AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1998
REGISTRATION NO. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
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.)
CONTINENTAL PLAZA III
433 HACKENSACK AVENUE
HACKENSACK, NEW JERSEY 07601
(201) 343-9100
(Address, Including Zip Code, and Telephone Number
Including Area Code, of Registrant's Principal Executive Offices)
----------------------------
DAVID E. Y. SARNA, CHAIRMAN
OBJECTSOFT CORPORATION
CONTINENTAL PLAZA III
433 HACKENSACK AVENUE
HACKENSACK, NEW JERSEY 07601
(201) 343-9100
(Name, Address, Including Zip Code, and Telephone Number,
Including Area 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.
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.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================
Proposed Proposed
Title of each Maximum maximum Amount of
class of securities Amount to Aggregate price Aggregate registration
to be registered be registered Per share offering price fee
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.0001 par
value per share 4,431,623(2)(3) $1.953125(1) $8,655,514 $2,554
===============================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (g); based on the average ($1.953125) of the
bid ($2.03125) and asked ($1.875) price on the Nasdaq SmallCap Market on
June 24, 1998.
(2) Represents 482,222 shares Common Stock issued in connection with the May
1998 Private Placement ("Issued Shares"), an indeterminate number of
shares issuable pursuant to a "reset adjustment" with respect to such
shares issued in May 1998 ("Reset 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"), an indeterminate
number of shares issuable upon exercise of Put Options in the aggregate
principal amount of $5,000,000, 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 pursuant to the reset adjustment, upon conversion of Series C
Preferred Stock and upon exercise by the Company of Put Options. The
number of shares indicated to be registered includes: an estimate of the
number of Reset Shares issuable at no additional consideration in certain
circumstances assuming a hypothetical per share market price during the
applicable measuring periods of $1.00; an estimate of the number of shares
issuable upon conversion of the Series C Preferred Stock assuming such
exercise occurred on June 13, 1998; and an estimate of the number of
shares that would be issuable upon the exercise of Put Options in the
aggregate principal amount of $5,000,000 at a presumed price of $1.838 per
share, which is 85% of $2.1625, the average closing bid price of the
Common Stock for the five trading days prior to June 13, 1998, as reported
by Nasdaq. 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 or as to the number of Reset Shares issuable or the number of
shares of Common Stock issuable upon conversion of the Series C Preferred
Stock or exercise of Put Options. See "Risk Factors -- Dilution; Impact of
Sale of Common Stock Upon Issuance of Reset Shares, Conversion of Series C
Preferred Stock and the Exercise of the Put Options and Warrants"; and
"Description of Securities's."
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.
-2-
<PAGE>
================================================================================
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
================================================================================
SUBJECT TO COMPLETION, DATED JUNE ___, 1998
PROSPECTUS
4,431,623 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 4,431,623 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 June 23, 1998, the closing bid prices of the Common Stock and the Class A
Warrants as reported by NASDAQ were $2 3/16 and $0 9/32, 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 __________, 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-_____ ) (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 Report on Form 10-QSB
for the quarter ended March 31, 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
-2-
<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.
-3-
<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................... 4,431,623 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 .................. 8,996,521 shares of Common Stock(1)(3)
Common Stock Trading Symbol
on NASDAQ............................ OSFT
---------------------
(1) Does not include (i) 250,000 shares of Common Stock reserved for issuance
upon the exercise of outstanding options under the 1996 Stock Option Plan,
as amended and (ii) 2,756,887 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 678,996 shares of
Common Stock based upon a presumed average closing bid price of $2.1625
for the five trading days prior to the date of conversion, multiplied by
85%, and assumes issuance of a total of 2,720,349 shares upon exercise by
the Company of Put Options in the aggregate principal amount of
$5,000,000. Also includes an aggregate 455,556 of Reset Shares that would
be issuable on the two
-4-
<PAGE>
Reset Dates (as defined below) assuming a hypothetical per share market
price during the relevant periods of $1.00. The actual aggregate number of
Reset Shares, shares issuable upon conversion of the Series C Preferred
Stock and shares issuable upon exercise of Put Options, that may be issued
pursuant to the Private Equity Line of Credit Agreement, is dependent upon
the future market prices of Common Stock and will therefore vary according
to actual market conditions prevailing at the relevant time periods. See
"Description of Securities."
-5-
<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 ISSUANCE OF RESET
SHARES, 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 issuance of Reset Shares, 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 March 31, 1998, the
Company had an accumulated deficit of $5,395,641.
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
-6-
<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 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.
RECENT 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. The Company has not recognized any significant
income to date from the SmartStreet(TM) IPAT rentals. 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.
-7-
<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.
-8-
<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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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.
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 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.
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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 eight 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 three months
ended March 31, 1998, the City accounted for 100% of the Company's revenues
pursuant to the City Agreement. 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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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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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 reset and 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 8,996,521 shares of Common Stock which will be outstanding
or registered for sale upon the completion of this offering, 4,431,623 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 Issuance of Reset Shares, 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 3,006,887 shares of Common Stock. The sale
of 412,500 Class A Warrants has previously been registered in a registration
statement declared effective by the Securities and Exchange Commission on
October 14, 1997. The exercise of the outstanding options and warrants would
have a dilutive effect on the Company's stockholders.
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
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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 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. Except for the issuance of the Series C Preferred Stock under the
terms of the Financing Agreement, the Company has no current plans to issue any
additional Preferred Stock. 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 June 22,
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, the assumed exercise by the Company of the Put Option 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 Shares of Common Stock Owned
Common Stock Shares of after Offering (4)
Owned Prior Common Stock ------------------------
to Offering to be Sold(4) Number Percent
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Avalon Capital, Inc.(1) 1,440,410 1,440,410 0 0%
Austost Anstalt Schaan(1) 1,440,410 1,440,410 0 0
Balmore Funds S.A.(1) 1,440,410 1,440,410 0 0
Settondown Capital(2) 72,893 72,893 0 0
Infusion Capital Partners, LLC(3) 37,500 37,500 0 0
========= ========= ========= =========
Total 4,431,623 4,431,623 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,
652,881 shares of Common Stock issuable upon conversion of the Series C
Preferred Stock based upon a presumed average closing bid price of $2.1625
for the five trading days prior to the date of conversion multiplied by
85%, 652,881 of which have been allocated equally (217,621 shares) among
the three Investors (as defined below) and 26,115 are issuable in
connection with placement agent fees, and includes a total of 2,720,349
shares issuable upon exercise by the Company of Put Options in the
aggregate principal amount of $5,000,000 based upon a presumed price of
$1.838 per share, which is 85% of $2.1625, the average closing bid price
of the Common Stock for the five trading days prior to June 13,
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<PAGE>
1998, which shares have been allocated equally (906,783 shares) among the
three Investors. Also includes Reset Shares that could be issuable at each
Reset Date. Solely for purposes of estimating the number of shares of
Reset Shares to be included in the Registration Statement of which this
Prospectus is part, the Company has assumed a hypothetical average market
price of $1.00 per share during each of the relevant five trading day
measuring periods, which price when used in the formula for calculating
the number of Reset Shares issuable as described above, yields the number
of Reset Shares for each of the Selling Shareholders as is set forth in
this Note (1). The actual number of Reset Shares issued could differ
substantially, or no Reset Shares could be issued. The actual number of
Reset Shares, shares issuable upon conversion of the Series C Preferred
Stock and shares issuable upon exercise of the Put Options that may be
issued pursuant to the Financing Agreement is dependent upon the market
price of the Common Stock, and will 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, 26,115 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 (652,881 shares) which have been allocated
equally among the three Investors and assumes the exercise by the Company
of Put Options in the aggregate principal amount of $5,000,000 (a presumed
2,720,349 shares) which have been allocated equally among the three
Investors.
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
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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 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"), 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"). On the effective date of this Prospectus and 30
days thereafter (each, a "Reset Date"), the Investors will have certain "reset"
rights pursuant to which the Investors will receive additional shares of Common
Stock ("Reset Shares") if the average of the five lowest closing bid prices of
the Common Stock of the Company ("Reset Price") prior to each Reset Date does
not equal or exceed the Initial Price. On each Reset Date, the number of Reset
Shares to be issued to the Investors shall be calculated by (x) dividing
one-half of the subscription price of the Initial Shares by the applicable Reset
Price less (y) one-half of the Initial Shares. The
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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"). The Company will not be able, under the Financing Agreement, to issue
a number of shares of Common Stock equal to 20% or more of the outstanding
shares of Common Stock unless approval of the Company's stockholders is
obtained. In the event that approval is not obtained from the stockholders, the
Company is obligated under the Financing Agreement to pay the Investors the
market value of the Reset Shares, to the extent the issuance of such shares is
restricted by the failure to obtain such approval. A proposal to give such
approval has been submitted to the stockholders for consideration at the
Company's Annual Meeting currently scheduled to take place on July 9, 1998.
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.
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 the
Registration Statement of which this Prospectus is a part 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; provided, however, that, unless the Company obtains
stockholder approval pursuant to the applicable corporate governance rules of
the Nasdaq Stock Market, the Company may not compel the Investors to make a
purchase which results in the issuance of more than 19.95% of the outstanding
shares of Common Stock of the Company to the Investors and the Placement Agent
pursuant to the Financing Agreement. 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
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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.
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.
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.
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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 678,996 shares of Common
Stock underlying the Series C Preferred Stock as part of this Prospectus.
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
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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 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
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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.
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.
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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. 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 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 report of such firm, which report is given on the authority of said firm as
experts in accounting and auditing.
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NO DEALER, SALESPERSON OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS WITH RESPECT TO THE
OFFERING MADE HEREBY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL 4,431,623 SHARES OF COMMON STOCK
OR A SOLICITATION OF AN OFFER TO BUY
ANY OF THE SECURITIES OFFERED HEREBY
TO ANY 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 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
PROSPECTUS
Page
----
Available Information................2
Incorporation of Certain Documents
by Reference........................2
Prospectus Summary...................4
Risk Factors.........................6 ______________, 1998
Use of Proceeds.....................18
Selling Stockholders ...............18
Plan of Distribution ...............19
Description of Securities...........20
Legal Matters.......................26
Experts ............................26
<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.............. $ 2,544
Legal fees and expenses............................ $ 25,000
Miscellaneous expenses............................. $ 1,500
Total......................................... $ 29,054
=========
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.
II - 1
<PAGE>
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 Private Equity Line of Credit Agreement dated as of May 13, 1998
4.2 Form of Warrant A
4.3 Form of Warrant B
4.4 Warrant and Warrant Agreement between the Registrant and
Infusion Capital Partners, LLC
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP
23.1 Consent of Richard A. Eisner & Company, LLP
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP (included in
Exhibit 5.1 hereto)
24.1 Power of Attorney (see page II-5 of this Registration Statement)
99.1 Registration Rights Agreement dated as of May 13, 1998
99.2 Escrow Agreement dated as of May 13, 1998
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.
(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;
II - 2
<PAGE>
(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 June 25, 1998.
OBJECTSOFT CORPORATION
By: /s/ David E.Y. Sarna
------------------------
David E.Y. Sarna
Chairman of the Board, Co-Chief
Executive Officer, Secretary and
Director
II - 4
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints each of David E.Y. Sarna and
George J. Febish and each of them with power of substitution, as his
attorney-in-fact, in all capacities, to sign any amendments to this registration
statement (including post-effective amendments) and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-facts or their substitutes may do or cause to be done by virtue
hereof.
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.
Signature Title Date
/s/ David E.Y. Sarna Chairman of the Board, Co-Chief June 25, 1998
- --------------------------- Executive Officer, Secretary and
David E.Y. Sarna Director
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
/s/ George J. Febish President, Co-Chief Executive June 25, 1998
- --------------------------- Officer, Treasurer and Director
George J. Febish (Principal Executive Officer)
/s/ Daniel E. Ryan Director June 25, 1998
- ---------------------------
Daniel E. Ryan
/s/ Gunther L. Less Director June 25, 1998
- ---------------------------
Gunther L. Less
II - 5
<PAGE>
SECURITIES AND
EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
- -------------
EXHIBITS TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
- -------------
OBJECTSOFT CORPORATION
(EXACT NAME OF ISSUER AS SPECIFIED
IN ITS CHARTER)
<PAGE>
EXHIBIT INDEX
-------------
Number Description of Exhibit
- ------ ----------------------
4.1 Private Equity Line of Credit Agreement dated as of
May 13, 1998
4.2 Form of Warrant A
4.3 Form of Warrant B
4.4 Warrant and Warrant Agreement between the Registrant
and Infusion Capital Partners, LLC
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP
23.1 Consent of Richard A. Eisner & Company, LLP
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP
(included in Exhibit 5.1 hereto)
24.1 Power of Attorney
99.1 Registration Rights Agreement dated as of May 13,
1998
99.2 Escrow Agreement dated as of May 13, 1998
PRIVATE EQUITY LINE OF CREDIT AGREEMENT
PRIVATE EQUITY LINE OF CREDIT AGREEMENT dated as of May 13, 1998
(the "Agreement"), among the entities listed on Schedule A attached hereto
(referred to as the "Investor" or "Investors"), SETTONDOWN CAPITAL INTERNATIONAL
LTD. (the "Placement Agent") located at Charlotte House, Charlotte Street, P.O.
Box N. 9204, Nassau, Bahamas, organized and existing under the laws of the
Bahamas, and OBJECTSOFT CORPORATION (Nasdaq Small Cap Stock Market Symbol
"OSFT"), a corporation organized and existing under the laws of the State of
Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
from time to time as provided herein, and the Investors shall purchase (i) for
an aggregate of up to Nine Hundred Thousand ($900,000) Dollars, that number of
shares of Common Stock determined by dividing $900,000 by the Purchase Price (as
defined below) for the Initial Shares (as defined below) on the Subscription
Date (as defined below), (ii) up to $5,000,000 aggregate value of Put Shares (as
defined below), (iii) up to $1,200,000 aggregate value of Preferred Stock (as
defined below), and (iv) Warrants A to purchase an aggregate of up to 42,000
Warrant Shares and Warrants B to purchase an aggregate of 30,000 Warrant Shares
(as defined below); and
WHEREAS, the Company shall issue to the Placement Agent, in return
for services rendered (in addition to the fees set forth in Section 13.7 below):
(a) upon the Closing for the Initial Shares (as defined below), (i) that number
of shares of Common Stock equal to four (4%) percent of the number of shares of
Common Stock issued to the Investors on the Subscription Date, (ii) twenty
thousand (20,000) shares of Common Stock (to be included in the definition of
Registrable Securities below), and (iii) a Warrant A (as defined below) to
purchase 3,000 Warrant Shares (as defined below) per Three Hundred Thousand
($300,000) Dollars funded by the Investors on the Subscription Date; (b) upon
the Closings for the Preferred Stock, that number of shares of Preferred Stock
equal to four (4%) percent of the number of shares of Preferred Stock issued to
the Investors; and
WHEREAS, such investments will be made in reliance upon the
provisions of Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of
the United States Securities Act of 1933, as amended, and the regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in Common Stock to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Additional Shares" shall have that meaning set forth in
Section 2.6 below.
Section 1.2 "Bid Price" shall mean the closing bid price (as
reported by Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Capital Shares" shall mean the Common Stock and any
shares of any other class of common stock whether now or hereafter authorized,
having the right to participate in the distribution of earnings and assets of
the Company.
Section 1.4 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for, or giving
any right to, subscribe for any Capital Shares of the Company or any warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.5 "Certificate of Designation" shall mean the Company's
Certificate of Designation setting forth all of the rights, privileges and
preferences of the Series C Preferred Stock, as annexed hereto as Exhibit A.
Section 1.6 "Closing" shall mean one of the closings of a purchase
and sale of the Common Stock, Warrants, and Preferred Stock pursuant to Article
II below.
Section 1.7 "Closing Date" shall mean, with respect to the purchase
of the Initial Shares the Closing shall be on the Subscription Date. The Closing
Date for the first tranche of Preferred Stock shall be on a Trading Day
subsequent to the Registration Statement being effective for thirty days subject
to the satisfaction of each of the conditions as set forth in Section 2.11. The
Closing Date for the second tranche of Preferred Stock shall be on a Trading Day
subsequent to the Registration Statement being effective for ninety days subject
to the satisfaction of each of the conditions as set forth in Section 2.11. The
Closing Date for the Put shares shall be on the Fourth Trading Day following
each Put Date. For each Closing Date, all conditions contained in this Agreement
must have been fulfilled at or prior to each Closing Date. In the event such
date shall fall on a holiday or a weekend, then the next business day thereafter
shall be the Closing Date.
Section 1.8 "Commitment Amount" shall mean up to the $7,100,000
which the Investor has agreed to provide to the Company in order to purchase the
Initial Shares, Preferred Shares, and Put Shares pursuant to the terms and
conditions of this Agreement.
Section 1.9 "Commitment Period" shall mean the period commencing on
the earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and all of the Investors may mutually agree in writing, and expiring on
the earliest to occur of (x) the date on which the Investors shall have
purchased Put Shares pursuant to this Agreement for an aggregate Purchase Price
of $5,000,000, (y) the date this Agreement is terminated pursuant to Section
2.4, or (z) the date occurring two years after the Effective Date.
2
<PAGE>
Section 1.10 "Common Stock" shall mean the Company's common stock,
par value $0.0001 per share.
Section 1.11 "Condition Satisfaction Date" shall have the meaning
set forth in Section 7.2.
Section 1.12 "Damages" shall mean any loss, claim, damage,
liability, costs and expenses which shall include, but not be limited to,
reasonable attorney's fees, disbursements, costs and expenses of expert
witnesses and investigation.
Section 1.13 "Effective Date" shall mean the date on which the SEC
first declares effective a Registration Statement registering the resale of the
following, (i) two hundred (200%) percent of the Initial Shares and Warrant
Shares, and (ii) two hundred (200%) percent of that number of shares of Common
Stock issued to the Placement Agent on the Subscription Date as set forth in
Section 13.7 below.
Section 1.14 "Escrow Agent" shall mean the law firm of Goldstein,
Goldstein & Reis, LLP, pursuant to the terms of the Escrow Agreement attached as
Exhibit E.
Section 1.15 "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.16 "First Repricing Date" shall have that meaning set
forth in Section 2.9.
Section 1.17 "Floor Price" shall mean a Bid Price of One Dollar and
Fifty Cents ($1.50) per share of Common Stock.
Section 1.18 "Initial Shares" shall have the meaning set forth in
Section 2.8.
Section 1.19 "Initial Shares Investment Amount" shall mean $900,000.
