, three days
after having been deposited in the mails, postage prepaid, and (b) in the case
of delivery by hand or facsimile, upon delivery.
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<PAGE>
13. AGREEMENT; AMENDMENT.
This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto and represents their
entire understanding and agreement with respect to the subject matter hereof.
This Agreement can be amended, supplemented or changed, and any provision hereof
can be waived, only by written instrument making specific reference to this
Agreement which is signed by the party against whom enforcement of any such
amendment, supplement, modification or waiver is sought. Any waiver of any
breach of this Agreement shall not be construed to be a continuing waiver or
consent to any subsequent breach by any party hereto.
14. WAIVER NOT CONSENT.
Any waiver of any breach of this Agreement shall not be
construed to be a continuing waiver or consent to any subsequent breach by any
party hereto.
15. SEVERABILITY.
In the event of the invalidity or unenforceability of any
one or more provisions of this Agreement, such illegality or unenforceability
shall not affect the validity or enforceability of the other provisions hereof
and such other provisions shall be deemed to remain in full force and effect.
16. ASSIGNMENT; BINDING EFFECT.
This Agreement is not assignable without the prior written
consent of each party hereto. This Agreement shall be binding upon and shall
inure to the benefit of the Company and the Executive and their respective
heirs, legal representatives, successors and assigns.
17. SECTION HEADINGS.
The Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
18. GOVERNING LAW.
This Agreement shall be construed and governed in
accordance with the laws of the State of New York.
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<PAGE>
19. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day and year first above written.
OBJECTSOFT CORPORATION
By: /s/ David E. Y. Sarna
------------------------------
David E. Y. Sarna, Chairman
/s/ George J. Febish
------------------------------
George J. Febish
Agreed to by the Compensation Committee
of the Board of Directors:
/s/ Daniel E. Ryan
- -----------------------------
Daniel E. Ryan
- 11 -
COOPERATION AGREEMENT
This COOPERATION AGREEMENT, dated as of 9/7,1995, by and between MICROSOFT
CORPORATION ("Microsoft") a Washington corporation, with its principal offices
located at One Microsoft Way, Redmond, Washington 98052, and OBJECTSOFT
CORPORATION ("ObjectSoft"), a New Jersey corporation, with an office at 50 E.
Palisade Avenue, Englewood, New Jersey 07631.
WHEREAS, Microsoft has developed a technology known as OLE for
creating interoperable components;
WHEREAS, ObjectSoft is engaged in the business of providing
OLEBroker, an on-line newsletter and brokerage service for "objects" built in
support of Microsoft's OLE technology (collectively, the "Service"); and
WHEREAS, Microsoft and ObjectSoft have agreed to the following with
respect to the Service.
NOW, THEREFORE, for good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. DUTIES OF MICROSOFT. Microsoft shall undertake the
following duties with respect to the Service:
(a) At no charge to ObjectSoft, insert coupons
soliciting subscription for the Service in the United States distribution of
Version 4.0 of Microsoft Visual Basic and Microsoft Access Development Toolkit
("Microsoft Software"), and print and distribute coupons, from films prepared by
ObjectSoft for copies of Microsoft Visual Basic 4.0 and Microsoft Access
Development Toolkit distributed outside the United States. ObjectSoft shall
collect the response cards and shall have the right to use the names and
addresses of respondents for promotion of its OLE Broker service. Respondent
names originating from the Microsoft Software boxes will not be sold or
distributed to other parties without written consent from Microsoft.
(b) Microsoft will supply database of registered
users of the Microsoft Software ("Reg Base") to a third party mail house for the
purpose of and ObjectSoft driven direct mail campaign promoting OLE Broker. The
Reg Base will include the entire Reg Base and second and third databases of more
recent registrations will be sent for two subsequent update mailings, which
mailings shall be conducted quarterly during the initial term of this Agreement.
Respondent names originating from the Microsoft lists will not be sold or
distributed to other parties without written consent from Microsoft. At no time
shall ObjectSoft have direct access to the Reg Base.
(c) Provide ObjectSoft with machine-readable copies
in Rich Text Format of the Help files associated with the controls included with
Visual Basic 4.0. Microsoft hereby grants ObjectSoft a non-exclusive, worldwide,
royalty-free right to use and modify such Help files solely in
<PAGE>
conjunction with and as part of the Service to make such files searchable and
accessible use by end users of the Service.
(d) Assist ObjectSoft in obtaining press coverage
for the Service and in publicizing this Agreement through press announcements in
Fall, 1995. Make best effort to execute press to ensure press coverage.
(e) Include mention of the Service in the Satellite
broadcast associated with the Microsoft Developer Days (DevDay) conference to be
held on September 12, 1995.
(f) Use commercial best efforts to provide space
for demonstrating the Service in Microsoft's booth at Fall '95 COMDEX, an
industry trade conference, and for demonstrating the Service in between theater
shows.
(g) Microsoft use commercial best efforts to
promote the Service where appropriate to other customer and Solution Provider
segments.
2. DUTIES OF OBJECTSOFT. Except as expressly set forth above,
ObjectSoft shall be responsible for all other responsibilities and activities
with respect to the Service. Without limiting the foregoing ObjectSoft shall:
(a) Set up the web site, including providing the
Microsoft Windows NT system software and hardware, operating the site, and
providing the software for the "browser" service for the object broker database.
(b) Create all editorial for inclusion in the
newsletter portion of the Service.
(c) Perform all duties in connection with the
object database, including but not limited to soliciting listing agreements from
the creators of the objects to list such objects in the database, soliciting
subscriptions, creating the database of objects including the "browser" function
to permit viewing of the objects, and performing all fulfillment services for
licensing of the objects to end users.
(d) Obtain the standard object and disclaimer
license from subscribers to the Service, the form of which shall be subject to
Microsoft's approval.
(e) Obtain fulfillment services for subscribers to
the Service, the costs for which shall be ObjectSoft's responsibility.
(f) Perform all duties in connection with the
direct mail campaigns described in section 1b including responsibility for costs
not related to the delivery of database names to the mailhouse.
<PAGE>
3. In return for the performance of Microsoft's duties set
forth above, ObjectSoft agrees that Microsoft shall be entitled to an
advertisement on the OLE Broker home page at no charge, the content of which
shall be provided by Microsoft, to 100 subscriptions to OLE Broker without
charge, and to a discounted rate for additional subscriptions at a rate of the
lower of $65.00 per year, or the lowest rate charged to anyone else.
4. ObjectSoft shall indemnify and hold harmless Microsoft
against any and all third party claims, judgments, liabilities, costs and
expenses (including reasonable attorneys' fees) resulting from: (a) any breach
by ObjectSoft of this Agreement or any of its obligations hereunder, (b) any
defects in any of the objects listed in the Service or licensed to third parties
through the Service, (c) any claims of infringement by the Service or its
contents of copyright, patent, trademark or proprietary information of any third
party, including but not limited to claims resulting from objects listed with
the Service, or (d) resulting from or in any way connected with use of the
Service by subscribers.
