As filed with the Securities and Exchange Commission on September 29, 1998
Registration No. 333-57753
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
AMENDMENT NO. 2
TO
REGISTRATION STATEMENT
ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
--------------------------------
OBJECTSOFT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 22-3091075
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
David E. Y. Sarna, Chairman
ObjectSoft Corporation
Continental Plaza III Continental Plaza III
433 Hackensack Avenue 433 Hackensack Avenue
Hackensack, New Jersey 07601 Hackensack, New Jersey 07601
(201) 343-9100 (201) 343-9100
(Address, Including Zip Code, and (Name, Address, Including Zip Code,
and Telephone Number Including Area Code, and Telephone Number,Including Area
of Registrant's Principal Executive Offices) Code, of Agent For Service)
----------------------------
Copy to:
Melvin Weinberg, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
(212) 704-6000
-----------------------------
Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective, as determined
by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
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, other than securities offered only in connection with
dividend or interest reinvestment plans, 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>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum maximum Amount of
Title of each class of securities Amount to Aggregate price Aggregate registration
to be registered be registered Per share offering price fee
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<S> <C> <C> <C> <C>
Common Stock, $.0001 par
value per share 2,526,114(2)(3) $1.2501(1) $3,157,895 $931.58(4)
============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (g); based on the average ($1.2501) of the
bid ($1.2188) and asked ($1.2813) price on the Nasdaq SmallCap Market
(NASDAQ) on September 18, 1998.
(2) Represents 482,222 shares Common Stock issued in connection with the
May 1998 Private Placement ("Issued Shares"), 57,000 shares issuable
upon exercise of Warrants A and Warrants B, an indeterminate number of
shares issuable upon conversion of $1,248,000 stated value of 6% Series
C Convertible Preferred Stock ("Series C Preferred Stock"), and 37,500
shares issuable upon exercise of a three year warrant ("Settlement
Warrant"). See "Description of Securities."
(3) The shares of Common Stock offered hereby include the resale of such
presently indeterminate number of shares of Common Stock as shall be
issued upon conversion of Series C Preferred Stock based upon two
hundred percent (200%) of an estimate of the number of shares issuable
upon conversion of the Series C Preferred Stock assuming such exercise
occurred on September 9, 1998 at a presumed price of $1.2804 per share
which is 85% of $1.5063, the average closing bid price of the Common
Stock for the five trading days prior to September 9, 1998, as reported
by Blumberg, LP. The shares of Common Stock offered hereby include the
resale of such presently indeterminate number of shares of Common Stock
as shall be issued upon conversion of Series C Preferred Stock pursuant
to Rule 416. Such number of shares is subject to adjustment and could
be materially less than such estimated amount depending upon factors
that cannot be predicted by the Company at this time, including, among
others, the future market price of the Common Stock. This presentation
is not intended to constitute a prediction as to the future market
price of the Common Stock upon conversion of the Series C Preferred
Stock. See "Risk Factors -- Dilution; Impact of Sale of Common Stock
Upon Conversion of Series C Preferred Stock and the Exercise of the Put
Options and Warrants"; and "Description of Securities."
(4) Previously Paid.
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE>
DATED September 29, 1998
PROSPECTUS
2,526,114 Shares of Common Stock
(par value $.0001 per share)
OBJECTSOFT CORPORATION
-----------------------
This Prospectus pertains to the offer and sale from time to time, by or
for the account of certain Company stockholders (the "Selling Stockholders") of
ObjectSoft Corporation (the "Company"), of up to 2,526,114 shares (the "Shares")
of common stock, par value $.0001 per share (the "Common Stock"), of the
Company. See "Selling Stockholders" and "Description of Securities".
The Shares offered hereby may be sold by the Selling Stockholders
directly or through agents, underwriters or dealers as designated from time to
time or through a combination of such methods. The Company will not receive any
of the proceeds from any sale of Shares by or for the account of the Selling
Stockholders. The Selling Stockholders and any broker-dealers that participate
with the Selling Stockholders in the distribution of the Shares may be deemed to
be underwriters and any commissions received or profit realized by them in
connection with the resale of the Shares might be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended (the
"Securities Act"). See "Selling Stockholders" and "Plan of Distribution." The
Company has agreed to bear all expenses relating to this registration, other
than underwriting discounts and commissions. In addition, the Company has agreed
to indemnify the Selling Stockholders against certain liabilities, including
liabilities under the Securities Act. See "Selling Stockholders" and "Plan of
Distribution."
The Common Stock and the Redeemable Class A Warrants are quoted on the
NASDAQ SmallCap Market under the symbols "OSFT" and "OSFTW", respectively. On
September 18, 1998, the closing bid prices of the Common Stock and the Class A
Warrants as reported by NASDAQ were $1 7/32 and $0 1/4, respectively.
The Company's executive offices are located at Continental Plaza III,
433 Hackensack Avenue, Hackensack, New Jersey 07601 and its telephone number is
(201) 343-9100.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER THE FACTORS SPECIFIED UNDER THE
CAPTION "RISK FACTORS" LOCATED ON PAGE 6 OF THIS PROSPECTUS.
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 September 29, 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: New York Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048; and Chicago Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. 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, at prescribed rates. The
Commission also maintains an Internet site on the World Wide Web that contains
reports, proxy and information statements and other information filed
electronically by the Company (http://www.sec.gov). Such reports, proxy
statements and other information can also be inspected at the offices of The
Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006, on which
the Company's Common Stock and Redeemable Class A Warrants are listed.
This Prospectus does not contain all the information set forth in the
Registration Statement on Form S-3 (File No.333-57753 ) (the "Registration
Statement") of which this Prospectus forms a part, including exhibits relating
thereto, which has been filed with the Commission in Washington, D.C. Copies of
the Registration Statement and the exhibits thereto may be obtained, upon
payment of the fee prescribed by the Commission, or may be examined without
charge, at the offices of the Commission. This Registration Statement has been
filed electronically through the Electronic Data Gathering, Analysis and
Retrieval System (EDGAR) and is publicly available through the Commission's web
site (http://www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997; Amendment No.1 on the Company's Form 10-KSB for the fiscal
year ended December 31, 1997; the Company's Proxy Statement for the 1998 Annual
Meeting of Stockholders; the Company's Quarterly Reports on Form 10- QSB for the
quarters ended March 31, 1998 and June 30, 1998; the description of the
Company's Common Stock and the Class A Warrants contained in the Company's
Registration Statement on Form 8-A filed October 16, 1996, under the Exchange
Act, as filed pursuant to the Exchange Act, including any amendment or report
filed for the purpose of updating such descriptions, are hereby incorporated by
reference.
Each document filed subsequent to the date of this Prospectus pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act before the termination
of this offering shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of the filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such previous statement.
Any statement so modified or superseded shall not be deemed to be a part hereof
except as so modified or superseded.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROSPECTUS IS DELIVERED, UPON THE
WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY DOCUMENT INCORPORATED
BY REFERENCE IN THIS PROSPECTUS (OTHER THAN EXHIBITS UNLESS
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<PAGE>
SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH
DOCUMENTS). REQUESTS SHOULD BE DIRECTED TO THE COMPANY, CONTINENTAL
PLAZA III, 433 HACKENSACK AVENUE, HACKENSACK, NEW JERSEY 07601 (201)343-9100.
ATTENTION: DAVID E.Y. SARNA.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information appearing elsewhere or
incorporated by reference in this Prospectus.
To inform investors of the Company's future plans and objectives, this
Prospectus (and other reports and statements issued by the Company and its
officers from time to time) contain certain statements concerning the Company's
future results, future performance, intentions, objectives, plans and
expectations that are or may be deemed to be "forward-looking statements." The
Company's ability to do this has been fostered by the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), which provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information so long as those statements are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. The Company believes it
is in the best interest of investors to take advantage of the "safe harbor"
provisions of the Reform Act. Such forward-looking statements are subject to a
number of known and unknown risks and uncertainties that, in addition to general
economic and business conditions and those described in "Risk Factors", could
cause the Company's actual results, performance and achievements to differ
materially from those described or implied in the forward-looking statements.
THE OFFERING
Securities Registered................. 2,526,114 shares of Common Stock
Common Stock Outstanding
Prior to the Offering ............. 4,564,898 shares of Common Stock (1)(2)
Common Stock To Be Outstanding
After The Offering ................ 7,091,012 shares of Common Stock (1)(3)
Common Stock Trading Symbol OSFT
on NASDAQ..........................