Section 1.20 "Investment Amount" shall mean, upon proper
notification by the Company to each of the Investors, the dollar amount to be
invested by each of the Investors to purchase Put Shares with respect to any Put
Date in accordance with Section 2.2 hereof.
Section 1.21 "Legend" shall have the meaning set forth in Section
9.1.
Section 1.22 "Market Price" on any given date shall mean the average
of the five lowest Bid Prices of the Common Stock during the Valuation Period.
Section 1.23 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise in any material respect
3
<PAGE>
interfere with the ability of the Company to enter into and perform any of its
obligations under this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Certificate of Designation or the Warrants in any material
respect.
Section 1.24 "Maximum Put Amount" shall mean the amount indicated in
the Table below:
- --------------------------------------------------------------------------------
Closing Price 30-Day Avg. 30-Day Avg. 30-Day Avg. 30-Day Avg.
Daily Trading Daily Trading Daily Trading Daily Trading
Volume 5,000- Volume Volume Volume
25,000 25,001-50,000 50,001-75,000 75,001-Above
- --------------------------------------------------------------------------------
$ 1.00 - $ 3.00 $ 100,000 $ 200,000 $ 300,000 $ 400,000
- --------------------------------------------------------------------------------
$ 3.01 - $ 6.00 $ 300,000 $ 400,000 $ 500,000 $ 600,000
- --------------------------------------------------------------------------------
$ 6.01 - $ 8.00 $ 500,000 $ 600,000 $ 700,000 $ 800,000
- --------------------------------------------------------------------------------
$ 8.01 - $10.00 $ 700,000 $ 800,000 $ 900,000 $1,000,000
- --------------------------------------------------------------------------------
$10.01 - $12.00 $ 900,000 $1,000,000 $1,100,000 $1,200,000
- --------------------------------------------------------------------------------
$12.01 - $14.00 $1,100,000 $1,200,000 $1,300,000 $1,400,000
- --------------------------------------------------------------------------------
$14.01 - Above $1,300,000 $1,400,000 $1,500,000 $1,600,000
- --------------------------------------------------------------------------------
Section 1.25 "NASD" shall mean the National Association of
Securities Dealers, Inc.
Section 1.26 "Outstanding" when used with reference to shares of
Common Stock or Capital Shares (collectively the "Shares"), shall mean, at any
date as of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not mean any such Shares
then directly or indirectly owned or held by or for the account of the Company.
Section 1.27 "Person" shall mean an individual, a corporation, a
partnership, an association, a limited liability company, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.28 "Preferred Stock" shall mean the Company's Series C
Preferred Stock with the rights, privileges and preferences, as set forth in the
Certificate of Designation attached hereto as Exhibit A.
Section 1.29 "Principal Market" shall mean the Nasdaq National
Market, or the Nasdaq SmallCap Market, whichever is at the time the principal
trading exchange or market for the Common Stock.
Section 1.30 "Purchase Price" shall mean (a) with respect to the
Initial Shares, eighty (80%) percent of the Market Price, (b) with respect to
the Preferred Stock, an amount equal to the "Purchase Price" of each share of
Preferred Stock, as set forth in the Certificate of Designation,
4
<PAGE>
and (c) with respect to Put Shares, eighty-five (85%) percent (the "Purchase
Price Percentage") of the Market Price upon a Put Date (or such other date on
which the Purchase Price is calculated in accordance with the terms and
conditions of this Agreement).
Section 1.31 "Put" shall mean each occasion in which the Company
elects to exercise its right to tender a Put Notice requiring the Investors (pro
rata) to purchase shares of the Company's Common Stock, subject to the terms of
this Agreement.
Section 1.32 "Put Date" shall mean the Trading Day during the
Commitment Period that a Put Notice to issue and sell Put Shares to the
Investors is deemed delivered pursuant to Section 2.2(b) hereof.
Section 1.33 "Put Notice and/or Compliance Certificate" shall mean a
written notice to each of the Investors setting forth the Investment Amount that
the Company intends to Put to the Investors (pro rata), including the
certification that the Company has complied in all material respects with all
obligations and conditions contained in this Agreement, in the form annexed
hereto as Exhibit D.
Section 1.34 "Put Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to a Put that has occurred or may
occur in accordance with the terms and conditions of this Agreement.
Section 1.35 "Registrable Securities" shall mean the Initial Shares,
the Underlying Shares, the Additional Shares, the Repricing Shares, the Warrant
Shares, the Put Shares, and all of the shares of Common Stock issued to the
Placement Agent, (i) in respect of which the Registration Statement (covering
these securities) has not been declared effective by the SEC, (ii) which have
not been sold under circumstances under which all of the applicable conditions
of Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (iii) which have not been otherwise transferred to holders
who may trade such shares without restriction under the Securities Act, or (iv)
the sales of which, in the opinion of counsel to the Company, are subject to any
time, volume or manner limitations pursuant to Rule 144(k) (or any similar
provision then in effect) under the Securities Act.
Section 1.36 "Registration Rights Agreement" shall mean the
agreement regarding the filing of the Registration Statement for the resale of
the Registrable Securities, entered into between the Company, the Placement
Agent, and the Investors on the Subscription Date annexed hereto as Exhibit A.
Section 1.37 "Registration Statement" shall mean a registration
statement on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale of the
Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement, and the
Warrants and in accordance with the
5
<PAGE>
intended method of distribution of such securities), for the registration of the
resale by the Investors and the Placement Agent of the Registrable Securities
under the Securities Act.
Section 1.38 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.39 "Repricing Shares" shall mean that number of shares of
Common Stock issuable pursuant to Section 2.9 below.
Section 1.40 "Repurchase Price" shall have the meaning as set forth
in Section 2.10 below.
Section 1.41 "Reset Price" shall mean eighty (80%) percent of the
Market Price on the applicable Repricing Date as set forth in Section 2.9 below.
Section 1.42 "SEC" shall mean the Securities and Exchange
Commission.
Section 1.43 "Second Repricing Date" shall have that meaning set
forth in Section 2.9.
Section 1.44 "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.45 "Securities" shall mean the Initial Shares, the Put
Shares, the Repricing Shares, the Underlying Shares, the Additional Shares, the
Warrant Shares and any and all Securities issued to the Placement Agent.
Section 1.46 "Securities Act" shall have the meaning set forth in
the recitals of this Agreement.
Section 1.47 "SEC Documents" shall mean the Company's latest Form
10-K (and all amendments thereto) or 10-KSB (and all amendments thereto) as of
the time in question, all Form 10-Qs or 10-QSBs and Form 8-Ks filed thereafter,
and the Proxy Statement for its latest fiscal year as of the time in question
until such time as the Company no longer has an obligation to maintain the
effectiveness of a Registration Statement as set forth in the Registration
Rights Agreement.
Section 1.48 "Subscription Date" shall mean the date on which this
Agreement and all Exhibits and attachments hereto, are executed and delivered by
the parties hereto and all of the conditions relating to the Initial Shares
shall have been fulfilled.
Section 1.49 "Trading Cushion" shall mean the mandatory fifteen (15)
Trading Days between Put Dates.
Section 1.50 "Trading Day" shall mean any day during which the New
York Stock Exchange shall be open for business.
6
<PAGE>
Section 1.51 "Underlying Shares" shall mean all shares of Common
Stock or other securities issued or issuable pursuant to conversion of the
Preferred Stock.
Section 1.52 "Valuation Event" shall mean an event in which the
Company at any time during a Valuation Period takes any of the following
actions:
(a) subdivides or combines its Common Stock;
(b) pays a dividend in its Capital Shares or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares ("Additional Capital
Shares"), otherwise than as provided in the foregoing Subsections (a) and (b)
above, at a price per share less, or for other consideration, lower than the Bid
Price in effect immediately prior to such issuance, or without consideration;
(d) issues any warrants, options or other rights to subscribe for
or purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Bid Price in
effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable for
Capital Shares and the consideration per share for which Additional Capital
Shares may at any time thereafter be issuable pursuant to the terms of such
convertible or exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a dividend in liquidation
or by way of return of capital or other than as a dividend payable out of
earnings or surplus legally available for dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Company's assets (other than under the circumstances provided for in
the foregoing subsections (a) through (e)); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Subsections (a)
through (f) hereof, inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a Material Adverse Effect upon
the rights of the Investor at the time of a Put or exercise of the Warrants.
Section 1.53 "Valuation Period" shall mean, (i) with respect to the
Initial Shares, the five (5) Trading Days immediately preceding the Subscription
Date, (ii) with respect to the Purchase Price on any Put Date, the five (5) day
trading period consisting of the three (3) Trading Days immediately preceding
and the one (1) Trading Day following the Trading Day on which a Put Notice is
deemed to be delivered, and the Trading Day on which such notice is deemed to be
delivered; and (iii) with respect to the Repricing Shares, the five (5) day
trading period immediately preceding the applicable Repricing Date; provided,
however, that if a Valuation Event occurs
7
<PAGE>
during a Valuation Period, a new Valuation Period shall begin on the Trading Day
immediately after the occurrence of such Valuation Event and end on the seventh
Trading Day thereafter.
Section 1.54 "Warrant A" shall have the meaning set forth in Section
2.5 and substantially in the form of Exhibit B.
Section 1.55 "Warrant B" shall have the meaning set forth in Section
2.6 and substantially in the form of Exhibit C.
Section 1.56 "Warrants" shall mean collectively the Warrant A and
Warrant B.
Section 1.57 "Warrant Shares" shall mean all shares of Common Stock
or other securities issued or issuable pursuant to the exercise of Warrant A or
Warrant B.
ARTICLE II
PURCHASE AND SALE OF COMMON STOCK, PREFERRED STOCK AND WARRANTS
Section 2.1 Investments.
(a) Puts. Upon the terms and conditions set forth herein
(including, without limitation, the provisions of Article VII hereof), on any
Put Date the Company may make a Put by the delivery of a Put Notice/ Compliance
Certificate in the form attached hereto as Exhibit D. The number of Put Shares
that the Investors shall receive pursuant to such Put shall be determined by
dividing the Investment Amount specified in the Put Notice by the Purchase Price
on such Put Date, which number of shares shall not exceed the Maximum Put Amount
on such date.
(b) Maximum Aggregate Amount of Puts and Repricing Shares.
Unless the Company obtains Shareholder approval pursuant to the applicable
corporate governance rules of the Nasdaq Stock Market, (i) the Investors may not
be compelled to make a purchase, and (ii) the Company will not be obligated to
issue any Repricing Shares as set forth in Section 2.9 below, which results in
the issuance to the Investors when aggregated with shares of Common Stock issued
to Placement Agent and all Warrant Shares issuable upon exercise of the Warrants
issuable to the Investors and the Placement Agent, of more than 19.95% of the
outstanding shares of Common Stock (which shall be computed as of the
Subscription Date) as a result of the transactions contemplated by this
Agreement. However, notwithstanding the foregoing, in the event the Company
fails to attain shareholder approval as mentioned herein, the Company agrees
that in lieu of issuing the Repricing Shares, it will pay to the Investors,
immediately, in cash, the dollar value of that number of Repricing Shares that
were to be issued pursuant to Section 2.9 below (such dollar value shall be
based upon the prices of the Common Stock on the applicable Repricing Date).
8
<PAGE>
Section 2.2 Mechanics For a Put.
(a) Put Notice. At any time after the thirtieth (30th) day
following the Effective Date, the Company may deliver a Put Notice to the
Investors, subject to the conditions set forth in Section 7.2; provided,
however, the Investment Amount for each Put as designated by the Company in the
applicable Put Notice shall be neither less than $50,000 nor more than the
Maximum Put Amount.
(b) Date of Delivery of Put Notice. A Put Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investors if such notice is received prior to 12:00 p.m. Eastern Time, or
(ii) the immediately succeeding Trading Day if it is received by facsimile or
otherwise after 12:00 p.m. Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Put Notice may be deemed delivered, on a day that
is not a Trading Day.
Section 2.3 Put Closings. On each Closing Date for a Put (i) the
Company shall deliver to the Escrow Agent for the benefit of the Investors one
or more certificates, at the Investors option, representing the Put Shares to be
purchased by the Investors pursuant to Section 2.1 herein, registered in the
name of the Investors; and (ii) the Investors shall deliver to escrow the
Investment Amount specified in the Put Notice by wire transfer of immediately
available funds to the Escrow Agent on or before the Closing Date. In addition,
on or prior to the Closing Date for a Put, each of the Company, the Placement
Agent, and the Investors shall deliver to the Escrow Agent all documents,
instruments and writings required to be delivered or reasonably requested by
either of them pursuant to this Agreement in order to implement and effect the
transactions contemplated herein. Payment of funds to the Company, payment of
Placement Agent fees as set forth in Section 13.7 below and delivery of the
certificates to the Investors shall occur on the Closing Date for the applicable
Put in accordance with the Escrow Agreement; provided, however, that to the
extent the Company has not paid the fees, expenses, and disbursements of the
Investors counsel, the Escrow Agent and Placement Agent in accordance with
Section 13.7, the amount of such fees, expenses and disbursements shall be paid
out of the funds that the Escrow Agent is holding for the Company to the
respective parties, in immediately available funds, at the direction of the
Investors, with no reduction in the number of Put Shares issuable to the
Investors on such Closing Date.
The Company may not make a Put to the Investors: (i) until thirty
days after the First Repricing Date, nor (ii) during the seven day period
commencing three days prior to the Second Repricing Date, and ending three days
after a Closing Date for the Second Repricing Date, and including the Closing
Date for the Second Repricing Date.
Section 2.4 Termination of Investment Obligation. The obligation of
the Investors to purchase shares of Common Stock pursuant to a Put shall
terminate permanently (including with respect to a Closing Date that has not yet
occurred but for which a Put Notice has been delivered to the Investors) in the
event that (i) there shall occur any stop order or suspension of the
effectiveness of the Registration Statement for an aggregate of twenty (20)
Trading Days during the Commitment Period, for any reason other than deferrals
or suspensions
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in accordance with the Registration Rights Agreement as a result of corporate
developments subsequent to the Subscription Date that would require such
Registration Statement to be amended to reflect such event in order to maintain
its compliance with the disclosure requirements of the Securities Act or (ii)
the Company shall at any time fail to comply with the requirements of Section
6.3, 6.4 or 6.6; provided, that in the case of clause (i) above, the Investors'
obligation to purchase shares of Common Stock shall be reinstated when the
Investors receive copies of the supplemented or amended prospectus contemplated
by the Registration Rights Agreement.
Section 2.5 The Warrants.
(a) Warrant A. On the Subscription Date, the Company will
issue to the Investors and the Placement Agent a Warrant A, exercisable
beginning on the Subscription Date and then exercisable any time over the five
year period there following, to purchase an aggregate of 18,000 Warrant Shares
for the Investors and 9,000 Warrant Shares for the Placement Agent at the
Exercise Price (as defined in the Warrant). Warrant A shall be delivered by the
Company to the Escrow Agent, and delivered to the Investors and Placement Agent
pursuant to the terms of this Agreement and the Escrow Agreement. The Warrant
Shares shall be registered for resale pursuant to the Registration Rights
Agreement.
(b) Warrant B. On the Subscription Date, the Company will
issue to the Investors (pro rata) a Warrant B exercisable beginning six months
from the Subscription Date and then exercisable any time over the five year
period there following, to purchase an aggregate of 30,000 Warrant Shares at the
Exercise Price (as defined in the Warrant). Warrant B shall be delivered by the
Company to the Escrow Agent, and delivered to the Investors pursuant to the
terms of this Agreement and the Escrow Agreement. The Warrant Shares shall be
registered for resale pursuant to the Registration Rights Agreement.
Section 2.6 Additional Shares. In the event that (a) within five
Trading Days after the date in which the Investors and/or the Placement Agent
receive any of the Securities issued hereunder, a "blackout period" occurs in
accordance with the Sections 3(g) and 3(h) of the Registration Rights Agreement,
and (b) the Bid Price on the Trading Day immediately preceding such "blackout
period" (the "Old Bid Price") is greater than the Bid Price on the first Trading
Day following such "blackout period" (the "New Bid Price"), the Investor and/or
the Placement Agent may sell its Registrable Securities at the New Bid Price
pursuant to an effective Registration Statement, and the Company shall issue to
the Investor and/or the Placement Agent a number of additional shares equal to
the difference between (y) the product of the number of Registrable Securities
held by the Investors and/or the Placement Agent during such "blackout period"
that are not otherwise freely tradeable and the Old Bid Price, divided by the
New Bid Price and (z) the number of Registrable Securities held by the Investor
and/or the Placement Agent during such "blackout period" that are not otherwise
freely tradeable.
Section 2.7 Liquidated Damages. In addition to any other provisions
for liquidated damages in this Agreement or any Exhibit annexed hereto, in the
event that the Company does not deliver unlegended Common Stock in connection
with the sale of such Common Stock by the Investor(s) and/or the Placement Agent
as set forth in Article IX below (due to the action or
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inaction of the Company, or counsel to the Company), within three (3) Trading
Days of surrender by the Investor(s) of the Common Stock certificate in
accordance with the terms and conditions set forth in Article IX below (such
date of receipt is referred to as the "Receipt Date"), the Company shall pay to
the Investor(s), in immediately available funds, upon demand, as liquidated
damages for such failure and not as a penalty, one (1%) percent of the Purchase
Price of the Common Stock undelivered for every day thereafter for the first ten
(10) days and two (2%) percent for every day thereafter that the unlegended
shares of Common Stock are not delivered, which liquidated damages shall run
from the fourth (4th) Trading Day after the Receipt Date. In addition to the
above, the Company will be liable for the aforementioned liquidated damages in
the event the Company fails to notify its transfer agent within two Trading Days
after the Receipt Date authorizing the transfer agent to issue such shares of
unlegended Common Stock as set forth above. The parties hereto acknowledge and
agree that the sum payable pursuant to the Registration Rights Agreement and as
set forth above, and the obligation to issue Registrable Securities under
Section 2.6 above, shall constitute liquidated damages and not penalties. The
parties further acknowledge that the amount of loss or damages likely to be
incurred is incapable or is difficult to precisely estimate, and the parties are
sophisticated business parties and have been represented by sophisticated and
able legal and financial counsel and negotiated this Agreement at arm's length.
Notwithstanding the above, in the event that the Company does not deliver
unlegended Common Stock in connection with the sale of such Common Stock by the
Investor(s) and/or the Placement Agent as set forth in Article IX below (not due
to the action or inaction of the Company, or counsel to the Company), within
three (3) Trading Days of the Receipt Date), the Company shall pay to the
Investor(s), in immediately available funds, interest (at the then current prime
rate) on the Purchase Price of the Common Stock undelivered for every day
thereafter that the unlegended shares of Common Stock are not delivered. Any and
all payments required pursuant to this paragraph shall be payable only in cash.
