SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[.] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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Commission File Number 1-10751
OBJECTSOFT CORPORATION
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(Name of small business issue in its charter)
Delaware 22-3091075
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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Continental Plaza III, 433 Hackensack Avenue, Hackensack, New Jersey 07601
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(Address of principal executive offices) (Zip Code)
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Issuer's telephone number: (201) 343-9100
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Securities registered under Section 12(b) of the Exchange Act: None
Title of each class: None
Name of each exchange on which registered:
Securities registered under Section 12(g) of the Exchange Act:
Title of Each Class: Common Stock
Redeemable Class A Warrants
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenue for the fiscal year ended December 31, 1999 was $136,000.
At March 28, 2000, the aggregate market value of the Common Stock held by
non-affiliates was $22,877,000 (corresponding to 4,067,087 shares).
At March 28, 2000, 4,296,503 shares of Common Stock were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format (check one): Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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GENERAL
ObjectSoft Corporation ("ObjectSoft" or the "Company") was incorporated
in Delaware in January 1996 and is the surviving corporation of a merger on
January 31, 1996 between it and its predecessor, ObjectSoft Corporation, a New
Jersey corporation incorporated in December 1990.
The Company's executive offices are located at Continental Plaza III,
433 Hackensack Avenue, Hackensack, New Jersey 07601; its telephone number is
(201) 343-9100; its facsimile number is (201) 343-0056; its Internet e-mail
address is [email protected]; and its homepage on the World-Wide Web
is at http://www.objectsoft.net.
The Company is currently engaged in the business of providing retail
kiosks, which are Internet-connected, advertising-supported, interactive kiosks
which are public access terminals that offer entertainment as well as
information and the ability to execute financial transactions. The Company
expects to add couponing and more general e-commerce shortly. The Company
employs a "clicks and mortar" strategy to help businesses reach customers in
retail situations through the Internet. A kiosk is a machine deployed in areas
with high pedestrian traffic or within a retail outlet or public space that
permits the general public to obtain information or to purchase goods and
services. At a minimum, a kiosk contains a computer, a computer monitor and a
touch screen. It may also contain one or more of the following devices:
keyboard, page printer, receipt printer, credit card reader, video camera,
signature pad, communications devices, a second processor, an upper monitor, a
ticket printer, illuminated signs or combinations of these devices. The kiosks
are used as base standard, off-the-shelf operating systems which are
substantially augmented with proprietary software to reliably control and manage
the kiosks functions. These kiosks utilize a foundation developed during
projects with the Cities of New York and San Francisco that can support many
retail businesses with a minimum of adaptation.
Sponsors of our kiosks include New Line (a subsidiary of Time Warner),
Central Park Media, Playboy Enterprises, USA Home Entertainment, Universal
Studios Home Video, Full Moon Releasing, Metro Goldwyn Mayer Inc., United
Artists International, DreamWorks SKG, USA Films, Sterling Entertainment, A-PIX
Entertainment, HBO Home Video, and Image Entertainment. Studios who license
trailers to us include Central Park Media, Full Moon Entertainment, USA Home
Entertainment, New Line Home Video, Universal Studios Home Video, Sterling Home
Entertainment, A-PIX Entertainment, Playboy Home Enterprises, Image
Entertainment, HBO Home Video, Columbia TriStar Home Video, Lyrick Studios, and
DreamWorks SKG.
Our kiosks can easily change their personality (i.e., "look and feel")
in three ways:
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o Change the appearance of the enclosure
o Change the on-screen graphics
o Change the database supporting what is being retailed
The Company's kiosks are primarily held for operating income which is
derived from advertising fees, transactional revenue, and rental income but may
be sold outright to some customers. This approach allows the Company control
over the look and operation of its kiosks. A customer can recognize the brand
name and develop an expectation for how the kiosk will operate. In addition, the
Company can control the content to ensure that it is being kept up-to-date.
The newest product is FastTake(R), which the Company introduced in
October 1998 at the East Coast Video Show and began shipping in March 1999.
