As filed with the Securities and Exchange Commission on February 10, 1999
Registration No. 333-____
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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 Identification No.)
or Organization)
<TABLE>
<S> <C>
David E. Y. Sarna, Chairman
ObjectSoft Corporation
Continental Plaza III Continental Plaza III
433 Hackensack Avenue 433 Hackensack Avenue
Hackensack, New Jersey 07601 Hackensack, New Jersey 07601
(201) 343-9100 (201) 343-9100
(Address, Including Zip Code, and Telephone Number (Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices) Including Area Code, of Agent For Service)
</TABLE>
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Copy to:
Melvin Weinberg, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
(212) 704-6000
-----------------------------
Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective, as determined
by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. X
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. _____________________
If this Form is a post-effective amendment filed pursuant to rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
- ---------------------------------------
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
========================================================================================================
Proposed Proposed
Maximum maximum Amount of
Title of each class of securities Amount to Aggregate price Aggregate registration
to be registered be registered Per share offering price fee
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<S> <C> <C> <C> <C>
Common Stock, $.0001 par
value per share 4,050,000(2)(3) $2.87(1) $11,623,500 $3,231.33
========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (g); based on the average $2.65 the bid
$2.87 and asked $3.09 price on the Nasdaq SmallCap Market (NASDAQ) on
February 9, 1999.
(2) Represents 3,000,000 shares of our Common Stock issuable upon
conversion of $2,000,000 stated value of 6% Series D Convertible
Preferred Stock ("Series D Preferred Stock") and upon exercise of
warrants issued in connection with the December 1998 Private Placement,
and 425,000 shares of our Common Stock and 675,000 shares of our
Common Stock issuable upon exercise of warrants, issued in connection
with certain consulting and public relations agreements. See
"Description of Securities."
(3) The number of shares of Common Stock issuable upon conversion of the
Series D Preferred Stock is dependent upon the market price of our
Common Stock (i.e., the average closing bid price for the Common Stock
for the five trading days ending on the day prior to the conversion
date), and accordingly the actual number of shares of Common Stock
which shall be issued upon such conversion and, consequently, offered
for sale under this Registration Statement, cannot be determined at
this time. This calculation is based on the formula in the Certificate
of Designation of the Series D Preferred Stock assuming the market
price at each conversion date were approximately $1.00. This
calculation is not intended to constitute a prediction as to the future
market price of our Common Stock upon conversion of the Series D
Preferred Stock. See "Risk Factors -- the Conversion of the Series D
Preferred Shares and the Exercise of the Warrants Issued in the
December 1998 Private Placement Will Dilute the Value of Your Shares".
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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The information in this Prospectus is not complete. We may not sell these
securities until the Registration Statement filed with the Securities and
Exchange Commission is effective. This Prospectus is not an offer to sell nor is
it seeking an offer to buy these securities in any State where the offer or sale
is not permitted.
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED FEBRUARY 10, 1999
PROSPECTUS
4,050,000 Shares of Common Stock
(par value $.0001 per share)
OBJECTSOFT CORPORATION
-----------------------
The stockholders of ObjectSoft Corporation listed on page 19 of this
Prospectus are offering for sale up to 4,050,000 shares of Common Stock of the
Company under this Prospectus, of which up to 3,000,000 are issuable upon
conversion of Series D of the Company's Preferred Stock and exercise of warrants
issued in connection with the Series D Preferred Stock, 675,000 are issuable
upon the exercise of additional warrants to purchase Common Stock and 425,000
were issued under consulting agreements. Those to whom such Selling Stockholders
may pledge, donate or transfer their shares and other successors, may also use
this prospectus. The Selling Stockholders may offer their shares through public
or private transactions, at prevailing market prices, or at privately negotiated
prices.
The Selling Stockholders will receive all of the net proceeds from the
resale of the shares. Accordingly, we will not receive any proceeds from the
resale of the shares. We may receive proceeds from the exercise of the warrants.
We will use such net proceeds for general corporate purposes. We have agreed to
bear the expenses relating to the registration of the shares, other than
brokerage commissions and expenses, if any, which will be paid by the Selling
Stockholders.
------------------------------------------
NASDAQ SmallCap symbols:
Common Stock "OSFT"
Redeemable Class A Warrants "OSFTW"
------------------------------------------
On February 5, 1999 the closing sale price of our Common Stock on the
Nasdaq SmallCap Market was $3 3/16 and the closing sale price of our Redeemable
Class A Warrants was $1 3/32.
Our executive offices are located at Continental Plaza III, 433 Hackensack
Avenue, Hackensack, New Jersey 07601, our telephone number is (201) 343-9100 and
our website is at www.objectsoftcorp.com.
This investment involves a high degree of risk. You should carefully consider
the factors described under the caption "Risk Factors" beginning on page 4 of
this Prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------------
The Date of this Prospectus is February __, 1999
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
over the Internet at the SEC's Website at "http://www.sec.gov."
We have filed with the SEC a registration statement on Form S-3 to register
the Shares being offered. This Prospectus is part of that registration statement
and, as permitted by the SEC's rules, does not contain all the information
included in the registration statement. For further information with respect to
us and our Common Stock, you should refer to the registration statement and to
the exhibits and schedules filed as part of that registration statement, as well
as the documents we have incorporated by reference which are discussed below.
You can review and copy the registration statement, its exhibits and schedules,
as well as the documents we have incorporated by reference, at the public
reference facilities maintained by the SEC as described above. The registration
statement, including its exhibits and schedules, are also available on the SEC's
web site.
This Prospectus may contain summaries of contracts or other documents.
Because they are summaries, they will not contain all of the information that
may be important to you. If you would like complete information about a contract
or other document, you should read the copy filed as an exhibit to the
registration statement.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be a part of this Prospectus, and information that we file later
with the SEC will automatically update or supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:
1. Annual Report on Form 10-KSB for the year ended December 31, 1997, and
Amendment No.1 thereto;
2. The Company's Proxy Statement for the 1998 Annual Meeting of Stock-
holders;
3. Quarterly Reports on Form 10-QSB for the fiscal quarters ended March
31, 1998, June 30, 1998 and September 30, 1998;
4. Current Report on Form 8-K dated (date of earliest event reported)
December 31, 1998 (as filed on January 15, 1999); and
5. The description of our Class A Common Stock contained in the
Registration Statement on Form 8-A filed on filed October 16, 1996.
You may request a copy of these filings, at no cost, by writing or
telephoning us at Continental Plaza III, 433 Hackensack Avenue Hackensack, New
Jersey 07601, (201) 343-9100. Attention: Dina Pecoraro.
---------------------------------
This Prospectus contains certain forward-looking statements which involve
substantial risks and uncertainties. These forward-looking statements can
generally be identified because the context of the statement includes words such
as "may," "will," "except," "anticipate," "intend," "estimate," "continue,"
"believe," or other similar words. Similarly, statements that describe our
future plans, objectives and goals are also forward-looking statements. Our
factual results, performance or achievements could differ materially from those
expressed or implied in these forward-looking statements as a result of certain
factors, including those listed in "Risk Factors" and elsewhere in this
Prospectus.
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<PAGE>
We have not authorized any dealer, salesperson or any other person to give
any information or to represent anything not contained in this Prospectus. You
must not rely on any unauthorized information. This Prospectus does not offer to
sell or buy any shares in any jurisdiction where it is unlawful. The information
in this Prospectus is current as of February __, 1999.
-------------------------
TABLE OF CONTENTS
Where You Can Find More Information About Us..................................2
Incorporation of certain documents by reference...............................2
Risk Factors..................................................................4
Use of Proceeds..............................................................18
Dividend Policy..............................................................18
Selling Stockholders ........................................................18
Description of Securities....................................................20
Plan of Distribution ........................................................25
Indemnification for Securities Act Liabilities...............................26
Legal Matters................................................................27
Experts .....................................................................27
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RISK FACTORS
Before you buy shares of our Common Stock, you should be aware that
there are various risks associated with such purchase, including those described
below. You should consider carefully these risk factors, together with all of
the other information in this Prospectus, and the documents we have incorporated
by reference in the section "Where You Can Find More Information About Us"
before you decide to purchase shares of our Common Stock.
Some of the information in this Prospectus and in the documents we have
incorporated by reference may contain forward-looking statements. Such
statements can be generally identified by the use of forward-looking words such
as "may," "will," "expect," "anticipate," "intend," "estimate," "continue,"
"believe," or other similar words. These statements discuss future expectations,
or state other "forward-looking" information. When considering such statements,
you should keep in mind the risk factors and other cautionary statements in this
Prospectus. The risk factors noted in this section and other factors noted in
this Prospectus could cause our actual results to differ materially from those
contained in any forward-looking statements.