5. (a) Microsoft shall indemnify and hold harmless
ObjectSoft against any and all third party claims, judgments, liabilities, costs
and expenses (including reasonable attorneys' fees) resulting from: (a) any
breach by Microsoft of this Agreement or any of its obligations hereunder, or
(b) any claims of infringement of trademark of any third party resulting from
ObjectSoft's running of Microsoft's advertisment, provided, however, that
Microsoft shall have approved such use in advance.
(b) MICROSOFT EXPRESSLY DISCLAIMS ANY WARRANTY FOR
THE SOFTWARE. THE SOFTWARE AND ANY RELATED DOCUMENTATION IS PROVIDED "AS IS"
WITHOUT WARRANTY OR ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, THE IMPLIED WARRANTIES OR MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. THE ENTIRE RISK ARISNG OUT OF USE OF PERFORMANCE OF THE
SOFTWARE REMAINS WITH OBJECTSOFT.
(c) IN NO EVENT SHALL MICROSOFT OR ITS SUPPLIERS BE
LIABLE FOR ANY DAMAGES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR
LOSS OF BUSINESS PROFIT, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR
ANY OTHER PECUNIARY LOSS) ARISING OUT OF THE USE OR INABILITY TO USE THIS
MICROSOFT PRODUCT, EVEN IF MICROSOFT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
6. The provisions set forth above in Sections 4 and 5 shall
survive termination or expiration of this Agreement.
7. The initial term of this Agreement shall be for a period
of one year from the date hereof. At the end of the initial term, the parties
may renew this Agreement for successive one (1) years terms upon written
agreement of the parties at least two (2) months prior to the expiration of the
then-current term. This Agreement may also be terminated upon written notice by
the non-breaching party in the event of a breach by the other party of its
obligations pursuant to this Agreement, which breach is not cured within a
reasonable time after receipt of notice of such breach.
<PAGE>
8. The parties acknowledges that, except with respect to the
items set forth above, the other party shall have no further obligations with
respect to the Service unless and until the negotiation and execution by both
parties of a subsequent agreement in writing outlining the parties' respective
duties with respect to the Service. The parties acknowledge that this Agreement
contains the entire agreement of the parties with respect to the Service as of
the date hereof, and supersedes any and all prior agreements.
9. The parties hereto are independent contractors, and
nothing contained herein shall be deemed to create a partnership, agency or
employment relationship. Neither party hereto shall have the power to act in the
name of, on behalf of, or incur any obligation binding upon the other party.
Neither party hereto shall acquire an interest in the business or operations of
the other by virtue of performance of its duties pursuant to this Agreement or
otherwise.
10. This Agreement shall be governed by the laws of the State
of Washington as though entered into between Washington residents and to be
performed entirely within the State of Washington. In any action or suit to
enforce any right or remedy under this Agreement or to interpret any provision
of this Agreement, the prevailing party shall be entitled to recover its costs,
including reasonable attorneys' fees.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first set forth above.
OBJECTSOFT CORPORATION MICROSOFT CORPORATION
By: /s/ DAVID E. Y. SARNA By: /s/ ERIC EWING
---------------------------- ----------------------------
David E. Y. Sarna Eric Ewing
Chairman Product Manager
June 22, 1995 (Revised June 30, 1995)
Mr. Kevin A. Schinani
Director, Agency-Company Products & Services
ACORD Corporation
One Blue Hill Plaza
15th Floor
P.O. Box 1529
Pearl River, NY 10965-8529
Dear Kevin:
It was a pleasure meeting with you and Greg again today. It was a reassuring to
see the progress you have made in your project. You should be commended for your
efforts for making this project a reality.
David and I look forward to working with you to achieve your goals. As we
discussed, placing ObjectSoft Corporation ("ObjectSoft") on retainer, places us
on your team. Together we can achieve ACORD's goals over the next few months.
OUR UNDERSTANDING OF THE PRESENT SITUATION
We understand that ACORD Corporation ("ACORD") is in the process of building the
first object oriented electronic forms for Vehicles. You require several things
to be completed by ObjectSoft over the next 3 months:
1. Design and build an initial draft of the Implementors Guide by
08/14/95
2. Design and build the final draft of the Implementors Guide and sample
code by 09/30/95
3. Meet with Accent to understand their new forms system and its use in
the Print Object
4. Design initial draft of programming specifications for print object
by 08/25/95
5. Design final detailed programming specifications for the Print Object
and Prototype code by 09/30/95
6. Attend ACORD planning meetings
7. Attend Greg's standards committee meetings
<PAGE>
After the design specifications are complete, you may require ObjectSoft to
provide and OLE programmer to work on implementing the Printer Object and
providing sample code.
ACORD wishes to provide a programmer also, so development and maintenance of
code can be transferred as soon as possible. It is understood that ACORD will be
the sole owner of all documentation and code created for this project as a "work
for hire." To the extent that such code utilizes objects owned by ObjectSoft,
ObjectSoft hereby grants, upon payment of the fees specified herein, a
permanent, royalty-free license to use such objects in conjunction with objects
created for ACORD under this Agreement.
OBJECTSOFT'S UNIQUE APPROACH
The ObjectSoft retainer provides ACORD with top level ObjectSoft expertise at a
substantial discount. ObjectSoft will provide ACORD with bi-weekly status
reports indicating:
1. Amount of monthly retainer used by task
2. List of risks and possible solutions
3. Status of ObjectSoft assigned tasks
4. Expected remaining work by task If time is left unused in any month,
ACORD can apply that time to the OLE programmer to complete
programming tasks.
The OLE programmer will be provided on a time & materials basis at a labor rate
of $800/day as needed.
STAFFING, TIMING, FEES, AND CANCELLATIONS
Staff is assigned as requested by ACORD. Times are based on staff classification
and fees are computed at a reduced rate. David and I are usually commissioned
for an amount of time to help transfer knowledge and provide our experiences to
your team. The proposed amount is $20,000 per month for 10 days of either David
or my time. This reflects a substantial discount from our normal daily rate of
$2800.00
Payments are as follows:
1. First payment, due with signed contract, for $30,000
2. Second payment of $20,000 is due August 23, 1995
3. Third payment of $10,000 is due 09/25/95
An extra programmer days for the sample and prototype code will be deducted from
any unused days; additional time if requested and provided, will be billed
separately at the end of each month.
This retainer is established for a 3 month period beginning July 1, 1995 and can
be extended by ACORD in 3 month increments at the current rates, or monthly at
our regular published rate. Any unused days at the end of the first 3 months can
be applied to the month of October.
Owed ACORD 5 Days
Used 1.5 Days - Boston Conference
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<PAGE>
.5 Days - Meeting with Kevin & Greg 6/22/95
3 Days - Draft of OLE Implementors Guide
ObjectSoft appreciates this opportunity to respond to your request. To accept
this service, please sign this letter below, and return one copy to us with a
check $30,000. Please feel free to call if you have any questions about this
proposal or any aspect of our services.
Sincerely yours,
/s/George J. Febish
- -----------------------------------
George J. Febish
President
ACCEPTED:
/s/Kevin A. Schinani
- -----------------------------------
ACORD Corporation
by:
--------------------------------
Date: 7/30/95
------------------------------
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<PAGE>
ACORD CORPORATION
NON-DISCLOSURE AND INVENTION RETENTION AGREEMENT
This Agreement (the "Agreement") made between ACORD Corporation ("ACORD"), a
corporation organized under the laws of the State of Delaware, having its
principal place of business at One Blue Hill Plaza, Pearl River, New York 10985
and ObjectSoft Corporation ("Company"), a corporation organized and existing
under the laws of the State of New Jersey, having its principal office and place
of business at 50 E. Palisade Avenue, Englewood, New Jersey 07611, (address,
city, state, zip) and entered into as of 7/5/95.