FastTake(R) is initially targeted for the video industry. It permits users to
search a database for a favorite actor or director, or by a portion of the movie
name. The user can then access facts about the movie title, a plot summary, the
names of its major actors and directors, still pictures from the movie
(photographs) and a preview of the video (known as a trailer). For the video
store owner, FastTake(R) has three main purposes:
o Provide the consumer with an easy way to locate "catalog titles"
(i.e., older films). The consumer does not normally require a
kiosk to find the latest video titles which are heavily marketed;
FastTake(R) assists consumers to find older titles that are no
longer marketed.
o Generate revenue through a revenue sharing arrangement with
ObjectSoft.
o Allow consumers to sign-up on the kiosk for drawings and prizes.
In a future release of FastTake(R), the Company expects to add an
electronic commerce feature that will enable the purchase or rental of chosen
videos. As of March 25, 2000, 100 FastTake(R) kiosks were installed in stores,
30 were in the process of being installed, and an additional 300 have been
ordered and are being manufactured.
FastTake(R) kiosks delivered over 17 million ad impressions in December
1999 and over 21 million ad impressions in January 2000 (up 23% from December
1999). There can be no assurances that such usage will continue to grow or to
remain at current levels.
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The following table shows the number of pageviews have been recorded
by FasTake(R) from April 1999 to January 2000.
FASTTAKE MONTHLY PAGEVIEWS
Usage
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Apr-99 29,678
May-99 68,108
Jun-99 169,043
Jul-99 331,762
Aug-99 350,566
Sep-99 400,824
Oct-99 586,750
Nov-99 710,307
Dec-99 793,514
Jan-00 1,205,801
[GRAPH APPEARS HERE]
Most kiosks installed to date have been placed in outlets owned by
franchisees of Blockbuster Corporation, as well as other large video outlets.
Most retailers require a 90 to 120 day trial period to determine how
successfully FastTake(R) operates in their stores. At the conclusion of such
trial period, they can determine whether or not they wish to expand into
additional stores and enter into long-term contracts of two years or more.
The Company's FastTake(R) kiosks are dependent on agreements with video
retailers or other retail outlets for placement in their stores as well as
studios and other advertisers to provide advertising support. To date, the
Company has entered into a multi-year contract with DoubleClick Inc. to provide
revenue-producing banner advertising from national and local advertising as well
as agreements with 10 studios and 12 chains of video outlets. Several additional
outlets are expected to sign similar agreements shortly.
Although the Company anticipates that it will begin to recognize
greater revenues from FastTake(R) during 2000, it cannot predict the actual
timing or amount of such revenues.
FastTake(R) revenues are expected to be generated from several sources,
as follows:
o On-screen advertising and sponsorship capabilities
o In-store promotions, including give-aways and offers
o Coupons
o E-commerce transactions
The Company also relies on installation and maintenance services
for the FastTake(R) kiosks provided by International Business Machines (IBM).
These contracts could be canceled on short notice. If such contracts were
canceled by IBM, this could have a negative effect on the Company's sales as
well as on the quality of service which the Company could provide to the
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Company's customers. Recently, the Company awarded IBM a contract to
custom-manufacture the kiosks to the Company's designs and specifications.
Beginning in April 2000, the Company expects that an important
part of its revenues will be derived from its participation in DoubleClick's
Sonar network, based on a multi-year agreement signed in December 1999.
DoubleClick has the right to terminate this agreement under certain
circumstances. Although DoubleClick has competitors, such as 24/7, such
termination could have a material adverse effect on the Company's sales until a
replacement contract was arranged with another party.