THE CONVERSION OF THE SERIES D PREFERRED STOCK AND THE EXERCISE OF THE WARRANTS
ISSUED IN THE DECEMBER 1998 PRIVATE PLACEMENT, AS WELL AS THE EXERCISE OF
WARRANTS ISSUED UNDER VARIOUS CONSULTANT AGREEMENTS, WILL DILUTE THE VALUE OF
YOUR SHARES
The value of your Shares will be diluted upon the conversion of the
Series D Preferred Shares and upon exercise of the warrants issuable in
connection with the December 1998 Subscription Agreement and upon exercise of
the warrants we issuable in connection with certain consultant agreements.
Specifically, our Series D Preferred Shares are convertible into Common Stock at
rates which represent a discount from future market prices of our Common Stock.
This conversion may 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 upon conversion of the Series D Preferred Stock could conceivably effect
a change of control of the Company.
In addition, certain warrants which we have issued, including warrants
owned by the Selling Stockholders, entitle their holders to our Common Stock at
prices which may represent discounts from its future market prices. Such
discounts could result in substantial dilution to existing holders of our Common
Stock. The sale of such Common Stock acquired at a discount could have a
negative impact on the trading price of our Common Stock and could increase the
volatility in its trading price.
At the date of this Prospectus, we have reserved an aggregate of
4,176,354 shares of Common Stock for issuance upon exercise of options and
warrants to purchase 4,176,354 shares of our Common Stock at an exercise price
between $0.50 and $8.00 per share. The number of shares issuable upon exercise
of certain of the warrants may be adjusted pursuant to the terms of these
warrants. During the terms of the options and warrants, we must give their
holders the opportunity to profit from a rise in the market price of our Common
Stock. The existence of the warrants may adversely affect the terms on which we
may obtain additional funds in return for the issuance of our equity. Moreover,
the holders of these securities are likely to exercise their rights to acquire
our Common Stock at a time when we would otherwise be able to obtain capital
with more favorable terms than we could obtain through the exercise of such
securities.
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<PAGE>
WE HAVE A LIMITED OPERATING HISTORY; WE HAVE A HISTORY AND EXPECTATION OF
FUTURE LOSSES AND AN ACCUMULATED DEFICIT
We were incorporated in 1990 and have a limited operating history. In
addition, we recently changed our business focus from consulting and training
services to focus on products from which we derive operating income and leasing
fees, and on Internet services. As a result, any analysis of our operations in
the past has only minimal relevance to an evaluation of our net worth, our
current products and services and our prospects.
Although we have generated revenues from operations, we have
experienced substantial operating losses. We have incurred, and will continue to
incur, significant costs in connection with the development of our interactive
public access terminals and Internet operations, which may result in operating
losses. We cannot assure you as to if and when we may begin generating
significant revenues or achieve profitable operations.
We have incurred the following losses since 1996:
Fiscal year ended:
o December 31, 1996............... $1,240,695
o December 31, 1997............... $2,519,872
Nine months ended:
o September 30, 1998............... $2,183,079
As of September 30, 1998, the Company had an accumulated deficit of $ 6,933,101.
OUR NEED FOR ADDITIONAL FINANCING; THE UNCERTAINTY OF ADDITIONAL FINANCING
Our current policy is generally to own and operate our public access
terminals, which may require substantial capital investment. We intend to enter
into one or more lease financing arrangements for these terminals. While we have
arranged for financing under the December 1998 Subscription Agreement which will
raise proceeds, among other things, to cover a portion of the development,
marketing and expenses of additional public access terminals, we cannot assure
you that all transactions contemplated by the December 1998 Subscription
Agreement, such as the closing of the offering of the second and third tranches
of the Series D Preferred Stock, will occur. If all transactions contemplated by
the December 1998 Subscription Agreement do not occur, we will be required to
raise funds from other sources.
We may need to raise additional funds through public or private debt or
sale of our equity in order to respond to unanticipated competitive pressures or
take advantage of unanticipated opportunities, including acquisitions of
complementary businesses or technologies, and the development of new products.
In addition, if we experience rapid growth, we may require additional funds to
expand our operations or enlarge our organization. In any such event, our
continued operation may be dependent on our ability to procure additional
financing through sales of additional equity or debt. If we were to issue any
additional equity securities or debt securities which are convertible into
equity, such issuance could substantially dilute the interests of our security
holders existing at the time of such issuance. Such equity securities may also
have rights, preferences or privileges senior to those of the holders of our
Common Stock.
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We cannot assure you that additional financing will be available on
terms favorable to us, or that additional financing will be available at all. If
adequate funds are not available or are not available on acceptable terms, we
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 negative effect on our business, financial
condition and results of operations and could require us to materially reduce,
suspend or cease operations.
WE CHANGED OUR OPERATING FOCUS
Beginning in mid-1994, we changed our business focus from consulting
and training services to focus on products from which we derive operating income
and leasing fees and on Internet based services. Operating income is derived
from either advertising fees or fees for transactions performed on our
interactive public access terminals. Our first public access terminals
(SmartStreet(TM)) were introduced in July 1996. Our newest product is
Fastake(TM) , which we introduced in October 1998 at the East Coast Video Show
and which we expect to begin shipping in February-March, 1999. Fastake(TM) is
designed for the video industry. It permits users to search a data base for a
favorite actor, director, or by a portion of the movie name. The user can then
access a plot summary, the names of the major actors and directors, still
pictures from the movie (photographs) and a preview of the video (known as a
trailer). In a future release of the product we expect to add an electronic
commerce feature. The operations to which we are now devoting our resources are
in the early stages of development. We cannot assure you that we will be
successful in attracting new customers or retaining current customers for our
new business divisions or in generating significant revenues or profits from
such business divisions. Although we anticipate that we will begin to recognize
greater revenues from the SmartSign(TM) and Fastake(TM) public access terminals
during 1999, we cannot predict the actual timing or amount of such revenues. You
should consider our prospects 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, we must, among other things, respond to competitive developments,
attract, retain and motivate qualified product development and marketing
personnel, continue to upgrade our existing technologies, develop new
technologies and commercialize products and services incorporating such
technologies. We cannot assure you that we will be successful in addressing such
risks. In order to have the financial and technical resources to respond to
changing market demands on a timely basis, we may also need to enter into
strategic alliances and cooperate with others in an effort to develop our
products and services. We cannot assure you that entities with the necessary
technical or financial resources will be willing to enter into such alliances
with us on acceptable terms or at all.
WE DEPEND ON A NEW UNTESTED PRODUCT
In early 1996, as part of its Public Access Terminal Demonstration
Project, the City of New York entered into an agreement with us to develop
public terminals to be located in city offices and other public locations in an
effort to expedite transactions with the City of New York . Under this
agreement, the City of New York agreed to lease the first five public access
terminals, and we have the option to deploy additional terminals throughout the
New York City area at our own risk and expense, subject to the approval of
terminal locations by the City of New York . We deployed the first five public
access terminals in New York City in July 1996, we installed a sixth terminal in
August, 1997 and we installed a seventh in March 1998. The agreement was
extended through the end of the 1999 fiscal year of the City of New York (June
30, 1999). The public access terminals are configured to permit us to offer
additional services provided either by us or by third parties and to sell
advertising on such terminals. The current extended agreement requires us to pay
to the City of New York 50% of advertising and third party service revenues from
the first five installed terminals. We have been seeking, and will continue to
seek, to provide SmartStreet(TM) services to other municipalities, states and
government agencies and
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to organizations in the private sector that provide a large volume of
information, records and documents to the public. We entered into the first such
additional agreement on March 11, 1998 with the City of San Francisco. The first
public access terminal under this agreement was installed in June 1998. We may
also seek to enter into agreements with the City of New York and other customers
to provide information and services over the Internet, in order to significantly
expand the accessibility of such information and services. We also supplied
eight terminals to King County, Washington. To be profitable, we must
significantly increase the number of terminals placed in New York City and other
locations.
We anticipate that revenues from the public access terminals will be
provided by leasing fees paid by the service providers, such as the City of New
York, by advertising fees paid by company's advertising on these terminals and
by usage fees paid by consumers who obtain services through these terminals.
Although public access terminals are in operation in other municipalities, we
cannot assure you that our terminals will be able to operate consistently and
efficiently to provide the anticipated services, that members of the general
public will find the public access terminals user-friendly or that they will be
comfortable with or be willing to pay the additional cost for the convenience of
using this terminal to transact business by electronic means with the City of
New York or other service providers. We cannot assure you that the City of New
York will be satisfied with the results of the operations of our public access
terminals, or that even if they perform adequately, that the City of New York
and other potential users of similar terminals will not opt for the products of
our competitors. Although we have an agreement to provide public access
terminals to Kings County, Seattle, Washington, our 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 terminals.