Section 2.8 Initial Purchase.
(a) The Company agrees to sell and the Investors agree to
purchase that number of shares of Common Stock (the "Initial Shares") determined
by dividing the Initial Shares Investment Amount by the Purchase Price for the
Initial Shares on the Subscription Date. The Initial Shares will be subject to
repricing as described in Section 2.9 herein.
(b) The right of the Company to receive the Initial Shares
Investment Amount from the Investors, and the right of the Investors to receive
the Initial Shares and Warrants A and B (as set forth in Section 2.5) is subject
to the satisfaction on the Closing Date for the Initial Shares, of each of the
following conditions:
(i) acceptance by the Company, and by all of the
Investors, of this Agreement and all duly executed
Exhibits thereto by an authorized officer of the
Company;
(ii) delivery into escrow by the Investors of good
cleared funds as the Initial Shares Investment
Amount (as more fully set forth in the Escrow
Agreement attached hereto as Exhibit E);
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(iii) all representations and warranties of the
Investors and of the Company contained herein
shall remain true and correct in all material
respects as of the Subscription Date;
(iv) the Company shall have obtained all permits and
qualifications required by any state for the offer
and sale of the Common Stock and both the Warrant
A and Warrant B, or shall have the availability of
exemptions therefrom;
(v) the sale and issuance of the Common Stock, both
the Warrant A and Warrant B, and the proposed
issuance of the Common Stock underlying both the
Warrant A and Warrants B shall be legally
permitted by all laws and regulations to which the
Investors and the Company are subject; and all
duly executed Exhibits hereto for the sale of the
Securities;
(vi) delivery of the original Initial Shares, Warrants
A and Warrants B as described herein;
(vii) receipt by the Investors of an opinion of counsel
of the Company as set forth in Exhibit F attached
hereto and instructions to the Transfer Agent as
set forth in Exhibit G annexed hereto; and
(viii)payment of all fees as set forth in Section 13.7
below and the Escrow Agreement.
(c) One half of the Initial Shares may be sold on the
Effective Date and the remaining Initial Shares may be sold at any time after
thirty (30) days after the Effective Date. However, in the event the Effective
Date is after the first anniversary of the Subscription Date, all of the Initial
Shares may be sold after the first anniversary of the Subscription Date.
Section 2.9 Repricing.
(a) First Repricing. Upon the earlier to occur of (i) the
Effective Date, or (ii) one year after the Subscription Date, (also referred to
as the "First Repricing Date") the Company agrees to issue that number of
additional shares of Common Stock (if any) resulting from the deficiency between
one-half of that number of Initial Shares (including those issued to the
Placement Agent) which would have been issued had the Reset Price on the
Effective Date been utilized and one half of the Initial Shares (including those
issued to the Placement Agent) actually issued on the Subscription Date. Such
shares shall be delivered within three (3) Trading Days after the Effective
Date, or three (3) Trading Days after the one year anniversary of the
Subscription Date.
(b) Second Repricing. Upon the thirtieth (30th) calendar day
after the First Repricing Date (the "Second Repricing Date"), the Company agrees
to issue that number of additional shares of Common Stock (if any) resulting
from the deficiency between one-half of that number of Initial Shares (including
those issued to the Placement Agent) which would have been issued had the Reset
Price on the Second Repricing Date been utilized and one-half of the Initial
Shares (including those issued to the Placement Agent) actually issued on the
Subscription Date. Such shares shall be delivered within three (3) Trading Days
after the Second Repricing Date.
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(c) The Company agrees that in the event there is an
insufficient number of shares of Common Stock being registered in the
Registration Statement for the inclusion of the Repricing Shares, the Company
agrees to file and use its best efforts to cause to be effective, any amendment
necessary to the Registration Statement to include the Repricing Shares. The
Company shall only be required to issue Repricing Shares based upon that number
of shares of Common Stock beneficially held by the Investors and the Placement
Agent on each Repricing Date. In the event the Company is obligated to issue
Repricing Shares, as set forth above, but is unable to issue registered
Repricing Shares as set forth above, the Company agrees that it shall pay to the
Investors, and/or Placement Agent, the dollar value equal to the number of
Repricing Shares to be issued multiplied by the Bid Price on the applicable
Repricing Date. Such payment is to be made, if necessary, within three (3)
Trading Days after the applicable Repricing Date.
Section 2.10 Repurchase. In the event the Bid Price is less than One
Dollar and Fifty Cents ($1.50), the Company may repurchase any number of shares
of Common Stock and Preferred Stock then beneficially owned by the Investors
and/or Placement Agent in whole or in part (repurchased pro rata amongst the
Investors) issued pursuant to this Agreement (except the Put Shares) in cash at
one hundred ten (110%) percent of the Initial Shares Investment Amount (as
adjusted to reflect the issuance of Repricing Shares as set forth in Section 2.9
above), the Investment Amount, the First Tranche Investment Amount or the Second
Tranche Investment Amount, as applicable, (the "Repurchase Price"). Upon receipt
by the Investors and/or the Placement Agent of notice from the Company (the
"Repurchase Notice") of the exercise of its right to repurchase the
aforementioned shares of Common Stock held by the Investors (the "Repurchase
Date"), the Company shall wire transfer the appropriate amount of funds into an
escrow account mutually agreed upon by both the Company, the Investors and/or
the Placement Agent, within three (3) business days of the Repurchase Date. If
the Company has not, within three (3) business days after the Repurchase Date,
deposited into escrow the Repurchase Price for the benefit of the repurchasing
as set forth herein, the Company shall have waived its right to repurchase at
any time, and shall pay to the Investors and/or the Placement Agent, in
immediately available funds, liquidated damages in the amount of ten (10%)
percent of the Repurchase Price. In no event shall the Company (i) be allowed to
send a Repurchase Notice to the Investors and/or the Placement Agent within five
(5) days before a Repricing Date, or within five (5) days after any Repricing
Date, or (ii) be entitled to repurchase any Put Shares.
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 Six Hundred Thousand ($600,000) Dollars (the
"First 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:
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(i) the Investors shall have received certification that the
Company has obtained shareholder approval for the Company's issuance
of more than twenty (20%) percent of its Common Stock in connection
with the transactions contemplated hereby;
(ii) delivery into escrow by the Company of an aggregate
principal amount of Six Hundred Thousand ($600,000) Dollars of
original Preferred Stock, as more fully set forth in the Escrow
Agreement attached hereto as Exhibit F;
(iii) the Investors shall have received an opinion of counsel
of the Company as set forth in this Agreement;
(iv) the Investors shall have received a copy of the filed
Certificate of Designation, and any amendments thereto;
(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
thirty days 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.
(vi) the Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Preferred Stock, or shall have the availability of exemptions
therefrom. To the knowledge of the Company, the sale and issuance of
the Preferred Stock shall be legally permitted by all laws and
regulations to which the Company is subject;
(vii) the Investors shall have received written certification
that the representations and warranties of the Company are true and
correct in all material respects as of the Closing Date for the
first tranche of the Preferred Stock as though made at each such
time (except for representations and warranties specifically made as
of a particular date) with respect to all periods, and as to all
events and circumstances occurring or existing to and including the
Closing Date for the first tranche of the Preferred Stock;
(viii) the Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and
conditions required by this Agreement and all Exhibits hereto, the
Certificate of Designation, the Escrow Agreement, the Registration
Rights Agreement and the Warrants, to be performed, satisfied or
complied
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with by the Company at or prior to the Closing Date for the first
tranche of the Preferred Stock;
(ix) no statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of
the transactions contemplated by this Agreement, and no proceeding
shall have been commenced that may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement;
(x) since the date of filing of the Company's most recent SEC
Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred;
(xi) the trading of the Common Stock is not suspended by the
SEC or the Principal Market, and the Common Stock shall have been
approved for listing or quotation on and shall not have been
delisted from the Principal Market. The issuance of shares of Common
Stock with respect to the Closing for the first tranche of the
Preferred Stock shall not violate the shareholder approval
requirements of the Principal Market. The Company shall not have
been contacted by Nasdaq concerning the delisting of the Common
Stock on the Principal Market, and the Company currently meets all
listing requirements during the thirty (30) day period immediately
preceding the Closing Date for the first tranche;
(xii) payment of fees as applicable as set forth in Section
13.7 below; and
(xiii) the Investors shall have received and been reasonably
satisfied with such other certificates and documents as shall have
been reasonably requested by the Investors in order for the
Investors to confirm the Company's satisfaction of the conditions
set forth in this Section, including, without limitation, a
certificate in substantially the form and substance of Exhibit C
hereto, executed in either case by an executive officer of the
Company and to the effect that all the conditions to such Closing
shall have been satisfied as at the date of each such certificate.
(b) Second Tranche. The Investors shall purchase (pro rata)
an aggregate principal amount of Six Hundred Thousand ($600,000) Dollars (the
"Second Tranche Investment Amount") principal amount of Preferred Stock, on the
ninetieth (90th) day following the effective date of a Registration Statement
covering the Underlying Shares, upon the satisfaction of the following
conditions:
(i) the Investors shall have received certification that the
Company has obtained shareholder approval for the Company's issuance
of more than twenty (20%) percent of its Common Stock in connection
with the transactions contemplated hereby;
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(ii) delivery into escrow by the Company of an aggregate
principal amount of Six Hundred Thousand ($600,000) Dollars of
original Preferred Stock, as more fully set forth in the Escrow
Agreement attached hereto as Exhibit F;
(iii) the Investors shall have received an opinion of counsel
of the Company as set forth in this Agreement;
(iv) the Investors shall have received certification from the
Company that the Certificate of Designation previously supplied to
the Investors on the Closing Date for the Initial Shares has not
been altered and remains in full force and effect.
(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
ninety 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.
(vi) the Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Preferred Stock, or shall have the availability of exemptions
therefrom. The sale and issuance of the Preferred Stock shall be
legally permitted by all laws and regulations to which the Company
is subject;
(vii) the Investors shall have received written certification
that the representations and warranties of the Company are true and
correct in all material respects as of the Closing Date for the
second tranche of the Preferred Stock as though made at each such
time (except for representations and warranties specifically made as
of a particular date) with respect to all periods, and as to all
events and circumstances occurring or existing to and including the
Closing Date for the second tranche of the Preferred Stock;
(viii) the Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and
conditions required by this Agreement, the Certificate of
Designation, the Registration Rights Agreement and the Warrants, to
be performed, satisfied or complied with by the Company at or prior
to the Closing Date for the second tranche of the Preferred Stock;
(ix) no statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental
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authority of competent jurisdiction that prohibits or directly and
adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced that may have
the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement;
(x) since the date of filing of the Company's most recent SEC
Document, no event that had or is reasonably likely to have a
Material Adverse Effect has occurred;
(xi) the trading of the Common Stock is not suspended by the
SEC or the Principal Market, and the Common Stock shall have been
approved for listing or quotation on and shall not have been
delisted from the Principal Market. The issuance of shares of Common
Stock with respect to the Closing for the first tranche of the
Preferred Stock shall not violate the shareholder approval
requirements of the Principal Market. The Company shall not have
been contacted by the NASD concerning the delisting of the Common
Stock on the Principal Market, and the Company currently meets all
listing requirements during the thirty (30) day period immediately
preceding the Closing Date for the second tranche;
(xii) payment of fees as set forth in Section 13.7 below; and
(xiii) the Investors shall have received and been reasonably
satisfied with such other certificates and documents as shall have
been reasonably requested by the Investors in order for the Investor
to confirm the Company's satisfaction of the conditions set forth in
this Section, including, without limitation, a certificate in
substantially the form and substance of Exhibit C hereto, executed
in either case by an executive officer of the Company and to the
effect that all the conditions to such Closing shall have been
satisfied as at the date of each such certificate.
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 has the sole
option of terminating its obligations to issue the Preferred Stock in these
Sections, by giving written notice to the Placement Agent and each of the
Investors at any time prior to twenty (20) 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.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each of the Investors represent and warrant to the Company that:
Section 3.1 Intent. Each of the Investors are entering into this
Agreement for its own account and have no present arrangement (whether or not
legally binding) at any time to sell the
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Common Stock to or through any person or entity; provided, however, that by
making the representations herein, the Investors do not agree to hold the Common
Stock for any minimum or other specific term and reserves the right to dispose
of the Common Stock at any time in accordance with federal and state securities
laws applicable to such disposition.
Section 3.2 Sophisticated Investor. Each of the Investors are
sophisticated investors (as described in Rule 506(b)(2)(ii) of Regulation D) and
accredited investors (as defined in Rule 501 of Regulation D), and the Investors
have such experience in business and financial matters that they are capable of
evaluating the merits and risks of an investment in the Securities. Each of the
Investors acknowledge that an investment in the Common Stock is speculative and
involves a high degree of risk. Each of the Investors has the ability to fund
the purchase of the Preferred Stock and the Put Shares.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by each of the Investors and is a valid and
binding agreement of the Investors enforceable against each of them in
accordance with its terms, subject to applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
Section 3.4 Not an Affiliate. None of the Investors is an officer,
director or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
Section 3.5 Organization and Standing. Each of the Investors are
duly organized, validly existing, and in good standing under the laws of the
countries and/or states of their incorporation or organization.
Section 3.6 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith,
and the consummation of the transactions contemplated thereby, and compliance
with the requirements thereof, will not violate any law, rule, regulation,
order, writ, judgment, injunction, decree or award binding on Investors, or, to
the Investors knowledge, (a) violate any provision of any indenture, instrument
or agreement to which any of the Investors are a party or are subject, or by
which any of the Investors or any of their assets is bound; (b) conflict with or
constitute a material default thereunder; (c) result in the creation or
imposition of any lien pursuant to the terms of any such indenture, instrument
or agreement, or constitute a breach of any fiduciary duty owed by Investors to
any third party; or (d) require the approval of any third-party (which has not
been obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which any of the Investors is subject or to
which any of their assets, operations or management may be subject.
Section 3.7 Disclosure; Access to Information. Each of the Investors
have received all documents, records, books and other information pertaining to
Investors investment in the Company that have been requested by Investors,
including the opportunity to ask questions and receive answers. The Company is
subject to the periodic reporting requirements of the Exchange Act, and each of
the Investors has reviewed or received copies of any such reports that have been
requested by it. Each of the Investors represents that it has reviewed the
Company's, (i) Form
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10-K for the year ended December 31, 1996, (ii) Form 10-K for the year ended
December 31, 1997, including the amendment thereto, filed on or about April 30,
1998, (iii) Form 10-Q's filed for the previous twelve months, and (iv)
prospectus' dated October 22, 1997.
Section 3.8 Manner of Sale. At no time were any of the Investors presented
with or solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general solicitation or
advertising.
Section 3.9 Registration or Exemption Requirements. Each of the
Investors further acknowledge and understand that the Securities may not be
transferred, resold or otherwise disposed of except in a transaction registered
under the Securities Act and any applicable state securities laws, or unless an
exemption from such registration is available. Each of the Investors understands
that the certificate(s) evidencing these Securities will be imprinted with a
legend that prohibits the transfer of these Securities unless (i) they are
registered or such registration is not required, and (ii) if the transfer is
pursuant to an exemption from registration other than Rule 144 under the
Securities Act and, if the Company shall so request in writing, an opinion of
counsel reasonably satisfactory to the Company is obtained to the effect that
the transaction is so exempt.
Section 3.10 No Legal, Tax or Investment Advice. Each of the
Investors understands that nothing in this Agreement or any other materials
presented to the Investors in connection with the purchase and sale of the
Securities constitutes legal, tax or investment advice. The Investors have
relied on, and has consulted with, such legal, tax and investment advisors as
it, in their sole discretion, have deemed necessary or appropriate in connection
with its purchase of the Securities.
Section 3.11 Put/Short Positions. Neither the Investors, nor any
affiliate of the Investors, have any present intention of entering into any put
option, short position or other similar position with respect to the Securities.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors and the
Placement Agent that:
Section 4.1 Organization of the Company. The Company is a
corporation duly incorporated and existing in good standing under the laws of
the State of Delaware and has all requisite corporate authority to own its
properties and to carry on its business as now being conducted except as
described in the SEC Documents. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not reasonably be expected to have a Material Adverse Effect.
Section 4.2 Authority. (i) The Company has the requisite corporate
power and authority to enter into and, subject to Shareholder approval in
regards to the issuance by the
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Company of more than 20% of the outstanding shares of Common Stock, perform its
obligations under this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Certificate of Designation, and both Warrants A and B and to
issue the Common Stock issued to the Placement Agent, the Initial Shares,
Underlying Shares, Additional Shares, Put Shares, Repricing Shares, Preferred
Stock, both Warrants A and B and the Warrant Shares, (ii) the execution,
issuance and delivery of this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Certificate of Designation, the Preferred Stock, and both
Warrants A and B by the Company and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
and, other than the approval by the Company's Shareholders in regards to the
issuance by the Company of more than 20% of the outstanding shares of Common
Stock at a discount, no further consent or authorization of the Company or its
Board of Directors, and (iii) this Agreement, the Registration Rights Agreement,
the Escrow Agreement, the Certificate of Designation, the Preferred Stock, and
both Warrants A and B have been duly executed and delivered by the Company and
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 4.3 Capitalization. The authorized capital stock of the
Company consists of 20,000,000 shares of Common Stock, par value $0.0001, of
which 4,082,676 shares are issued and outstanding, and 5,000,000 shares of
Preferred Stock, par value $0.0001, none of which are issued and outstanding.
Except as set forth in the SEC Documents, there are no outstanding Capital
Shares Equivalents. All of the outstanding shares of Common Stock of the Company
have been duly and validly authorized and issued and are fully paid and
nonassessable.
Section 4.4 Common Stock. The Company has registered its Common
Stock pursuant to Section 12(b) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on the Principal
Market. As of the date hereof, the Principal Market is the Nasdaq Small Cap
Stock Market.