In early 1996, as part of its kiosk Demonstration Project, the City of
New York (the "City") entered into an agreement with the Company to develop
public kiosks to be located in City offices and other public locations in an
effort to expedite transactions with the City (the "City Agreement"). Under the
City Agreement, the City agreed to lease the first five kiosks, and allowed the
Company to deploy additional kiosks throughout the City area at its own risk and
expense, subject to City approval of kiosk locations. The first five kiosks were
deployed in the City in July 1996. A sixth kiosk was installed in August 1997
and discontinued in January 1999. A seventh was installed in March 1998. All
kiosks providing City services for information, whether operated by the Company
or other suppliers, carry the City's CityAccess(TM) logo. Pursuant to the City
Agreement, the Company has developed applications for use on kiosks. These
applications allow the public access to the records of the Department of
Buildings, certain Department of Health services, including copies (for a fee)
of birth certificates, death certificates and dog licenses. They can also obtain
public health information, register for certain courses offered by the
Department of Health, and locate information on City government, as well as
information about museums, tourist attractions, shopping and similar matters
without a fee. The City Agreement has been extended through the end of December
2000. In 1999, the City issued a request for proposals to award a long-term
contract for kiosks to one or more vendors. The Company elected not to bid on
this procurement, because it believed that it could not profitably operate its
kiosks in accordance with the terms of the proposed procurement. Should the City
proceed to award a contract to another vendor, the Company expects that its
contract with the City will not be further extended, and revenue from this
source will cease. There can be no assurance that the Company's initial kiosks
will perform on a commercial basis as anticipated, that the Company will be able
to install and operate additional kiosks pursuant to the City Agreement, that
the City will seek to acquire additional kiosks, that the Company will secure a
contract to supply additional kiosks to the City, that it will succeed in
marketing its kiosks to other potential users, or that it will be able to
attract additional service providers or advertisers to kiosks that may be
located in the City or elsewhere.
In connection with the development of the kiosks and the deployment and
operation of the first five kiosks, the City has paid or agreed to pay a total
of $117,000 in 1999 and is obligated to pay $135,000 in the year 2000. There can
be no assurance that this contract will be renewed beyond the year 2000.
Revenues from advertising generated a total of $18,000 in 1998 and $13,000 in
1999. Beginning in 1999 the Company has focused its efforts on the private
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and non-profit sectors and has substantially curtailed its efforts at marketing
to governments and municipalities.
In the course of developing kiosks for the City project, the Company
developed a general purpose kiosk operating system that could easily be used in
new kiosk applications such as the FastTake(R) project. The Company is currently
exploring how to best commercialize this software separate from its kiosks.
In August 1997, the Company announced the development and immediate
availability of SmartSign(TM), a modular line of kiosks contained in an
enclosure that is only 7-1/2" in depth, with each module weighing less than 70
pounds, making the units suitable for regular shipment through UPS and Federal
Express. The modules initially consist of (a) a Pentium class processor unit,
(b) an active-matrix touch screen, with optional sealed heavy-duty keyboard, and
optional credit card reader, (c) a printer unit with page printer and optional
receipt printer, (d)several light-box advertising modules with optional LCD
display and (e) an optional touch-sensitive light-box. There has only been one
commercial deployment of this line, at the Harlem Heights Historical Society in
the City. Recently, the Company has increased its efforts to market this line,
and is currently negotiating to place SmartSign(TM) kiosks in a number of
locations. There can be no assurances that the Company's efforts will be
successful or will generate profits.
The Company anticipates that the kiosk and Internet service delivery
programs will constitute the most significant part of its business. It may
continue to engage in consulting activities as resources permit and may seek to
acquire one or more other businesses providing kiosk-related consulting
services. In selecting consulting opportunities, the Company will focus
primarily on assignments in connection with the sale of kiosk services or that
can otherwise enhance its skill base. No such contracts were entered into in
1999.
The Company has established a strategic relationship with Microsoft
that it believes is important to its sales, marketing and support activities, as
well as to its product development efforts relating to its kiosks. Microsoft
supports the Company in marketing its public access services, and has agreed
from time to time to exhibit the Company's kiosks in Microsoft displays at
various trade shows. It has also issued statements that included favorable
references relating to the Company's products. Microsoft has also entered into
various non-disclosure agreements with the Company with respect to unannounced
Microsoft products, under which the Company has the opportunity to have advance
knowledge of software technology being developed by Microsoft. Microsoft has
also provided, and continues to provide, fee-based consulting services to the
Company through Microsoft Consulting. Since 1994, the Company's Chairman has
served as the exclusive regional host and sponsor of Microsoft Developer Days,
an ongoing series of technical conferences organized and operated by Microsoft.