Furthermore, the municipalities, states and other government agencies that
constitute a primary target market for our terminals are subject to potentially
severe budgetary constraints and cuts that may limit their ability to fund the
acquisition of new technology such as these terminals.
In addition, we anticipate that a significant portion of the revenues
related to the public access terminals 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 terminal and from commercial
advertising by local and national companies and businesses. We cannot assure you
that commercial entities will be interested in marketing or advertising their
products and services by means of public access terminals providing government
services. Neither can we assure you that such sale of services or advertising
can provide significant revenues to us, or that such sale of services or
advertising, if commenced, will prove to be effective and will be continued.
As of December 31, 1997, all our public access terminals installed in
the New York City area were available to provide City of New York information
and transaction services, but those terminals did not provide or carry any paid
advertising or third party services. Revenues from advertising began in May
1998, from contracts signed in March 1998. Advertisers in the New York area
include Microsoft, Consolidated Edison and Isabella Geriatric Center.
Advertisers in San Francisco include Microsoft, World Gem Showcase and Plug
Busters. To date, we have achieved about $3,000 in monthly fees per public
access terminal for the terminals initially installed in New York and San
Francisco. We cannot assure you that revenues from additional terminals 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.
In October 1998 we first demonstrated a new product based on our
SmartStreet(TM) technology called Fastake(TM), which is designed for the video
industry. Deliveries of this product (in many cases on a trial basis) are
expected to begin in February-March, 1999. Initially, 30 units have been ordered
form the manufacturer. An additional 70 units are expected to be ordered in the
near future. While we have informal commitments for
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placement of the Fastake(TM) public access terminals in pilot programs in
certain locations, we cannot assure you that pilot agreements will be signed, or
will be extended into long term agreements even in the event they are signed.
Neither can we assure you that when we install these products they will prove to
be effective and continue to be in demand. If the Fastake(TM) units are not
placed in their initial locations we cannot assure you that we will be able to
find other locations on the same terms or at all.
WE DEPEND ON CERTAIN LICENSES, INSTALLATION AND MAINTENANCE SERVICES
Fastake(TM) uses databases compiled by and licensed from Video
Pipeline, Inc. and film trailers licensed from Screenplay, Inc. If these
licenses were canceled for any reason, it may be difficult or expensive to
license similar data bases from other providers. We also rely on installation
and maintenance services for our Fastake(TM) public access terminals which we
receive from International Business Machines (IBM). These contracts could be
canceled on short notice. If such contracts were canceled by IBM, this could
have a negative affect on our sales as well as on the quality of service which
we could provide to our customers.
WE CANNOT BE CERTAIN ABOUT OUR PRODUCT DEVELOPMENT
Hardware and software as complex and sophisticated as that employed by
us in our public access terminals commonly experience errors, or "bugs," both
during development and subsequent to commercial introduction. As such terminals
are installed in the City of New York and elsewhere, we may identify such
problems, either in the software platforms developed by others or in our own
proprietary software. We cannot assure you 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
the 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. Furthermore, bugs involving the proprietary
software of third parties could require the redesign of our proprietary
software. Delays in debugging or modifying our products could materially and
adversely affect our competitive position with respect to existing and new
technologies and products offered by our competitors. In particular, delays in
remedying existing or newly identified errors in our public access terminals
could materially and adversely affect our ability to achieve significant market
penetration with them.
WE ARE VULNERABLE TO TECHNOLOGICAL CHANGES; WE NEED TO BE CONTINUOUSLY
ACCEPTED IN RAPIDLY CHANGING MARKETS
The markets we serve experience 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,
more advanced products produced by our competitors could erode our position in
our existing markets or other markets that we may enter. It is difficult to
estimate the life cycles of our products and services. Our future success will
depend, in part, upon our ability to enhance existing products and services and
to develop new products and services on a timely basis. In addition, our
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. We also must
address increasingly sophisticated customer needs. In particular, the success of
our public access terminals will depend in large measure on their being
user-friendly to the public and capable of operating reliably. We might
experience difficulties that could delay or prevent the successful development,
introduction and marketing of new products and services. New products and
services and enhancements might not meet the requirements of the marketplace and
achieve market acceptance. If these things happen, they would materially and
negatively affect our financial condition and results
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of operations.
WE HAVE SIGNIFICANT COMPETITION
We are subject to significant competition from different sources for
our different services. Our Internet public access terminal business competes
with numerous companies, including IBM, North Communications, Golden Screens and
ATCOM/INFO. The City of New York has also awarded contracts, comparable to the
contract awarded to us, to North Communications and DSSI (which awarded a
subcontract to Golden Screens), both of which have sold similar public access
terminals to other municipalities. After fulfillment of the initial contracts,
if the City of New York chooses to install additional public access terminals
throughout the New York City, it may award to others, and not to us, the
contract to install such additional terminals. Further, other municipalities or
other entities might not seek to acquire these terminals from us. In addition,
if this business is successful, 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 ours. A total of 29
companies competed for the contracts with the City of New York, many of which
can be expected to compete aggressively in other competitive situations.
Our Fastake(TM) business competes with a number of companies,
principally Muze, Inc. and Advanced Communication Design Inc., which have been
in the video field for far longer than us. Although we believe that Fastake(TM)
is a competitive product, we cannot assure you that these or other companies
with far greater resources than ours might enter the field and negatively affect
our Fastake(TM) business prospects in this market.
WE MAY HAVE DIFFICULTY COMPLYING WITH GOVERNMENT CONTRACT
REQUIREMENTS AND GOVERNMENT REGULATION
We are initially marketing our public access terminals to entities
including municipalities, states and other government agencies, among others.
Governmental agencies and authorities are subject to public contract
requirements and regulations which vary from one jurisdiction to another. Some
of the issues which these requirements and regulations relate to are listed
below:
o bidding procedures;
o audits;
o guarantees;
o insurance coverage;
o non-discrimination in hiring practices;
o access to the disabled;
o record-keeping.
In San Francisco, we may need to make the public access terminals
accessible to blind persons. We are currently attempting to develop a program to
make our public access terminals accessible to blind persons, with the aid and
cooperation of various organizations for the blind.
Some public contract requirements may be onerous or even impossible for
us to satisfy, such as requirements for large guarantees, and we not be able to
make sales in these jurisdictions. In addition, public contracts frequently
require a formal competitive bidding process. The process to date has been and
may continue to be long. Even following contract award, significant delays in
contract implementation are possible.
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WE RELY ON MICROSOFT IN MARKETING
We have established a strategic relationship with Microsoft that we
believes is important to our sales, marketing and support activities as well as
to our product development efforts, relating to our public access terminals.
Microsoft supports us in marketing our public assets and services and has agreed
to exhibit our public access terminals in Microsoft displays at various trade
shows. It has also issued public statements that included favorable references
relating to our products. Additionally, Microsoft currently advertises on public
access terminals in New York City. It is possible that Microsoft would not
continue to support our products, continue our participation in the Developer
Days program, continue to advertise on our public access terminals or enter into
such agreements with us in the future. Such an eventuality would materially
negatively affect us.
WE DEPEND UPON MICROSOFT'S WINDOWS OPERATING SYSTEM
We have invested in software built on Microsoft's Internet Explorer,
Windows Internet Information Server, Windows NT and BackOffice and Office
platforms. This software uses programming languages designed for these operating
systems. If these platforms do not remain competitive, we might have to spend
significant time and resources to make our software compatible to other
platforms. Any factor negatively affecting the demand for, or use of,
Microsoft's Windows operating system could have an impact on demand for our
products or services which in turn would have a material negative effect on our
business, results of operations and financial condition. Additionally, any
changes to the Windows operating system that require us to make changes to our
products would negatively affect us if we were unable to develop or implement
such changes in a timely fashion.
WE DEPEND UPON COMMON CARRIERS AND INTERNET ACCESS PROVIDERS
We are also dependent on various regulated common carriers and
unregulated Internet access providers, such as AT&T, Bell Atlantic and PSI. Our
service or profitability could be materially and negatively effected if such
carriers or providers cannot timely respond to our requirements for service,
fail to provide reliable service or increase their rates substantially.
WE DEPEND ON THE INTERNET
Sales of our Internet-related products and services will depend in
large part upon the growth of the Internet industry. We depend on a robust
Internet industry and infrastructure for providing commercial Internet access
and carrying Internet traffic, and we depend on increased commercial use of the
Internet.
WE HAVE A LIMITED CUSTOMER BASE
The long term success of our business will depend to a large extent on
our ability to enter into arrangements with municipalities, other government
entities and private entities to make services available through public access
terminals and with advertisers to use the terminals as an advertising medium.
Ultimately, however, it will also depend upon the willingness of consumers to
pay fees to transact business by means of the public access terminals. To date,
pursuant to the agreement with the City of New York, we operate only public
terminals, which have been available for public use for a short period of time.