In consideration of the mutual promises and covenants contained in this
Agreement, ACORD's disclosure of confidential information to Company, and any
payments made or to be made by ACORD or Company, the parties hereto agree as
follows:
1. CONFIDENTIAL INFORMATION AND CONFIDENTIAL MATERIALS.
(a) "Confidential Information" means non public information
that ACORD designates as being confidential or which, under the circumstances
surrounding disclosure, ought to be treated as confidential. "Confidential
Information" includes, without limitation, information relating to released or
unreleased ACORD software products or services, the marketing or promotion of
any ACORD product, ACORD's business policies or practices, and information
received from others that ACORD is obligated to treat as confidential.
Confidential information disclosed to Company by any ACORD Subsidiary and/or
agents is covered by this Agreement.
(b) Confidential Information shall not include any information
that: (i) is or subsequently becomes publicly available without Company's breach
of any obligation owed ACORD; (ii) become known to Company prior to ACORD's
disclosure of such information to Company; (iii) became known to Company from a
source other than ACORD other than by the breach of an obligation of
confidentiality owned to ACORD; or (iv) is independently developed by Company.
(c) "Confidential Materials" shall mean all tangible materials
containing Confidential Information, including without limitation written or
printed documents and computer disks or tapes, whether machine or user readable.
2. RESTRICTIONS.
(a) Company shall not disclose any Confidential information to
third parties for five (5) years following the date of its disclosure by ACORD
to Company, except to Company's consultants as provided below. However, Company
may disclose Confidential Information in accordance with judicial or other
governmental order, provided Company shall give ACORD
-4-
<PAGE>
reasonable notice prior to such disclosure and shall comply with any applicable
protective order or equivalent.
(b) Company shall take reasonable security precautions, at
least as great as the precautions it takes to protect its own confidential
information, to keep confidential the Confidential Information. Company may
disclose Confidential Information or Confidential Materials only to Company's
employees or consultants on a need-to-know basis. Company shall execute
appropriate written agreements with its employees and consultants sufficient to
enable it to comply with all the provisions of this Agreement.
(c) Confidential Information and Confidential Materials may be
disclosed, reproduced, summarized or distributed only in pursuance of Company's
business relationship with ACORD, and only as otherwise provided hereunder.
Company agrees to segregate all such Confidential Materials from the
confidential materials of others in order to prevent commingling.
(d) Company may not reverse engineer, decompile or dissemble
any software disclosed to Company.
3. INVENTIONS.
(a) Company agrees that it will promptly make full written
disclosure to ACORD, will hold in trust for the sole right and benefit of ACORD,
and hereby assign to ACORD, or its designee, all its right, title and interest
in and to any and all inventions, original works of authorship, developments,
concepts, improvements or trade secrets, whether or not patentable or
registrable under copyright or similar laws, which Company may solely or jointly
conceive or develop or reduce to practice, or cause to be conceived or developed
or reduced to practice (collectively referred to as "Invention"), as a result of
Company's business relationship with ACORD, that Company and ACORD agree in
advance are to be ACORD's property. Company further acknowledges that all
original works of authorship which are made by Company (solely or jointly with
others) within the scope of and during the period of this business relationship,
that Company and ACORD agree in advance are ACORD's property, and which are or
can be protected by copyright are "works made for hire," as that term is defined
in the United States Copyright Act.
(b) Company agrees to assist ACORD, or its designee, in the
securing of ACORD's rights in the inventions and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto in any and
all countries, including the disclosure to ACORD of all pertinent information
and date with respect thereto, the execution of all applications,
specifications, oaths, assignments and all other instruments which are necessary
in order to apply for and obtain such rights and in order to assign and convey
to ACORD, its successors, assigns and nominees the sole and exclusive rights,
title and interest in and to such inventions, and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto. Company
further agrees that its obligation to execute or cause to be executed, when it
is in its
-5-
<PAGE>
power to do so, any instrument or papers shall continue after the termination of
this Agreement. If ACORD is unable because of Company's mental or physical
incapacity or for any other reason to secure Company's signature to apply for or
to pursue any application for any United States or foreign patents or copyright
registrations covering inventions or original works of authorship assigned to
ACORD as above, then Company hereby irrevocably designates and appoints ACORD
and its duly authorized officers and agents and its agent and attorney in fact,
to act for an in its behalf and stead to executed and file any such applications
and to do all other lawfully permitted acts to further the prosecution and
issuance of letters patent or copyright registrations thereon with the same
legal force and effect as if executed by Company.
(c) Company agrees that for a period of twelve (12) months
immediately following the termination of its relationship with ACORD for any
reason, whether with or without cause, it shall not either directly or
indirectly encourage any of ACORD's employees to leave their employment, or
attempt to solicit, induce, recruit, encourage or take away employees of ACORD,
either for itself or for any other person or annuity.
4. RIGHTS AND REMEDIES.
(a) Company shall notify ACORD immediately upon discovery of
any unauthorized use or disclosure of Confidential Information and/or
Confidential Materials, or any other breach of this Agreement by Company, and
will cooperate with ACORD in every reasonable way to help ACORD regain
possession of the Confidential Information and/or Confidential Materials and
prevent its further unauthorized use.
(b) Company shall return all originals, copies, reproductions
and summaries of Confidential Information and Confidential Materials at ACORD's
request or, at ACORD's option, certify destruction of the same.
(c) Company acknowledges that unauthorized disclosure of
Confidential Information or inventions will cause irreparable injury to ACORD,
inadequately compensable in damages, and that ACORD shall be entitled, without
waiving any other rights or remedies, to such injunctive or equitable relief as
may be deemed proper by a court of competent jurisdiction.
(d) ACORD may visit Company's premises, with reasonable prior
notice and during normal business hours, to review Company's compliance with the
terms of this Agreement.
5. MISCELLANEOUS.
(a) All Confidential Information and Confidential Materials
are and shall remain the property of ACORD. By disclosing information to
Company, ACORD does not grant any express or implied right to Company to or
under ACORD patents, copyrights, trademarks, or trade secret information.
-6-
<PAGE>
(b) If ACORD provides pre-release software as Confidential
Information or Confidential Materials under this Agreement, such pre-release
software is provided "as is" without warranty of any kind. Company agrees that
neither ACORD nor its supplier shall be liable for any damages whatsoever
relating to Company's use of such pre-release software.
(c) Any software and documentation provided under this
Agreement is provided to Company with restricted rights. Use, duplication, or
disclosure by the Government is subject to restrictions as set forth in
subparagraph (c) (t) (iii) of The Rights in Technical Data and Computer Software
clause at DFARS 252-227-7013 or subparagraphs (c)(1) and (2) of the Commercial
Computer Software Restricted Rights at 42 CFR 62-227-19, as applicable.
Manufacturer is ACORD Corporation, One Blue Hill Plaza, Pearl River, NY
10985-8528.