The most recent conference was held on September 15, 1999. The Company has also
produced technical papers for, and provided consulting services to, Microsoft.
Joint marketing efforts with Microsoft are continuing. Additional events are
scheduled through the end of 2000. The current contract with Microsoft expires
on December 31, 2000. There can be no assurances that this contract will be
renewed.
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Research and Development expenditures were $410,000 in 1999, $491,000
in 1998 and $613,000 in 1997. In addition, during the years ended December 31,
1999 and December 31, 1998 the Company has capitalized additional software
development costs which aggregated $251,000 and $72,000, respectively.
COMPETITION
The Company is subject to competition from different sources for its
different services. The Company's video kiosk business competes with several
companies, including Muze, Inc. and Entertainment Decisions, Inc. Blockbuster
Inc. or Hollywood Entertainment Corporation, both of which have resources far
greater than ours, could become competitors in the future.. General competitors
in the kiosk business include divisions of IBM and NCR, North Communications,
Golden Screens and ATCOM/INFO. The City has also awarded contracts, comparable
to the contract awarded to the Company, to North Communications and DSSI (which
awarded a subcontract to Golden Screens), both of which have sold similar kiosks
to other municipalities.
Although the Company believes that FastTake(R) is a competitive
product, there can be no assurance that these or other companies with far
greater resources than the Company's might enter the field and negatively affect
the Company's FastTake(R) business prospects in this market.
MARKETING
The three objectives of the Company's marketing efforts are: (a) to
obtain the rights to place its kiosks in compelling high-density locations; (b)
to attract advertisers based on the number and demographics of "impressions"
that the Company can offer to advertisers; and (c) for FastTake(R) kiosks to
obtain timely and cost-effective licenses to exhibit digital trailers of popular
motion pictures and games on the Company's kiosks. In furtherance of these
efforts, the Company presents exhibits at national and regional shows sponsored
by the Video Software Dealers Association, among other associations and
organizations. The Company has retained a public relations consultant to
disseminate news related to its kiosks and to stimulate demand. Additional
marketing efforts focus on identifying content-providers whose offerings can
create additional transaction revenue for the Company's kiosks. In seeking
content-providers, the Company also exhibits at major trade shows where it
partners with several of its major vendors. For example, the Company partnered
with Microsoft at the VBIT conferences in San Francisco and Chicago. The Company
expects to continue to participate in similar joint efforts on an ongoing basis.
A telemarketing program has been initiated to target studios and video stores.
The Company's marketing activities are currently performed by its
executive officers, its Vice President of Sales and Marketing and a staff
located in Hackensack as well as in Los Angeles.
PROPRIETARY RIGHTS
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The Company's success is highly dependent on its proprietary
technology. The Company views its SmartSign(TM) and FastTake(R) housing designs
as well as its software as proprietary, and relies on a combination of patent,
trade secret, copyright and trademark laws, non-disclosure agreements and
contractual provisions to establish and protect its proprietary rights. The
Company has applied to in the United States for the following trademarks:
FastTake(R) and ObjectSoft. In addition, the Company plans to register certain
of these trademarks in principal foreign jurisdictions. The Company has also
retained patent counsel and has filed patent applications for appropriate
hardware and software components of its technology. There can be no assurances
that such applications will be allowed by the Patent and Trademark Office, or if
allowed will not be successfully challenged.
The source code for the Company's proprietary software is protected as
a trade secret. In addition, because the Company does not sell or license its
technology to third parties, but rather delivers services through its kiosks,
its proprietary software is not disclosed to third parties. Furthermore, the
Company enters into agreements, as appropriate, with employees, consultants and
subcontractors containing provisions relating to confidentiality and the
assignment of inventions and other developments to the Company. There can be no
assurance that the steps taken by the Company to protect its proprietary rights
will be adequate or that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technologies or products.