Additionally we supplied ten public access terminal's to Kings County, Seattle
Washington and one public access terminal to the City of San Francisco. The
decision of the City of New York to acquire public access terminals from
providers other than us would have a direct and materially negative effect on
our prospects and could also decrease our ability to
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market the public access terminals to other potential service providers and
advertisers. In addition, we cannot assure you that our initial public access
terminals will perform on a commercial basis as anticipated or that we will be
able to install and operate additional public access terminals pursuant to the
agreement with the City of New York. Nor can we assure you that the City of New
York will seek to acquire additional terminals or that we will secure a contract
to supply additional terminals to the City of New York. With regard to other
potential users, we cannot assure you that we will succeed in marketing our
public access terminals to other potential users, or that we will be able to
attract additional service providers or advertisers to public access terminals
that may be located in New York City area or elsewhere.
Historically, we have derived a significant portion of our revenues
from a relatively limited number of customers. During the nine months ended
September 30, 1998, two customers accounted for approximately 81% of our
revenues. During 1997, one customer accounted for approximately 84% of our
revenues, and during 1996, two customers accounted for approximately 71% of our
revenues. The services provided to such customers were consulting and related
services and, more recently, services related to the development of Intranet and
public access terminal technology. We cannot assure you that such customers or
others will retain us to install public access terminals or to provide such
services to them in the future. So far we have not derived any revenue from
Fastake(TM), which is only scheduled to be first shipped in February-March 1999.
THERE IS RISK INVOLVED IN OUR MANUFACTURING ACTIVITIES
We are responsible for the design of our public access terminals.
Subcontractors are responsible for the engineering and manufacturing of their
hardware and graphical components. Only a limited number of public access
terminals have been built to date, so it is difficult for us to predict if our
current subcontractors will be able to engineer and produce such terminals on a
satisfactory basis. While we believe that we could arrange to have public access
terminals built by other subcontractors on comparable terms, we would experience
costs and delays if we needed to do so. Our future success will depend in part
on our ability to retain subcontractors and maintain good relationships with
subcontractors, because we need to assure the timelines and quality of the
manufacture of our public access terminals.
THERE IS POTENTIAL FLUCTUATION IN OUR QUARTERLY OPERATING RESULTS
Our quarterly operating results have in the past and may in the future
vary significantly. These variations depend upon factors such as the timing of
significant orders, which in the past have been, and may be in the future,
delayed from time to time due to delays in the contracting process. The
potential customers for our public access terminals 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 us. Our Fastake(TM) public access terminals are
dependent on agreements with distributors, video stores and studios (to provide
advertising support). To date, only one distributor agreement has been signed
(with Plaza Entertainment), and no agreements have been signed with video stores
or studios. Additional factors contributing to variability of operating results
include the following:
o the pricing and mix of services and products which we sell;
o terminations of our service;
o new products which we or our competitors introduce;
o market acceptance of new and enhanced versions of our products and services;
o changes in pricing or marketing policies by our competitors and our
responses thereto;
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o our ability to obtain sufficient vendors;
o our ability to obtain supplies of sole or limited source components;
o our ability to make changes in our network infrastructure costs, as a result
of demand variation or otherwise;
o and the lengthening of our sales cycle due to expansion and the timing of
the expansion of our network infrastructure.
Variations in the timing and amounts of revenues and costs could have a
materially negative effect on our quarterly operating results.
WE DEPEND UPON KEY MEMBERS OF OUR MANAGEMENT
Our business is greatly dependent on the efforts of our executive
officers and key employees, and on our ability to attract key personnel. In
particular, our future success is dependent upon the personal efforts of our
founders, David E. Y. Sarna, our Chairman, Co-Chief Executive Officer, Secretary
and Director and George J. Febish, our President, Co-Chief Executive Officer,
Treasurer and Director. We have entered into employment agreements with each of
Messrs. Sarna and Febish, which terminate on December 31, 2001. We have in place
key person life insurance policies, of which we are 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 our executive officers or other key employees could
delay our ability to fully implement our operating strategy, which could have a
materially negative effect on our business, operating results and financial
condition.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN EMPLOYEES AND
CONTRACT PROVIDERS
Our success will depend in large part upon our ability to attract,
develop, motivate and retain highly skilled technical employees. In particular
we must be able to attract software developers, project managers and other
senior personnel, as well as independent providers of creative content for our
public access terminals 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 we expect to continue to be able to attract and retain
sufficient numbers of highly skilled technical employees, developers, project
managers and independent content providers for the foreseeable future, there can
be no assurance that we will be able to do so. The loss of some or all of our
project managers and other senior personnel could have a materially adverse
impact on us, particularly on our 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 employed by us for any specific
term; however, substantially all our key employees are parties to
nonsolicitation, confidentiality and noncompetition agreements with us.
OUR SUCCESS DEPENDS UPON OUR PROPRIETARY TECHNOLOGY
Our success and ability to compete is dependent in part upon our
proprietary technology. While we rely on trade secret, contract, trademark,
patent and copyright law to protect our technology, we believe that other
factors are more essential to establishing and maintaining a technology
leadership position. Theses factors include: the technological and creative
skills of our personnel, new product developments, frequent product
enhancements, name recognition and reliable product maintenance. We presently
have three patents or patent applications pending. There can be no assurance
that such patent applications will be allowed or even if such applications are
allowed that others will not develop technologies that are similar or superior
to our technology.
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The source code for our proprietary software is protected as a trade secret. In
addition, we do not sell or license our technology to third parties, but rather
deliver services through our public access terminals. Our proprietary software
is not disclosed to third parties. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy or otherwise obtain
aspects of our products or to obtain and use information that we regard as
proprietary or to develop similar technology independently. Policing
unauthorized use of our products is difficult. In addition, effective trade
secret and copyright protection may be unavailable or limited in certain foreign
countries. We cannot assure you that the steps we have taken will prevent
misappropriation of our technology. In addition, litigation may be necessary in
the future to enforce our intellectual property rights, to protect 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 negative effect on our business, operating results or
financial condition.
Certain technology used in our 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, in the event any of
these licenses or leases is terminated or in the event the underlying programs
are discontinued our operations may be materially negatively affected.
Replacement of certain technologies which we license or lease could be costly
and could result in product delays which would materially and negatively affect
our operating results. While it may be necessary or desirable in the future to
obtain other licenses or leases relating to one or more of our products or
services or relating to current or future technologies, we cannot assure you
that we will be able to do so on commercially reasonable terms or at all.
WE ARE EXPOSED TO RISK OF SYSTEM FAILURE, RISKS ASSOCIATED WITH THE
SECURITY OF OUR SYSTEMS AND LIABILITY RISKS
Our operations are dependent upon our ability, and the ability of our
suppliers, such as AT&T, Bell Atlantic and PSI to protect our network
infrastructure against damage from fire, earthquakes, power loss,
telecommunications failures and similar events. Despite the precautions we take,
the occurrence of a natural disaster or other unanticipated problems at our
network operations center or public access terminals in the future could cause
interruptions in the services we provide. In addition, there could be
interruptions in the services we provide if our telecommunications providers
fail to provide the data communications capacity we require as a result of a
natural disaster, operational disruption or for any other reason. Any damage or
failure that causes interruptions in our operations could have a material
negative effect on our business, financial condition and results of operations.
Our public access terminals are designed to operate with reduced functionality
even without connection to telecommunication lines. However, a substantial
failure could negatively affect our business.
Despite the implementation of security measures, the core of the
infrastructure of our network is vulnerable to computer virus attacks and other
disruptive problems. In the past, we and our Internet access providers have
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 our computer systems and in
the computer systems of our customers, which may result in us being liable to
our customers and also may deter potential users. Although we intend to continue
to implement industry-standard security measures, such measures have been
circumvented in the past, and we cannot assure you that measures we implement
will not be circumvented in the future. Eliminating computer viruses and
alleviating other security problems may require interruptions, delays or
cessation of service to our customers which could have a material negative
effect on our financial condition and results of operations.
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Our success will depend upon the capacity, reliability and security of
our network infrastructure, including processing capability, and the facilities
and capacity leased from access providers and telecommunications vendors. We
must continue to expand and adapt our 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 our network
infrastructure will require substantial financial, operational and management
resources. We cannot assure you that we will be able to expand or adapt our
network infrastructure to meet additional demand or our customers' changing
requirements on a timely basis, at a commercially reasonable cost, or at all. If
we fail to expand our network infrastructure on a timely basis or adapt it
either to changing customer requirements or to evolving industry standards, our
business, financial condition and results of operations could be materially
negatively affected.
The public access terminals 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. Accordingly, we have only limited experience with actual consumer
interaction with the public access terminals. While we have designed the public
access terminals to be resistant to vandalism, there can be no assurance that
vandals will not succeed in damaging or disabling these terminals. In addition,
although we believe it is unlikely, users of the public access terminals may
seek to hold us liable for injuries allegedly incurred in connection with using
them.