(1) Does not include (i) 750,000 shares of Common Stock reserved for
issuance upon the exercise of outstanding options under the 1996 Stock
Option Plan, as amended and (ii) 3,131,887 shares of Common Stock
issuable upon exercise of other outstanding options and warrants to
purchase Common Stock.
(2) Includes 482,222 shares of Common Stock issued as of the date hereof in
connection with the May 1998 Private Placement.
(3) Assumes that the Selling Stockholders will exercise all of their
Warrants A and Warrants B and all other options and warrants granted to
them; also assumes conversion of the Series C Preferred Stock into
1,949,391 shares of Common Stock based upon two hundred percent (200%)
of the amount of Common Stock issuable assuming an average closing bid
price of $1.5063 for the five trading days prior to the date of
conversion, multiplied by 85%. The actual aggregate number of shares
issuable upon conversion of the Series C Preferred Stock that may be
issued pursuant to the Private Equity Line of Credit Agreement, as
amended, is dependent upon the future market prices of Common Stock and
will therefore
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<PAGE>
vary according to actual market conditions prevailing at the relevant
time periods. See "Description of Securities."
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<PAGE>
RISK FACTORS
An investment in the securities offered hereby is speculative in nature
and involves a high degree of risk. In addition to the other information in this
Prospectus, prospective investors should carefully consider the following risk
factors before purchasing the shares of Common Stock offered by this Prospectus:
Dilution; Impact of Sale of Common Stock Upon Conversion of Series C Preferred
Stock and the Exercise of the Put Options and Warrants
The purchasers of the Shares offered hereby will experience immediate
and substantial dilution in the net tangible value of their Shares in the event
of the conversion of the Series C Preferred Stock and the exercise of the Put
Options and Warrants A and Warrants B. Specifically, the Series C Preferred
Stock are convertible into Common Stock, and the Company may exercise the Put
Options resulting in the issuance of Common Stock, at discounts from future
market prices of the Common Stock, which could result in substantial dilution to
existing holders of Common Stock. The sale of such Common Stock acquired at a
discount could have a negative impact on the trading price of the Common Stock
and could increase the volatility in the trading price of the Common Stock.
Moreover, if the trading price of the Common Stock were to decrease
significantly, the issuance of the Shares could conceivably effect a change of
control of the Company.
In addition, the Company has agreed to reserve and keep available at
all times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue the shares underlying
the Series C Preferred Stock, the Put Options and Warrants A and Warrants B;
such number of shares of Common Stock to be reserved shall be calculated based
upon the minimum purchase price therefor under the terms of the Private Equity
Line of Credit Agreement (the "Financing Agreement"), Warrants A and Warrants B.
Limited Operating History; Historical and Potential Operating Losses;
Accumulated Deficit
The Company, which was founded in 1990, has only a limited operating
history and recently changed its focus from consulting and training services to
transactional and 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 substantial operating losses. The Company has incurred, and will
continue to incur, significant costs in connection with the development of its
interactive public access terminals ("IPATs" or "Kiosks") 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, 1998, the
Company had an accumulated deficit of $6,098,529.
Future Capital Needs; Uncertainty of Additional Financing
The Company's current policy is generally to own and operate its IPATs,
which may require substantial capital investment. It is the Company's intention
to enter into lease financing arrangements for the IPATs. While the Company has
entered into the Financing Agreement which contemplates various tranches of
equity financing which will raise proceeds, among other things, to cover a
portion of the development, marketing and expenses of additional IPATs, there
can be no assurance that all transactions contemplated by the Financing
Agreement
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<PAGE>
such as the closing of the Series C Preferred Stock offering or the Company's
exercise of the Put Options will occur. In the event that all transactions
contemplated by the Financing Agreement do not occur, the Company will be
required to raise funds from other sources.
The Company may need to raise additional funds through public or
private debt or equity financing 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 additional
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. See "Risk Factors -- Dilution; Impact
of Sale of Common Stock Upon Conversion of Preferred Stock and the Exercise of
the Put Options and Warrants."
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 and could require the Company to curtail materially,
suspend or cease operations.
Change of Operating Focus
Beginning in mid-1994, the Company changed its focus from consulting
and training services to transactional, fee-based and advertising-supported
products and services. In September 1995, the Company introduced OLEBroker(TM),
a fee-based website on the Internet. OLEBroker(TM) was discontinued in 1997. The
Company's SmartStreet(TM) IPATs were introduced in July 1996. 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. Although the Company anticipates that it will begin to recognize
greater revenues from the SmartStreet(TM) IPATs during 1998, it cannot predict
the actual timing or amount of such revenues. 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.
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<PAGE>
Dependence on New Untested Product
In early 1996, as part of its IPAT Demonstration Project, the City of
New York (the "City") entered into the City Agreement with the Company (the
"City Agreement") to develop public IPATs 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 IPATs, and the
Company may deploy additional IPATs throughout the City area at its own risk and
expense, subject to City approval of IPAT locations. The first five IPATs were
deployed in the City in July 1996, a sixth IPAT was installed in August, 1997
and seventh was installed in March 1998. The City Agreement was extended through
the end of the City's 1999 fiscal year (June 30, 1999). The IPATs are configured
to permit the Company to offer additional services provided either by the
Company or third parties and to sell advertising on such IPATs. The current
extended City Agreement requires the Company to pay to the City 50% of
advertising and third party service revenues from the first five IPATs. 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
first such additional agreement was entered into on March 11, 1998 with the City
of San Francisco. The first IPAT under this agreement was installed in June
1998. 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. The
Company also supplied eight IPATs to King County, Washington. To be profitable,
the Company must significantly increase the number of IPATs placed in the City
and other locations.
The Company anticipates that revenues from the IPATs will be provided
by leasing fees paid by the service providers, such as the City, by advertising
fees paid by company's advertising on the IPATs and by usage fees paid by
consumers who obtain City or other services through the IPATs. Although IPATs
are in operation in other municipalities, there can be no assurance that the
Company's IPATs will be able to operate consistently and efficiently to provide
the anticipated services, that members of the general public will find the IPATs
user- friendly, that they will be comfortable with or be willing to pay the
additional cost for the convenience of using the IPATs 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 IPATs, or that
even if the IPATs perform adequately, that the City and other potential users of
similar IPATs will not opt for the products of the Company's competitors.
Although the Company has an agreement to provide IPATs to Kings County, Seattle,
Washington, its ability to market such services to other potential customers
will be highly dependent on the continued success and acceptance of the New York
City and San Francisco IPATs. Furthermore, the municipalities, states and other
government agencies that constitute a primary target market for the Company's
IPATs are subject to potentially severe budgetary constraints and cuts that may
limit their ability to fund the acquisition of new technology such as the IPATs.
In addition, the Company anticipates that a significant portion of the
revenues related to the IPATs 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 IPATs and from commercial advertising by
local and national companies and businesses. There can be no assurance that
commercial entities will be interested in marketing or advertising their
products and services by means of IPATs 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.
As of December 31, 1997, all the Company's IPATs were available to
provide City information and transaction services, but those IPATs did not
provide or carry any paid advertising or third party services.
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<PAGE>
Revenues from advertising began in May 1998, from contracts signed in March
1998. Advertisers in New York include Microsoft, Consolidated Edison and
Isabella Geriatric Center. Advertisers in San Francisco include Microsoft, World
Gem Showcase and Plug Busters. To date, the Company has achieved about $3,000 in
monthly fees per IPAT for the IPATs initially installed in New York and San
Francisco. There is no assurance that revenues from additional IPATs will
achieve these levels of revenue, that the current advertisers will continue to
advertise once their contracts have expired or that new advertisers will be
found.
Uncertainty of Product Development
It is common for hardware and software as complex and sophisticated as
that employed by the Company in its IPATs to experience errors, or "bugs," both
during development and subsequent to commercial introduction. As IPATs are
installed in the City and elsewhere, 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 IPATs could materially and adversely affect the Company's ability to
achieve significant market penetration with the IPATs.