CUSTOMERS
To date, the Company has entered into placement agreements for
FastTake(R) kiosks with customers including five Blockbuster Video franchisees,
including New York Ltd., New England Ltd., Serendipity Entertainment, Texoma,
NorthEast Management and Video Rentals of Pennsylvania. The Company has also
entered into placement agreements for FastTake(R) kiosks with J.C. Flicks,
Hollywood Entertainment, Instant Replay, Movie Gallery, Transworld
Entertainment, Video City and Video Warehouse. Studio agreements have been
signed with Central Park Media, Full Moon Entertainment, USA Home Entertainment,
New Line Home Video, Universal Studios Home Video, Sterling Home Entertainment,
A-PIX Entertainment, Playboy Home Enterprises, Image Entertainment, and HBO Home
Video .
The customer base for the Company's SmartSign(TM) and SmartStreet(TM)
business consists principally of municipalities and other public sector or
commercial entities to which the Company would sell or lease kiosks, prospective
advertisers and ultimately consumers accessing kiosk services or products. The
Company also intends to market its consulting services to mall operators.
The Company historically has derived a significant portion of its
revenues from a relatively limited number of customers. During the year ended
December 31, 1999 the City accounted for 86% of the Company's revenues pursuant
to the City Agreement. During the year ended December 31, 1998, the City
accounted for 73% of the Company's revenues pursuant to the City Agreement.
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GOVERNMENT REGULATIONS AND LICENSING
The Company believes that it has all licenses necessary to operate its
business as currently conducted in New Jersey, New York, and California.
The Company is not currently subject to direct regulation by the
Federal Communications Commission or any other agency, other than regulations
applicable to businesses generally and businesses doing business with
governmental agencies. In connection with its contract with the City and future
contracts, if any, with the City and other municipalities or government
entities, the Company will have to comply with such regulations, including
bidding procedures and record-keeping, audit, insurance, bonding and
anti-discrimination provisions, among others.
Due to the increase in Internet use and publicity, it is possible that
laws and regulations may be adopted with respect to the Internet, including with
respect to privacy, pricing and characteristics of products or services. The
Company cannot predict the impact, if any, that future laws and regulations or
legal or regulatory changes may have on its business.
EMPLOYEES
As of March 25, 2000, the Company had 30 employees, 25 of which were
full-time, 29 of whom are based in its Hackensack, New Jersey offices, and one
of whom is based in Los Angeles, California. These include three in product
development, six in management and sales, eleven in operations and 10 in legal,
finance and administration.
The Company expects the size of its workforce to remain approximately
the same in 2000, and the Company intends to continue with its policy to
outsource non-strategic functions such as artwork development, repetitive
testing, maintenance and bookkeeping rather than using its own staff for these
functions.
Other than Messrs. Sarna and Febish, no other senior personnel have
entered into employment agreements obligating them to remain in the Company's
employ for any specific term; however, substantially all key employees of the
Company are parties to nonsolicitation, confidentiality and noncompetition
agreements with the Company. In addition, independent contractors enter into
confidentiality agreements with the Company
ITEM 2. DESCRIPTION OF PROPERTY
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The Company occupies approximately 7,141 square feet of office space in
Hackensack, New Jersey, under a lease with an unaffiliated landlord that expires
on July 31, 2007 and provides for a base rent of $167,814 per annum in 2000,
subject to certain increases in subsequent periods.
ITEM 3. LEGAL PROCEEDINGS
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There are no material pending legal proceedings to which the Company is
a party or to which any of its properties are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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On October 12, 1999, at a special meeting of the Company's
stockholders, the stockholders approved the following matters:
First, an amendment to the Company's Certificate of Incorporation in
order to effect a reverse split of the Company's Common Stock. There were
7,718,474 votes cast for the matter, 415,142 votes cast against the matter and
25,910 abstentions; and
Second, the issuance of the Company's securities pursuant to a
Subscription Agreement dated as of August 13, 1999 among the Company, Warwick
Corporation, Ltd. and the investors referred to therein. There were 2,614,396
votes cast for the matter, 349,845 votes cast against the matter, 52,280
abstentions and 5,143,005 broker non-votes.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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The Company's common stock, par value $.0001 per share (the "Common
Stock") and Redeemable Class A Warrants (the "Class A Warrants") are listed on
the Nasdaq SmallCap Market under the symbols OSFT and OSFTW, respectively. The
following table sets forth, for the periods indicated, the high and low bid
prices for the Common Stock and Class A Warrants as reported on the Nasdaq
SmallCap Market.