While we maintain insurance covering, among other things , losses
resulting from business interruptions caused by system failures, damages to
public access terminals or claims by users of the public access terminals, with
an annual limit of $2,000,000, and a $5,000,000 umbrella policy, we cannot
assure you 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 us.
WE HAVE RISK OF LIABILITY DUE TO FUTURE REGULATION OF THE INTERNET ACCESS
INDUSTRY
We are currently not 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
(see Risk factors -- risks associated with compliance with government contract
requirements).
Changes in the regulatory environment relating to the Internet access
industry could have a negative effect on our 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. We cannot predict the impact, if
any, that future laws and regulations or legal or regulatory changes may have on
our 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. Parties have instituted several private
lawsuits seeking to impose such liability upon on-line services companies and
Internet access providers. In addition, there is proposed legislation which
would impose liability for or prohibit the transmission on the Internet of
certain types of information and content. We may be exposed to such potential
liability in the event we were to make services such as the one offered through
our public access terminals available over the Internet. Although we carry
insurance, it may not be adequate to compensate us in the event we become liable
for information carried on or disseminated through our systems.
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OUR CURRENT MANAGEMENT HAS CONTINUING CONTROL OF THE COMPANY
As of the date of this Prospectus, David E. Y. Sarna, our Chairman and
Co-Chief Executive Officer, and George J. Febish, our President and Co-Chief
Executive Officer, each of whom is also a director and a principal stockholder
of ours, together with The David E. Y. Sarna Family Trust and The George J.
Febish Family Trust, beneficially own, in the aggregate, approximately [32%] of
our issued and outstanding shares of our Common Stock. As a result, assuming no
exercise of any of the warrants and options or convertible securities which we
have issued, and subject to the effect of additional voting shares which we may
issue in the future, these stockholders could have effective control over the
Company and on the outcome of any matters submitted to our stockholders for
approval, which influence might not be consistent with the interests of other
stockholders. In addition, if they were to act together, they could under
certain circumstances be able to elect a majority of our directors, deter or
cause a change in control of the Company and otherwise generally control our
affairs. On the other hand, the conversion rights which may be exercised
pursuant to the December 1998 Subscription Agreement could conceivably effect a
change of control of the Company if the trading price of our Common Stock were
to decrease significantly.
WE DO NOT ANTICIPATE THE PAYMENT OF DIVIDENDS
Other than distributions made prior to 1993, when we were a
closely-held "S corporation," we have not paid any dividends on our Common Stock
in the past, and do not anticipate that we will declare or pay any dividends in
the foreseeable future.
SHARES THAT ARE ELIGIBLE FOR SALE IN THE FUTURE MAY AFFECT THE MARKET PRICE
OF OUR COMMON STOCK
A significant number of the outstanding shares of our Common Stock are
"restricted securities" as that term is defined in Rule 144 promulgated under
the Securities Act. The restricted shares may be sold pursuant to an effective
registration statement under the Securities Act, in compliance with the
exemption provisions of Rule 144 or pursuant to another exemption under the
Securities Act. In the absence of any agreement to the contrary, the outstanding
restricted Common Stock could be sold in accordance with one or more other
exemptions under the Securities Act (including Rule 144). Rule 144, as amended,
permits sales of restricted securities by any person (whether or not an
affiliate) after one year, at which time sales can be made subject to the Rule's
existing volume and other limitations and by non-affiliates without adhering to
Rule 144's existing volume or other limitations after two years. In general, an
"affiliate" is a person with the power to manage and direct our policies. The
SEC has stated that, generally, executive officers and directors of an entity
are deemed affiliates of the entity. Future sales of substantial amounts of
shares in the public market, or the perception that such sales could occur,
could negatively affect the price of the shares in any market that may develop
for the trading of such shares.
WE CANNOT ASSURE YOU OF CONTINUED NASDAQ LISTING; WE MAY BE SUBJECT TO
PENNY STOCK REGULATIONS
The Board of Governors of the National Association of Securities
Dealers, Inc. has established certain standards for the continued listing of a
security on the Nasdaq SmallCap Market(TM). The maintenance standards for
continued listing of our Common Stock on Nasdaq require, among other things,
that the minimum bid price of our Common Stock is at least $1.00 and that we
maintain net tangible assets of at least $2,000,000. Net tangible assets is
total assets (excluding goodwill) minus total liabilities. As of September 30,
1998, our net tangible assets did not meet the net tangible assets requirement.
However, our management believes that when
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the additional funding obtained in the December 1998 funding is accounted for,
this should have the effect of enabling our Common Stock to remain quoted on
Nasdaq. The closing bid price of our Common Stock as of February 5, 1999 was $3
3/16. If our securities were to be excluded from Nasdaq, it may negatively
affect the prices of our securities and the ability of holders to sell them. In
the event that our securities are not listed on Nasdaq, trading would be
conducted in the "pink sheets" or through the National Association of Securities
Dealers, Inc. Electronic Bulletin Board. In the absence of our Common Stock
being quoted on Nasdaq, trading in our Common Stock would be covered by Rule
15g-9 promulgated under the Securities Exchange Act of 1934 for non-Nasdaq and
non-exchange listed securities. Under such rule, broker/dealers who recommend
such securities to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale. Securities are exempt from this rule if the market price is at least
$5.00 per share.
The Commission adopted regulations that generally define a penny stock
to be any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Unless an exception is available, the regulations
require the delivery, prior to any transaction involving a penny stock, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith. If our Common Stock were subject to the regulations on penny stocks,
the market liquidity for our Common Stock would be severely affected by limiting
the ability of broker/dealers to sell our Common Stock and the ability of
purchasers to sell their securities in the secondary market. We cannot assure
you that trading in our securities will not be subject to these or other
regulations in the future which would adversely affect the market for such
securities.
RISK RELATED TO THE YEAR 2000 ISSUE
Many currently installed computer systems and software products accept
only two digit codes to define a specific year. Computer equipment and software
with embedded technology which are time-sensitive may recognize the two digit
date code "00" as the year 1900 rather than the year 2000, resulting in system
failure or miscalculations. This problem is generally referred to as the "Year
2000 issue". We use software and related technologies that will be affected by
the "Year 2000 issue." We began the process of identifying the changes required
to our computer programs and hardware during 1996. We believe that all of our
major programs and hardware are Year 2000 compliant. We believe that we will not
incur any significant costs between now and January 1, 2000 to resolve Year 2000
issues. However, we cannot assure you that other companies' computer systems and
applications on which our operations rely will be timely converted, or that any
such failure to convert by another company would not have a material negative
effect on our systems and operations. Furthermore, there can be no assurance
that the software that we use which has been designed to be Year 2000 compliant,
contains all necessary date code changes.
THE POSSIBLE NEGATIVE EFFECT OF ANTI-TAKEOVER PROVISIONS, A STAGGERED
BOARD AND PROVISIONS RELATING TO STOCKHOLDER ACTIONS
There are certain provisions of Delaware law and certain provisions in
our Certificate of Incorporation, as amended, and in our Amended and Restated
Bylaws, which could make it more difficult for a third party to acquire control
of the Company and could discourage a third party from attempting to do so.
Certain of these provisions allow us to issue Preferred Stock with rights senior
to those of our 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. In addition, Our
Board of Directors is divided into classes which serve in staggered terms,
meaning that the Board members may only be replaced a few at a time. This fact
could have the effect of delaying
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a change in control of the Company. In addition, we have 5,000,000 shares of
authorized Preferred Stock, which we could issue in the future without further
stockholder approval and upon such terms and conditions, and with such rights,
privileges and preferences, as the Board of Directors may determine. The rights
of the holders of our Common Stock will be subject to, and may be negatively
affected by, the rights of the holders of Preferred Stock that may be issued in
the future. In addition to the issuance of the Series D Preferred Stock under
the terms of the December 1998 Subscription Agreement, we may issue additional
Preferred Stock in connection with future financing. See "Description of
Securities - Delaware Takeover Statute and Certain Charter Provisions."
THERE ARE LIMITATIONS ON THE LIABILITY OF OUR DIRECTORS AND OFFICERS
Our Certificate of Incorporation, as amended, and our Amended and
Restated Bylaws contain provisions limiting the liability of our directors 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 us or to our stockholders except in certain limited
circumstances. In addition, our Certificate of Incorporation, as amended, and
our Amended and Restated Bylaws contain provisions requiring us to indemnify our
directors, officers, employees and agents serving at our request, 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. These
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 Selling Stockholders are selling all of the Shares covered by this
Prospectus for their own account. Accordingly, we will not receive any of the
proceeds from the resale of the Shares. We may receive proceeds from the
exercise of the warrants. We will use such net proceeds for general corporate
purposes. We have agreed to bear the expenses relating to the registration of
the shares, other than brokerage commissions and expenses, if any, which will be
paid by the Selling Stockholders.