(d) Company agrees that it does not intend nor will it,
directly or indirectly, export or re-export (i) any Confidential Information or
Materials or (iii) any product (or any part thereof), process, or service that
is the direct product of the Confidential Information or Materials (A) to any
country that is subject to U.S. export restrictions (currently including, but
not necessarily limited to, Cuba, the Federal Republic of Yugoslavia (Serbia and
Montenegro), Iran, Iraq, Libya, North Korea, Syria and Vietnam), or to any
national or any such country, wherever located, who intends to transmit or
transport the products back to such country; (B) to any end-user who Company
knows or has reason to know will utilize them in the design, development or
production of nuclear, chemical or biological weapons; or (C) to any end-user
who has been prohibited from participating in U.S. export transactions by any
federal agency of the U.S. government.
6. ENTIRE AGREEMENT.
This Agreement contains the complete and exclusive agreement between
the parties relating to the subject matter herein. This Agreement supersedes,
and the terms of this Agreement govern, any prior or contemporaneous agreements,
understandings, representations, communications or proposals, oral or written,
between the parties relating to the subject matter of this Agreement, all of
which are merged herein as Confidential Information. It is also understood and
agreed that no usage of trade or other regular practice or method of dealing
between the parties hereto shall be used to modify, interpret, supplement or
alter in any manner the terms of this Agreement. No modification or amendment to
this Agreement, nor any waiver of any rights under this Agreement, shall be
effective unless it is in writing, dates subsequent to this Agreement, and
signed by the parties hereto. Action taken in reliance upon a writing not signed
by both parties shall not be entitled to compensation on the basis of equitable
estoppel or any other equitable theory. None of the provisions of this Agreement
shall be deemed to have been waived by any act or acquiescence on the part of
ACORD, its agents, or employees, but only by an instrument in writing signed by
an authorized officer of ACORD. No waiver of any provision of this Agreement
shall constitute a waiver of any other provision(s) or of the same provision on
another occasion.
-7-
<PAGE>
7. LEGAL FEES.
If any arbitration or legal proceeding is brought by one party
against the other out of or relating to this Agreement the successful or
prevailing party shall be entitled, in addition to other rights and remedies it
may have, to reimbursement for its expenses incurred thereby, including
reasonable attorney's fees.
8. APPLICABLE LAW; INTERPRETATION.
This Agreement and its performance shall be construed in accordance
with and governed by the laws of the State of New York applied to agreements
wholly negotiated, executed and performed therein. This Agreement shall be
construed and interpreted according to its fair meaning and without regard to
any presumption or other rule requiring construction against the party drafting
or causing this Agreement to be drafted.
9. NOTICES.
Any notice, request, demand, waiver, consent, approval or other
communication which is required or permitted under this Agreement shall be in
writing and shall be given by personal delivery, first class mail, postage
prepaid, or telefacsimile addressed as follows:
ACORD: ACORD CORPORATION
One blue Hill Plaza - 15th Floor
P.O. Box 1529
Pearl River, New York 10965-8528
Telefacsimile: 814-620-3800
COMPANY: ObjectSoft Corp.
50 E. Palisade Ave.
Englewood, NJ 07631
Attn: David E.Y. Sarna
Telefacsimile: 201-816-1640
The address of a party may be changed by giving written notice as
provided herein. Such notice, request, demand, waiver, consent, approval or
other communication will be deemed to have been given as of the date received.
10. NO ASSIGNMENT.
Company shall not assign or transfer any other rights herein granted
in any manner whatsoever without prior written consent of ACORD; provided,
however, that Company may assign this Agreement without the consent of ACORD to
any successor to Company by merger or consolidation or to any purchase of all or
substantially all of the assets or business of Company,
-8-
<PAGE>
provided, however, that such successor or purchaser agree in writing to be bound
by the terms and conditions of this Agreement. Subject to the foregoing, this
Agreement shall bind and inure to the benefit of the respective parties hereto
and their heirs, personal representatives, successors and permitted assigns.
11. PARTIAL INVALIDITY.
If any provision of this Agreement is held to be invalid by a court
of competent jurisdiction, than the remaining provisions shall nevertheless
remain in full force and effect. The parties agree to negotiate in good faith
any term held invalid and to be bound by the mutually agreed substitute
provision.
12. SUGGESTIONS AND FEEDBACK.
ACORD may from time to time request suggestions, feedback or other
information from Company concerning Confidential Information, inventions, or an
released or unreleased ACORD software or hardware. Any suggestions, feedback or
other disclosures made by Company are and shall be entirely voluntary on
Company's part and shall not create any obligations on the part of ACORD or a
confidential relationship between Company and ACORD. ACORD shall be free to
disclose and use Company's suggestions, feedback, or other information as ACORD
sees fit, entirely without obligation of any kind to Company.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on this
5 day of JULY, 1995.
ACORD CORPORATION
By: /s/ KEVIN A. SCHINANI (Name)
----------------------------------
DIRECTOR, PRODUCTS & SERVICES (Title)
----------------------------------
OBJECTSOFT CORPORATION
Compay: OBJECTSOFT CORPORATION
-----------------------------
By: DAVID E. Y. SARNA (Name-Print)
----------------------------------
/s/ DAVID E. Y. SARNA (Signature)
----------------------------------
CHAIRMAN (Title)
----------------------------------
See Amendment to Non-Disclosure and Invention
Retention Agreement of even date.
-10-
<PAGE>
ACORD CORPORATION
AMENDMENT TO NON-DISCLOSURE AND
INVENTION RETENTION AGREEMENT
The Agreement entitled "NON-DISCLOSURE AND INVENTION RETENTION AGREEMENT" (the
"Agreement") of even date with this agreement, by and between ACORD Corporation,
("ACORD") and ObjectSoft Corporation ("ObjectSoft") is hereby amended, from
inception, as follows:
1. Confidentiality
Provisions related to confidentiality are hereby modified
to exclude any materials or information in the public domain or licensed from a
third party.
2. Mutuality
Sections 1 through 5 of the Agreement are hereby modified
to apply in like manner to ACORD with respect to ObjectSoft.
3. Deleted Provisions
Section 5(c) and 5(d) of the Agreement are hereby deleted
4. Added Provisions
The following paragraph is added:
3(d) ACORD understands that Company regularly engages in
the creation of software objects, and other works and that any work created by
the Company (solely or jointly with others), at its own expense, or with funding
provided by parties other than ACORD, are the property of the Company and/or its
partners or customers, and ACORD hereby disclaims any ownership or rights in
such objects or other works. The provisions of this Section 3 shall only apply
to inventions which are solely as a result of Company's business relationship
with ACORD.
All other provisions of the Agreement shall remain as written.
AGREED:
ACORD CORPORATION OBJECTSOFT CORPORATION
By /s/ KEVIN A. SCHINANI By /s/ DAVID SARNA
---------------------------------- ----------------------------------
Officer's Name KEVIN A. SCHINANI Officer's Name DAVID SARNA
---------------------- ---------------------
Date 7/5/95 Date 7/5/95
---------------------- ---------------------
LEGEND
"THE WARRANT REPRESENTED BY THIS AGREEMENT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MUST BE HELD INDEFINITELY UNLESS
REGISTERED UNDER SUCH ACT OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE."