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 IPATs will depend in
large measure on their being user-friendly to the 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 is subject to competition from different sources for its
different services. The Company's internet IPAT business competes with numerous
companies, including IBM, North Communications, Golden
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<PAGE>
Screens and ATCOM/INFO. The City has also awarded contracts, comparable to the
contract awarded to the Company, to North Communications and DSSI (which awarded
a subcontract to Golden Screens), both of which have sold similar IPATs to other
municipalities. After fulfillment of the initial contracts, if the City chooses
to install additional IPATs throughout the City, it may award to others, and not
the Company, the contract to install such additional IPATs. Further, there can
be no assurance that other municipalities or other entities will seek to acquire
IPATs from the Company. In addition, if the use of IPATs provided by the Company
and others proves to be successful in the City and other municipalities and
locations, additional companies in the software, hardware and communications
areas, among others, may seek to enter the market. Many of such competitors may
have resources far greater than the Company. A total of 29 companies competed
for the contracts with the City, many of which can be expected to compete
aggressively in other competitive situations.
Possible Difficulty in Complying With Government Contract Requirements
The Company's IPATs 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.
In San Francisco, the Company may be required to make the IPATs accessible to
blind persons. The Company is currently attempting to develop a program to make
its IPATs accessible to blind persons, with the aid and cooperation of various
organizations for the blind.
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.
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 IPATs. Microsoft
supports the Company in marketing its public assess and services and has
informally agreed to exhibit the Company's IPATs in Microsoft displays at
various trade shows. It has also issued public statements that included
favorable references relating to the Company's products. Additionally, Microsoft
currently advertises on IPATs in the City. There is no assurance that Microsoft
will continue to support the Company's products, continue the Company's
participation in the Developer Days program, continue to advertise on the
Company's IPATs or enter into such agreements with the Company in the future. In
the event Microsoft were to sever its relationships with the Company, the
Company's sales and financial condition could be severely and materially and
adversely affected.
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
-10-
<PAGE>
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.
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 and PSI. 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 materially
and adversely effected.
Dependence on the Internet
Sales of the Company's Internet-related products and services,
including its public access IPATs, 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.
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
IPATs and with advertisers to use the IPATs as an advertising medium, but
ultimately upon the willingness of consumers to pay fees to transact business by
means of the IPATs. To date, the Company operates only public IPATs, pursuant to
the agreement with the City which have been available for public use for a short
period of time. Additionally the Company supplied ten IPAT's to Kings County,
Seattle Washington and one IPAT to the City of San Francisco. The City's
decision to acquire IPATs 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 IPATs to other potential
service providers and advertisers. In addition, there can be no assurance that
the Company's initial IPATs will perform on a commercial basis as anticipated,
that the Company will be able to install and operate additional IPATs pursuant
to the City Agreement, that the City will seek to acquire additional IPATs, that
the Company will secure a contract to supply additional IPATs to the City, that
it will succeed in marketing its IPATs to other potential users, or that it will
be able to attract additional service providers or advertisers to IPATs that may
be located in the City or elsewhere.
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, 1998, two customers accounted for approximately 73% of the
Company's revenues. During 1997, one customer accounted for approximately 84% of
the Company's revenues, and during 1996, two customers accounted for
approximately 71% of revenues. The Company provided consulting and related
services, and more recently, services related to the development of Intranet and
IPAT technology, to such customers. There can be no assurance that such
customers or others will retain the Company to install IPATs or provide such
services in the future.
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<PAGE>
Risk of Manufacturing Activities
The Company's IPATs involve the design by the Company, and the
engineering and manufacture by subcontractors, of the hardware and graphical
components of the IPATs. Only a limited number of IPATs 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 IPATs on a satisfactory
basis. While the Company believes that it could arrange to have IPATs 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 IPATs.
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 IPATs are expected to include municipalities,
government agencies and large organizations; that is, entities that typically
engage in extended competitive bidding, approval and negotiation procedures with
respect to contracts, with no assurance that the contract will ultimately be
awarded to the Company. Additional factors contributing to variability of
operating results include the pricing and mix of services and products sold by
the Company, terminations of service, new product introductions by the Company
and its competitors, market acceptance of new and enhanced versions of the
Company's products and services, changes in pricing or marketing policies by its
competitors and the Company's responses thereto, the Company's ability to obtain
sufficient vendors, to obtain supplies of sole or limited source components,
changes in the Company's network infrastructure costs, as a result of demand
variation or otherwise, the lengthening of the Company's sales cycle and the
timing of the expansion of the Company's network infrastructure. Variations in
the timing and amounts of revenues and costs could have a materially adverse
effect on the Company's quarterly operating results.
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. The
Company entered into employment agreements with each of Messrs. Sarna and
Febish, which terminate on December 31, 2001. 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.
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 IPATs 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
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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.
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 three patents or
patent applications pending. There can be no assurance that such patents
applications will be allowed or even if such applications are allowed 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, except for SmartSign(TM), the Company
does not sell or license its technology to third parties, but rather delivers
services through its IPATs. Its proprietary software is not disclosed to third
parties. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary or to develop similar technology independently. Policing
unauthorized use of the Company's products is difficult. In addition, effective
trade secret and copyright protection may be unavailable or limited in certain
foreign countries. There can be no assurance that the steps taken by the Company
will prevent misappropriation of its technology. In addition, litigation may be
necessary in the future to enforce the Company's intellectual property rights,
to protect the Company's trade secrets, to determine the validity and scope of
the proprietary rights of others, or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
operating results or financial condition.
Certain technology used in the Company's products or services is
licensed or leased from third parties, generally on a nonexclusive basis. While
the licenses involved are primarily "shrink wrap licenses;" that is, licenses
available to anyone who purchases publicly available software programs, the
termination of any of these licenses or leases or the discontinuance of the
underlying programs may have a material adverse effect on the Company's
operations. Replacement of certain technologies licensed or leased by the
Company could be costly and could result in product delays which would
materially and adversely affect the Company's operating results. While it may be
necessary or desirable in the future to obtain other licenses or leases relating
to one or more of the Company's products or services or relating to current or
future technologies, there can be no assurance that the Company will be able to
do so on commercially reasonable terms or at all.
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 and PSI 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
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<PAGE>
occurrence of a natural disaster or other unanticipated problems at the
Company's network operations center or IPATs 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 users. Although the Company intends to
continue to implement industry-standard security measures, such measures have
been circumvented in the past, and there can be no assurance that measures
implemented by the Company will not be circumvented in the future. Eliminating
computer viruses and alleviating other security problems may require
interruptions, delays or cessation of service to the Company's customers which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's success will depend upon the capacity, reliability and
security of its network infrastructure, including processing capability and the
facilities and capacity leased from access providers and telecommunications
vendors. The Company must continue to expand and adapt its network
infrastructure as the number of users and the amount of information they wish to
transfer increases, and to meet changing customer requirements. The expansion
and adaptation of the Company's network infrastructure will require substantial
financial, operational and management resources. There can be no assurance that
the Company will be able to expand or adapt its network infrastructure to meet
additional demand or its customers' changing requirements on a timely basis, at
a commercially reasonable cost, or at all. Any failure of the Company to expand
its network infrastructure on a timely basis or adapt it either to changing
customer requirements or to evolving industry standards could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The IPATs that were installed in various locations in New York City
since July 1996, in Kings County, Seattle, Washington since June 1997 and in San
Francisco since June 1998 have only been operating for a short time, so the
Company has only limited experience with actual consumer interaction with the
IPATs. While the Company has designed the IPATs to be resistant to vandalism,
there can be no assurance that vandals will not succeed in damaging or disabling
the IPATs. In addition, although the Company believes it is unlikely, users of
the IPATs may seek to hold the Company liable for injuries allegedly incurred in
connection with the use of the IPATs.
While the Company maintains insurance covering , among other things ,
losses resulting from business interruptions caused by system failures, damages
to IPATs or claims by users of the IPATs, 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 not be terminated or will be available for terms affordable to
the Company.
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<PAGE>
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 and future
contracts, if any, with the City and other municipalities or government
entities, the Company will have to comply with 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
have been instituted. In addition, legislation has been proposed which would
impose liability for or prohibit the transmission on the Internet of certain
types of information and content. In the event the Company were to make services
such as the one offered through its IPATs 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 by the Company. 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
As of the date of this Prospectus, David E. Y. Sarna, the Company's
Chairman and Co-Chief Executive Officer, and George J. Febish, the Company's
President and Co-Chief Executive Officer, each of whom is a director of the
Company and a principal stockholder of Company, together with The David E. Y.