Section 4.5. SEC Documents. The Company has delivered or made
available to the Investors true and complete copies of the SEC Documents filed
by the Company with the SEC during the twelve (12) months immediately preceding
the Subscription Date (including, without limitation, proxy information and
solicitation materials). The Company has not provided to any of the Investors
any information that, according to applicable law, rule or regulation, should
have been disclosed publicly prior to the date hereof by the Company, but which
has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and rules and regulations of the SEC
promulgated thereunder and none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the
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SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 4.6 Valid Issuances. When issued and payment has been made
therefor, the Common Stock issued to the Placement Agent, the Initial Shares,
the Put Shares, the Additional Shares, the Repricing Shares, the Preferred
Stock, the Underlying Shares, the Warrant A, the Warrant B, and the Warrant
Shares will be duly and validly issued, fully paid, and nonassessable. Neither
the issuance of Common Stock and Warrants to the Placement Agent, nor the sales
of the Initial Shares, the Additional Shares, the Put Shares, the Repricing
Shares, the Preferred Stock, the Underlying Shares, the Warrant A, the Warrant
B, or the Warrant Shares, pursuant to, nor the Company's performance of its
obligations under, this Agreement, the Registration Rights Agreement, the Escrow
Agreement, the Certificate of Designation, or Warrants A and B will (i) result
in the creation or imposition by the Company of any liens, charges, claims or
other encumbrances upon the Common Stock issued to the Placement Agent, the
Initial Shares, the Additional Shares, the Put Shares, the Repricing Shares, the
Preferred Stock, the Underlying Shares, the Warrant Shares or any of the assets
of the Company, or (ii) entitle the holders of Outstanding Capital Shares to
preemptive or other rights to subscribe to or acquire the Capital Shares or
other securities of the Company.
Section 4.7 No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Initial Shares, Put Shares,
the Additional Shares, the Repricing Shares, the Preferred Stock, the Underlying
Shares, the Warrants A and B, or the Warrant Shares, or (ii) made any offers or
sales of any security or solicited any offers to buy any security under any
circumstances that would require registration of the Common Stock issued to the
Placement Agent, the Initial Shares, the Additional Shares, the Put Shares, the
Repricing Shares, the Preferred Stock, the Underlying Shares, the Warrants A and
B, or the Warrant Shares under the Securities Act.
Section 4.8 Corporate Documents. The Company has furnished or made
available to each of the Investors true and correct copies of the Company's
Articles of Incorporation, as amended and in effect on the date hereof (the
"Certificate"), and the Company's By-Laws, as amended and in effect on the date
hereof (the "By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated
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hereby, including without limitation the issuance of the Common Stock, Preferred
Stock, and Warrants A and B, do not and will not (i) result in a violation of
the Company's Articles of Incorporation or By-Laws or (ii) conflict with, or
constitute a material default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture,
instrument or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party (with the caveat contained in the
Schedule attached hereto), or (iii) result in a violation of any federal, state
or local law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect), nor is the Company otherwise in violation
of, conflict with or in default under any of the foregoing as would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. The business of the Company is not being conducted in violation
of any law, ordinance or regulation of any governmental entity, except for
possible violations that either singly or in the aggregate would not reasonably
be expected to have a Material Adverse Effect. the Company is not required under
federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Common Stock, Preferred
Stock, or Warrants A and B, in accordance with the terms hereof (other than any
SEC, NASD, Nasdaq or state securities filings that may be required to be made by
the Company before or subsequent to any Closing, any registration statement that
may be filed pursuant hereto, and any shareholder approval required by the rules
applicable to companies whose common stock trades on the Nasdaq Small Cap
Market, including the Nasdaq Small Cap notification form listing the additional
shares of Common Stock issuable hereunder, which the Company shall file with the
Nasdaq Stock Market promptly after the Subscription Date,); provided that, for
purposes of the representation made in this sentence, the Company is assuming
and relying upon the accuracy of the relevant representations and agreements of
the Investors herein.
Section 4.10 No Material Adverse Change. Since December 31, 1997, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents.
Section 4.11 No Undisclosed Liabilities. The Company has no
liabilities or obligations which are material, individually or in the aggregate,
and are not disclosed in the SEC Documents or otherwise publicly announced,
other than those set forth in the Company's financial statements or as incurred
in the ordinary course of the Company's businesses since December 31, 1997, and
which, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect.
Section 4.12 No Undisclosed Events or Circumstances. Since December
31, 1997, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or
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regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed in the
SEC Documents.
Section 4.13 No Integrated Offering. To the Company's knowledge,
neither the Company, nor any of its affiliates, nor any person acting on its or
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, other than pursuant to
this Agreement, under circumstances that would require registration of the
Common Stock under the Securities Act, except as set forth in the SEC Documents.
Section 4.14 Litigation and Other Proceedings. Except as may be set
forth in the SEC Documents, there are no lawsuits or proceedings pending or to
the knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which would reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, so far as is known by the
Company, requested of any court, arbitrator or governmental agency which would
be reasonably expected to result in a Material
Adverse Effect.
Section 4.15 Restrictions On Future Financings. The Company
represents that, unless it obtains the written approval of all of the Investors
(which approval will not be unreasonably withheld), the Company will not enter
into any other equity financing agreement, or arrangement, that would: (a) cause
the Common Stock issued in such financing to be salable and freely tradeable
before sixty (60) days from the last Repricing Date, or (b) affect the
timeliness of the Registration Statement being declared effective.
Notwithstanding the aforementioned, the Company may issue warrants to purchase
two hundred fifty thousand (250,000) shares of Common Stock to AJC Equities
which are exercisable at any time commencing six months after the date they are
issued at an exercise price of Two ($2.00) Dollars per share of Common Share.
ARTICLE V
COVENANTS OF THE INVESTORS
Section 5.1 Compliance with Law. Each of the Investor's trading
activities with respect to shares of the Company's Common Stock will be in
compliance with all applicable state and federal securities laws, rules and
regulations and rules and regulations of the Principal Market on which the
Company's Common Stock is listed.
Section 5.2 Agreement To Vote. For so long as the Company has not
committed a material breach of this Agreement and the Exhibits annexed hereto,
and this Agreement has not been terminated, the Investors agree to vote all
shares of Common Stock beneficially held by them in favor of all nominees to the
Company's board of directors who are nominated by the then current Board of
Directors of the Company.
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Section 5.3 Put/Short Positions. Neither the Investors, nor any
affiliate of the Investors, have any present intention of entering into any put
option, short position or other similar position with respect to the Securities.
Section 5.4 4.95% Limitation. The number of shares of Common Stock
required to be purchased by any of the Investors pursuant to the terms of this
Agreement shall not exceed the number of such shares which, when aggregated with
all other shares of Common Stock then owned by any of the Investors beneficially
or deemed beneficially owned by any of the Investors, would result in any of the
Investors owning more than 4.95% of all of such Common Stock as would be
outstanding on such Closing Date, as determined in accordance with Rule 13d-3 of
the Exchange Act and the regulations promulgated thereunder. For purposes of
this Section, in the event that the amount of Common Stock outstanding as
determined in accordance with Rule 13d-3 of the Exchange Act and the regulations
promulgated thereunder is greater on a Closing Date than on the date upon which
any Put Notice associated with such Closing Date is given, the amount of Common
Stock outstanding on such Closing Date shall govern for purposes of determining
whether any of the Investors, when aggregating all purchases of Common Stock
made pursuant to this Agreement and, if any, Warrant Shares, would own more than
4.95% of the Common Stock following such Closing. However, the foregoing
limitation shall not apply in the event their is a forced conversion of the
Preferred Stock pursuant to the terms set forth in the Certificate of
Designation.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect so long as any
Registrable Securities remain outstanding and the Company shall comply in all
material respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof,
the Company has reserved and the Company shall continue 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
Additional Shares, the Repricing Shares, the Underlying Shares, the Put Shares
and the Warrant Shares; such amount of shares of Common Stock to be reserved
shall be calculated based upon the minimum Purchase Price therefor under the
terms of this Agreement, the Certificate of Designation, the Warrant A, and the
Warrant B. The number of shares so reserved from time to time, as theretofore
increased or reduced as hereinafter provided, may be reduced by the number of
shares actually delivered hereunder and the number of shares so reserved shall
be increased or decreased to reflect potential increases or decreases in the
Common Stock that the Company may thereafter be so obligated to issue by reason
of adjustments to the Preferred Stock, the Warrants A and the Warrant B.
Section 6.3 Listing of Common Stock. The Company hereby agrees to
use its best efforts to maintain the listing of the Common Stock on a Principal
Market, and as soon as practicable (but in any event prior to the commencement
of the Commitment Period) to list the
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Common Stock issued to the Placement Agent, the Initial Shares, the Additional
Shares, the Put Shares, the Repricing Shares, the Underlying Shares, and the
Warrant Shares. The Company further agrees, if the Company applies to have the
Common Stock traded on any other Principal Market, it will include in such
application the Common Stock issued to the Placement Agent, the Initial Shares,
the Put Shares, the Additional Shares, the Repricing Shares, the Underlying
Shares, and the Warrant Shares, and will take such other action as is reasonably
necessary or desirable in the opinion of the Investors to cause the Common Stock
to be listed on such other Principal Market as promptly as possible. The Company
will use its best efforts to comply with the listing and trading of its Common
Stock on the Principal Market (including, without limitation, maintaining
sufficient net tangible assets) and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market. In the event the Company receives notification from Nasdaq
concerning delisting of the Common Stock on the Principal Market, the Company
will use its best efforts to comply with all applicable listing standards of the
Principal Market.
Section 6.4 Exchange Act Registration. The Company will cause its
Common Stock to continue to be registered under Section 12(b) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, and will not take any action or file any document (whether or
not permitted by Exchange Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said Act.
Section 6.5 Legends. The certificates evidencing the Common Stock to
be sold by the Investors pursuant to Section 9.1 shall be free of legends,
except as set forth in Article IX.
Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Notice of Certain Events Affecting Registration;
Suspension of Right to Make a Put, or to have a Closing For the Preferred Stock.
The Company will immediately notify each of the Investors upon the occurrence of
any of the following events in respect of a registration statement or related
prospectus in respect of an offering of Registrable Securities: (i) receipt of
any request for additional information by the SEC or any other federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or related
prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) the happening of any event that makes any
statement made in the Registration Statement or related prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in the
Registration Statement, related prospectus or documents so that, in the case of
the Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the case
of the related prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or
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necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (v) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate; and the Company will promptly make available to the
Investors any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investors any Put Notice during the
continuation of any of the foregoing events, nor shall a Closing for either the
first or second tranche of Preferred Stock occur during the continuation of any
of the foregoing events.
Section 6.8 Consolidation; Merger. The Company shall not, at any
time after the date hereof, effect any merger or consolidation of the Company
with or into, or a transfer of all or substantially all of the assets of the
Company to, another entity (a "Consolidation Event") unless the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
the obligation to deliver to the Investors such shares of stock and/or
securities as the Investors are entitled to receive pursuant to this Agreement.
Section 6.9 Issuance of Put Shares, Underlying Shares, and Warrant
Shares. The sale of the Put Shares and the issuance of the Underlying Shares and
the Warrant Shares pursuant to exercise of Warrants A and B, and the conversion
of the Preferred Stock, shall be made in accordance with the provisions and
requirements of Section 4(2) of Regulation D and any applicable state securities
law.
Section 6.10 Legal Opinion. The Company's independent counsel shall
deliver to the Investors upon execution of this Agreement, and upon the Closings
for (i) Preferred Stock as set forth in Section 2.11, and (ii) Put Shares as set
forth in Section 7.2 (m) below, an opinion in the form of Exhibit F annexed
hereto.
ARTICLE VII
CONDITIONS TO DELIVERY OF PUTS AND CONDITIONS TO CLOSING
Section 7.1 Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock Associated With A Put. The obligation hereunder of
the Company to issue and sell the Put Shares to the Investors incident to each
Closing (for Put Shares) is subject to the satisfaction, at or before each such
Closing, of each of the conditions set forth below.
(a) Accuracy of each of the Investors Representation and
Warranties. The representations and warranties of each of the Investors shall be
true and correct in all material respects as of the date of this Agreement and
as of the date of each such Closing as though made at each such time.
(b) Performance by the Investors. The Investors shall have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions required by
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this Agreement to be performed, satisfied or complied with by the Investors at
or prior to such Closing.
Section 7.2 Conditions Precedent to the Right of the Company to
Deliver a Put Notice and the Obligation of the Investors to Purchase Put Shares.
The right of the Company to deliver a Put Notice and the obligation of the
Investors hereunder to acquire and pay for the Put Shares incident to a Closing
(for Put Shares) is subject to the satisfaction, on (i) the date of delivery of
such Put Notice and (ii) the applicable Closing Date for each Put (each a
"Condition Satisfaction Date"), of the conditions in Section 2.1, 2.2, 2.3
above, and each of the following conditions:
(a) Registration of the Common Stock with the SEC. The
Company shall have filed with the SEC a Registration Statement with respect to
the resale of that number of Put Shares indicated in the applicable Put Notice
in accordance with the terms of the Registration Rights Agreement. As set forth
in the Registration Rights Agreement and herein, the Registration Statement
(including all Put Shares in the Put Notice) shall have previously become
effective and shall remain effective during at least the three (3) Trading Days
immediately preceding each Condition Satisfaction Date and each Put Date, and
(i) 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 each of the Investors are reasonably satisfied that the SEC no
longer is considering or intends to take such action), and (ii) no other
suspension of the use or withdrawal of the effectiveness of the Registration
Statement or related prospectus shall exist.
(b) Authority. The Company shall have obtained all permits
and qualifications required by any state for the offer and sale of the Put
Shares, or shall have the availability of exemptions therefrom. The sale and
issuance of the Put Shares shall be legally permitted by all laws and
regulations to which the Company is subject.
(c) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company in this Agreement
and all Exhibits attached hereto shall be true and correct in all material
respects as of each Condition Satisfaction Date as though made at each such time
(except for representations and warranties specifically made as of a particular
date) with respect to all periods, and as to all events and circumstances
occurring or existing to and including each Condition Satisfaction Date, except
for any conditions which have temporarily caused any representations or
warranties herein to be incorrect and which have been corrected with no
continuing impairment to the Company or the Investor.
(d) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, the Escrow Agreement, the
Registration Rights Agreement, the Certificate of Designation, the Warrants A
and Warrants B to be performed, satisfied or complied with by the Company at or
prior to each Condition Satisfaction Date.
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(e) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits or directly and adversely affects any of the
transactions contemplated by this Agreement or any of the Exhibits annexed
hereto, and no proceeding shall have been commenced that may have the effect of
prohibiting or adversely affecting any of the transactions contemplated by this
Agreement or any of the Exhibits annexed hereto.
(f) Adverse Changes. The Company shall certify in writing
that since the date of filing of the Company's most recent SEC Document, no
event that had or is reasonably likely to have a Material Adverse Effect has
occurred.
(g) No Suspension of Trading In or Delisting of Common
Stock. The trading of the Common Stock (including, without limitation, the Put
Shares) is not suspended by the SEC or the Principal Market, and the Common
Stock (including, without limitation, the Put Shares) shall have been approved
for listing or quotation on and shall not have been delisted from the Principal
Market. The issuance of shares of Common Stock with respect to the applicable
Closing, if any, shall not violate the shareholder approval requirements of the
Principal Market. The Company shall not have received any notice from Nasdaq
concerning delisting of the Common Stock on the Principal Market, and the
Company currently meets all listing requirements during the thirty (30) day
period immediately preceding any Closing Date for a Put.
(h) 4.95% Percent Limitation. On each Closing Date for the
Put Shares, the number of Put Shares then to be purchased by any of the
Investors shall not exceed the number of such shares which, when aggregated with
all other shares of Common Stock then owned by any of the Investors beneficially
or deemed beneficially owned by any of the Investors, would result in any of the
Investors owning more than 4.95% of all of such Common Stock as would be
outstanding on such Closing Date, as determined in accordance with Rule 13d-3 of
the Exchange Act and the regulations promulgated thereunder. For purposes of
this Section 7.2(h), in the event that the amount of Common Stock outstanding as
determined in accordance with Rule 13d-3 of the Exchange Act and the regulations
promulgated thereunder is greater on a Closing Date than on the date upon which
the Put Notice associated with such Closing Date is given, the amount of Common
Stock outstanding on such Closing Date shall govern for purposes of determining
whether any of the Investors, when aggregating all purchases of Common Stock
made pursuant to this Agreement and, if any, Warrant Shares, would own more than
4.95% of the Common Stock following such Closing.
(i) Minimum Bid Price. The Bid Price equals or exceeds the
Floor Price on the Trading Day immediately preceding the completion of all the
conditions set forth in this Section (as adjusted for stock splits, stock
dividends, reverse stock splits, and similar events);
(j) Minimum Average Trading Volume. The average trading
volume for the Common Stock over the previous thirty (30) calendar days exceeds
20,000 shares per Trading Day.
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(k) No Knowledge. The Company has no knowledge of any event
more likely than not to have the effect of causing such Registration Statement
(including all Put Shares in the Put Notice) to be suspended or otherwise
ineffective (which event is more likely than not to occur within the ten Trading
Days following the Trading Day on which such Notice is deemed delivered).
(l) Trading Cushion. The Trading Cushion shall have elapsed
since the next preceding Put Date.
(m) Legal Opinion. The Investors shall receive an opinion
from counsel to the Company substantially in the form of Exhibit F annexed
hereto on each Closing for Put Shares.
(n) Other. On each Condition Satisfaction Date, the
Investors shall have received from the Company and been reasonably satisfied
with such other certificates and documents as shall have been reasonably
requested by the Investors in order for the Investors to confirm the Company's
satisfaction of the conditions set forth in this Section 7.2, including, without
limitation, a certificate in substantially the form and substance of Exhibit D
hereto, executed in either case by an executive officer of the Company and to
the effect that all the conditions to such Closing shall have been satisfied as
at the date of each such certificate.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION
Section 8.1 Due Diligence Review. The Company shall make available
for inspection and review by the Investors, advisors to and representatives of
the Investors (who may or may not be affiliated with the Investors and who are
reasonably acceptable to the Company), any underwriter participating in any
disposition of the Registrable Securities on behalf of the Investors pursuant to
the Registration Statement, any such registration statement or amendment or
supplement thereto or any blue sky, NASD or other filing, all financial and
other records, all SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be reasonably necessary
for the purpose of such review, and cause the Company's officers, directors and
employees to supply all such information reasonably requested by any of the
Investors or any such representative, advisor or underwriter in connection with
such Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investors and such
representatives, advisors and underwriters and their respective accountants and
attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 8.2 Non-Disclosure of Non-Public Information
(a) The Company shall not disclose non-public information to
the Investors, advisors to, or representatives of, the Investors unless prior to
disclosure of such information the Company identifies such information as being
non-public information and provides each
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Investor, and its advisors and representatives with the opportunity to accept or
refuse to accept such non-public information for review. The Company may, as a
condition to disclosing any non-public information hereunder, require each of
the Investors advisors and representatives to enter into a confidentiality
agreement in form reasonably satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose
non-public information to any of the Investors or their advisors or
representatives, and the Company represents that it does not disseminate
non-public information to any investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts, provided, however,
that notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, immediately notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public information
(whether or not requested of the Company specifically or generally during the
course of due diligence by such persons or entities), which, if not disclosed in
the prospectus included in the Registration Statement would cause such
prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein, in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section shall be construed to mean that such persons or entities other
than the Investors (without the written consent of the Investors prior to
disclosure of such information) may not obtain non-public information in the
course of conducting due diligence in accordance with the terms of this
Agreement and nothing herein shall prevent any such persons or entities from
notifying the Company of their opinion that based on such due diligence by such
persons or entities, that the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
ARTICLE IX
LEGENDS
Section 9.1 Legends. Unless otherwise provided below, each
certificate representing Registrable Securities will bear the following legend
(the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE
BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY
BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION
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STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT
IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF
THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS OF THE
COMPANY SET FORTH IN A PRIVATE EQUITY LINE OF CREDIT AGREEMENT DATED
AS OF MAY 14, 1998. A COPY OF THE PORTION OF THE AFORESAID AGREEMENT
EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE COMPANY'S
EXECUTIVE OFFICES.