WARRANT AND WARRANT AGREEMENT TO PURCHASE COMMON STOCK
OF
OBJECTSOFT CORPORATION
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
ObjectSoft Corporation (the "Company") has agreed to issue to
_____________ ("Holder") this warrant to acquire shares ____ _________ (_____)
of the common stock of the Company, par value $.001 per share (the "Common
Stock"), pursuant to the terms provided in this Warrant and Warrant Agreement.
(The Warrant and Warrant Agreement set forth below is hereafter referred to as
the "Warrant".)
Accordingly, the Company and the Holder agree as follows:
1. ISSUANCE. The Company hereby issues to the Holder the
right to purchase, subject to the provisions of this Warrant, _____ _______
(________) shares of the Common Stock, at a price of $2.00 per share, as
adjusted in accordance with the terms hereof, at any time during the period from
the date of this Warrant through and including 3:30 P.M., New York City time, on
_________ __, 199_ [extended to November 29, 1996] (the "Exercise Period") at
which time this Warrant shall expire and become void. The number of shares of
Common Stock to be received upon the exercise of this Warrant and the price to
be paid for each share of Common Stock may be adjusted from time to time as
herein set forth. The shares of Common Stock deliverable pursuant to this
Warrant as they may be adjusted from time to time are herein referred to as
"Warrant Shares" and the exercise price of a share of Common Stock in effect at
any time and as adjusted from time to time is herein referred to as the
"Exercise Price".
2. EXERCISE OF WARRANTS. This Warrant may be exercised as a
whole or in part at any time during the Exercise Period by presentation and
surrender hereof to the Company at its executive offices with the Purchase Form
annexed hereto duly executed and accompanied by payment of the Exercise Price.
If this Warrant is exercised in part, the Company will issue to the Holder a new
<PAGE>
warrant representing the right of the Holder to purchase the remaining number of
Warrant Shares and otherwise on identical terms hereto.
3. RESERVATION OF SHARES. The Company hereby agrees that at
all times during the term of this Warrant there shall be reserved for issuance
upon exercise of this Warrant such number of shares of its Common Stock as shall
be required for issuance upon exercise of this Warrant.
4. ASSIGNMENT OR LOSS OF WARRANT. This Warrant is not
assignable or transferable without the written consent of the Company, except by
operation of law. Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) receipt of reasonably satisfactory indemnification,
and (in the case of mutilation) upon surrender and cancellation of this Warrant,
the Company will execute and deliver a new Warrant of like tenor and date and
any such lost, stolen, destroyed or mutilated Warrant shall thereupon become
void.
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein and in the Registration Rights and Shareholder Agreement.
6. PROTECTION AGAINST DILUTION.
6.1. If at any time and from time to time the Company
shall (i) declare a dividend or make a distribution in shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock or (iv) otherwise effect a recapitalization
of such character that the shares of Common Stock shall be changed into or
become exchangeable for a greater or lesser number of shares of Common Stock,
then the Exercise Price in effect on the record date of such dividend or
distribution or the effective date of such subdivision, combination or
reclassification (individually an "Event" and collectively the "Events") shall
be adjusted, or further adjusted, to a price (to the nearest cent) determined by
multiplying (i) the Exercise Price in effect immediately prior to such Event by
(ii) a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such Event, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after such
Event. Upon each adjustment in the Exercise Price resulting from an Event, the
number of Warrant Shares shall be adjusted (to the nearest one-thousandth share)
by multiplying (i) the number of Warrant Shares for which the Warrant was
exercisable immediately prior to such Event by (ii) a fraction, the numerator of
which shall be the Exercise Price in effect immediately prior to such Event, and
the denominator of which shall be the Exercise Price in effect immediately after
such Event. Notice of each such adjustment and each such readjustment shall be
forthwith mailed to the Holder setting forth such adjustments or readjustments
and the facts and calculations thereof in reasonable detail. Any dividend paid
or distributed upon the Common Stock in stock of any other class of securities
convertible into shares of Common Stock shall be treated as a dividend paid in
Common Stock to the extent that shares of Common Stock are issuable upon the
conversion thereof.
<PAGE>
6.2. In case: (i) a distribution in the form of stock or
other securities of any other corporation or other entity shall be made or paid
by the Company on, or with respect to, the then outstanding shares of Common
Stock, (ii) the Company shall effect a recapitalization of such character that
the shares of Common Stock will be changed into or become exchangeable for
shares of Common Stock with a different par value or no par value, (iii) the
Company (or a successor corporation) shall be consolidated or merged with or
into another corporation or entity or shall sell, lease or convey all or
substantially all of its assets in exchange for stock or property (including
cash) with the view of distributing such stock or property to its shareholders,
or (iv) the Board of Directors of the Company shall declare any dividend or
other distribution in cash or any evidence of the Company's indebtedness (other
than convertible securities) with respect to the shares of Common Stock, each
share of Common Stock issuable upon exercise of this Warrant shall be replaced
by, and/or shall include, as the case may be, for the purposes hereof, the
stock, property, cash or evidence of indebtedness issued or distributed in
respect of each share of Common Stock upon such recapitalization,
reclassification, merger, sale, lease, conveyance or distribution as the Holder
would have been entitled to had the Holder exercised this Warrant immediately
prior to any such occurrence, and adequate provision to that effect shall be
made at the time thereof.
6.3. In case:
6.3.1. of any classification, reclassification or other
reorganization of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, or the sale, lease or conveyance
of all or substantially all of the assets of the Company; or
6.3.2. of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; then, and in any such case, the
Company shall mail to the Holder, at least 15 days prior thereto, a notice
stating the date or expected date on which a record is to be taken. Such notice
shall also specify the date or expected date, if any is to be fixed, as of which
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
classification, reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation, winding up or any other appropriate
action, as the case may be.
7. TRANSFER TO COMPLY WITH THE SECURITIES ACT. This Warrant
has not been registered under the Securities Act of 1933, as amended, (the
"Act") and has been issued to the Holder for investment and not with a view to
the distribution of either the Warrant or the Warrant Shares. Neither this
warrant nor any of the Warrant Shares or any other security issued or issuable
upon exercise of this Warrant may be sold, transferred, pledged or hypothecated
in the absence of an effective registration statement under the Act relating to
such security or an opinion of counsel satisfactory to the Company that
registration is not required under the Act. Each certificate for the Warrant the
Warrant Shares and any other security issued or issuable upon exercise of this
Warrant shall contain a legend on the face thereof, in form and substance
satisfactory to counsel for the Company, setting forth the restrictions on
transfer contained in this Section.
<PAGE>
8. NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails, as follows:
(i) if to the Company, to:
ObjectSoft Corporation
50 East Palisade Avenue
Suite 411
Englewood, New Jersey 07631
(ii) if to the Holder, to:
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. SUPPLEMENTS AND AMENDMENTS; WHOLE AGREEMENT. This Warrant
may be amended or supplemented only by an instrument in writing signed by the
parties hereto. This Warrant contains the full understanding of the parties
hereto with respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings other than expressly
contained herein and therein.