DIVIDEND POLICY
We have never declared or paid cash dividends on our Common Stock. We
currently anticipate that we will retain all available funds for use in the
operation of our business. As such, we do not anticipate paying any cash
dividends on our Common Stock in the foreseeable future.
SELLING STOCKHOLDERS
We issued securities convertible into or exercisable for a substantial
number of the shares covered by this Prospectus to the Selling Stockholders in
connection with the December 1998 private placement under the terms of a
Subscription Agreement between certain of the Selling Stockholders and
ourselves, dated December 30, 1998. This Subscription Agreement was an amendment
to the Private Equity Line of Credit Agreement dated May 13, 1998, as amended,
with the same Investors. Under the terms of this Subscription Agreement we
issued 10,000 shares of Series D Preferred Stock and warrants to purchase 50,000
shares of our Common Stock, and may issue 10,000 additional Series D Preferred
Shares and warrants to purchase 50,000 additional shares of our Common Stock,
when additional funds are paid to us. Under the terms of the original Private
Equity Line of Credit Agreement, the same Investors purchased a total of 444,444
shares of our Common Stock, 12,000 shares of our Series C Preferred Stock and
warrants to acquire 18,000 shares of our Common Stock. Additionally, certain of
the Selling Stockholders are offering for resale 1,050,000 shares of our Common
Stock which, in large part, may be acquired upon the exercise of warrants issued
pursuant to consulting and public relations agreements.
The following table lists certain information regarding the Selling
Stockholders' ownership of shares of our Common Stock as of February __ , 1999,
and as adjusted to reflect the sale of the shares. Information concerning the
Selling Stockholders may change from time to time.
The information in the table concerning the Selling Stockholders who
may offer Shares hereunder from time to time is based on information provided to
us by such stockholders, except for the assumed conversion of the Series D
Preferred Stock into Common Stock, and the assumed exercise of the warrants by
their holders, which are based solely on the assumptions referenced in footnotes
(1), (2), (3)(4)(5) and (6) to the table.
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<TABLE>
<CAPTION>
Shares of Shares of Common Stock Owned
Name of Selling Stockholder Common Stock Shares of after Offering (6)
Owned Prior to Common Stock -------------------------------------------
Offering to be Sold (5) Number Percent
----------------- ---------------- ------------------ -----------------
<S> <C> <C> <C>
Avalon Capital, Inc. (1) 730,285 714,285 16,000 *
Austost Anstalt Schaan (1) 1,087,429 1,071,429 16,000 *
Balmore Funds S.A. (1) 1,087,429 1,071,429 16,000 *
Settondown Capital (1) 151,857 142,857 9,000 *
AJC Equities (2) 550,611 550,000 611 *
Shai Stern(3) 12,500 12,500 0 0
Seth Fireman(3) 9,000 9,000 0 0
Jacqueline Resto(3) 2,000 2,000 0 0
Takashi Krum(3) 1,000 1,000 0 0
Richard Land(3) 1,000 1,000 0 0
Global Management Corp.(3) 31,000 31,000 0 0
Dian Griesel(3) 18,500 18,500 0 0
Continental Capital & Equity(4) 473,500 425,000 48,500 *
================= ================ ================== ==================
Total 4,156,111 4,050,000 106,111 0
- -----------------
* Less Than 1 Percent.
</TABLE>
(1) Includes 3,000,000 shares of our Common Stock issuable upon conversion
of the Series D Preferred Stock and upon the exercise of warrants
issued pursuant to the December 1998 Private Placement. Because the
number of shares of Common Stock issuable upon conversion of the Series
D Preferred Stock is dependent upon the market price of our Common
Stock (i.e., the average closing bid price for the Common Stock for the
five trading days ending on the day prior to the conversion date), the
actual number of shares of Common Stock which shall be issued upon such
conversion and, consequently, offered for sale under this Registration
Statement, cannot be determined at this time.
In order to provide a cushion for fluctuation in the market price of
our Common Stock, we have agreed to include herein such number of
shares our Common Stock as would be issuable upon conversion in full of
the Series D Preferred Stock and exercise in full of the warrants
issued pursuant to the December 1998 Private Placement, based on the
formula in the Certificate of Designation of the Series D Preferred
Stock and assuming the market price at each conversion date were
approximately $1.00. The number of shares attributed to the Investors
and the Placement Agent is based on the relative number of Series D
Preferred Stock issue to each of them.
The Investors have agreed to vote the shares beneficially held by them
in favor of nominees to our board of directors who are nominated by our
then current board of directors.
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Also includes 48,000 shares issuable upon the exercise of warrants
issued to the Investors in connection with the Private Equity Line of
Credit Agreement dated May 13, 1998, as amended, and 9,000 shares
issuable to the Placement Agent upon exercise of a warrant issued in
connection with the same agreement.
(2) Includes 50,000 shares of Common Stock issued and outstanding and
500,000 shares of Common Stock issuable, at an exercise price of $1.00
per share, upon the exercise of a warrant issued to Professional
Concepts and Planning, Inc. doing business as AJC Equities ("AJC"), in
accordance with a Financial Advisory and Consulting Agreement between
AJC and ourselves (the "AJC Warrant"). AJC is one of the firms which
make a market for our Common Stock. AJC has agreed to vote the shares
which may be issued to them under the foregoing warrant in the same
manner as the majority of our board of directors shall recommend. Also
includes an additional 611 shares of Common Stock and Common Stock
underlying warrants owned by AJC.
(3) Includes shares underlying a warrant issued to this holder upon
assignment of a portion of a warrant we originally issued to The
Investors Relations Group ("IRG"), a public relations firm. We
originally issued the warrant to IRG to purchase 125,000 shares of our
Common Stock at an exercise price of $2.50. The Investors Relations
Group ceased to act as our public relations firm in November, 1998 and,
accordingly, the number of shares issuable pursuant to the original
warrant was reduced to 75,000.
(4) Includes 325,000 shares of Common Stock issued and outstanding and
100,000 shares of Common Stock issuable (of which 50,000 are issuable
at an exercise price of $3.00 per share and 50,000 are issuable at an
exercise price of $5.00 per share) upon the exercise of a warrant
issued to Continental Capital & Equity Corp. ("Continental") in
accordance with a public relations agreement between Continental and
the Company. Ownership of the remaining shares is based on information
filed by Continental with the SEC on Schedule 13G on December 28, 1998.
(5) Assumes that each Selling Stockholder will exercise all of its warrants
into Common Stock; also assumes full conversion of the Series D
Preferred Stock.
(6) Assumes that all of the shares of Common Stock offered hereby are sold.
The Certificate of Designation of the Series D Preferred Stock, as
amended, provides that on each conversion date of the Series D Preferred Stock,
the number of shares of Common Stock to be issued to each holder, when added to
other shares owned by the holder, will not exceed 9.99% of the shares of our
Common Stock outstanding on such conversion date.
The Selling Stockholders are not affiliated with us. Except as noted
above, the Selling Stockholders have not had any material relationship with us
within the past three years.
DESCRIPTION OF SECURITIES
General
We are 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. As of February 9, 1999 we had 6,560,802 shares of Common Stock
issued and outstanding.
The Private Placement
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Pursuant to the terms of the Amended and Restated 6% Series D
Convertible Preferred Stock Subscription Agreement, formerly known as the
Private Equity Line of Credit Agreement, dated as of December 30, 1998 (the
"Subscription Agreement"), Avalon Capital, Inc., Balmore Funds S.A. and Austost
Anstalt Schaan (the "Investors") agreed, subject to the fulfillment of various
conditions, to purchase up to $ 2,000,000 of our 6% Series D Convertible
Preferred Stock, in three separate tranches. On December 31, 1998, the Investors
purchased the first tranche of 10,000 shares of Series D Preferred Stock and a
Warrant to purchase an aggregate of 50,000 shares of our Common Stock for an
aggregate purchase price of $1,000,000.
Pursuant to the Subscription Agreement, and subject to the fulfilment
of certain conditions, the Investors will purchase 10,000 additional shares of
Series D Preferred Stock at an aggregate principal amount of $1,000,000. We will
issue these additional shares of Series D Preferred Stock to the Investors in
two tranches (of 5,000 Preferred Shares each), with the first tranche of
additional shares of Series D Preferred Stock occurring on the ninetieth day
following the effectiveness of this registration statement. We will also issue
to the Investors Warrants to purchase an aggregate of 25,000 shares of our
Common Stock for each of the two additional tranches of the Series D Preferred
Stock. We have the option of terminating each of the additional portions of the
funding described above prior to their scheduled closing. For a description of
the rights and preferences of our Series D Preferred Stock see the description
below.