Sarna Family Trust and The George J. Febish Family Trust (the trusts,
collectively, the "Family Trusts"), beneficially own, in the aggregate,
approximately 32% of the issued and outstanding shares of Common Stock. As a
result, assuming no exercise of any of the Class A Warrants, or other warrants
and options or convertible securities issued by the Company, and subject to the
effect of additional issuances of voting shares by the Company in the future,
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 could under
certain circumstances 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. On the other hand, the conversion rights which
may be exercised pursuant to the Financing Agreement could conceivably effect a
change of control of the Company if the trading price of the Common Stock were
to decrease significantly.
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<PAGE>
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.
Shares Eligible for Future Sale
Of the 7,091,012 shares of Common Stock which will be outstanding or
registered for sale upon the completion of this offering, 2,526,114 shares of
Common Stock are being registered in connection with this offering, 1,086,963
shares of Common Stock and 412,500 Class A Warrants were included in a
registration statement in October 14, 1997, and 1,366,050 shares of Common Stock
were issued by the Company in connection with its initial public offering in
November 1996. A substantial portion of the shares of Common Stock currently
issued and outstanding which are not so registered 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,
a person, including an affiliate of the Company, after at least one year has
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 two 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.
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 this offering, or the
perception that such sales could occur, could adversely affect prevailing market
prices of the Common Stock. See " Risk Factors -- Dilution; Impact of Sale of
Common Stock upon Conversion of Series C Preferred Stock and Exercise of the Put
Options and Warrants."
Effect of Outstanding Warrants and Options
Apart for rights, options and warrants which may exercised pursuant to
the Financing Agreement, the Company has outstanding options and warrants to
purchase an aggregate of 3,633,054 shares of Common Stock. The exercise of the
outstanding options and warrants would have a dilutive effect on the Company's
stockholders.
NASDAQ Maintenance Requirements; Possible Delisting of Securities from NASDAQ;
Penny Stock Regulations
The Board of Governors of the National Association of Securities
Dealers, Inc. has established certain standards for the continued listing of a
security on the Nasdaq SmallCap Market(TM) ("NASDAQ"). The maintenance standards
for continued listing of the Company's Common Stock on NASDAQ require, among
other things, that the minimum bid price of its Common Stock is at least $1.00.
As of September 18, 1998, the closing bid price of the Company's Common Stock
was $1.2188. Although the Company is currently in compliance with the listing
requirements, there can be no assurance that the Company will satisfy the
requirements for maintaining
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<PAGE>
a listing on NASDAQ in the future. If the Company's securities were excluded
from NASDAQ, it may adversely affect the prices of such securities and the
ability of holders to sell them. In the event that the Company's securities are
not listed on NASDAQ, trading would be conducted in the "pink sheets" or through
the National Association of Securities Dealers, Inc. Electronic Bulletin Board.
In the absence of the Common Stock being quoted on Nasdaq, trading in the Common
Stock would be covered by Rule 15g-9 promulgated under the Securities Exchange
Act of 1934 for non-Nasdaq and non-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 the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. Securities are exempt from this rule if the market
price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny stock
to be any 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. If the Company's Common Stock were subject to the regulations on
penny stocks, the market liquidity for the Common Stock would be severely
affected by limiting the ability of broker/dealers to sell the Common Stock and
the ability of purchasers to sell their securities in the secondary market.
There is no assurance that trading in the Company's securities will not be
subject to these or other regulations in the future which would adversely affect
the market for such securities.
Year 2000 Issues
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. Beginning in the
year 2000, these date code fields will need to accept four digit entries to
distinguish the twenty-first century dates from the twentieth century dates. The
Company uses software and related technologies that will be affected by the
"Year 2000 problem." The Company began the process of identifying the changes
required to their computer programs and hardware during 1996. The Company
believes that all of its major programs and hardware are Year 2000 compliant.
The Company believes that it will not incur any significant costs between now
and January 1, 2000 to resolve Year 2000 issues. However, there can be no
assurance that other companies' computer systems and applications on which the
Company's operations rely will be timely converted, or that any such failure to
convert by another company would not have a material adverse effect on the
Company's systems and operations. Furthermore, there can be no assurance that
the software that the Company uses which has been designed to be Year 2000
compliant contains all necessary date code changes.
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 has 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
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<PAGE>
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. In addition to the
issuance of the Series C Preferred Stock under the terms of the Financing
Agreement, the Company may issue additional Preferred Stock in connection with
future financing conducted by the Company. See "Description of Securities -
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
The Shares being offered hereby are being registered for the account of
the Selling Stockholders, and, accordingly, the Company will not receive any of
the proceeds from the sale of the Shares.
SELLING STOCKHOLDERS
A substantial number of the Shares being offered for resale by the
Selling Stockholders were or will be acquired in connection with the May 1998
private placement (the "Private Placement") under the terms provided in the
Financing Agreement. In connection with the Private Placement, the Company
granted several of the Selling Stockholders certain registration rights pursuant
to which the Company agreed to use its best efforts to keep the Registration
Statement, of which this Prospectus is a part, effective until the earliest of
(i) the date that all of the Registrable Securities (as defined) have been sold
pursuant to the Registration Statement of which this Prospectus is a part or any
post-effective amendment thereto, (ii) the date the Selling Stockholders may
sell all the Shares under the provisions of Rule 144 or (iii) October 2003.
Additionally, 37,500 of the Shares being offered for resale by the Selling
Stockholders may be acquired upon the exercise of warrants issued pursuant to a
settlement agreement.
The following table sets forth certain information regarding the
ownership of shares of Common Stock by the Selling Stockholders as of September
18, 1998, and as adjusted to reflect the sale of the Shares. The information in
the table concerning the Selling Stockholders who may offer Shares hereunder
from time to time is based on information provided to the Company by such
stockholder, except for the assumed conversion of the Series C Preferred Stock
into Common Stock, and the assumed exercise of the Warrants A and Warrants B by
the holders thereof, which are based solely on the assumptions referenced in
footnotes (1), (2), (3) and (4) to the table. Information concerning the Selling
Stockholders may change from time to time and any changes of which the Company
is advised will be set forth in a Prospectus Supplement to the extent required.
See "Plan of Distribution."
<TABLE>
<CAPTION>
Shares of
Common Stock Shares of
Owned Prior to Common Stock Shares of Common Stock Owned
Offering to be Sold (4) after Offering (4)
----------------- ---------------- -------------------------------------------
Number Percent
----------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Avalon Capital, Inc. (1) 788,953 788,953 0 0%
Austost Anstalt Schaan (1) 788,953 788,953 0 0
Balmore Funds S.A. (1) 788,953 788,953 0 0
Settondown Capital (2) 121,755 121,755 0 0
Infusion Capital Partners, LLC (3)
Total 37,500 37,500 0 0
================= ================ ================== ==================
2,526,114 2,526,114 0 0%
</TABLE>
- -----------------
(1) Includes 444,444 shares of Common Stock, 18,000 shares issuable upon
exercise of Warrants A, 30,000 shares issued upon exercise of Warrants B,
1,874,414 shares of Common Stock issuable upon conversion of the Series C
Preferred Stock based upon two hundred percent (200%) of the Common Stock
issuable assuming an average closing bid price of $1.5063 for the five
trading days prior to the date of conversion multiplied by 85%, which have
been allocated equally (624,805 shares) among the three Investors (as
defined below) but does not include any shares issuable under the Put
Option. The actual number of shares issuable upon conversion of the Series
C Preferred Stock that may be issued pursuant to the Financing Agreement is
dependent upon the market price of the Common Stock, and will
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therefore vary according to actual market conditions prevailing at the
relevant time periods. See "Description of Securities."
(2) Includes 37,778 shares of Common Stock, 74,977 shares of Common Stock
issuable upon conversion of Series C Preferred Stock and 9,000 shares
issuable upon the exercise of Warrants A issued to the Placement Agent
in connection with the Private Placement.
(3) Includes 37,500 shares of Common Stock issuable, at an exercise price
of $4.87 per share, upon the exercise of the Settlement Warrant, a
three-year warrant issued to Infusion in accordance with a settlement
agreement between Infusion and the Company.