10. GOVERNING LAW. This Warrant shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be governed by and construed in accordance with the laws of such State
applicable to contracts to be made and performed entirely within such State.
11. COUNTERPARTS. This Warrant may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
12. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Warrant are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the ___ day of _________, 199_.
<PAGE>
OBJECTSOFT CORPORATION
By:________________________________
David E.Y. Sarna
Chairman of the Board
SUBSCRIPTION AGREEMENT
(To be signed only upon exercise of Warrant)
To OBJECTSOFT CORPORATION:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ____________ 1 shares of Common Stock of OBJECTSOFT
CORPORATION and herewith makes payment of $ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered
to,____________________ , whose address is __________________________
Dated: _____________, 19_ ______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
______________________________
(Address)
- ----------------------
1 Insert here the number of shares called for on the face of the
Warrant (or, in the case of a partial exercise, the portion thereof
as to which the Warrant is being exercised) , in either case without
making any adjustment for additional Common Stock or any other stock
or other securities or property or cash which, pursuant to the
adjustment provisions of the Warrant, may be deliverable upon
exercise.
WARRANT AND WARRANT AGREEMENT TO PURCHASE COMMON STOCK
OF
OBJECTSOFT CORPORATION
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
OBJECTSOFT CORPORATION (the "Company") has agreed to issue to
________________ ("Holder") this warrant to acquire _____ Thousand (_0,000)
shares of the common stock of the Company (the "Common Stock"), pursuant to the
terms provided in this Warrant and Warrant Agreement. (This Warrant and Warrant
Agreement is hereafter referred to as the "Warrant.")
Accordingly, the Company and the Holder agree as follows:
1. ISSUANCE. The Company hereby issues to the Holder the right to
purchase, subject to the provisions of this Warrant, Fifty Thousand (50,000)
shares of the Common Stock, at a price of $.50 per share, as adjusted in
accordance with the terms hereof, at any time during the period from the date of
this Warrant through and including 3:30 P.M., New York City time, on April 14,
1998 (the "Exercise Period") at which time this Warrant shall expire and become
void. The number of shares of Common Stock to be received upon the exercise of
this warrant and the price to be paid for each share of Common Stock may be
adjusted from time to time as herein set forth. The shares of Common Stock
deliverable pursuant to this Warrant as they may be adjusted from time to time
are herein referred to as "Warrant Shares" and the exercise price of a share of
Common Stock in effect at any time and as adjusted from time to time is herein
referred to as the "Exercise Price."
2. EXERCISE OF WARRANTS. This Warrant may be exercised as a whole or
in part at any time during the Exercise Period by presentation and surrender
hereof to the Company at its executive offices with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price. If this
Warrant is exercised in part, the Company will issue to the Holder a new warrant
representing the right of the Holder to purchase the remaining number of Warrant
Shares and otherwise on identical terms hereto.
<PAGE>
3. RESERVATION OF SHARES. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant.
4. ASSIGNMENT OR LOSS OF WARRANT. (a) This Warrant is not assignable
or transferable without the written consent of the Company, except by operation
of law or as provided in (b) below. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) receipt of reasonably
satisfactory indemnification, and (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant
shall thereupon become void.
(b) This Warrant shall not be transferable by Holder other than to a
"Permitted Transferee" (as defined below), or a financial institution as
collateral to secure a pledge from the Holder to the financial institution in
connection with a loan from such financial institution to the Holder; PROVIDED,
that any Permitted Transferee shall be absolutely prohibited from transferring
all or any portion of this Warrant other than to Holder or another Permitted
Transferee of Holder; and PROVIDED FURTHER, that if Holder dies or becomes
incapacitated, this Warrant may be exercised by Holder's estate, legal
representative or beneficiary, as the case may be, subject to all other terms
and conditions contained in this Warrant.
(c) For purposes of this Agreement, Permitted Transferees shall
include only the members of the "immediate family" (which shall be limited to
his spouse, children, parents and siblings) of Holder, and to trusts for such
person's own benefit and/or for the benefit of members of his immediate family;
PROVIDED, that such Permitted Transferees must agree in writing to be bound by
all of the terms of this Agreement to the same extent as Holder hereunder, in
form acceptable to counsel to the Company, including but not limited to
restrictions on the exercise of this Warrant and on transfers of Shares
following exercise of this Warrant, such that any Shares so acquired shall be
held subject to the terms of this Agreement. Shares held by any Permitted
Transferee shall be aggregated with those held by the Permitted Transferee's
transferor in order to determine the number of Shares subject to the provisions
of this Agreement.
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. PROTECTION AGAINST DILUTION.
6.1 If at any time and from time to time the Company shall
(i) declare a dividend or make a distribution in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock, (iii) combine its outstanding
shares of Common Stock or (iv) otherwise effect a recapitalization of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a greater or lesser number of shares of Common Stock, then the
Exercise Price in
<PAGE>
effect on the record date of such dividend or distribution or the effective date
of such subdivision, combination or reclassification (individually an "Event"
and collectively the "Events") shall be adjusted, or further adjusted, to a
price (to the nearest cent) determined by multiplying (i) the Exercise Price in
effect immediately prior to such Event by (ii) a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such Event, and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such Event. Upon each adjustment
in the Exercise Price resulting from an Event, the number of Warrant Shares
shall be adjusted (to the nearest one-thousandth share) by multiplying (i) the
number of Warrant Shares for which the Warrant was exercisable immediately prior
to such Event by (ii) a fraction, the numerator of which shall be the Exercise
Price in effect immediately prior to such Event, and the denominator of which
shall be the Exercise Price in effect immediately after such Event. Notice of
each such adjustment and each such readjustment shall be forthwith mailed to the
Holder setting forth such adjustments or readjustments and the facts and
calculations thereof in reasonable detail. Any dividend paid or distributed upon
the Common Stock in stock of any other class of securities convertible into
shares of Common Stock shall be treated as a dividend paid in Common Stock to
the extent that shares of Common Stock are issuable upon the conversion thereof.
6.2 In case: (i) a distribution in the form of stock or
other securities of any other corporation or other entity shall be made or paid
by the Company on, or with respect to, the then outstanding shares of Common
Stock, (ii) the Company shall effect a recapitalization of such character that
the shares of Common Stock will be changed into or become exchangeable for
shares of Common Stock with a different par value or no par value, (iii) the
Company (or a successor corporation) shall be consolidated or merged with or
into another corporation or entity or shall sell, lease or convey all or
substantially all of its assets in exchange for stock or property (including
cash) with the view of distribution such stock or property to its shareholders,
or (iv) the Board of Directors of the Company shall declare any dividend or
other distribution in cash or any evidence of the Company's indebtedness (other
than convertible securities) with respect to the shares of Common Stock, each
share of Common Stock issuable upon exercise of this Warrant shall be replaced
by, and/or shall include, as the case may be, for the purposes hereof, the
stock, property, cash or evidence of indebtedness issued or distributed in
respect of each share of Common Stock upon such recapitalization,
reclassification, merger, sale, lease, conveyance or distribution as the Holder
would have been entitled to had the Holder exercised this Warrant immediately
prior to any such occurrence, and adequate provision to that effect shall be
made at the time thereof.