Upon the execution and delivery hereof, the Company is issuing to
the transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit G hereto. Such instructions shall be irrevocable by the Company from
and after the date hereof or from and after the issuance thereof to any such
substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investors to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and without consultation by the transfer agent with
the Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investors:
(a) at any time after the Effective Date, upon surrender of
one or more certificates evidencing Common Stock that bear the Legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered; provided that (i) the Registration
Statement shall then be effective; (ii) the Investor(s) confirm to the transfer
agent that it has sold, pledged or otherwise transferred or agreed to sell,
pledge or otherwise transfer such Common Stock in a bona fide transaction to a
third party that is not an affiliate of the Company; and (iii) the Investor(s)
confirm to the transfer agent that the Investor(s) have complied with the
prospectus delivery requirement. The requirement set forth in subsection
9.1(a)(ii) shall only apply in the event the Company registers the Common Stock
pursuant to a Form S-3 registration statement pursuant to the Registration
Rights Agreement. In the event the Company registers the Common Stock by means
of a registration statement other then a Form S-3 registration statement, than
only the conditions in subsection 9.1(a)(i) and 9.1(a)(iii) herein shall apply.
(b) at any time upon any surrender of one or more
certificates evidencing Registrable Securities that bear the Legend, to the
extent accompanied by a notice requesting the issuance of new certificates free
of the Legend to replace those surrendered and containing representations that
(i) the Investor(s) is permitted to dispose of such Registrable Securities
without limitation as to amount or manner of sale pursuant to Rule 144(k) under
the Securities Act or (ii) the Investor(s) has sold, pledged or otherwise
transferred or agreed to sell, pledge or otherwise transfer such Registrable
Securities in a manner other than pursuant to an effective
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registration statement, to a transferee who will upon such transfer be entitled
to freely tradeable securities.
Any of the notices referred to above in this Section 9.1 may be sent
by facsimile to the Company's transfer agent.
Section 9.2 No Other Legend or Stock Transfer Restrictions. No
legend other than the one specified in Section 9.1 has been or shall be placed
on the share certificates representing the Common Stock, and no instructions or
"stop transfer orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article IX.
Section 9.3 Investor's Compliance. Nothing in this Article shall
affect in any way any of the Investors obligations under any agreement to comply
with all applicable securities laws upon resale of the Common Stock.
ARTICLE X
CHOICE OF LAW
Section 10.1 Choice of Law; Venue; Jurisdiction. This Agreement
will be construed and enforced in accordance with and governed by the laws of
the State of New York, except for matters arising under the Securities Act,
without reference to principles of conflicts of law. Each of the parties
consents to the jurisdiction of the U.S. District Court sitting in the Southern
District of the State of New York or the state courts of the State of New York
sitting in Manhattan in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions. Each party hereby agrees that if another
party to this Agreement obtains a judgment against it in such a proceeding, the
party which obtained such judgment may enforce same by summary judgment in the
courts of any country having jurisdiction over the party against whom such
judgment was obtained, and each party hereby waives any defenses available to it
under local law and agrees to the enforcement of such a judgment. Each party to
this Agreement irrevocably consents to the service of process in any such
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to such party at its address set forth herein. Nothing herein
shall affect the right of any party to serve process in any other manner
permitted by law. Each party waives its right to a trial by jury.
ARTICLE XI
ASSIGNMENT; ENTIRE AGREEMENT, AMENDMENT; TERMINATION
Section 11.1 Assignment. The provisions of this Agreement shall
inure to the benefit of, and be enforceable by, any transferee of any of the
Common Stock and Preferred Stock (except any transferee (i) who was a purchaser
on the open market, or pursuant to Rule 144, or (ii) who is an owner of less
than ten (10%) percent of the original number of shares of Common Stock issued
hereunder) purchased or acquired by the Investors hereunder with respect to the
Common
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Stock and Preferred Stock held by such person, and upon the prior written
consent of the Company, which consent shall not unreasonably be withheld, the
Investor's interest in this Agreement may be assigned at any time, in whole or
in part, to any affiliate of the Investors who agrees to make the
representations and warranties contained in Article III and who agrees to be
bound by the covenants of Article V.
Section 11.2 Termination. This Agreement shall terminate upon the
earliest of (i) the date that all the Registrable Securities have been sold by
the Investors pursuant to the Registration Statement; (ii) the date the
Investors receive an opinion from counsel to the Company that all of the
Registrable Securities may be sold under the provisions of Rule 144; or (iii)
five and one-half year after the commencement of the Commitment Period;
provided, however, that the provisions of Articles III, IV, V, VI (as long as
the Securities are beneficially owned by any of the Investors or the Placement
Agent, or their permitted assigns), VIII, IX, X, XI, and XII, herein, and the
registration rights provisions for the Registrable Securities held by the
Investors and the Placement Agent set forth in this Agreement, and the
Registration Rights Agreement, shall survive the termination of this Agreement.
ARTICLE XII
NOTICES
Section 12.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by reputable courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to ObjectSoft Corporation:
David Sarna, President
Continental Plaza III
433 Hackensack Avenue
Hackensack, NJ 07601
Telephone: (800) 816-8171
Facsimile: (201) 343-0056
33
<PAGE>
With a copy to: Melvin Weinberg, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036
Telephone: (212) 704-6000
Facsimile: (212) 704-6288
If to the Investors at the addresses set forth on Schedule A
attached hereto.
with a copy to:
(shall not constitute notice) Scott H. Goldstein, Esq.
Goldstein, Goldstein & Reis, LLP
65 Broadway, 10th Floor
New York, NY 10006
Telephone: (212) 809-4220
Facsimile: (212) 809-4228
Either party hereto may from time to time change its address or
facsimile number for notices under this Section 12.1 by giving at least ten (10)
days' prior written notice of such changed address or facsimile number to the
other party hereto.
Section 12.2 Indemnification. The Company agrees to indemnify and
hold harmless each of the Investors and each officer, director of the Investors
or person, if any, who controls the Investor within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all attorneys' fees), to
which the Investors may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the breach of any term of this
Agreement. This indemnity agreement will be in addition to any liability which
the Company may otherwise have.
Each Investor agrees that it will indemnify and hold harmless the
Company, and each officer, director of the Company or person, if any, who
controls the Company within the meaning of the Securities Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such officer,
director or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon the breach of any term of this
Agreement. This indemnity agreement will be in addition to any liability which
the Investors or any subsequent assignee may otherwise have.
Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be
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<PAGE>
made against the indemnifying party under this Section, notify the indemnifying
party of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any liability
which it may have to any indemnified party otherwise than as to the particular
item as to which indemnification is then being sought solely pursuant to this
Section. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is one of the Investors, the fees
and expenses of such counsel shall be at the expense of the indemnifying party
if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Investor and the indemnifying
party and the Investor shall have been advised by such counsel that there may be
one or more legal defenses available to the indemnifying party different from or
in conflict with any legal defenses which may be available to the Investors (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of the Investors, it being understood, however, that
the indemnifying party shall, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable only for the
reasonable fees and expenses of one separate firm of attorneys for the
Investor(s), which firm shall be designated in writing by the Investor(s)). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
Section 12.3 Contribution. In order to provide for just and
equitable contribution under the Securities Act in any case in which (i) the
indemnified party makes a claim for indemnification pursuant to Section 12.2
hereof but is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 12.2 hereof provide for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any
indemnified party, then the Company and the applicable Investor shall contribute
to the aggregate losses, claims, damages or liabilities to which they may be
subject (which shall, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all attorneys' fees), in
either such case (after contribution from others) on the basis of relative fault
as well as any other relevant equitable considerations. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions
35
<PAGE>
in respect thereof) referred to above in Section 12.2 shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contributions from any person who was
not guilty of such fraudulent representation.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Counterparts; Facsimile; Amendments. This Agreement may
be executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by the Company on the one hand, and a majority of the Investors, and
the Placement Agent, on the other hand, or the Company on the one hand, and all
of the Investors on the other hand.
Section 13.2 Entire Agreement. This Agreement, the Exhibits or
Attachments hereto, which include, but are not limited to the Certificate of
Designation, Warrant A and B, the Escrow Agreement, and the Registration Rights
Agreement set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits and Attachments to this Agreement are incorporated
herein by this reference and shall constitute part of this Agreement as is fully
set forth herein.
Section 13.3 Survival; Severability. The representations,
warranties, covenants and agreements of the parties hereto shall survive each
Closing hereunder. In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that such severability shall be ineffective if it materially
changes the economic benefit of this Agreement to any party.
Section 13.4 Title and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.5 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this Agreement
and all Exhibits shall be Bloomberg, L.P. or any successor thereto. The written
mutual consent of the Investor and the Company shall be required to employ any
other reporting entity.
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<PAGE>
Section 13.6 Replacement of Certificates. Upon (i) receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of a certificate representing the Put Shares and (ii) in the case
of any such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form and amount to
the Company or (iii) in the case of any such mutilation, on surrender and
cancellation of such certificate, the Company at its expense will execute and
deliver, in lieu thereof, a new certificate of like tenor.
Section 13.7 Fees and Expenses. Each of the Company and the Investor
agrees to pay its own expenses incident to the performance of its obligations
hereunder, except that the Company shall pay on the Closing Date for the Initial
Shares, (i) to the Placement Agent, (a) five (5%) percent of the Initial Shares
Investment Amount in cash, (b) 20,000 shares of Common Stock (which are to be
included in the definition of "Registrable Securities" above), (c) four (4%)
percent of the number of shares of Common Stock issued to the Investors on such
Closing Date, and (d) a Warrant A to purchase 9,000 shares of Common Stock, and
(ii) to Goldstein, Goldstein & Reis, LLP, Twenty Thousand ($20,000) Dollars in
cash. The Company also agrees to pay, on the Closing for both the first tranche,
and second tranche of Preferred Stock, (i) to the Placement Agent (a) three (3%)
percent of the First Tranche Investment Amount, and/or the Second Tranche
Investment Amount, as applicable, in cash, and (b) four (4%) percent of the
number of shares of Preferred Stock issued to the Investors on the Closing for
the first tranche and/or the second tranche, as applicable, and (ii) to
Goldstein, Goldstein & Reis, LLP, for legal and escrow expenses, the lesser of
one-half of one (0.5%) percent of the gross proceeds, or Five Thousand ($5,000)
Dollars, for each the first tranche and second tranche Closing. In addition to
the fees set forth above, the Company also agrees to pay the following upon the
Closing for each Put (i) to the Placement Agent, six (6%) percent of the gross
proceeds in cash, , and (ii) to Goldstein, Goldstein & Reis, LLP, for legal and
escrow expenses, the lesser of one-half of one (0.5%) percent of the gross
proceeds, or Five Thousand ($5,000) Dollars per Closing of Put Shares.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Private
Equity Line of Credit Agreement to be executed by the undersigned, thereunto
duly authorized, as of the date first set forth above.
OBJECTSOFT CORPORATION
By /s/ David E.Y. Sarna
----------------------------
David E.Y. Sarna,
President
SETTONDOWN CAPITAL INTER-
NATIONAL LTD.
By /s/ Anthony L.M. Inder Riden
----------------------------
Anthony L.M. Inder Riden
AVALON CAPITAL, INC.
By /s/ Wayne Coleson
----------------------------
Wayne Coleson
AUSTOST ANSTALT SCHAAN
By /s/ Thomas Hackl
----------------------------
Thomas Hackl
BALMORE FUNDS S.A.
By /s/ Francois Morax
----------------------------
Francois Morax
38
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS AND
HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE SECURITIES
ACT. THIS WARRANT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN
OFFER TO BUY THE WARRANT IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL.
THIS WARRANT MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM
REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH TRANSACTION DOES NOT
REQUIRE REGISTRATION OF THE WARRANT.
NO. __
WARRANT A
To Purchase ______ Shares of Common Stock of
OBJECTSOFT CORPORATION
THIS CERTIFIES that, for value received, ___________________ (the
"Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after May 13, 1998 and on or prior to
May 13, 2003 (the "Termination Date") but not thereafter, to subscribe for and
purchase from OBJECTSOFT CORPORATION, a corporation incorporated in the State of
Delaware (the "Company"), ____________ ____________ (______) shares (the
"Warrant Shares") of Common Stock, par value US $.0001 _____ per share of the
Company (the "Common Stock"). The purchase price of one share of Common Stock
(the "Exercise Price") under this Warrant shall be equal to $3.04. The Exercise
Price and the number of shares for which the Warrant is exercisable shall be
subject to adjustment as provided herein. This Warrant is being issued in
connection with the Private Equity Line Of Credit Agreement dated on or about
May 13, 1998 (the "Agreement"), and is subject to its terms and conditions. In
the event of any conflict between the terms of this Warrant and the Agreement,
the Agreement shall control.
<PAGE>
1. Title of Warrant. Prior to the expiration hereof and subject
to compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares
of Common Stock which may be issued upon the exercise of rights represented by
this Warrant will, upon exercise of the rights represented by this Warrant, be
duly authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
Exercise of Warrant. Except as provided in Section 4 below,
exercise of the purchase rights represented by this Warrant may be made at any
time or times, before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in this Warrant, by
the surrender of this Warrant and the Notice of Exercise Form annexed hereto
duly executed, at the office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company) and
upon payment of the Exercise Price of the shares thereby purchased; whereupon
the holder of this Warrant shall be entitled to receive a certificate for the
number of shares of Common Stock so purchased. Certificates for shares purchased
hereunder shall be delivered to the holder hereof within three (3) business days
after the date on which this Warrant shall have been exercised as aforesaid.
Payment of the Exercise Price of the shares may be by certified check or
cashier's check or by wire transfer to an account designated by the Company in
an amount equal to the Exercise Price multiplied by the number of Warrant
Shares.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the holder of this Warrant or in such name or names as may be
directed by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and provided further, that upon any transfer
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
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<PAGE>
6. Closing of Books. The Company will not close its shareholder
books or records in any manner which prevents the timely exercise of this
Warrant for a period of time in excess of five (5) trading days per year.
7. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise thereof. Upon the surrender of this Warrant
and the payment of the aggregate Exercise Price, the Warrant Shares so purchased
shall be and be deemed to be issued to such holder as the record owner of such
shares as of the close of business on the later of the date of such surrender or
payment.
8. Assignment and Transfer of Warrant. This Warrant may be
assigned by the surrender of this Warrant and the Assignment Form annexed hereto
duly executed at the office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company).
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
certificate or any stock certificate relating to the Warrant Shares, and in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to it, if mutilated, and upon surrender and cancellation of such Warrant or
stock certificate, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of such
Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday, Sunday or a legal holiday, then such action
may be taken or such right may be exercised on the next succeeding day not a
legal holiday.
11. Effect of Certain Events. If the Common Stock issuable upon
exercise of this Warrant 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 this Warrant shall have the right thereafter to
exercise this Warrant 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 this
Warrant been exercised immediately prior to such capital reorganization,
reclassification or other change. If at any time or from time to time there
shall be a capital reorganization of the Common Stock (other than a subdivision,
reclassification or exchange of shares provided in the previous sentence), 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 part of such Reorganization, provision shall be made
so that the holders of this Warrant shall thereafter be entitled to receive upon
exercise of this Warrant, the number of shares of stock or other securities or
property of the Company, or of the successor
3
<PAGE>
corporation (or entity) resulting from such Reorganization, to which such holder
would have been entitled if such holder had exercised its exercise rights
granted hereunder immediately prior to such Reorganization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section with respect to the rights of the holder of this Warrant after the
Reorganization, to the end that the provision of this Section (including
adjustment of the number of shares issuable upon exercise of this Warrant) shall
be applicable after that event in as nearly equivalent manner as may be
practicable.
The Company agrees that the Warrant Shares shall be included in the
Registration Statement to be filed by the Company pursuant to the Private Equity
Line Of Credit Agreement dated as of May 13, 1998.
12. Adjustments of Exercise Price and Number of Warrant Shares.
The number and kind of securities purchasable upon the exercise of this Warrant
and the Exercise Price shall be subject to adjustment from time to time upon the
happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, then the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per such Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares purchasable pursuant hereto immediately prior to
such adjustment and dividing by the number of Warrant Shares or other securities
of the Company resulting from such adjustment. An adjustment made pursuant to
this paragraph shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
13. Voluntary Adjustment by the Company. The Company may at any
time during the term of this Warrant, reduce the then current Exercise Price to
any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
4
<PAGE>
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares (and other securities or property) after such adjustment, setting
forth a brief statement of the facts requiring such adjustment and setting forth
the computation by which such adjustment was made. Such notice, in absence of
manifest error, shall be conclusive evidence of the correctness of such
adjustment.
15. Authorized Shares. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Warrant Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
the Warrant Shares upon the exercise of the purchase rights under this Warrant.
The Company will take all such reasonable action as may be necessary to assure
that such Warrant Shares may be issued as provided herein without violation of
any applicable law or regulation, or of any requirements of the NASDAQ Small Cap
Stock Market or any domestic securities exchange upon which the Common Stock may
be listed.
16. Miscellaneous.
(a) Choice of Law; Venue; Jurisdiction. This Warrant will be
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the Act, without reference to
principles of conflicts of law. Each of the parties consents to the jurisdiction
of the U.S. District Court sitting in the Southern District of the State of New
York or the state courts of the State of New York sitting in Manhattan in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. Each party hereby agrees that if another party to this Warrant
obtains a judgment against it in such a proceeding, the party which obtained
such judgment may enforce same by summary judgment in the courts of any country
having jurisdiction over the party against whom such judgment was obtained, and
each party hereby waives any defenses available to it under local law and agrees
to the enforcement of such a judgment. Each party to this Warrant irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury.