Quarters Common Stock Class A Warrants
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High Low High Low
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Fiscal Year 1999
Fourth Quarter(1) 6.750 0.313 1.281 0.063
Third Quarter 1.781 0.344 0.813 0.109
Second Quarter 2.938 1.000 0.938 0.313
First Quarter 4.813 1.625 2.125 0.375
Fiscal Year 1998
Fourth Quarter 7.50 0.375 3.00 0.063
Third Quarter 2.188 1.00 0.375 0.125
Second Quarter 3.250 1.781 0.656 0.0
First Quarter 3.313 2.125 0.750 0.188
As of March 28, 2000, there were 56 holders of record of the Common
Stock and 10 holders of record of the Class A Warrants.
The Company did not pay cash dividends on its Common Stock during the
two years ended December 31, 1998 and December 31, 1999 and the Company does not
presently intend to pay any dividends on its Common Stock.
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(1) On October 13, 1999, the Company effected a one-for-six consolidation of
its Common Stock. As a result, the Class A Warrants are exercisable for
one-sixth the number of shares of Common Stock and the purchase price of
one share of Common Stock is adjusted to $39 from $6.50.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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OVERVIEW
The Company provides retail kiosks, which are Internet-connected,
advertising-supported, interactive kiosks which are public access terminals that
offer entertainment as well as information and the ability to execute financial
transactions. The Company originally provided consulting and training services,
but changed its focus in mid-1994 to its current transactional, fee-based and
advertising-supported products and services. The Company has sustained net
losses in each of the last two fiscal years with a net loss of $3,920,000 in
1999 and a net loss of $2,515,000 in 1998. In September 1995, the Company
introduced OLEBroker(TM) , its fee-based website on the Internet. The Company's
SmartStreet(TM) kiosks were introduced in July 1996 and its FastTake(R) kiosks
were introduced in October 1998. The Company has not recognized any significant
income to date from its kiosks. Although the Company anticipates that it will
begin to recognize greater revenues from the FastTake(R) kiosks during 2000, it
cannot predict the actual timing or amount of such revenues.
RESULTS OF OPERATIONS
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
During the year ended December 31, 1999, 100 FastTake(R) kiosks became
operational in stores, many of them in the fourth quarter. As of March 25, 2000,
100 FastTake(R) kiosks were installed in stores, 30 were in the process of being
installed, and an additional 300 have been ordered and are being manufactured.
In addition, the Company entered into an advertising agreement with DoubleClick
which is expected to begin generating revenues in the second quarter of 2000.
Revenues decreased by $25,000 or 16% to $136,000 in 1999 from $161,000
in 1998. The change was due to a decrease in the sale of equipment offset by
revenues from shipments of FastTake(R) products.
Costs of services increased by $252,000 or 43% to $835,000 in 1999 from
$583,000 in 1998. Such increases were due to expenses incurred in installing the
new FastTake(R) products and depreciation on FastTake(R) products that have been
installed.
Research and development expenses decreased by $81,000 or 16% to
$410,000 in 1999 from 491,000 in 1998 due to a decrease in personnel devoted to
research and development.
General and administrative expenses increased by $1,190,000 or 59% to
$3,204,000 in 1999 from $2,014,000 in 1998 due to an increase in rent and
utilities resulting from the Company
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relocating to larger quarters, a $270,000 provision for loan loss on an
officer's loan, non-cash payments of $277,000 for consulting fees through the
issuance of stock and warrants and the ramp up of the sales effort for
FastTake(R).
Other income (expense) decreased by $70,000 to ($18,000) in 1999 from
$52,000 in 1998 due to lower investments, realized and unrealized losses in
investments and an increase in interest expense which resulted from the
Company's financing some of its equipment.
The Company has entered into an agreement to sell certain New Jersey
net operating losses and research and development credits, which resulted in the
Company recognizing an income tax benefit of $411,000 and $360,000 in 1999 and
1998, respectively.