(4) Assumes that each Selling Stockholder will exercise all of its Warrants
A, Warrants B and other warrant into Common Stock; also assumes
conversion of the Series C Preferred Stock (1,874,414 shares) which
have been allocated equally among the three Investors but does not
assume an exercise of the Put Option.
Each of the Investors has agreed that following the acquisition of any
shares of Common Stock pursuant to the Financing Agreement, it will not be the
beneficial owner of more than 4.95% of the outstanding shares of Common Stock.
The Selling Stockholders are not affiliated with the Company. The
Selling Stockholders have not had any material relationship with the Company
within the past three years.
PLAN OF DISTRIBUTION
The distribution of the Shares by the Selling Stockholders may be
effected from time to time in one or more transactions (which may involve block
transactions), in special offerings, exchange distributions and/or secondary
distributions, in negotiated transactions, in settlement of short sales of
Common Stock or a combination or such methods of sale, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Such transactions may be effected on a stock
exchange, on the over-the-counter market or privately. The Selling Stockholders
may effect such transactions by selling the Shares to or through broker-dealers,
and such broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Stockholders for whom
they may act as agent (which compensation may be in excess of customary
commissions). Without limiting the foregoing, such brokers may act as dealers by
purchasing any and all of the Shares covered by this Prospectus either as agents
for others or as principals for their own accounts and reselling such securities
pursuant to this Prospectus. The Selling Stockholders and any broker-dealers or
other persons acting on the behalf of parties that participate with such Selling
Stockholders in the distribution of the Shares may be deemed to be underwriters
and any commissions received or profit realized by them on the resale of the
Shares may be deemed to be underwriting discounts and commissions under the
Securities Act. As of the date of this Prospectus, the Company is not aware of
any agreement, arrangement or understanding between any broker or dealer and the
Selling Stockholders with respect to the offer or sale of the Shares pursuant to
this Prospectus.
At the time that any particular offering of Shares is made, to the
extent required by the Securities Act, a prospectus supplement will be
distributed, setting forth the terms of the offering, including the aggregate
number of Shares being offered, the names of any underwriters, dealers or
agents, any discounts, commissions and other items constituting compensation
from the Selling Stockholders and any discounts, commissions or concessions
allowed or reallowed or paid to dealers.
Each of the Selling Stockholders may from time to time pledge the
Shares owned by it to secure margin
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or other loans made to such Selling Stockholder. Thus, the person or entity
receiving the pledge of any of the Shares may sell them, in a foreclosure sale
or otherwise, in the same manner as described above for such Selling
Stockholder.
The Company will not receive any of the proceeds from any sale of the
Shares by the Selling Stockholders offered hereby.
Pursuant to the Registration Rights Agreement, the Company and several
of the Selling Stockholders have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act. The Company shall
bear customary expenses incident to the registration of the Shares for the
benefit of such Selling Stockholders in accordance with such agreements, other
than underwriting discounts commissions and attorneys' fees directly
attributable to the sale of such securities by or on behalf of the Selling
Stockholders.
The Company has agreed to use its best efforts to keep the Registration
Statement of which this Prospectus is a part effective until the earliest of (i)
the date that all of the Registrable Securities have been sold pursuant to the
Registration Statement of which this Prospectus is a part or any post-effective
amendment thereto (ii) the date the Selling Stockholders may sell all the Shares
under the provisions of Rule 144 or (iii) October 2003.
DESCRIPTION OF SECURITIES
General
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 Private Placement
Pursuant to the terms of the Financing Agreement, dated May 13, 1998
(the "Subscription Date"), and as amended, Avalon Capital, Inc., Balmore Funds
S.A. and Austost Anstalt Schaan (the "Investors") purchased Common Stock in the
principal amount of $900,000 (the "Initial Shares") at an initial purchase price
of $2.025 per share ("Initial Price"). Prior to the date of this Prospectus, the
Investors effected certain "reset" rights pursuant to which the Investors
received amount of cash intended to reprice the Initial Shares. The Company also
issued to each Investor a Warrant A and a Warrant B to purchase an aggregate of
16,000 shares of Common Stock (the "Warrant A Shares" and "Warrant B Shares",
respectively). The Company also issued to Settondown Capital International Ltd.
(the "Placement Agent") 37,778 shares of Common Stock and a Warrant A to
purchase an additional 9,000 shares (collectively, the "Placement Shares"). On
July 9, 1998, at the Company's Annual Meeting of Stockholders, a majority of the
voting power of the issued and outstanding Common Stock of the Company, present
in person or represented by proxy at the meeting and entitled to vote at the
meeting, voted to approve the issuance of the Company's securities pursuant to
the Financing Agreement.
The Company has certain repurchase rights with regard to the Common
Stock in the event the closing bid price of the Common Stock falls below $1.50
per share. Each of the Investors has agreed that following the acquisition of
any shares of Common Stock pursuant to the Financing Agreement, it will not be
the beneficial owner of more than 4.95% of the outstanding shares of Common
Stock. Each of the Investors has agreed to vote all shares of Common Stock held
by such Investor in favor of the nominees to the Company's board of directors
who are nominated by the Company so long as the Company does not breach the
Financing Agreement.
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Series C Preferred Stock
Under the Financing Agreement, the Investors agreed to subscribe for up
to $1.2 million in stated value of Series C Preferred Stock and the Company
agreed to issue to the Placement Agent an additional number of shares of Series
C Preferred Stock equal to 4% of the number of shares of Series C Preferred
Stock issued to the Investors. Each share of Series C Preferred Stock shall
accrue dividends at the rate of 6% per annum which are payable in cash or Common
Stock at the option of the Company. Upon each closing of the Series C Preferred
Stock, one-half of the Series C Preferred Stock is convertible into Common Stock
at anytime after issuance at the holder's option and the remaining one-half
shall be convertible 30 days thereafter. The Series C Preferred Stock is
convertible into that number of shares of Common Stock as is determined by
dividing the aggregate stated value of the Series C Preferred Stock to be
converted by the lesser of the average closing bid price of the Common Stock as
reported by Bloomberg, LP for the five day trading period preceding the closing
date of the Series C Preferred Stock or the average of the closing bid prices
for the Common Stock five trading days preceding the date of any conversion
notice, multiplied by 85%. On May 13, 1998, the Investors executed a
Registration Rights Agreement pursuant to which the Company is obligated to
register the Common Stock issuable upon conversion of the Series C Preferred
Stock. As required by the Registration Rights Agreement, the Registration
Statement of which this Prospectus is a part covers the shares of Common Stock
issuable upon conversion of the Series C Preferred Stock.
The Put Option
During the period commencing on the effective date of a registration
statement relating thereto and ending on the second anniversary thereof
("Commitment Period") the Company may, from time to time, exercise a "put" right
(the "Put Option") by delivery of a put notice to the Investors pursuant to
which the Investors must purchase the allotted number of shares indicated
therein. The maximum number of shares for which the Company may deliver a put
notice is subject to certain limitations based on the trading volume of the
Company's Common Stock and the trading price of the Common Stock. The Put Shares
may be purchased at a 15% discount off the average of the three lowest closing
bid prices of the Common Stock during the Valuation Period (as defined in the
Financing Agreement). The obligation of the Investors to purchase shares upon
exercise by the Company of a Put Option is subject to limitations and
termination upon occurrence of certain conditions set forth in the Financing
Agreement, including the registration of the shares for resale under the
Securities Act. The Investors have received registration rights in connection
with the shares of Common Stock issuable upon exercise of the Put Option, but
the registration statement of which this prospectus is a part does not register
such shares. The Company may, however, do so in the future.
The Initial Shares, Warrant A and Warrant B were issued, and the Put
Shares, the Warrant A Shares and the Warrant B Shares will be issued, by the
Company in reliance upon the provisions of Section 4(2) and Regulation D of the
Securities Act.
Warrant A
The Warrants A issued to the Investors and the Placement Agent in
connection with the Private Placement may be exercised, subject to the terms and
subject to the conditions set forth therein, for a five year period commencing
May 13, 1998, to subscribe for and purchase shares of Common Stock of the
Company at an exercise price of $3.04 per share. The exercise price and the
number of shares for which the Warrant A is exercisable is subject to adjustment
as provided therein, including, but not limited to, anti-dilution provisions
pertaining to the declaration of stock dividends and the merger, consolidation
or liquidation of the Company.