(b) Restrictions. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws. Each
certificate representing the Warrant Shares issued to the Holder upon exercise
will bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS
5
<PAGE>
AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR
OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS
EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION".
(c) Modification and Waiver. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof by the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: May , 1998
OBJECTSOFT CORPORATION
By_________________________
6
<PAGE>
NOTICE OF EXERCISE
To: OBJECTSOFT CORPORATION
(1) The undersigned hereby elects to purchase ________ shares of
Common Stock, par value $ ____ per shares (the "Common Stock") of OBJECTSOFT
CORPORATION pursuant to the terms of the attached Warrant, and tenders herewith
payment of the exercise price in full, together with all applicable transfer
taxes, if any.
(2) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
(3) The shares of Common Stock being issued in connection with the
exercise of the attached Warrant are [not] being issued in connection with the
sale of the Common Stock.
Dated:
_______________________________
Signature
7
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, 1998
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
8
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS AND
HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE SECURITIES
ACT. THIS WARRANT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN
OFFER TO BUY THE WARRANT IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL.
THIS WARRANT MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM
REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT SUCH TRANSACTION DOES NOT
REQUIRE REGISTRATION OF THE WARRANT.
NO. __
WARRANT B
To Purchase ______ Shares of Common Stock of
OBJECTSOFT CORPORATION
THIS CERTIFIES that, for value received, ________________________
(the "Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after November 13, 1998 and on or prior
to November 13, 2003 (the "Termination Date") but not thereafter, to subscribe
for and purchase from OBJECTSOFT CORPORATION, a corporation incorporated in the
State of Delaware (the "Company"), _________ _______________ (______) shares
(the "Warrant Shares") of Common Stock, par value US $.0001 per share of the
Company (the "Common Stock"). The purchase price of one share of Common Stock
(the "Exercise Price") under this Warrant shall be equal to $3.16. The Exercise
Price and the number of shares for which the Warrant is exercisable shall be
subject to adjustment as provided herein. This Warrant is being issued in
connection with the Private Equity Line Of Credit Agreement dated on or about
May 13, 1998 (the "Agreement"), and is subject to its terms and conditions. In
the event of any conflict between the terms of this Warrant and the Agreement,
the Agreement shall control.
<PAGE>
1. Title of Warrant. Prior to the expiration hereof and subject
to compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares
of Common Stock which may be issued upon the exercise of rights represented by
this Warrant will, upon exercise of the rights represented by this Warrant, be
duly authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
Exercise of Warrant. Except as provided in Section 4 below,
exercise of the purchase rights represented by this Warrant may be made at any
time or times, before the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in this Warrant, by
the surrender of this Warrant and the Notice of Exercise Form annexed hereto
duly executed, at the office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company) and
upon payment of the Exercise Price of the shares thereby purchased; whereupon
the holder of this Warrant shall be entitled to receive a certificate for the
number of shares of Common Stock so purchased. Certificates for shares purchased
hereunder shall be delivered to the holder hereof within three (3) business days
after the date on which this Warrant shall have been exercised as aforesaid.
Payment of the Exercise Price of the shares may be by certified check or
cashier's check or by wire transfer to an account designated by the Company in
an amount equal to the Exercise Price multiplied by the number of Warrant
Shares.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the holder of this Warrant or in such name or names as may be
directed by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and provided further, that upon any transfer
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
2
<PAGE>
6. Closing of Books. The Company will not close its shareholder
books or records in any manner which prevents the timely exercise of this
Warrant for a period of time in excess of five (5) trading days per year.
7. No Rights as Shareholder until Exercise. This Warrant does not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise thereof. Upon the surrender of this Warrant
and the payment of the aggregate Exercise Price, the Warrant Shares so purchased
shall be and be deemed to be issued to such holder as the record owner of such
shares as of the close of business on the later of the date of such surrender or
payment.
8. Assignment and Transfer of Warrant. This Warrant may be
assigned by the surrender of this Warrant and the Assignment Form annexed hereto
duly executed at the office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company).
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
represents and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
certificate or any stock certificate relating to the Warrant Shares, and in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to it, if mutilated, and upon surrender and cancellation of such Warrant or
stock certificate, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of such
Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday, Sunday or a legal holiday, then such action
may be taken or such right may be exercised on the next succeeding day not a
legal holiday.
11. Effect of Certain Events. If the Common Stock issuable upon
exercise of this Warrant 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 this Warrant shall have the right thereafter to
exercise this Warrant 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 this
Warrant been exercised immediately prior to such capital reorganization,
reclassification or other change. If at any time or from time to time there
shall be a capital reorganization of the Common Stock (other than a subdivision,
reclassification or exchange of shares provided in the previous sentence), 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 part of such Reorganization, provision shall be made
so that the holders of this Warrant shall thereafter be entitled to receive upon
exercise of this Warrant, the number of shares of stock or other securities or
property of the Company, or of the successor
3
<PAGE>
corporation (or entity) resulting from such Reorganization, to which such holder
would have been entitled if such holder had exercised its exercise rights
granted hereunder immediately prior to such Reorganization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section with respect to the rights of the holder of this Warrant after the
Reorganization, to the end that the provision of this Section (including
adjustment of the number of shares issuable upon exercise of this Warrant) shall
be applicable after that event in as nearly equivalent manner as may be
practicable. The Company agrees that the Warrant Shares shall be included in the
Registration Statement to be filed by the Company pursuant to the Private Equity
Line Of Credit Agreement dated on or about May 13, 1998.
12. Adjustments of Exercise Price and Number of Warrant Shares.
The number and kind of securities purchasable upon the exercise of this Warrant
and the Exercise Price shall be subject to adjustment from time to time upon the
happening of any of the following.
In case the Company shall (i) declare or pay a dividend in
shares of Common Stock or make a distribution in shares of Common Stock to
holders of its outstanding Common Stock, (ii) subdivide its outstanding shares
of Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock or (iv) issue any shares of its capital
stock in a reclassification of the Common Stock, then the number of Warrant
Shares purchasable upon exercise of this Warrant immediately prior thereto shall
be adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per such Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares purchasable pursuant hereto immediately prior to
such adjustment and dividing by the number of Warrant Shares or other securities
of the Company resulting from such adjustment. An adjustment made pursuant to
this paragraph shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
13. Voluntary Adjustment by the Company. The Company may at any
time during the term of this Warrant, reduce the then current Exercise Price to
any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
14. Notice of Adjustment. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares (and other securities or property) after such adjustment, setting
forth a brief statement of the facts
4
<PAGE>
requiring such adjustment and setting forth the computation by which such
adjustment was made. Such notice, in absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
15. Authorized Shares. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of the Warrant Shares upon the exercise of any purchase rights under this
Warrant. The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
the Warrant Shares upon the exercise of the purchase rights under this Warrant.
The Company will take all such reasonable action as may be necessary to assure
that such Warrant Shares may be issued as provided herein without violation of
any applicable law or regulation, or of any requirements of the NASDAQ Small Cap
Stock Market or any domestic securities exchange upon which the Common Stock may
be listed.
16. Miscellaneous.
(a) Choice of Law; Venue; Jurisdiction. This Warrant will be
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the Act, without reference to
principles of conflicts of law. Each of the parties consents to the jurisdiction
of the U.S. District Court sitting in the Southern District of the State of New
York or the state courts of the State of New York sitting in Manhattan in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. Each party hereby agrees that if another party to this Warrant
obtains a judgment against it in such a proceeding, the party which obtained
such judgment may enforce same by summary judgment in the courts of any country
having jurisdiction over the party against whom such judgment was obtained, and
each party hereby waives any defenses available to it under local law and agrees
to the enforcement of such a judgment. Each party to this Warrant irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law. Each party waives
its right to a trial by jury.
(b) Restrictions. The holder hereof acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws. Each
certificate representing the Warrant Shares issued to the Holder upon exercise
will bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN
ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND SUCH
5
<PAGE>
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION".
(c) Modification and Waiver. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof by the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: May , 1998
OBJECTSOFT CORPORATION
By__________________________
6
<PAGE>
NOTICE OF EXERCISE
To: OBJECTSOFT CORPORATION
(1) The undersigned hereby elects to purchase ________ shares of
Common Stock, par value $ ____ per share (the "Common Stock") of OBJECTSOFT
CORPORATION pursuant to the terms of the attached Warrant, and tenders herewith
payment of the exercise price in full, together with all applicable transfer
taxes, if any.
(2) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
_______________________________
(Name)
_______________________________
(Address)
_______________________________
(3) The shares of Common Stock being issued in connection with the
exercise of the attached Warrant are [not] being issued in connection with the
sale of the Common Stock.
Dated:
_______________________________
Signature
7
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________,
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
8
WARRANT AND WARRANT AGREEMENT TO PURCHASE COMMON STOCK
OF OBJECTSOFT CORPORATION
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, OR UPON DELIVERY
TO THE ISSUER OF AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT
THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
In accordance with a settlement agreement between Infusion Capital
Partners, LLC and ObjectSoft Corporation (the "Company") dated the date hereof,
the Company has agreed to issue to INFUSION CAPITAL PARTNERS, LLC (the "Holder")
this warrant to acquire 37,500 shares of the Company's common stock, par value
$.0001 per share (the "Common Stock"), exercisable for three years at $4.87 per
share, pursuant to the terms provided in this Warrant and Warrant Agreement.
This Warrant and Warrant Agreement is hereafter referred to as the "Warrant".
Accordingly, the Company and the Holder agree as follows:
1. Issuance. The Company hereby issues to the Holder the right to
purchase, subject to the provisions of this Warrant, 37,500 shares (the
"Shares") of the Company's Common Stock, at an exercise price of $4.87 per
Share, at any time during the period from and after the date hereof until April
23, 2001 (the "Exercise Period"), and this Warrant shall expire and become void
on the expiration of the Exercise Period. The number of shares of Common Stock
to be received upon the exercise of this Warrant and the exercise price to be
paid for each may be adjusted from time to time as herein set forth. The
securities deliverable pursuant to this Warrant, as they may be adjusted from
time to time, are herein referred to as "Warrant Securities" and the exercise
price for the underlying securities in effect at any time and as adjusted from
time to time is herein referred to as the "Exercise Price".
2. Exercise of Warrants. This Warrant may be exercised as a whole or in
part during the Exercise Period, subject to the above provisions, by
presentation and surrender hereof to the Company at its executive offices with
the purchase form (the "Form") annexed hereto duly executed and accompanied by
payment of the Exercise Price by certified check or wire transfer of immediately
available funds. The Company may, in its sole discretion, permit payment of the
Exercise Price of this Warrant by delivery by the Holder of a properly executed
Form, together with a copy of the Holder's irrevocable instructions to a broker
designated by the Company to deliver promptly to the Company the amount of sale
proceeds sufficient to pay such Exercise Price. In connection therewith, the
Company may enter into agreements for coordinated procedures with one or more
brokerage firms. If this Warrant is exercised in part, the Company will issue to
the Holder a new warrant representing the right of the Holder to purchase the
remaining number of Warrant Securities at the identical terms hereto.
<PAGE>
3. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant and the exercise of any
convertible securities issuable upon the exercise hereof.
4. Assignment or Loss of Warrant. (a) This Warrant is not assignable or
transferable without the written consent of the Company, except by operation of
law or as provided in (b) below. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) receipt of reasonably
satisfactory indemnification, and (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant
shall thereupon become void.
(b) This Warrant shall not be transferable by Holder other than to
a "Permitted Transferee" (as defined below); provided, that any Permitted
Transferee shall be absolutely prohibited from transferring all or any portion
of this Warrant other than to Holder or another Permitted Transferee of Holder;
and provided further, that if Holder dies or becomes incapacitated, this Warrant
may be exercised by Holder's estate, legal representative or beneficiary, as the
case may be, subject to all other terms and conditions contained in this
Warrant.
(c) For purposes of this Agreement, Permitted Transferees shall
include only the members of the "immediate family" (which shall be limited to
Holder's spouse, children, and parents) of Holder, and to trusts for such
person's own benefit and/or for the benefit of members of Holder's immediate
family; provided, that such Permitted Transferees must agree in writing to be
bound by all of the terms of this Agreement to the same extent as Holder
hereunder, in form acceptable to counsel to the Company, including but not
limited to restrictions on the exercise of this Warrant and on transfers of the
Shares, as the case may be, following exercise of this Warrant, such that any
Shares so acquired shall be held subject to the terms of this Agreement. Shares
held by any Permitted Transferee shall be aggregated with those held by the
Permitted Transferee's transferor in order to determine the number of Shares
subject to the provisions of this Agreement.
5. Rights of the Holder.
(a) The Holder shall not, by virtue hereof, be entitled to any
rights of a stockholder in the Company, either at law or equity, and the rights
of the Holder are limited to those expressed in this Warrant and are not
enforceable against the Company except to the extent set forth herein.
(b) The Company will use reasonable efforts to register for resale
the shares of Common Stock underlying this Warrant in a registration statement
which may otherwise be filed by the Company on or before October 1, 1998, other
than a registration statement filed in connection with a private financing that
the Company intends to engage in by June 1998 and except that the Company shall
have no such obligation in the event that any investor, underwriter, placement
agent or lender objects to the inclusion of the shares of Common Stock
underlying this Warrant in the
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<PAGE>
registration statement. If the Company does not file a registration statement
that includes the shares of Common Stock underlying this Warrant on or before
October 1, 1998, the Holder of this Warrant and all transferees of all or any
portion hereof, acting jointly, shall have the right on one occasion to demand
that the Company file, at the Company's expense, an S-3 registration for the
resale of the shares of Common Stock underlying the Warrant. The foregoing
demand right is applicable only in the event that the closing price of the
Company's stock for five (5) days prior to the demand is greater than $4.87.
6. Protection Against Dilution. (a) If at any time and from time
to time the Company shall (i) declare a dividend in shares of Common Stock to
holder of Common Stock or make a distribution in shares of Common Stock to
holders of Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock or (iv) otherwise effect a
recapitalization of such character that the shares of Common Stock shall be
changed into or become exchangeable for a greater or lesser number of shares of
Common Stock, then the Exercise Price in effect on the record date of such
dividend or distribution or the effective date of such subdivision, combination
or reclassification (individually an "Event" and collectively the "Events")
shall be adjusted, or further adjusted, to a price (to the nearest cent)
determined by multiplying (i) the Exercise Price in effect immediately prior to
such Event by (ii) a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Event, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such Event. Upon each adjustment in the Exercise Price
resulting from an Event, the number of Warrant Securities shall be adjusted (to
the nearest one-thousandth share) by multiplying (i) the number of Warrant
Securities for which the Warrant was exercisable immediately prior to such Event
by (ii) a fraction, the numerator of which shall be the Exercise Price in effect
immediately prior to such Event, and the denominator of which shall be the
Exercise Price in effect immediately after such Event. Notice of each such
adjustment and each such readjustment shall be forthwith mailed to the Holder
setting forth such adjustments or readjustments and the facts and calculations
thereof in reasonable detail. Any dividend paid or distributed upon the Common
Stock in stock of any other class of securities convertible into shares of
Common Stock shall be treated as a dividend paid in Common Stock to the extent
that shares of Common Stock are issuable upon the conversion thereof.
(b) In case: (i) a distribution in the form of stock or other
securities of any other corporation or other entity shall be made or paid by the
Company on, or with respect to, the then outstanding shares of Common Stock,
(ii) the Company shall effect a recapitalization of such character that the
shares of Common Stock will be changed into or become exchangeable for shares of
Common Stock with a different par value or no par value, or (iii) the Company
(or a successor corporation) shall be consolidated or merged with or into
another corporation or entity or shall sell, lease or convey all or
substantially all of its assets in exchange for stock or property (including
cash) with the view of distributing such stock or property to its shareholders,
each Share issuable upon exercise of this Warrant shall be replaced by, and/or
shall include, as the case may be, for the purposes hereof, the stock or
property issued or distributed in respect of each share of Common Stock upon
such recapitalization, reclassification, merger, sale, lease or conveyance as
the Holder
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<PAGE>
would have been entitled to had the Holder exercised this Warrant and any
underlying convertible security immediately prior to any such occurrence, and
adequate provision to that effect shall be made at the time thereof.
(c) In case: (i) of any classification, reclassification or other
reorganization of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, or the sale, lease or conveyance
of all or substantially all of the assets of the Company; or (ii ) of the
voluntary or involuntary dissolution, liquidation or winding up of the Company;
then, and in any such case, the Company shall mail to the Holder, at least 15
days prior thereto, a notice stating the date or expected date on which a record
is to be taken. Such notice shall also specify the date or expected date, if any
is to be fixed, as of which holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other property
deliverable upon such classification, reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation, winding up or any
other appropriate action, as the case may be.
7. Transfer to Comply with the Securities Act. This Warrant has not
been registered under the Securities Act of 1933, as amended (the "Act") and has
been issued to the Holder for investment and not with a view to the distribution
of either the Warrant or the Warrant Securities. Neither this Warrant nor any of
the Warrant Securities or any other security issued or issuable upon exercise of
this Warrant may be sold, transferred, pledged or hypothecated in the absence of
an effective registration statement under the Act relating to such security or
an opinion of counsel satisfactory to the Company that registration is not
required under the Act. Each certificate for the Warrant, the Warrant Securities
and any other security issued or issuable upon exercise of this Warrant shall
contain a legend on the face thereof, in form and substance satisfactory to
counsel for the Company, setting forth the restrictions on transfer contained in
this Section.
8. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage pre-paid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission,
or, if mailed, two days after the date of deposit in the United States mails, as
follows:
(i) if to the Company, to:
OBJECTSOFT CORPORATION
Continental Plaza III
433 Hackensack Avenue
Hackensack, New Jersey 07601
Attention: David E. Y. Sarna, Chairman
(ii) if to the Holder, to:
Infusion Capital Partners, LLC
1600 Market Street, Suite 1726
Philadelphia, PA 19103
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<PAGE>
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This Warrant may be
amended or supplemented or any provision hereof waived only by an instrument in
writing signed by the Company and the Holder. This Warrant contains the full
understanding of the parties hereto with respect to the subject matter hereof
and thereof and there are no representations, warranties, agreements or
understandings other than expressly contained herein and therein.
10. Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be governed
by and construed in accordance with the laws of such State applicable to
contracts to be made and performed entirely within such State.
11. Counterparts. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
12. Descriptive Headings. Descriptive headings of the several Sections
of this Warrant are inserted for convenience only and shall not control or
affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 23rd day of April, 1998.