Net loss increased by $1,405,000 to a net loss of $3,920,000 in 1999
from a net loss of $2,515,000 in 1998. The increase in losses were due to an
increase in expenses related to the FastTake(R) product, a provision for loan
loss, non-cash payments for consulting fees through the issuance of stock and
warrants, additional expenses resulting from the Company relocating its office
and an increase in interest expense which resulted from the Company's financing
some of its equipment, offset by a decrease in research and development.
At December 31, 1999, the Company had federal net operating loss
carryforwards of approximately $10,900,000. A valuation allowance aggregating
$3,541,000 has been recorded as a result of uncertainties regarding the
realization of substantially all of the assets due to the lack of earnings
history of the Company.
See Note I of Notes to Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, cash and cash equivalents were $2,311,000 as
compared with $982,000 at December 31, 1998. The increase is due primarily to
the sale of 20,000 shares of Series E Convertible Preferred Stock and related
warrants in a private placement, the sale of 21,000 shares of Series F
Convertible Preferred Stock and related warrants in a private placement, and the
sale of 20,000 shares of Series G Convertible Preferred Stock and related
warrants in a private placement. All of the Series E and Series F Preferred
Stock have been converted into Common Stock. However, the Company's reported
losses for the year ended December 31, 1999 of $3,920,000. The Company will
continue to incur substantial operating losses until it realizes increased
revenues from its FastTake(R) business. The Company had working capital of
$2,589,000 at December 31, 1999 as compared to $933,000 at December 31, 1998, an
increase of 177%.
The Company expects to fund the deployment of additional FastTake(R)
and other kiosks, and make kiosk related acquisitions, from available working
capital and from funds that will be derived from future operating revenues and
from equipment leasing, equity and/or debt financing. However, there can be no
assurance that future revenues will be generated in sufficient amounts or that
additional funds will not be required for the expansion of operations. The
Company intends to lease equipment whenever possible on acceptable terms.
The Company raised approximately $1,866,000 (net of expenses) in
connection with a private financing of Series E Preferred Stock and related
warrants consummated in March 1999
-13-
<PAGE>
and approximately $2,062,000 (net of expenses) in connection with a private
financing of Series F Preferred Stock and related warrants consummated in August
1999. The Company intends to meet its long-term liquidity needs through
available cash and cash flow as well as through additional financing from
outside sources. However, no assurance can be given that the Company will be
successful in obtaining any additional financing. Further, there can be no
assurance, even assuming the Company successfully raises additional funds, that
the Company will achieve profitability or positive cash flows. If the Company is
not successful in raising additional funds, it might be forced to curtail the
scope of its operations.
The Company anticipates that, giving effect to the sale of $2,000,000
of Series G Preferred Stock consummated on December 30, 1999 and the sale of an
additional $500,000 of Series G Preferred Stock consummated in February 2000,
the Company's existing working capital will be sufficient to fund its operations
at least through March 31, 2001. Continuing operations thereafter will depend on
cash flow from operations and the ability to raise additional funds through
equity, debt or other financing. There can be no assurance, however, that such
funds will be available.
INFLATION AND SEASONALITY
The rate of inflation was insignificant during the year ended December
31, 1999. In the past, the effects of inflation on personnel costs have been
offset by the Company's ability to increase its charges for services rendered.
The Company anticipates that it will be able to continue to do so in the near
future. The Company continually reviews its costs in relation to the pricing of
its products and services.
The Company's business is not seasonal.
ITEM 7. FINANCIAL STATEMENTS
--------------------
The financial statements of the Company required by this item are set
forth at end of this Form 10-KSB at pages F-1 through F-19.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
--------------------------------------------- -- ----------
AND FINANCIAL DISCLOSURE
------------------------
None.
-14-
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
---------------------------------------------------------------
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
--------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's Executive Officers and Directors, and any persons who own
more than 10% of any class of the Company's equity securities which are
registered under the Securities Act of 1933, as amended (the "Act") to file
certain reports relating to their ownership of such securities and changes in
such ownership with the Securities and Exchange Commission and Nasdaq Small Cap
Market, and to furnish the Company with copies of such reports. To the Company's
knowledge, all Section 16(a) filing requirements applicable to such Officers,
Directors and owners of over 10% of the Company's equity securities registered
under the Act, during the year ended December 31, 1999, have been satisfied.