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Warrant B
The Warrant B issued to the Investors in connection with the Private
Placement may be exercised, for a five year period, subject to the terms and
subject to the conditions set forth therein, at any time on or after November
13, 1998 to subscribe for and purchase shares of Common Stock of the Company at
an exercise price of $3.16 per share. The exercise price and the number of
shares for which the Warrant B is exercisable is subject to adjustment as
provided therein, including, but not limited to, anti-dilution provisions
pertaining to the declaration of stock dividends and the merger, consolidation
or liquidation of the Company.
Placement Shares; Compensation to Placement Agent.
As compensation for services rendered in connection with the Private
Placement, the Company issued to the Placement Agent 20,000 shares of Common
Stock and a Warrant A to purchase 9,000 shares of Common Stock. The Company also
paid to the Placement Agent five (5%) percent of the gross proceeds in
connection with the sale of the Initial Shares. The Company agreed to pay to the
Placement Agreement three (3%) percent of the gross proceeds of the sale of the
Series C Preferred Stock in cash and four (4%) percent of the number of shares
of Series C Preferred Stock sold to Investors. The Company also agreed to pay to
the Placement Agent, following the closing for each Put Option, six (6%) percent
of the gross proceeds for each Put.
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 fully paid and
nonassessable.
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.
Series C Preferred Stock
The Board of Directors authorized the issuance of a series of Preferred
Stock consisting of 20,000 shares (the "Series C Preferred Stock"), each such
share of Series C Preferred Stock has a stated value of $100 (the "Purchase
Price") pursuant to a Certificate of Designation (the "Certificate of
Designation"). The Company is registering a total of 1,949,391 shares of Common
Stock underlying the Series C Preferred Stock as part of this Prospectus.
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Dividends. The holders of the shares of Series C Preferred Stock are
entitled to receive, when and as declared by the Board of Directors of the
Company, dividends at the rate of six percent of the Purchase Price per annum,
payable, at the discretion of the Board of Directors, in Common Stock or cash.
Dividends shall accrue on each share of Series C Preferred Stock from the date
of initial issuance and be cumulative, whether or not there are profits, surplus
or other funds of the Company legally available for the payment of dividends.
All accrued dividends shall be immediately due and payable on the date such
shares of Series C Preferred Stock are converted into shares of Common Stock.
Preferences on Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the holders
of shares of the Series C Preferred Stock then outstanding shall be entitled to
be paid, out of the assets of the Company available for distribution to its
stockholders, amount per share of Series C Preferred Stock as would have been
payable had each such share been converted into Common Stock immediately prior
to such event of liquidation, dissolution or winding up plus all accrued
dividends and liquidated damages, if any ("Liquidation Preference"). If upon
liquidation, dissolution, or winding up of the Company, the assets of the
Company available for distribution to its stockholders shall be insufficient to
pay the holders of the Series C Preferred Stock the full Liquidation Preference,
the holders of the Series C Preferred Stock shall share ratably in any
distribution of assets according to the respective amounts which would be
payable in respect of all such shares held by the respective stockholders.
Conversion Rights. The number of shares of fully-paid and nonassessable
Common Stock into which each share of Series C Preferred Stock may be converted
shall be determined by dividing the Purchase Price by an amount (the "Conversion
Price") equal to the lesser of (A) 85% of the average closing bid price of the
Common Stock as reported by Bloomberg, LP for the five trading days preceding
the date on which the holder of the Series C Preferred Stock has telecopied a
notice of conversion to the Company (the "Conversion Date") and (B) the average
closing bid price of the Common Stock as reported by Bloomberg, LP for the five
day trading period preceding the closing date of the Series C Preferred Stock.
No fractional shares of Common Stock shall be issued upon conversion of
the Series C Preferred Stock. In lieu of any fractional shares to which the
holder would otherwise be entitled, the Company shall pay cash equal to such
fraction multiplied by the Conversion Price of one share of Common Stock. The
Company shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon conversion unless either the certificates evidencing
such shares of Series C Preferred Stock are delivered to the Company or its
transfer agent as provided above, or the holder notifies the Company or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such certificates.
Upon any conversion of Series C Preferred Stock, the shares of Series C
Preferred Stock that are converted shall not be reissued and shall not be
considered outstanding for any purposes. Upon conversion of all of the then
outstanding Series C Preferred Stock, shares of Series C Preferred Stock shall
not be deemed outstanding for any purpose whatsoever and all such shares shall
be retired and canceled and shall not be reissued.
Forced Conversion. On the second anniversary of the date of issuance of
the Series C Preferred Stock, the holders of the Series C Preferred Stock shall
be required to convert all of their outstanding shares of Series C Preferred
Stock into shares of Common Stock. In addition, the Company may force a
conversion of the Series C Preferred Stock in the event the Company closes on a
public offering of its shares of Common Stock under certain conditions.
The Company shall at all times when any shares of Series C Preferred
Stock shall be outstanding, reserve
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and keep available out of its authorized but unissued stock, such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series C Preferred Stock.
Redemption. The Company may redeem any or all of the outstanding shares
of the Series C Preferred Stock on any date set by the Board of Directors of the
Company for such redemption at any time at a redemption price for each share of
Series C Preferred Stock, to be paid in cash on the Redemption Date (as defined
herein), equal to the number of shares issuable upon conversion of such shares
of Series C Preferred Stock on the Redemption Date multiplied by the average
closing bid price of the Common Stock for the last five (5) trading days prior
to the Redemption Date ("Redemption Price") plus an amount equal to all accrued
but unpaid dividends, whether or not declared, but excluding the Redemption
Date. The Company shall give written notice by telecopy to the holder of Series
C Preferred Stock to be redeemed at least 10 days prior to the date specified
for redemption (the "Redemption Date"). Such notice shall state that a
redemption is being effected, the Redemption Date, shall call upon such holders
to surrender to the Company on the business day prior to the Redemption Date at
the place designated in the notice such holders' redeemed stock and shall state
that any shares of Series C Preferred Stock not converted into shares of Common
Stock by the holder on or prior to the business day prior to the Redemption Date
shall be redeemed by the Company on the Redemption Date. If the Company fails to
pay the Redemption Price on the Redemption Date, the Redemption notice shall be
null and void and the Company will relinquish its redemption rights.
From and after the Redemption Date (unless default shall be made by the
Company in duly paying the Redemption Price in which case all the rights of the
holders of such shares shall continue), the holders of the shares of the Series
C Preferred Stock called for redemption shall cease to have any rights as
holders of the tendered shares of the Company, except the right to receive,
without interest, the Redemption Price thereof upon surrender of certificates
representing the shares of Series C Preferred Stock, and such shares shall not
thereafter be transferred (except with the consent of the Company) on the books
of the Company and shall not be deemed outstanding for any purpose whatsoever.
There shall be no redemption of any shares of Series C Preferred Stock
of the Company where such action would be in violation of applicable law.
Capital Reorganization or Reclassification. If the Common Stock
issuable upon the conversion of the Series C Preferred Stock shall be changed
into the same or different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification, stock split, stock
dividend, or similar event, then and in each such event, the holder of each
share of Series C Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such capital reorganization, reclassification or other
change which such holder would have received had its shares of Series C
Preferred Stock been converted immediately prior to such capital reorganization,
reclassification or other change.
Capital Reorganization Merger or Sale of Assets. If at any time or from
time to time there shall be a capital reorganization of the Common Stock (other
than a subdivision, combination, reclassification or exchange of shares
described above), or a merger or consolidation of the Company with or into
another corporation, or the sale of all or substantially all of the Company's
properties and/or assets to any other person or entity (any of which events is
herein referred to as a "Reorganization"), then as a part of such
Reorganization, provision shall be made so that the holders of the Series C
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series C Preferred Stock, the number of shares of stock or other securities or
property of the Company, or of the successor corporation resulting from such
Reorganization, to which such holder would have been entitled if such holder had
converted its shares of Series C Preferred Stock immediately prior to such
Reorganization.
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Voting Rights. Except as otherwise required by law, the holders of the
Series C Preferred Stock shall not be entitled to vote upon any matter relating
to the business or affairs of the Company or for any other purpose.