OBJECTSOFT CORPORATION
By: /s/ David E. Y. Sarna
--------------------------------
David E. Y. Sarna, Chairman
INFUSION CAPITAL PARTNERS, LLC
By: /s/ David M.M. Taffett
--------------------------------
Name: David M.M. Taffett
Title:Chief Executive Officer
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<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Warrant)
To ObjectSoft Corporation
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, ______________________________ (__________) of
the number of shares (the "Shares") of common stock (the "Common Stock"), par
value $.0001 per share, of ObjectSoft Corporation purchasable under such Warrant
and requests that a certificate(s) for such shares be issued in the name of, and
delivered to, _____________ whose address is______________________________
_________________________. If said number of shares is less than all of the
shares of Common Stock purchasable under the within Warrant, the undersigned
requests that a new Warrant representing the remaining balance of such shares be
registered in the name of _______________, whose address is
_________________________________, and that such Warrant be delivered to
_______________________, whose address is _____________________
_________________________________.
The exercise price for the Shares is $4.87 per Share, for an
aggregate exercise price of $_____________ for all of the Shares. Together with
the delivery of this Purchase Form, the undersigned is:
Please check one:
[_] Tendering to the Company cash or a certified check in the
amount of $_______________, as payment of the exercise price
of the Shares.
[_] Requesting permission from the Company to permit payment of
the exercise price through a sale of Shares by a broker
designated by the Company in accordance with the terms of the
Warrant.
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<PAGE>
The undersigned understands that the Shares shall be delivered to
the undersigned promptly after the Company instructs the transfer agent for its
Common Stock to deliver a certificate for the Shares to the undersigned.
The undersigned represents that it is acquiring such shares of
Common Stock for its own account for investment purposes only and not with a
view to or for sale in connection with any distribution thereof.
Dated: ______________ Signature: _______________________________
(Signature must conform in all respects to
name of holder as specified on the face
of the Warrant)
Address: _________________________________
__________________________________________
__________________________________________
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PARKER CHAPIN FLATTAU & KLIMPL, LLP
[Letterhead]
June 25, 1998
ObjectSoft Corporation
Continental Plaza III
433 Hackensack Avenue
Hackensack, New Jersey 07601
Dear Sir:
We have acted as counsel to ObjectSoft Corporation, a Delaware
corporation (the "Company"), in connection with its filing of a registration
statement on Form S-3 (the "Registration Statement") being filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
relating to an offering of an aggregate of 4,431,623 shares of common stock, par
value $.0001 per share.
Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Registration Statement.
In our capacity as counsel to the Company, we have examined
originals or copies, satisfactory to us, of the Company's (i) Certificate of
Incorporation, as amended, (ii) Amended and Restated By-laws and (iii)
resolutions of the Company's board of directors. We have also reviewed such
other matters of law and examined and relied upon all such corporate records,
agreements, certificates and other documents as we have deemed relevant and
necessary as a basis for the opinion hereinafter expressed. In such examination,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity with the original
documents of all documents submitted to us as copies or facsimiles. As to any
facts material to such opinion, we have, to the extent that relevant facts were
not independently established by us, relied on certificates of public officials
and certificates of officers or other representatives of the Company.
<PAGE>
Objectsoft Corporation
June 25, 1998
Page 2
Based upon and subject to the foregoing, we are of the opinion that:
(a) the Issued Shares have been legally issued and are fully paid
and non-assessable;
(b) the Reset Shares have been validly authorized and will, when
sold as contemplated by the Financing Agreement, be legally issued, fully paid
and non-assessable;
(c) the shares of Common Stock issuable upon the conversion of the
Series C Preferred Stock, upon filing of the Certificate of Designation of the
Series C Preferred Stock and upon issuance and payment in accordance with the
terms of the Financing Agreement, will be legally issued, fully paid and
non-assessable;
(d) the shares of Common Stock issuable upon the exercise of the
Put Options, upon issuance and payment in accordance with the terms of the
Financing Agreement, will be legally issued, fully paid and non-assessable;
(e) the shares of Common Stock issuable upon the exercise of the
Warrants A and Warrants B, upon issuance and payment in accordance with the
terms of the Financing Agreement, will be legally issued, fully paid and
non-assessable; and
(f) the shares of Common Stock issuable upon exercise of the
Settlement Warrant, upon issuance and payment in accordance with the terms of
the Settlement Warrant, will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption "Legal
Matters" in the prospectus constituting part of the Registration Statement.
Very truly yours,
/s/ PARKER CHAPIN FLATTAU & KLIMPL, LLP
PARKER CHAPIN FLATTAU & KLIMPL, LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on
Form S-3 of ObjectSoft Corporation of our report dated February 20, 1998,
appearing in the Annual Report on Form 10-KSB of ObjectSoft Corporation for the
year ended December 31, 1997. We also consent to the reference to our firm under
the caption "Experts" in the Prospectus, which is a part of such Registration
Statement.
/s/ RICHARD A. EISNER & COMPANY, LLP
- ------------------------------------
RICHARD A. EISNER & COMPANY, LLP
Florham Park, New Jersey
June 25,1998
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of the 13th day of May,
1998, among the entities listed on Schedule A (collectively referred to as the
"Investors"), SETTONDOWN CAPITAL INTERNATIONAL LTD. (the "Placement Agent",
along with the Investors also referred to as the "Holders") located at Charlotte
House, Charlotte Street, P.O. Box N. 9204, Nassau, Bahamas, and OBJECTSOFT
CORPORATION, a corporation incorporated under the laws of the state of Delaware,
and having its principle place of business at Continental Plaza III, 433
Hackensack Avenue, Hackensack, NJ 07601 (the "Company").
WHEREAS, the Investors are purchasing from the Company and the
Company shall issue and sell to the Investors, pursuant to the terms and
conditions of a Private Equity Line of Credit Agreement dated the date hereof
(the "Equity Line Agreement"), from time to time as provided herein, and the
Investors shall purchase for an aggregate up to Nine Hundred Thousand ($900,000)
Dollars, that number of shares of Common Stock determined by dividing the
$900,000 by the Purchase Price for the Initial Shares on the Subscription Date,
up to $5,000,000 aggregate value of Put Shares, up to $1,200,000 aggregate value
of Preferred Stock, and a Warrant A and Warrant B; and
WHEREAS, the Company shall issue to the Placement Agent, in return
for services rendered (in addition to other fees set forth in Equity Line
Agreement): (a) upon the Closing for the Initial Shares, (i) that number of
shares of Common Stock equal to four (4%) percent of the number of shares of
Common Stock issued to the Investors on the Subscription Date, (ii) twenty
thousand (20,000) shares of Common Stock (to be included in the definition of
Registrable Securities below), and (iii) a Warrant A to purchase 3,000 shares of
Common Stock per Three Hundred Thousand ($300,000) Dollars funded by the
Investors on the Subscription Date; (b) upon the Closings for the Preferred
Stock, that number of shares of Preferred Stock equal to four (4%) percent of
the number of shares of Preferred Stock; and
WHEREAS, the Company desires to grant to the Holders the
registration rights set forth herein with respect to the shares of Common Stock,
Underlying Shares, and Warrant Shares (plus such additional shares of Common
Stock issuable pursuant to the terms of the Equity Line Agreement, collectively
hereinafter referred to as the "Stock" or "Securities" of the Company). All
capitalized terms not defined herein shall have that meaning as set forth in the
Equity Line Agreement.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means the Securities; provided, however, that with
respect to any particular Registrable Security, such security shall cease to be
a Registrable Security when, as of the date of determination, (i) it has been
effectively registered for resale under the Securities Act of 1933, as amended
(the "1933 Act")
<PAGE>
and disposed of pursuant thereto, (ii) registration under the 1933 Act is no
longer required for the immediate public distribution of such security as a
result of the provisions of Rule 144 promulgated under the 1933 Act, or (iii) it
has ceased to be outstanding. The term "Registrable Securities" means any and/or
all of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable Security"
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Section 1.
Section 2. Restrictions on Transfer. The Holders acknowledge and
understand that prior to the registration of the Securities as provided herein,
the Securities are "restricted securities" as defined in Rule 144 promulgated
under the Act. The Holders understand that no disposition or transfer of the
Securities may be made by the Holders in the absence of (i) an opinion of
counsel to the Holders that such transfer may be made without registration under
the 1933 Act or (ii) such registration.
Section 3. Registration Rights.
(a) The Company agrees that it will prepare and file with the
Securities and Exchange Commission ("Commission"), forty-five (45) days after
the Subscription Date, a registration statement (on Form S-3) under the 1933 Act
(the "Registration Statement"), at the sole expense of the Company (except as
provided in Section 3(c) hereof), in respect of all holders of Registrable
Securities, so as to permit a resale of the Registrable Securities under the
Act.
The Company shall use its reasonable best efforts to cause the
Registration Statement to become effective within ninety (90) days from the
Subscription Date. The number of shares designated in the Registration Statement
to be registered shall be 2,807,000. The Company agrees that it shall amend the
Registration Statement, or file a second Registration Statement, if necessary,
to include any number of shares of Registrable Securities as necessary pursuant
to the terms of the Equity Line Agreement. In the event the SEC prohibits the
Company from registering the number of shares of Common Stock as set forth above
in the Registration Statement, the Company will either amend the Registration
Statement, or file a second Registration Statement, for the purpose of
registering that number of shares of Common Stock necessary pursuant to the
terms of the Equity Line Agreement and this Agreement.
(b) The Company will maintain the effectiveness of any
Registration Statement or post-effective amendment filed under this Section 3
hereof current under the 1933 Act until the earlier of (i) the date that all of
the Registrable Securities have been sold pursuant to the Registration
Statement, (ii) the date the holders thereof receive an opinion of counsel that
all of the Registrable Securities may be sold under the provisions of Rule 144
or (iii) five and one half years after the Subscription Date.
(c) All fees, disbursements and out-of-pocket expenses and costs
incurred by the Company in connection with the preparation and filing of the
Registration Statement under
2
<PAGE>
subparagraph 3(a) and in complying with applicable securities and Blue Sky laws
(including, withoutlimitation, reasonable attorneys' fees) shall be borne by the
Company. The Holders shall bear the cost of underwriting discounts and
commissions, if any, applicable to the Registrable Securities being registered
and the fees and expenses of its counsel. The Company shall qualify any of the
securities for sale in such states as such Holders reasonably designate and
shall furnish indemnification in the manner provided in Section 6 hereof.
However, the Company shall not be required to qualify any of the securities for
sale in any state which will require an escrow or other restriction relating to
the Company and/or the sellers. The Company at its expense will supply the
Holders with copies of the Registration Statement and the prospectus or offering
circular included therein and other related documents in such quantities as may
be reasonably requested by the Holders.
(d) The Company shall not be required by this Section 3 to include
a Holder's Registrable Securities in any Registration Statement which is to be
filed if, in the opinion of counsel for all of the Holders and the Company (or,
should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Holders and the Company)
the proposed offering or other transfer as to which such registration is
requested is exempt from applicable federal and state securities laws and would
result in all Investors or transferees obtaining securities which are not
"restricted securities", as defined in Rule 144 under the 1933 Act.
(e) In the event the Registration Statement (covering (i) two
hundred (200%) percent of the Initial Shares and Warrant Shares, and (ii) two
hundred (200%) percent of that number of shares of Common Stock issued to the
Placement Agent on the Subscription Date as set forth in Section 13.7 of the
Equity Line Agreement) to be filed by the Company pursuant to Section 3(a) above
is not filed with the Commission within forty five (45) days from the
Subscription Date and/or the Registration Statement is not declared effective by
the Commission within one hundred twenty (120) days from the Subscription Date,
then the Company will pay to the Holders (pro rated on a daily basis) in cash
upon demand by the Holders, as liquidated damages for such failure and not as a
penalty, two (2%) percent of the Purchase Price of the then outstanding
Securities for every thirty (30) day period thereafter until the Registration
Statement has been filed and/or declared effective. Such payment of the
liquidated damages shall be made to the Holders in cash, immediately upon
demand, provided, however, that the payment of such liquidated damages shall not
relieve the Company from its obligations to register the Securities pursuant to
this Section. The aforementioned liquidated damages shall cease to accrue one
year after the Subscription Date on the condition that the Holders may rely on
Rule 144 for the resale of all of the Securities then held by the Holders.
If the Company does not remit the damages to the Holders as set
forth above, the Company will pay the Holders' reasonable costs of collection,
including attorneys fees, in addition to the liquidated damages. The
registration of the Securities pursuant to this provision shall not affect or
limit Holders' other rights or remedies as set forth in this Agreement.
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<PAGE>
(f) No provision contained herein shall preclude the Company from
selling securities pursuant to any Registration Statement in which it is
required to include Registrable Securities pursuant to this Section 3.
(g) If at any time or from time to time after the Effective Date ,
the Company notifies the Holders in writing of the existence of a Potential
Material Event (as defined in Section 3(h) below), the Holders shall not offer
or sell any Registrable Securities or engage in any other transaction involving
or relating to Registrable Securities, from the time of the giving of notice
with respect to a Potential Material Event until such Holder receives written
notice from the Company that such Potential Material Event either has been
disclosed to the public or no longer constitutes a Potential Material Event;
provided, however, that the Company may not so suspend the right to such holders
of Securities for more than one (1) twenty (20) day period in the aggregate
during any twelve month period, during the periods the Registration Statement is
required to be in effect. If a Potential Material Event shall occur prior to the
date the Registration Statement is filed, then the Company's obligation to file
the Registration Statement shall be delayed without penalty for not more than
twenty (20) days. The Company must give each Holder notice in writing at least
two (2) business days prior to the first day of the blackout period.
(h) "Potential Material Event" means any of the following: (a) the
possession by the Company of material information not for disclosure in a
registration statement; or (b) any material engagement or activity by the
Company which would be adversely affected by disclosure in a registration
statement at such time, that the Registration Statement would be materially
misleading absent the inclusion of such information.
Section 4. Cooperation with Company. Holders will cooperate with the
Company in all respects in connection with this Agreement, including timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registrable Securities.
Section 5. Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to effect the registration
of any of the Registrable Securities under the Securities Act, the Company shall
(except as otherwise provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration statement
whenever the Holder of such securities shall desire to sell or otherwise dispose
of the same (including prospectus supplements with respect to the sales of
securities from time to time in connection with a registration statement
pursuant to Rule 415 promulgated under the Act);
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<PAGE>
(b) furnish to each Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the requirements
of the Securities Act, and such other documents, as such Holder may reasonably
request in order to facilitate the public sale or other disposition of the
securities owned by such Holder;
(c) register and qualify the securities covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Holders shall reasonably request (subject to the
limitations set forth in Section 3(c) above), and do any and all other acts and
things which may be necessary or advisable to enable each Holder to consummate
the public sale or other disposition in such jurisdiction of the securities
owned by such Holder, except that the Company shall not for any such purpose be
required to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified or to file therein any general consent to service
of process;
(d) list such securities on the NASDAQ Small Cap Stock Market or
other national securities exchange on which any securities of the Company are
then listed, if the listing of such securities is then permitted under the rules
of such exchange or NASDAQ;
(e) notify each Holder of Registrable Securities covered by the
Registration Statement, at any time when a prospectus relating thereto covered
by the Registration Statement is required to be delivered under the Act, of the
happening of any event of which it has knowledge as a result of which the
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
Section 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Holders,
each and every officer, director, affiliate and employee of the Holders, and
each person, if any, who controls each Holder within the meaning of the 1933 Act
and each officer, director, affiliate or employee of each of the Holders
("Distributing Holder") against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all attorneys'
fees), to which the Distributing Holder may become subject, under the 1933 Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, or any related preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company (i) will not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, preliminary
prospectus, final prospectus, offering circular,
5
<PAGE>
notification or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by the
Distributing Holder, specifically for use in the preparation thereof, or (ii)
will not be required to pay any amounts paid in settlement of any loss, claim,
damage or liability if such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld. This Section 6(a)
shall not inure to the benefit of any Distributing Holder with respect to any
person asserting such loss, claim, damage or liability who purchased the
Registrable Securities which are the subject thereof if the Distributing Holder
failed to send or give (in violation of the 1933 Act or the rules and
regulations promulgated thereunder) a copy of the prospectus contained in such
Registration Statement to such person at or prior to the written confirmation of
such person of the sale of such Registrable Securities, where the Distributing
Holder was obligated to do so under the 1933 Act or the rules and regulations
promulgated thereunder. This indemnity provision will be in addition to any
liability which the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and
hold harmless the Company, and each officer, director, affiliate and employee of
the Company or person, if any, who controls the Company within the meaning of
the 1933 Act, against any losses, claims, damages or liabilities (which shall,
for all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) to which the Company or any
such officer, director, affiliate, employee or controlling person may become
subject under the 1933 Act or otherwise, insofar as such losses claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, or any related preliminary prospectus, final
prospectus, offering circular, notification or amendment or supplement thereto,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in the Registration Statement, preliminary prospectus, final prospectus,
offering circular, notification or amendment or supplement thereto in reliance
upon, and in conformity with, information furnished to the Company by such
Distributing Holder, specifically for use in the preparation thereof. This
indemnity provision will be in addition to any liability which the Distributing
Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 6, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than as to the particular item as to which indemnification is then
being sought solely pursuant to this Section 6. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, assume the defense thereof, subject to the provisions
herein stated and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying party
will not be liable to such
6
<PAGE>
indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, unless the indemnifying
party shall not pursue the action to its final conclusion. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is the
Distributing Holder, the fees and expenses of such counsel shall be at the
expense of the indemnifying party if the named parties to any such action
(including any impleaded parties) include both the Distributing Holder and the
indemnifying party and the Distributing Holder shall have been advised by such
counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the Distributing Holder (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the Distributing Holder, it being understood, however, that the indemnifying
party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the all indemnified
parties, which firm shall be designated in writing by the indemnified parties).
No settlement of any action against an indemnified party shall be made without
the prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
Section 7. Contribution. In order to provide for just and equitable
contribution under the 1933 Act in any case in which (i) the indemnified party
makes a claim for indemnification pursuant to Section 6 hereof but is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 6 hereof provide
for indemnification in such case, or (ii) contribution under the 1933 Act may be
required on the part of any indemnified party, then the Company and the
applicable Distributing Holder shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), in either such case (after
contribution from others) on the basis of relative fault as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the applicable
Distributing Holder on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Distributing Holder agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in this
Section 7. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof) referred
to above in this Section 7 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection
7
<PAGE>
with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by reputable courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to ObjectSoft Corporation:
ObjectSoft Corporation
Continental Plaza III
433 Hackensack Avenue
Hackensack, NJ 07601
Telephone: (800) 816-8171
Fax: (201) 343-0056
with a copy to: Melvin Weinberg, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036-8735
Telephone: (212) 704-6000
Facsimile: (212) 704-6288
If to the Investors at the addresses set forth on Schedule A
attached hereto.