Warrants
The Investors and the placement agent may exercise the warrants issued
to them in connection with the Private Placement, subject to the terms and
subject to the conditions set forth in the warrants, for a five year period.
Upon exercising the warrants the Investors and the placement agent will be
entitled to subscribe for and purchase shares of our Common Stock at an exercise
price of $2.44 per share. The exercise price and the number of shares for which
the warrants are exercisable is subject to adjustment as provided in the
warrant, including, but not limited to, anti-dilution provisions pertaining to
the declaration of stock dividends, a merger or our consolidation or
liquidation.
Compensation to the Placement Agent.
At the initial closing of the Series D Preferred Stock on December 31,
1998, we issued to the placement agent, Settondown Capital International Ltd.
(The "Placement Agent"), 500 shares of our Series D Preferred Stock, a Warrant
to purchase 40,000 shares of our Common Stock and 2% of the investment amount in
cash, as placement agent fees. At the closing of each of the additional portions
of the funding (at an aggregate principal amount of $1,000,000), we will pay the
placement agent (i) 2% of the investment amount in cash, (ii) 5% of the number
of shares of Series D Preferred Stock issued to the Investors, and (iii) a
Warrant to purchase 20,000 shares of our Common Stock.
Common Stock
Holders of shares of our 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 senior rights of our
Preferred Stock, the holders of our Common Stock are entitled to receive
dividends, if any, as may be declared by the Board of Directors from funds
legally available from time to time for this purpose. Upon liquidation or
dissolution of the Company, the remainder of our assets will be distributed
ratably among the holders of our Common Stock, after the payment of all
liabilities and payment to the holders of any Preferred Stock. Our 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 our outstanding
shares of Common Stock are fully paid and
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nonassessable.
Preferred Stock
Our Preferred Stock may be issued from time to time by our Board of
Directors without the approval of the our stockholders. Our 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 our Certificate of Incorporation or
with Delaware law. Our Board of Directors, without stockholder approval, could
issue Preferred Stock which would negatively affect the voting and other rights
of the holders of our Common Stock.
Series D Preferred Stock
Our Board of Directors has authorized the issuance of a series of
Preferred Stock, designated as Series D Preferred Stock, and consisting of
30,000 shares. Each such share of Series D Preferred Stock has a stated value of
$100 pursuant to a Certificate of Designation, as amended. We are registering a
total of approximately 2,820,000 shares of our Common Stock underlying the
Series D Preferred Stock as part of this Prospectus.
Dividends. The holders of the shares of our Series D Preferred Stock
are entitled to receive, when and as declared by our Board of Directors,
dividends at the yearly rate of six percent of the Purchase Price, payable, at
the discretion of our Board of Directors, in Common Stock or cash. Dividends
shall accrue on each share of the Series D Preferred Stock from the date of
initial issuance and be cumulative, whether or not we have profits, surplus or
other funds legally available for the payment of dividends. All accrued
dividends shall be immediately due and payable on the date of conversion of such
shares of Series D Preferred Stock into our Common Stock.
Preferences on Liquidation. In the event of our voluntary or
involuntary liquidation, dissolution or winding up, the holders of shares of our
Series D Preferred Stock then outstanding shall be entitled to be paid, out of
our assets available for distribution to our stockholders, an amount per share
of Series D 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 our liquidation, dissolution, or winding
up, our assets available for distribution to our stockholders shall be
insufficient to pay the holders of the Series D Preferred Stock the full
Liquidation Preference, the holders of the Series D Preferred Stock shall all
share in any distribution of assets, each getting a relative share of the
distribution based on their relative holdings of the Series D Preferred Stock.
Conversion Rights. The holders of the shares of our Series D Preferred
Stock may convert each share of such Preferred Stock into shares of our Common
Stock at a conversion rate determined by dividing $100, the purchase price per
share of Series D Preferred Stock, by the lesser of (a) 80% of the average
closing bid price of our Common Stock as reported by Bloomberg, LP for the five
trading days preceding the date on which the holder of the Series D Preferred
Stock has sent us a notice of conversion, or (b) $2.03. The Certificate of
Designation of the Series D Preferred Stock, as amended, provides that on each
conversion date of the Series D Preferred Stock, the number of shares of Common
Stock to be issued to each holder, when added to other shares owned by the
holder, will not exceed 9.99% of the shares of our Common Stock outstanding on
such conversion date.
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No fractional shares of our Common Stock shall be issued upon
conversion of the Series D Preferred Stock. In lieu of any fractional shares to
which the holder would otherwise be entitled, we shall pay cash equal to such
fraction multiplied by the conversion price of one share of Common Stock (which
shall be calculated as described above). We shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon conversion
unless either the certificates evidencing such shares of Series D Preferred
Stock are delivered to us or our transfer agent as provided above, or the holder
notifies us or our transfer agent that such certificates have been lost, stolen
or destroyed and executes an agreement satisfactory to us to indemnify us for
any loss we incur in connection with such certificates.
Upon conversion of all of the then outstanding Series D Preferred
Stock, shares of Series D 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. Within two years after the date of issuance of the
Series D Preferred Stock, all outstanding shares of the Series D Preferred Stock
shall be automatically converted into shares of Common Stock. In addition, we
may force a conversion of the Series D Preferred Stock in the event we close on
a public offering of our shares of Common Stock under certain conditions.
So long as any shares of our Series D Preferred Stock shall be
outstanding we shall at all times, reserve and keep available out of our
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 the outstanding
shares of Series D Preferred Stock.
Redemption. We may redeem any or all of the outstanding shares of our
Series D Preferred Stock on any date set for such redemption by our Board of
Directors. The redemption price for each share of Series D Preferred Stock, to
be paid in cash on the date of redemption, shall equal to the number of shares
issuable upon conversion of such shares of Series D Preferred Stock multiplied
by the average closing bid price of our Common Stock for the last five (5)
trading days prior to the date of redemption, plus an amount equal to all
accrued but unpaid dividends, whether or not declared. We shall give written
notice to the holder of Series D Preferred Stock to be redeemed by telecopy at
least 10 days prior to the date specified for redemption. Such notice shall
state that a redemption is being effected, note the date of redemption and call
upon such holders to surrender to us such holders' redeemed stock. The notice
shall further state that any shares of Series D Preferred Stock not converted
into shares of Common Stock prior to the date of redemption, shall be redeemed
by us on the date of redemption. If we fail to pay the Redemption price on the
date of redemption, the redemption notice shall be null and void and we will
relinquish our redemption rights.
From and after the date of redemption (unless we default on 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 D Preferred Stock
called for redemption shall not have any rights as holders of our tendered
shares, except the right to receive, without interest, the redemption price upon
surrender of the certificates of their shares of Series D Preferred Stock.
Following the date of redemption, the shares of the Series D Preferred Stock
called for redemption shall not be transferred (except with our consent) on our
books and shall not be deemed outstanding for any purpose whatsoever.
There shall be no redemption of any shares of our Series D Preferred
Stock 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 D Preferred Stock shall be changed
into the same or different number of shares of any class or
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classes of our 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 D Preferred Stock shall have the right 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 D
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 there
shall be a capital reorganization of our 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 our 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 D Preferred Stock shall be entitled to
receive upon conversion of the Series D Preferred Stock, the number of our
shares of stock or our other securities or property, or the securities and
shares 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 D Preferred Stock immediately prior to such Reorganization.
Voting Rights. Except as otherwise required by law, the holders of the
Series D Preferred Stock shall not be entitled to vote upon any matter relating
to our business or affairs or for any other purpose.
So long as any shares of Series D Preferred Stock are outstanding, we
shall not (i) alter or change any of the powers preferences, privileges, or
rights of the Series D Preferred Stock; or (ii) amend the provisions of the
Certificate of Designation changing the seniority, liquidation, commissions or
other rights of the Series D 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 D Preferred
Stock.
Transfer Agent and Warrant Agent
Continental Stock Transfer & Trust Company, New York, New York is the
transfer agent for our Common Stock and Warrant Agent for our Class A Warrants.
Delaware Takeover Statute and Certain Charter Provisions
We are 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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Our 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.
Our Certificate of Incorporation and Amended and Restated Bylaws
provide that any action required or permitted to be taken by our stockholders
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 our outstanding voting securities, 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.
PLAN OF DISTRIBUTION
The Selling Stockholders may offer their shares of our Common Stock at
various times in one or more of the following transactions:
o on any U.S. securities exchange on which our Common Stock may be
listed at the time of such sale;
o in the over-the-counter market;
o in transactions other than on such exchanges or in the over-the-
counter market;
o in connection with short sales;
o in a combination of any of the above transactions.
The Selling Stockholders may may offer their shares of Common Stock at
prevailing market prices at the time of sale, at prices related to such
prevailing market prices, at negotiated prices or at fixed prices.