So long as any shares of Series C Preferred Stock are outstanding, the
Company shall not (i) alter or change any of the powers preferences, privileges,
or rights of the Series C Preferred Stock; or (ii) amend the provisions of the
Certificate of Designation changing the seniority, liquidation, commissions or
other rights of the Series C Preferred Stock, without first obtaining the
approval by vote or written consent, in the manner provided by law, of the
holders of at least a majority of the outstanding shares of Series C Preferred
Stock.
Transfer Agent and Warrant Agent
Continental Stock Transfer & Trust Company, New York, New York is the
transfer agent for the Common Stock and Warrant Agent for the Class A Warrants.
Delaware Takeover Statute and Certain Charter Provisions
The Company is subject to Section 203 of the Delaware General
Corporation Law ("Section 203") which, subject to certain exceptions, prohibits
a Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that such
stockholder became an interested stockholder, unless: (i) prior to such date,
the Board of Directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) on or subsequent to such date, the business combination is approved by
the Board of Directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least 66
2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
The Company's Certificate of Incorporation, as amended, provides that
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 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 provides 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, could have the effect of delaying
until the next stockholders meeting stockholder actions which are favored by the
holders of a majority of the outstanding voting securities of the Company, since
special meetings of stockholders may be called only by (x) the Board of
Directors pursuant to a resolution adopted by a majority of the entire Board of
Directors, either upon motion of a director or upon written request by the
holders of at least 50% of the voting power of all the shares of capital stock
of the Corporation then entitled to vote generally in the election of directors,
voting together as a single class, or (y) the chairman or the president of the
Corporation.
The foregoing provisions, which may 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.
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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.
LEGAL MATTERS
The validity of the securities being offered hereby were passed upon
for the Company by Parker Chapin Flattau & Klimpl, LLP, New York, New York.
Melvin Weinberg, Esq., a partner of Parker Chapin Flattau & Klimpl, LLP, may be
deemed the beneficial owner of 300,000 shares of Common Stock as a result of his
being a trustee of each of the Family Trusts.
EXPERTS
The financial statements of the Company incorporated in this Prospectus
by reference to the Company's Annual Report on Form 10-KSB as of December 31,
1997 and for each of the years in the two-year period ended December 31, 1997
have been audited by Richard A. Eisner & Company, LLP, independent auditors, as
set forth in their report dated February 20, 1998 accompanying such financial
statements, and are incorporated herein by reference in reliance upon the said
report given on the authority of said firm as experts in accounting and
auditing.
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NO DEALER, SALESPERSON OR ANY OTHER 2,526,114
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS WITH RESPECT TO THE OFFERING SHARES
MADE HEREBY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY OF
PERSON OR BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION MAY
NOT LAWFULLY BE MADE. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY COMMON STOCK
CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE
BUSINESS OF THE COMPANY SINCE THE DATE
HEREOF.
------------------
TABLE OF CONTENTS
Page -----------------
PROSPECTUS
Available Information..................2 -----------------
Incorporation of Certain Documents
by Reference..................... 2
Prospectus Summary.....................4
Risk Factors...........................6
Use of Proceeds.......................19
Selling Stockholders .................19
Plan of Distribution .................20
Description of Securities.............21 September 29, 1998
Legal Matters.........................27
Experts ..............................27
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses which will be paid
by the Company in connection with the issuance and distribution of the
securities being registered on this Registration Statement. The Selling
Stockholders will not incur any of the expenses set forth below. All amounts
shown are estimates.
Filing fee for registration statement.......... $ 931.58
Legal fees and expenses........................ $25,000.00
Miscellaneous expenses......................... $ 1,500.00
Total..................................... $27,431.58
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 ("Section 145") of the General Corporation Law of the State
of Delaware ("DGCL") provides, in general, that a corporation incorporated under
the laws of the State of Delaware, such as the registrant, 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 adjudged 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 was brought determines such
person is fairly and reasonably entitled to indemnity for such expenses.
The Ninth Article of the Company's Certificate of Incorporation, as
amended provides that the Company shall indemnify all persons whom the Company
shall have power to indemnify under 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 DECL. (which provides
that, under certain circumstances, directors may be jointly and severally liable
for willful or negligent violations of the DECL. 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.
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Section 12.2 of the Private Equity Line of Credit Agreement (Exhibit
4.1) provides for indemnification by the Investors of the directors, officers
and controlling person of the Company for certain liabilities, including certain
liabilities under the Securities Act of 1933, under certain circumstances.
The Company maintains primary and excess directors and officers
liability policies in an aggregate amount of $5,000,000 per policy year.
ITEM 16. EXHIBITS.
Number Description of Exhibit
4.1(a) Private Equity Line of Credit Agreement dated as of May 13, 1998
4.1(b)(2) Amendment to Private Equity Line of Credit Agreement
4.2(1) Form of Warrant A
4.3(1) Form of Warrant B
4.4(1) Warrant and Warrant Agreement between the Registrant and Infusion
Capital Partners, LLC
5.1(1) Opinion of Parker Chapin Flattau & Klimpl, LLP
23.1(2) Consent of Richard A. Eisner & Company, LLP
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP (included in Exhibit
5.1 hereto)
24.1(1) Power of Attorney
99.1(1) Registration Rights Agreement dated as of May 13, 1998
99.2(1) Escrow Agreement dated as of May 13, 1998
(1) Filed with Registration Statement on Form S-3 dated June 26, 1998.
(2) Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned registrant 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 effective 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.
II - 2
<PAGE>
(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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer 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 small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer 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 Securities Act and will be governed by
the final adjudication of the issue.
The undersigned small business issuer hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
II - 3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hackensack, State of New Jersey on September 28,
1998.
OBJECTSOFT CORPORATION
By: /s/ David E.Y. Sarna
-------------------------------------
David E.Y. Sarna
Chairman of the Board, Co-Chief
Executive Officer, Secretary and
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
/s/ David E.Y. Sarna
- -----------------------------------
David E.Y. Sarna Chairman of the Board, Co-Chief September 28, 1998
Executive Officer, Secretary and
Director (Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
*
- -----------------------------------
George J. Febish President, Co-Chief Executive September 28, 1998
Officer, Treasurer and Director
(Principal Executive Officer)
*
- ------------------------------------
Daniel E. Ryan Director September 28, 1998
*
- ------------------------------------
Gunther L. Less Director September 28, 1998
/s/ David E.Y. Sarna
By: -----------------------------
David E.Y. Sarna
(Attorney-in-fact)
</TABLE>
II - 4
<PAGE>
EXHIBIT INDEX
Number Description of Exhibit
- ------ ----------------------
4.1(b) Amendment to Private Equity Line of Credit Agreement
23.1 Consent of Richard A. Eisner & Company, LLP
EXHIBIT 4.1(b)
Agreement of Amendment and Modification
Agreement of Amendment and Modification made as of September 29, 1998,
by and among ObjectSoft Corporation, a Delaware corporation (the "Company"),
Avalon Capital, Inc., Austost Anstalt Schaan, Balmore Funds, S.A. (collectively
referred to as the "Investors"), Settondown Capital International, Ltd. (the
"Placement Agent"), and Goldstein, Goldstein & Reis, LLP (the "Escrow Agent").
Capitalized terms used herein and not otherwise defined herein shall
have the meanings given to them in the Private Equity Line of Credit Agreement
dated as of May 13, 1998 by and among the Company, Investors and the Placement
Agent (the "Equity Line Agreement").
Witnesseth:
WHEREAS, the Company and the Investors executed the Equity Line
Agreement pursuant to which the Investors (i) purchased an aggregate of $900,000
principal amount of Common Stock of the Company on the Subscription Date, (ii)
agreed to purchase up to an aggregate of $1,200,000 aggregate principal amount
of Preferred Stock of the Company in two separate tranches, and (iii) subject to
conditions contained therein, agreed to purchase an aggregate value of
$5,000,000 in Put Shares;
WHEREAS, the Company, the Investors and the Placement Agent entered
into a Registration Rights Agreement dated as of May 13, 1998 (the "Registration
Rights Agreement");
WHEREAS, the Company, the Investors, the Placement Agent, and the
Escrow Agent, entered into a Escrow Agreement dated as of May 13, 1998 (the
"Escrow Agreement", and together with the Equity Line Agreement and the
Registration Rights Agreement are hereinafter referred to as the "Transaction
Agreements"); and
WHEREAS, the Company, the Investors and the Placement Agent wish to
amend the Equity Line Agreement and the Registration Rights Agreement, and the
Company, the Investors, the Placement Agent, and the Escrow Agent wish to amend
the Escrow Agreement.