6.3 In case:
6.3.1. of any classification, reclassification or other
reorganization of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, or the sale, lease or conveyance
of all or substantially all of the assets of the Company; or
6.3.2. of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
<PAGE>
then, and in any such case, the Company shall mail to the Holder, at least 15
days prior thereto, a notice stating the date or expected date on which a record
is to be taken. Such notice shall also specify the date or expected date, if any
is to be fixed, as of which holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other property
deliverable upon such classification, reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation, winding up or any
other appropriate action, as the case may be.
7. TRANSFER TO COMPLY WITH THE SECURITIES ACT. This Warrant has not
been registered under the Securities Act of 1933, as amended, (the "Act") and
has been issued to the Holder for investment and not with a view to the
distribution of either the Warrant or the Warrant Shares. Neither this Warrant
nor any of the Warrant Shares or any other security issued or issuable upon
exercise of this Warrant may be sold, transferred, pledged or hypothecated in
the absence of an effective registration statement under the Act relating to
such security or an opinion of counsel satisfactory to the Company that
registration is not required under the Act. Each certificate for the Warrant,
the Warrant Shares and any other security issued or issuable upon exercise of
this Warrant shall contain a legend on the face thereof, in form and substance
satisfactory to counsel for the Company, setting forth the restrictions on
transfer contained in this Section.
8. REGISTRATION RIGHTS.(i) If at any time or from time to time
following the date hereof, the Company shall determine to register any
distribution of its securities with the Securities and Exchange Commission,
either for its own account or the account of a security holder or holders, in a
registration statement covering the sale of shares of Common Stock to the
general public pursuant to a public offering in compliance with the Act (except
with respect to any registration filed on Form S-8, Form S-4 or such other form
which does not include substantially the same information as would be included
in a registration statement covering the sale of shares of Common Stock to the
general public), the Company will: (a) give to Holder written notice thereof at
least 30 days before the initial filing of such registration statement (which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and (b) use its best efforts to include in such registration
(and any related qualification under blue sky laws) and in any underwriting
involved therein, all the Shares specified in a written request, made within 30
days after receipt of such written notice from the Company, by Holder, except as
set forth in subparagraphs (ii) or (iii) below.
(ii) If the distribution is to be underwritten, the right
of Holder to registration pursuant to this Section 8 shall be conditioned upon
Holder's participation in the underwriting and the inclusion of Holder's Shares
in the underwriting to the extent provided herein. Holder shall (together with
the Company) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company.
Holder shall furnish to the Company such written information concerning Holder
and the distribution proposed by Holder as the Company may reasonably request.
(iii) Notwithstanding any other provision of this Section
8, if the underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, and such determination is made by such
underwriter in writing and in good faith, then
<PAGE>
the underwriter may limit the number of Holder's Shares to be included in the
registration and underwriting, or may exclude Holder's Shares entirely from such
registration and underwriting, provided that the underwriter limits all proposed
selling shareholders on a pro-rata basis.
(iv) All expenses incurred in connection with any
registration or qualification pursuant to this Agreement, including, without
limitation, all registration, filing and qualification fees, printing expenses,
fees and disbursements of counsel for the Company, and expenses and fees of any
special audits incidental to or required by such registration, shall be borne by
the Company; PROVIDED, HOWEVER, that the Company in any event shall not be
required to pay the fees of Holder's legal counsel, brokerage fees, or
underwriters, fees, discounts or commissions relating to Holder's Shares (such
legal fees, brokerage fees, and underwriters, fees, discounts or commissions to
be borne by Holder).
(v) In the case of each registration effected by the
Company pursuant to this Agreement, the Company will: (i) keep such registration
or qualification pursuant to this Section 8 effective for a period of 90 days or
until Holder has completed the distribution described in the registration
statement relating thereto, whichever first occurs, and (ii) furnish such number
of prospectuses and other documents incident thereto as Holder from time to time
may reasonably request.
(vi) The registration rights granted to Holder pursuant to
this Section 8 are assignable to his Estate and his Permitted Transferees in
connection with a transfer of any Shares to such persons.
9. NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
OBJECTSOFT CORPORATION
50 East Palisade Avenue
Englewood, New Jersey 07631
Attention: David E. Y. Sarna, Chairman
(ii) if to the Holder, to:
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
<PAGE>
10. SUPPLEMENTS AND AMENDMENTS; WHOLE AGREEMENT. This Warrant may be
amended or supplemented only by an instrument in writing signed by the parties
hereto. This Warrant contains the full understanding of the parties hereto with
respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings other than expressly
contained herein and therein.
11. GOVERNING LAW. This Warrant shall be deemed to be a contract made
under the laws of the State of New Jersey and for all purposes shall be governed
by and construed in accordance with the laws of such State applicable to
contracts to be made and performed entirely within such State.
12. COUNTERPARTS. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
13. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Warrant are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the 15th day of April, 1993.
OBJECTSOFT CORPORATION
By: _____________________________
George J. Febish, President
__________________________________
David E. Y. Sarna, Chairman
WARRANT AND WARRANT AGREEMENT TO PURCHASE COMMON STOCK
OF
OBJECTSOFT CORPORATION
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
TRANSFERRED UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT, A "NO ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH
RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE
SECURITIES AND EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
OBJECTSOFT CORPORATION (the "Company") has agreed to issue to CYNDEL
& CO., INC. ("Holder") this Warrant to acquire twenty thousand (20,000) shares
(the "Shares") of the Company's common stock, par value $.0001 per share
("Common Stock"), exercisable for three (3) years from the date of issuance,
pursuant to the terms provided in this Warrant and Warrant Agreement. This
Warrant and Warrant Agreement is hereafter referred to as the "Warrant."
Accordingly, the Company and the Holder agree as follows:
1. Issuance. The Company hereby issues to the Holder the right to
purchase, subject to the provisions of this Warrant, twenty thousand (20,000)
Shares, at a purchase price of $7.00 per Share, as adjusted in accordance with
the terms hereof, at any time during the period from the date of this Warrant
through and including 5:00 P.M., New York City time, on _________ _, 1999 (the
"Exercise Period") at which time this Warrant shall expire and become void on
the expiration of the Exercise Period. The number of Shares to be received upon
the exercise of this Warrant and the price to be paid for each may be adjusted
from time to time as herein set forth. The Shares deliverable pursuant to this
Warrant as they may be adjusted from time to time are herein referred to as
"Warrant Securities" and the exercise price for the Shares in effect at any time
and as adjusted from time to time is herein referred to as the "Exercise Price."
2. Exercise of Warrants. This Warrant may be exercised as a whole or
in part at any time during the Exercise Period by presentation and surrender
hereof to the Company at its executive offices with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price. If this
Warrant is exercised in part, the Company will issue to the Holder a new warrant
representing the right of the Holder to purchase the remaining number of Warrant
Securities and otherwise on identical terms hereto.
3. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant.
<PAGE>
4. Assignment or Loss of Warrant. (a) This Warrant is not assignable
or transferable without the written consent of the Company, except by operation
of law or as provided in (b) below. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) receipt of reasonably
satisfactory indemnification, and (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant
shall thereupon become void.