If to the Placement Agent: Settondown Capital International Ltd.
Charlotte House, Charlotte Street,
P.O. Box N. 9204
Nassau, Bahamas
Telephone: (242) 325-1033
Facsimile: (242) 323-7918
8
<PAGE>
with a copy to: Scott H. Goldstein, Esq.
(shall not constitute notice) Goldstein, Goldstein & Reis, LLP
65 Broadway, 10th Floor
New York, New York 10006
Telephone: (212) 809-4220
Fax: (212) 809-4228
Either party hereto may from time to time change its address or facsimile number
for notices under this Section by giving at least ten (10) days' prior written
notice of such changed address or facsimile number to the other party hereto.
Section 9. Assignment. This Agreement is binding upon and inures to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns. The rights granted the Holders under this Agreement shall not
be assigned without the written consent of the Company, which consent shall not
be unnecessarily withheld. In the event of a transfer of the rights granted
under this Agreement, the Holders agree that the Company may require that the
transferee comply with reasonable conditions as determined in the discretion of
the Company.
Section 10. Counterparts; Facsimile; Amendments. This Agreement may
be executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by the Company on the one hand, and a majority of the Investors, and
the Placement Agent, on the other hand, or the Company on the one hand, and all
of the Investors on the other hand..
Section 11. Termination of Registration Rights. The rights granted
pursuant to this Agreement shall terminate as to each Holder (and permitted
transferees or assignees) upon the occurrence of any of the following:
(a) all Holder's Securities subject to this Agreement have been
registered;
(b) all of such Holder's Securities subject to this Agreement may
be sold without such registration pursuant to Rule 144 promulgated by the SEC
pursuant to the Securities Act;
(c) all of such Holder's Securities subject to this Agreement can
be sold pursuant to Rule 144(k).
Section 12. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9
<PAGE>
Section 13. Governing Law: Venue; Jurisdiction. This Agreement will
be construed and enforced in accordance with and governed by the laws of the
State of New York, except for matters arising under the Securities Act, without
reference to principles of conflicts of law. Each of the parties consents to the
jurisdiction of the U.S. District Court sitting in the Southern District of the
State of New York or the state courts of the State of New York sitting in
Manhattan in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions. Each party hereby agrees that if another party to this
Agreement obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of any
country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under local
law and agrees to the enforcement of such a judgment. Each party to this
Agreement irrevocably consents to the service of process in any such proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such party at its address set forth herein. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law. Each party waives its right to a trial by jury.
Section 14. Severability. If any provision of this Agreement shall
for any reason be held invalid or unenforceable, such invalidity or
unenforceablity shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein. Terms not otherwise defined herein shall be defined in
accordance with the Agreement.
Section 15. Capitalized Terms. All capitalized terms not otherwise
defined herein shall have the meaning assigned to them in the Equity Line
Agreement.
Section 16. Entire Agreement. This Agreement, together with all
documents referenced herein, embody the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral or written agreements and understandings relating to
the subject matter hereof. No statement, representation, warranty, covenant or
agreement of any kind not expressly set forth in this Agreement shall affect, or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, on the day and year first above written.
OBJECTSOFT CORPORATION
By /s/ David E.Y. Sarna
------------------------------
David E.Y. Sarna,
Chairman
SETTONDOWN CAPITAL INTER-
NATIONAL LTD.
By /s/ Anthony L. M. Inder Riden
------------------------------
Anthony L. M. Inder Riden
AVALON CAPITAL, INC.
By /s/ Wayne Coleson
------------------------------
Wayne Coleson
AUSTOST ANSTALT SCHAAN
By /s/ Thomas Hackl
------------------------------
Thomas Hackl
BALMORE FUNDS S.A.
By /s/ Francois Morax
------------------------------
Francois Morax
11
ESCROW AGREEMENT
THIS AGREEMENT is made as of the 13th day of May, 1998 by and among
OBJECTSOFT CORPORATION, with its principal office at Continental Plaza III, 433
Hackensack Avenue, Hackensack, NJ 07601 (hereinafter the "Company"), the
"Purchasers" specified on Schedule A attached hereto, with their respective
principal offices at the addresses set forth in Schedule A, SETTONDOWN CAPITAL
INTERNATIONAL LTD. (the "Placement Agent", along with the Purchasers also
referred to as the "Investors") located at Charlotte House, Charlotte Street,
P.O. Box N. 9204, Nassau, Bahamas, and GOLDSTEIN, GOLDSTEIN & REIS, LLP, 65
Broadway, 10th Fl., New York, NY 10006 (hereinafter the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Purchasers will be purchasing Common Stock, Warrants A
and B (the collectively "Initial Shares"), and Preferred Stock, from the Company
at a purchase price as set forth in a Private Equity Line Of Credit Agreement
(the "Agreement") dated as of May 13, 1998, which will be issued as per the
terms contained herein and in the Agreement executed by the Company and
Purchaser; and
WHEREAS, the Company will be issuing Common Stock and a Warrant A
(also referred to as the Initial Shares) to the Placement Agent pursuant to the
Agreement; and
WHEREAS, the Company shall have a Put of additional Common Stock to
the Purchasers for the remainder of the Commitment Amount after the Initial
Shares Investment Amount and the Purchase Price for the Preferred Stock has been
paid to the Company, in accordance with the terms and conditions in the
Agreement; and
WHEREAS, it is intended that the purchase of Securities be
consummated in accordance with the requirements set forth by Regulation D
promulgated under the Securities Act of 1933, as amended; and
WHEREAS, the Company has requested that the Escrow Agent hold the
Initial Shares Investment Amount, the Purchase Price for the Preferred Stock,
and the remainder of the Commitment Amount in escrow until the Escrow Agent has
received the Initial Shares, and the Put Shares. The Escrow Agent will then
immediately wire transfer or otherwise deliver at the Company's discretion
immediately available funds to the Company's account and arrange for delivery of
the Initial Shares, and Put Shares to the Investors as per the terms and
conditions in the Agreement.
NOW, THEREFORE, in consideration of the covenants and mutual
promises contained herein and other good and valuable consideration, the receipt
and legal sufficiency of which are hereby acknowledged and intending to be
legally bound hereby, the parties agree as follows:
<PAGE>
ARTICLE 1
TERMS OF THE ESCROW FOR THE INITIAL SHARES
1.1 The parties hereby agree to establish an escrow account with
the Escrow Agent whereby the Escrow Agent shall hold the funds for the purchase
of the Initial Shares (collectively, with the Preferred Stock and Put Shares,
referred to as the "Securities").
1.2 Upon Escrow Agent's receipt of the Initial Shares Investment
Amount into its attorney trustee account, it shall notify the Company, or the
Company's designated attorney or agent, of the amount of funds it has received
into its account.
1.3 The Company, upon receipt of said notice and acceptance of the
Agreement by both parties, as evidenced by the Company's and the Investor's
execution thereof, shall deliver to the Escrow Agent the Initial Shares. Escrow
Agent shall then communicate with the Company to confirm the validity of its
issuance.
1.4 Once Escrow Agent confirms the validity of the issuance of the
Initial Shares, the Escrow Agent shall immediately wire that amount of funds
necessary to purchase the Initial Shares per the written instructions of the
Company. The Company will furnish Escrow Agent with a "Net Letter" directing
payment of Placement Agent fees, and administrative, legal and escrow fees as
per the terms of the Agreement, such fees are to be remitted to in accordance
with wire instructions that will be sent to Escrow Agent from the Company, with
the net balance payable to the Company. Once the funds (as set forth above) have
been received per the Company's instructions, the Escrow Agent shall then
arrange to have the Securities delivered as per instructions from the Investor.
ARTICLE 2
TERMS OF THE ESCROW FOR THE FIRST TRANCHE
OF PREFERRED STOCK
2.1 Once the Escrow Agent has received certification from the
Company that all of the conditions set forth in Section 2.11 of the Agreement
have been complied with, and once he has received the Purchase Price for the
Preferred Stock to be issued at the Closing for the first tranche of the
Preferred Stock (as set forth in Section 2.11 in the Agreement) into its
attorney trustee account, he shall notify the Company, or the Company's
designated attorney or agent, of the amount of funds it has received into its
account.
2.2 The Company, upon receipt of said notice, shall deliver to the
Escrow Agent the shares of Preferred Stock being purchased in connection with
the first tranche. The Escrow Agent shall then communicate with the Company to
confirm the validity of their issuance.
2
<PAGE>
2.3 Once Escrow Agent confirms the validity of the issuance of the
Preferred Stock in connection with the first tranche, he shall immediately wire
that amount of funds necessary to purchase such shares of Preferred Stock per
the written instructions of the Company. The Company will furnish Escrow Agent
with a "Net Letter" directing payment of placement agent fees and legal,
administrative and escrow fees, as per the terms of the Agreement. Such fees are
to be remitted in accordance with wire instructions that will be sent to the
Escrow Agent from the Company, with the net balance payable to the Company. Once
the funds (as set forth above) have been received per the Company's
instructions, the Escrow Agent shall then arrange to have the Preferred Stock
delivered as per instructions from the Investors.
ARTICLE 3
TERMS OF THE ESCROW FOR THE SECOND TRANCHE
OF PREFERRED STOCK
3.1 Once the Escrow Agent has received certification from the
Company that all of the conditions set forth in Section 2.11 of the Agreement
have been complied with, and once he has received the Purchase Price for the
Preferred Stock to be issued at the Closing for the second tranche of the
Preferred Stock (as set forth in Section 2.11 in the Agreement) into its
attorney trustee account, he shall notify the Company, or the Company's
designated attorney or agent, of the amount of funds it has received into its
account.
3.2 The Company, upon receipt of said notice, shall deliver to the
Escrow Agent the shares of Preferred Stock being purchased in connection with
the second tranche. The Escrow Agent shall then communicate with the Company to
confirm the validity of their issuance.
3.3 Once Escrow Agent confirms the validity of the issuance of the
Preferred Stock in connection with the second tranche, he shall immediately wire
that amount of funds necessary to purchase such shares of Preferred Stock per
the written instructions of the Company. The Company will furnish Escrow Agent
with a "Net Letter" directing payment of placement agent fees and legal,
administrative and escrow fees, as per the terms of the Agreement. Such fees are
to be remitted in accordance with wire instructions that will be sent to the
Escrow Agent from the Company, with the net balance payable to the Company. Once
the funds (as set forth above) have been received per the Company's
instructions, the Escrow Agent shall then arrange to have the Preferred Stock
delivered as per instructions from the Investors.
ARTICLE 4
TERMS OF THE ESCROW FOR THE PUT SHARES
4.1 The parties hereby agree to establish an escrow account with
the Escrow Agent whereby the Escrow Agent shall hold the funds for the purchase
of the Put Shares.
3
<PAGE>
4.2 Upon Escrow Agent's receipt of confirmation in writing that
the Company has properly served a Put Notice in accordance with the Agreement,
and once it has received the Purchase Price for the Put Shares into its attorney
trustee account, it shall notify the Company, or the Company's designated
attorney or agent, of the amount of funds it has received into its account.
4.3 The Company, upon receipt of said notice and acceptance by the
Investors, as evidenced by written notice by the Investor, shall deliver to the
Escrow Agent the Put Shares being purchased. Escrow Agent shall then communicate
with the Company to confirm the validity of its issuance.
4.4 Once Escrow Agent confirms the validity of the issuance of the
Put Shares, he shall immediately wire that amount of funds necessary to purchase
of the Put Shares per the written instructions of the Company. The Company will
furnish Escrow Agent with a "Net Letter" directing payment of placement agent
fees and legal, administrative and escrow fees as per the terms of the
Agreement. Such fees are to be remitted to in accordance with wire instructions
that will be sent to Escrow Agent from the Company, with the net balance payable
to the Company. Once the funds have been received per the Company's
instructions, the Escrow Agent shall then arrange to have the Securities
delivered as per instructions from the Investor.
ARTICLE 5
MISCELLANEOUS
5.1 No waiver or any breach of any covenant or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed any extension of
the time for performance of any other obligation or act.
5.2 All notices or other communications required or permitted
hereunder shall be in writing, and shall be sent by fax, overnight courier,
registered or certified mail, postage prepaid, return receipt requested, and
shall be deemed received upon receipt thereof, as follows:
(a) ObjectSoft Corporation
Continental Plaza III
433 Hackensack Avenue
Hackensack, NJ 07601
Attn: David Sarna, President
Telephone: (800) 816-8171
Facsimile: (201) 343-0056
(b) if to the Purchasers, at the addresses set forth on Schedule A
hereto.
4
<PAGE>
(c) Settondown Capital International Ltd.
Charlotte House, Charlotte Street
P.O. Box N. 9204
Nassau, Bahamas
Attn: Anthony L. M. Inder Riden
Telephone: (242) 325-1033
Facsimile: (242) 323-7918
(d) Goldstein, Goldstein & Reis, LLP
65 Broadway, 10th Fl.
New York, NY 10006
Attn: Sheldon E. Goldstein, Esq.
Telephone: (212) 809-4220
Facsimile: (212) 809-4228
or to such other person at such other place as shall designated in writing.
5.3 This Agreement shall be binding upon and shall inure to the
benefit of the permitted successors and assigns of the parties hereto.
5.4 This Agreement is the final expression of, and contains the
entire Agreement between, the parties with respect to the subject matter hereof
and supersedes all prior understandings with respect thereto.
5.5 Whenever required by the context of this Agreement, the
singular shall include the plural and masculine shall include the feminine. This
Agreement shall not be construed as if it had been prepared by one of the
parties, but rather as if both parties had prepared the same. Unless otherwise
indicated, all references to Articles are to this Agreement.
5.6 The Company acknowledges and confirms that it is not being
represented in a legal capacity by Goldstein, Goldstein & Reis, LLP and it has
had the opportunity to consult with its own legal advisors prior to the signing
of this Agreement.
5.7 This Agreement will be construed and enforced in accordance
with and governed by the laws of the State of New York, except for matters
arising under the Act, without reference to principles of conflicts of law. Each
of the parties consents to the jurisdiction of the U.S. District Court sitting
in the Southern District of the State of New York or the state courts of the
State of New York sitting in Manhattan in connection with any dispute arising
under this Agreement and hereby waives, to the maximum extent permitted by law,
any objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions. Each party hereby agrees
that if another party to this Agreement obtains a judgment against it in such a
proceeding, the party which obtained such judgment may enforce same by summary
judgment in the courts of any country having jurisdiction over the party against
whom such judgment was obtained, and each party hereby waives any defenses
available to it under local law and agrees to the enforcement of such a
judgment. Each party to this
5
<PAGE>
Agreement irrevocably consents to the service of process in any such proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such party at its address set forth herein. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law. Each party waives its right to a trial by jury.
5.8 This Agreement may be altered or amended only with the consent
of all of the parties hereto. Should the Company or Investors attempt to change
this Agreement in a manner which, in the Escrow Agent's discretion, shall be
undesirable, the Escrow Agent may resign as Escrow Agent by notifying the
Company and the Investor in writing. In the case of the Escrow Agent's
resignation or removal pursuant to the foregoing, its only duty, until receipt
of notice from the Company and the Investor or its agent that a successor escrow
agent shall have been appointed, shall be to hold and preserve the funds. Upon
receipt by the Escrow Agent of said notice from the Company and the Investor of
the appointment of a successor escrow agent, the name of a successor escrow
account and a direction to transfer the funds, the Escrow Agent shall promptly
thereafter transfer all of the funds held in escrow to said successor escrow
agent. Immediately after said transfer, the Escrow Agent shall furnish the
Company and the Investor with proof of such transfer. The Escrow Agent is
authorized to disregard any notices, requests, instructions or demands received
by it from the Company or the Investor after notice of resignation or removal
shall have been given, unless the same shall be the aforementioned notice from
the Company and the Investor to transfer the funds to a successor escrow agent
or to return same to the respective parties.
5.9 The Escrow Agent shall be reimbursed by the Company and the
Investor for any reasonable expenses incurred in the event there is a conflict
between the parties and the Escrow Agent shall deem it necessary to retain
counsel.
5.10 The Escrow Agent shall not be liable for any action taken or
omitted by it in good faith in accordance with the advice of the Escrow Agent's
counsel; and in no event shall the Escrow Agent be liable or responsible except
for the Escrow Agent's own gross negligence or willful misconduct.
5.11 The Company and the Investors warrant to and agree with the
Escrow Agent that, unless otherwise expressly set forth in this Agreement:
(i) there is no security interest in the Securities or any
part thereof;
(ii) no financing statement under the Uniform Commercial Code
is on file in any jurisdiction claiming a security interest or
in describing (whether specifically or generally) the
Securities or any part thereof; and
(iii) the Escrow Agent shall have no responsibility at any
time to ascertain whether or not any security interest exists
in the Securities or any part thereof or to file any financing
statement under the Uniform Commercial Code with respect to
the Securities or any part thereof.
6
<PAGE>
5.12 The Escrow Agent in its capacity as such has no liability
hereunder to either party other than to hold the funds and the Securities and to
deliver them under the terms hereof. Each party hereto agrees to indemnify and
hold harmless the Escrow Agent in its capacity as such from and with respect to
any suits, claims, actions or liabilities arising in any way out of this
transaction including the obligation to defend any legal action brought which in
any way arises out of or is related to this Escrow.
[Remainder Of page Intentionally Left Blank]
[Signature Page Follows]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Escrow
Agreement to be executed as of the 13th day of May, 1998.
OBJECTSOFT CORPORATION
By /s/ David E.Y. Sarna
------------------------------
David E.Y. Sarna, Chairman
AVALON CAPITAL , INC.
By /s/ Wayne Coleson
------------------------------
Wayne Coleson
AUSTOST ANSTALT SCHAAN
By /s/ Thomas Hackl
------------------------------
Thomas Hackl
BALMORE FUNDS S.A.
By /s/ Francois Morax
------------------------------
Francois Morax
SETTONDOWN CAPITAL INTER-
NATIONAL LTD.
By /s/ Anthony L.M. Inder Riden
------------------------------
Anthony L.M. Inder Riden
GOLDSTEIN, GOLDSTEIN & REIS, LLP,
Escrow Agent
By /s/ Scott H. Goldstein
------------------------------
Scott H. Goldstein
8