Now, therefore, in consideration of the mutual covenants, conditions
and promises contained herein, the parties agrees as follows:
1. Sections 1.16, 1.39, and 1.43 of the Equity Line Agreement are hereby
deleted.
2. Section 1.41 of the Equity Line Agreement is hereby deleted and replaced
with the following:
<PAGE>
"Section 1.41 "Reset Price" shall mean eighty (80%) percent of the
Bid Price on the Trading Day immediately preceding the Effective Date."
3. Section 1.35 of the Equity Line Agreement is hereby amended to delete any
reference to Repricing Shares.
4. All references in the Transaction Documents to the Repricing Shares is
hereby deleted.
5. Section 2.8 (c) of the Equity Line Agreement is hereby deleted.
6. Sections 2.9 (a), (b), and (c) of the Equity Line Agreement is hereby
deleted and replaced with the following:
"Section 2.9 Repricing. Within five trading days after the Effective
Date the Company agrees to pay to the Investors and the Placement Agent
in cash the dollar amount equal to the product of (x) that number of
additional shares of Common Stock (if any) resulting from the deficiency
between that number of Initial Shares (including those issued to the
Placement Agent) which would have been issued had the Reset Price been
utilized as the Purchase Price for the Initial Shares, and the Initial
Shares (including those issued to the Placement Agent) actually issued on
the Subscription Date multiplied by (y) the average of the Reset Price
and the Bid Price on the trading Day immediately preceding the Effective
Date."
7. The following portions of Section 2.11 of the Equity Line Agreement are
hereby deleted and replaced with the following:
"Section 2.11 Preferred Stock. The Company agrees to sell and the
Investors agree to purchase up to an aggregate principal amount of One
Million Two Hundred Thousand ($1,200,000) Dollars principal amount of
Preferred Stock in two separate tranches as set forth in (a) and (b)
below. The number of shares of Common Stock issuable upon conversion of
the Preferred Stock shall be determined by dividing $1,200,000 by the
conversion formula contained in the Certificate of Designation."
"(a) First Tranche. The Investors shall purchase (pro rata) an
aggregate principal amount of Nine Hundred Thousand ($900,000) Dollars
(the "First Tranche Investment Amount") principal amount of Preferred
Stock, on the fifth trading day following the effective date of a
Registration Statement covering the Underlying Shares, upon the
satisfaction of the following conditions:"
"(ii) delivery into escrow by the Company of an aggregate
principal amount of Nine Hundred Thousand ($900,000) Dollars of original
Preferred Stock, as more fully set forth in the Escrow Agreement attached
hereto as Exhibit F;"
"(v) the Investors shall have received written proof that
the Registration
<PAGE>
Statement (which includes all Underlying Shares) has become effective and
is effective during the three Trading Days immediately prior to the
Closing Date for the first tranche, and (A) neither the Company nor any
of the Investors shall have received notice that the SEC has issued or
intends to issue a stop order with respect to the Registration Statement
or that the SEC otherwise has suspended or withdrawn the effectiveness of
the Registration Statement, either temporarily or permanently, or intends
or has threatened to do so (unless the SEC's concerns have been addressed
and the Investors are reasonably satisfied that the SEC no longer is
considering or intends to take such action), and (B) no other suspension
of the use or withdrawal of the effectiveness of the Registration
Statement or related prospectus shall exist;"
"(b) Second Tranche. The Investors shall purchase (pro rata)
an aggregate principal amount of Three Hundred Thousand ($300,000)
Dollars (the "Second Tranche Investment Amount") principal amount of
Preferred Stock, on the thirtieth (30th) day following the effective date
of a Registration Statement covering the Underlying Shares, upon the
satisfaction of the following conditions:"
"(ii) delivery into escrow by the Company of an aggregate
principal amount of Three Hundred Thousand ($300,000) Dollars of original
Preferred Stock, as more fully set forth in the Escrow Agreement attached
hereto as Exhibit F;"
"(v) the Investors shall have received written proof that the
Registration Statement (which includes all Underlying Shares) has
previously become effective and remains effective for at least 30 days
and is effective during the three Trading Days immediately prior to the
Closing Date for the second tranche, and (A) neither the Company nor any
of the Investors shall have received notice that the SEC has issued or
intends to issue a stop order with respect to the Registration Statement
or that the SEC otherwise has suspended or withdrawn the effectiveness of
the Registration Statement, either temporarily or permanently, or intends
or has threatened to do so (unless the SEC's concerns have been addressed
and the Investors are reasonably satisfied that the SEC no longer is
considering or intends to take such action), and (B) no other suspension
of the use or withdrawal of the effectiveness of the Registration
Statement or related prospectus shall exist;"
8. The last paragraph of Section 2.11 of the Equity Line Agreement is hereby
deleted and replaced by the following:
"(c) In no event shall the Investors be obligated to purchase any
shares of Preferred Stock if a Registration Statement including the
Underlying Shares, is not declared effective prior to eighteen (18)
months after the Subscription Date. Notwithstanding Sections 2.11 (a) and
(b) herein, the Company may, at its option, terminate the second tranche
as set forth in Section 2.11 (b), by giving written notice to the
Placement Agent and each of the Investors at any time prior to twenty
five (25) days after the effective date of a Registration Statement
covering the Underlying Shares. The Preferred Stock shall be convertible
pursuant to the terms and conditions of the Certificate of Designation."
<PAGE>
9. The Transaction Documents shall be modified throughout to reflect that there
is not a "first tranche" and "second tranche", but rather a "Closing for the
Preferred Stock", and that there is not a First and Second Repricing Date, but
rather one "Repricing Date."
10. The Company shall not be obligated to include the Put Shares in the
Registration Statement, but the Put Shares must be included in a registration
statement that has been declared effective by the SEC prior to the Company
serving a Put, and the conditions contained in Section 7.2 of the Equity Line
Agreement shall remain in full force and effect.
11. The remaining Articles of the Escrow Agreement, and the remaining Sections
of the Equity Line Agreement and Registration Rights Agreement are hereby
renumbered sequentially to reflect the aforementioned deletions.
12. The Company agrees tp pay the Repricing Payment to the Investors, out of the
net proceeds of the first tranche of the Preferred Stock. The Escrow Agreement
shall be amended to reflect that the Company agrees to send to the Escrow Agent
a Net Letter instructing the Escrow Agent to disburse to the Investors pro rata,
out of the net proceeds of the first tranche of Preferred Stock held in escrow
by the Escrow Agent, the Repricing Payment period.
13. Section 13.7 of the Equity Line Agreement shall be amended to reflect that
Goldstein, Goldstein & Reis, LLP. is to receive $9,000 out of the proceeds of
the first tranche of Preferred Stock.
14. The deleted sections and articles of the Escrow Agreement, Equity Line
Agreement and Registration Rights Agreement shall be titled "Intentionally
Omitted."
15. Except for the provisions of this Agreement of Amendment and Modification,
all of the terms, conditions, and covenants of the Transaction Agreements
(including all Exhibits annexed thereto) shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement of Amendment and Modification as of the date first set forth above.
OBJECTSOFT CORPORATION
By /s/ David E.Y. Syrna
SETTONDOWN CAPITAL INTER-
NATIONAL LTD.
Placement Agent
By /s/ Anthony L.M. Inder Riden
------------------------------
AVALON CAPITAL, INC.
Investor
By /s/ Wayne Coleson
----------------------
AUSTOST ANSTALT SCHAAN
Investor
By /s/ Thomas Hackl
----------------------
BALMORE FUNDS S.A.
Investor
By /s/ Francois Morax
-----------------------
GOLDSTEIN, GOLDSTEIN & REIS, LLP,
Escrow Agent
By /s/ Scott H. Goldstein
-----------------------
Scott H. Goldstein
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this amendment no. 1 to the registration
statement on Form S-3 of our report dated February 20, 1998, on the financial
statements of ObjectSoft Corporation as at December 31, 1997 and for each of the
years in the two-year period ended December 31, 1997. We also consent to the
reference to our firm under the caption "Experts".
/s/ RICHARD A. EISNER & COMPANY, LLP
- ------------------------------------
RICHARD A. EISNER & COMPANY, LLP
Florham Park, New Jersey
September 23, 1998