(b) This Warrant shall not be transferable by Holder other than to a
"Permitted Transferee" (as defined below); provided, that any Permitted
Transferee shall be absolutely prohibited from transferring all or any portion
of this Warrant other than to Holder or another Permitted Transferee of Holder;
and provided further, that if Holder dies or becomes incapacitated, this Warrant
may be exercised by Holder's estate, legal representative or beneficiary, as the
case may be, subject to all other terms and conditions contained in this
Warrant.
(c) For purposes of this Warrant, Permitted Transferees shall include
only the members of the "immediate family" (which shall be limited to his
spouse, children, parents and siblings) of Holder, and to trusts for such
person's own benefit and/or for the benefit of members of his immediate family;
provided, that such Permitted Transferees must agree in writing to be bound by
all of the terms of this Agreement to the same extent as Holder hereunder, in
form acceptable to counsel to the Company, including but not limited to
restrictions on the exercise of this Warrant and on transfers of Shares, as the
case may be, following exercise of this Warrant, such that any Shares so
acquired shall be held subject to the terms of this Agreement. Shares held by
any Permitted Transferee shall be aggregated with those held by the Permitted
Transferee's transferor in order to determine the number of Shares subject to
the provisions of this Warrant.
5. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
6. Adjustments. (a) If at any time and from time to time the Company
shall (i) declare a dividend or make a distribution in shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock or (iv) otherwise effect a recapitalization
of such character that the shares of Common Stock shall be changed into or
become exchangeable for a greater or lesser number of shares of Common Stock,
then the Exercise Price in effect on the record date of such dividend or
distribution or the effective date of such subdivision, combination or
reclassification (individually an "Event" and collectively the "Events") shall
be adjusted, or further adjusted, to a price (to the nearest cent) determined by
multiplying (i) the Exercise Price in effect immediately prior to such Event by
(ii) a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such Event, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after such
Event. Upon each adjustment in the Exercise Price resulting from an Event, the
number
-2-
<PAGE>
of Warrant Securities shall be adjusted (to the nearest one-thousandth share) by
multiplying (i) the number of Warrant Securities for which the Warrant was
exercisable immediately prior to such Event by (ii) a fraction, the numerator of
which shall be the Exercise Price in effect immediately prior to such Event, and
the denominator of which shall be the Exercise Price in effect immediately after
such Event. Notice of each such adjustment and each such readjustment shall be
forthwith mailed to the Holder setting forth such adjustments or readjustments
and the facts and calculations thereof in reasonable detail. Any dividend paid
or distributed upon the Common Stock in stock of any other class of securities
convertible into shares of Common Stock shall be treated as a dividend paid in
Common Stock to the extent that shares of Common Stock are issuable upon the
conversion thereof.
(b) In case: (i) a distribution in the form of stock or other
securities of any other corporation or other entity shall be made or paid by the
Company on, or with respect to, the then outstanding shares of Common Stock,
(ii) the Company shall effect a recapitalization of such character that the
shares of Common Stock will be changed into or become exchangeable for shares of
Common Stock with a different par value or no par value, (iii) the Company (or a
successor corporation) shall be consolidated or merged with or into another
corporation or entity or shall sell, lease or convey all or substantially all of
its assets in exchange for stock or property (including cash) with the view of
distributing such stock or property to its shareholders, or (iv) the Board of
Directors of the Company shall declare any dividend or other distribution in
cash or any evidence of the Company's indebtedness (other than convertible
securities) with respect to the shares of Common Stock, each Share issuable upon
exercise of this Warrant shall be replaced by, for the purposes hereof, the
stock, property, cash or evidence of indebtedness issued or distributed in
respect of each share of Common Stock upon such recapitalization,
reclassification, merger, sale, lease, conveyance or distribution as the Holder
would have been entitled to had the Holder exercised this Warrant and any
underlying convertible security immediately prior to any such occurrence, and
adequate provision to that effect shall be made at the time thereof.
(c) In case:
(i) of any classification, reclassification or other
reorganization of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, or the sale, lease or conveyance
of all or substantially all of the assets of the Company; or
(ii) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, and in any such case, the Company shall mail to the Holder, at least 15
days prior thereto, a notice stating the date or expected date on which a record
is to be taken. Such notice shall also specify the date or expected date, if any
is to be fixed, as of which holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other property
deliverable upon such classification, reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation, winding up or any
other appropriate action, as the case may be.
-3-
<PAGE>
7. Transfer to Comply with the Securities Act. This Warrant has not
been registered under the Securities Act of 1933 (the "Act") and has been issued
to the Holder for investment and not with a view to the distribution of either
the Warrant or the Warrant Securities. Neither this Warrant nor any of the
Warrant Securities or any other security issued or issuable upon exercise of
this Warrant may be sold, transferred, pledged or hypothecated in the absence of
an effective registration statement under the Act relating to such security or
an opinion of counsel satisfactory to the Company that registration is not
required under the Act. Each certificate for the Warrant, the Warrant Securities
and any other security issued or issuable upon exercise of this Warrant shall
contain a legend on the face thereof, in form and substance satisfactory to
counsel for the Company, setting forth the restrictions on transfer contained in
this Section.
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
OBJECTSOFT CORPORATION
Continental Plaza III
433 Hackensack Avenue
Hackensack, New Jersey 07601
Attention: David E. Y. Sarna, Chairman
(ii) if to the Holder, to:
CYNDEL & CO., INC.
26 Ludlam Avenue
Bayville, New York 11709
Attention: Steven Bayern, President
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This Warrant may be
amended or supplemented or any provision hereof waived only by an instrument in
writing signed by the Company and the Holders of more than 50% in interest of
the Warrant. Any amendment or supplement or waiver approved by Holders of more
than 50% in interest of the Warrant shall be binding on all the Holders thereof.
This Warrant contains the full understanding of the parties hereto
-4-
<PAGE>
with respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings other than expressly
contained herein and therein.
10. Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of New York and f or all purposes shall be governed
by and construed in accordance with the laws of such State applicable to
contracts to be made and performed entirely within such State.
11. Counterparts. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
12. Descriptive Headings. Descriptive headings of the several
Sections of this Warrant are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as
of the 29th day of July, 1996.
OBJECTSOFT CORPORATION
By: /s/David E. Y. Sarna
---------------------------
David E. Y. Sarna, Chairman
CYNDEL & CO., INC.
/s/ Steven Bayern
---------------------------
Steven Bayern, President
-5-
<PAGE>
PURCHASE FORM
To Be Executed by the Holder
in order to Exercise the Warrant
The undersigned Holder hereby irrevocably elects to exercise the
Warrant represented by this Warrant and Warrant Agreement to purchase _________
securities issuable upon the exercise of such Warrant, and requests that
certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
--------------------------
--------------------------
--------------------------
(please print or type name and address)
and be delivered to
--------------------------
--------------------------
--------------------------
(please print or type name and address)
and if such number of securities shall not be all the securities issuable upon
the exercise of the Warrant evidenced by the Warrant and Warrant Agreement, that
a new Warrant and Warrant Agreement for representing a Warrant for the balance
of such securities be registered in the name of, and delivered to, the Holder at
the address stated below.
Dated: _______________________ X__________________________________
___________________________________
___________________________________
Address
___________________________________
Social Security or Taxpayer
Identification Number
-6-
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 10, 1996