The Selling Stockholders may use broker-dealers to sell their shares of
Common Stock. If this happens, broker-dealers will either receive discounts or
commission from the Selling Stockholder, or they will receive commissions from
purchasers of shares of Common Stock for whom they acted as agents. 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 Stockholder and any broker-dealers or other persons acting
on the behalf of parties that participate in the distribution of the shares may
be deemed to be underwriters. As such, any commissions or profits they receive
on the resale of the shares may be deemed to be underwriting discounts and
commissions under the Securities Act.
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As of the date of this Prospectus, we are not aware of any agreement,
arrangement or understanding between any broker or dealer and any of the Selling
Stockholders with respect to the offer or sale of the Shares pursuant to this
Prospectus.
To the extent required under the Securities Act, we will file a
supplemental prospectus to disclose (a) the name of any such broker-dealers, (b)
the number of Shares involved, (c) the price at which such Shares are to be
sold, (d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable, (e) that such broker-dealers did not conduct
any investigation to verify the information set out in this Prospectus, as
supplemented, and (f) other facts material to the transaction.
The Selling Stockholders are selling all of the shares covered by this
Prospectus for their own account. Accordingly, we will not receive any proceeds
from the resale of these shares. We may receive proceeds from the exercise of
the warrants. We will use such net proceeds for general corporate purposes.
Pursuant to the Registration Rights Agreement signed in connection with
the Private Placement, several of the Selling Stockholders and us have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act. We shall bear customary expenses incident to the
registration of the shares for the benefit of such Selling Stockholders in
accordance with our agreements with such Selling Stockholders, other than
underwriting discounts commissions and attorneys' fees directly attributable to
the sale of such securities by or on behalf of the Selling Stockholders.
Pursuant to the terms of the Registration Rights Agreement we have
agreed to use our 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 (ii) the date the Selling Stockholders may
sell all the Shares under the provisions of Rule 144 or (iii) June 2004.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 145 of the DGCL provides, in general, that a corporation
incorporated under the laws of the State of Delaware, such as our company, 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.
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Our Certificate of Incorporation provides that directors shall not be
personally liable for monetary damages to us or our stockholders for breach of
fiduciary duty as a director, except for liability resulting from a breach of
the director's duty of loyalty to our stockholders, intentional misconduct or
wilful violation of law, actions or inactions not in good faith, an unlawful
stock purchase or payment of a dividend under Delaware law, or transactions from
which the director derives improper personal benefit. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission. Our Certificate of Incorporation also
authorizes us to indemnify our officers, directors and other agents, by bylaws,
agreements or otherwise, to the fullest extent permitted under Delaware law. We
have entered into an Indemnification Agreement (the "Indemnification Agreement")
with each of our directors and officers which may, in some cases, be broader
than the specific indemnification provisions contained in our Certificate of
Incorporation or as otherwise permitted under Delaware law. Each Indemnification
Agreement may require us, among other things, to indemnify such officers and
directors against certain liabilities that may arise by reason of their status
or service as a director or officer, against liabilities arising from willful
misconduct of a culpable nature, and to obtain directors' and officers'
liability insurance if available on reasonable terms.
We maintain a directors and officers liability policy with Lloyds and
Agriculture Insurance Companies that contains a combined limit of liability of
$5,000,000 per policy year.
Insofar as indemnification for liabilities arising under the Securities
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.
LEGAL MATTERS
The validity of the securities being offered hereby was reviewed and
confirmed for us 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 our Common Stock as a result of
his being a trustee of each of the Family Trusts.
EXPERTS
Our financial statements incorporated in this Prospectus by reference
to the our Annual Report on Form 10-KSB as of December 31, 1997 and for each of
the years in the two-year period ended December 31, 1997 have been audited by
Richard A. Eisner & Company, LLP, independent auditors, as set forth in their
report dated February 20, 1998 accompanying such financial statements, and are
incorporated herein by reference in reliance upon the said report given on the
authority of said firm as experts in accounting and auditing.
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We have not authorized any dealer,
salesperson or any other person to give
any information or to represent anything
not contained in this Prospectus. You
must not rely on any unauthorized
information. This Prospectus does not
offer to sell or buy any shares in any
jurisdiction where it is unlawful. The
information in this Prospectus is 4,050,000 SHARES OF COMMON STOCK
current as of February __, 1999.
------------------
TABLE OF CONTENTS
Page
----
Where you can find more about us........2
Incorporation of Certain Documents
by Reference...................... 2 ---------------
Risk Factors............................4 PROSPECTUS
Use of Proceeds........................18 ---------------
Dividend Policy........................18
Selling Stockholders ..................18
Description of Securities..............20
Plan of Distribution ..................25
Indemnification for Securities
Act Liability......................26
Legal Matters..........................27 February __, 1999
Experts ...............................27
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses payable in
connection with the issuance and distribution of the securities being registered
under this Registration Statement which will be paid by the Company. The Selling
Stockholders will not incur any of the expenses set forth below. All amounts
shown are estimates.
Filing fee for registration statement........ $ 3,231.33
Legal fees and expenses...................... $15,000
Miscellaneous expenses....................... $ 500
Total................................... $18,731.33
==========
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 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 11.2 of the Subscription 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 (1) Amended and Restated 6% Series D Convertible Preferred Stock
Subscription Agreement, formerly known as Private Equity Line of
Credit Agreement, dated as of December 30, 1998
4.2 (1) Form of Warrant issued pursuant to the December 30, 1998
Subscription Agreement
5.1 (2) Opinion of Parker Chapin Flattau & Klimpl, LLP
23.1 (2) Consent of Richard A. Eisner & Company, LLP
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP (included in Exhibit
5.1 hereto)
24.1 (2) Power of Attorney
99.1 (1) Registration Rights Agreement dated as of December 30, 1998
(1) Filed with Current report on Form 8-K dated filed on January 15, 1999.
(2) Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(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 February 10, 1999.
OBJECTSOFT CORPORATION
By: /s/ David E.Y. Sarna
--------------------------------
David E.Y. Sarna
Chairman of the Board, Co-Chief
Executive Officer, Secretary and
Director
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David E.Y. Sarna Chairman of the Board, Co-Chief February 10, 1999
- ----------------------------------- 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 February 10, 1999
- ----------------------------------- Officer, Treasurer and Director
George J. Febish (Principal Executive Officer)
/s/ Daniel E. Ryan Director February 10, 1999
- -----------------------------------
Daniel E. Ryan
</TABLE>
II - 4
<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 (1) Amended and Restated 6% Series D Convertible Preferred Stock
Subscription Agreement, formerly known as Private Equity Line of
Credit Agreement, dated as of December 30, 1998
4.2 (1) Form of Warrant issued pursuant to the December 30, 1998
Subscription Agreement
5.1 (2) Opinion of Parker Chapin Flattau & Klimpl, LLP
23.1 (2) Consent of Richard A. Eisner & Company, LLP
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP (included in
Exhibit 5.1 hereto)
24.1 (2) Power of Attorney
99.1 (1) Registration Rights Agreement dated as of December 30, 1998
(1) Filed with Current report on Form 8-K dated filed on January 15, 1999.
(2) Filed herewith.
PARKER CHAPIN FLATTAU & KLIMPL, LLP
1211 Avenue of the Americas
New York, NY 10036
(212) 704-6000
February 10, 1999
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, relating to
an offering of an aggregate of 4,050,000 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
February 10, 1999
Page 2
Based upon and subject to the foregoing, we are of the opinion that:
(a) the shares of Common Stock issuable upon the conversion of
the Series D Preferred Stock, upon issuance and payment in accordance with the
terms of the Subscription Agreement and the terms of the Certificate of
Designation of the Series D Preferred Stock, as amended, will be legally issued,
fully paid and non-assessable;
(b) the shares of Common Stock issuable to the Investors and
the Placement Agent upon the exercise of the warrants issued pursuant to the
Subscription Agreement , upon issuance and payment in accordance with the terms
of the Subscription Agreement and the terms of the warrants issued to the
Investors and the Placement Agent, will be legally issued, fully paid and
non-assessable;
(c) the shares of Common Stock issuable upon exercise of the
warrant issued to AJC (the"AJC Warrant"), the warrant issued to Continental
(the" Continental Warrant"), and the warrants issued to the assignees of IRG
(the "Assignees' Warrant") and upon issuance and payment in accordance with the
terms of the AJC Warrant, the Continental Warrant and the Assignees' Warrant
respectively, will be legally issued, fully paid and non-assessable;
(d) the shares of Common Stock issued to AJC in accordance
with a service agreement have been legally issued, fully paid and
non-assessable;
(e) the shares of Common Stock issued to Continental in
accordance an agreement have been legally issued, fully paid and non-assesable;
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
-2-
Exhibit 23.1
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
February 10, 1999