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David E. Y. Sarna (1) 50 Chairman, Secretary and Director
George J. Febish (1) 51 President, Treasurer and Director
Daniel E. Ryan (1)(2)(3)(4) 52 Director
Michael A. Burak (2)(4) 59 Director
Stanley A. Hirschman 53 Director Nominee
</TABLE>
1 Member of Executive Committee.
2 Member of Audit Committee.
3 Member of Compensation Committee.
4 Member of Stock Option Plan Committee
George J. Febish together with Mr. Sarna founded the Company in 1990.
Mr. Febish has been the President, Co-Chief Executive Officer, Treasurer and a
director of the Company since December 1990. He has also been, since 1994, a
Contributing Editor of Datamation magazine. Prior to co-founding the Company,
Mr. Febish was Executive Vice President and Chief Operating Officer of Image
Business Systems Corporation, a computer software development company, from 1988
to 1990. Prior to joining Image Business Systems Corporation, Mr. Febish was the
Director of Marketing at International Systems Services Corporation ("ISS"), a
computer software company that developed ISS Three(TM). Prior to joining ISS,
Mr. Febish was the Eastern Regional Sales Manager for Bool & Babbage. In 1970,
Mr. Febish began his professional career with New York Life Insurance Company.
Mr. Febish holds a BS degree from Seton Hall University. He is the co-author,
with Mr. Sarna, of PC Magazine Windows Rapid Application Development and the
author of numerous published articles.
Daniel E. Ryan has been a director since 1991. Mr. Ryan was employed
with New York Life Insurance Company from July 1965 to March 2000 and where,
from 1981, he held the title of Corporate Vice President. Mr. Ryan was the head
of the Service Center Development of New York Life Insurance Company's
Information Systems organization. Mr. Ryan holds an MBA in Computer
-15-
<PAGE>
Science from Baruch College and a BS/BA in Industrial Management from Manhattan
College. Mr. Ryan is a Certified Systems Professional.
David E. Y. Sarna together with Mr. Febish founded the Company in 1990.
Mr. Sarna has been the Chairman, Co-Chief Executive Officer, Secretary and a
director of the Company since December 1990. Mr. Sarna is a director of Mabool,
Inc. and is a member of the Advisory Board of Hudson Venture Partners, LLP. Mr.
Sarna is also a member of the Board of Trustees of Millennium Project, Inc., a
not-for-profit corporation. He has also been, since 1994, a Contributing Editor
of Datamation magazine. Prior to co-founding the Company, Mr. Sarna founded
Image Business Systems Corporation, a computer software development company, in
1988. Prior to founding Image Business Systems Corporation, Mr. Sarna was
formerly Executive Vice President and a co-founder of ISS. From 1976 to 1981,
Mr. Sarna was employed by Price Waterhouse & Co., as a management consultant,
beginning as a senior consultant and rising to the position of senior manager.
From 1970 to 1976 Mr. Sarna was employed by IBM Corporation in technical and
sales positions. Mr. Sarna began his professional career at Honeywell in 1968.
Mr. Sarna holds a BA degree from Brandeis University and did graduate work at
the Technion - Israel Institute of Technology. Mr. Sarna is a Certified Systems
Professional and a Certified Computer Programmer. He is the co-author, with Mr.
Febish, of PC Magazine Windows Rapid Application Development (published by Ziff-
Davis Press in 1994), several other books and over 50 articles published in
professional magazines. Mr. Sarna is also the co-inventor of patented software
for the recognition of bar-codes.
Michael A. Burak has been a director since February 1999. Mr. Burak is
President of the firm of Michael A. Burak, Inc. and has been actively engaged in
real estate operations for over 30 years as an owner, a property manager and
broker dealing with sales and leasing. Mr. Burak received a B.S. in Real Estate
from New York University's School of Commerce and M.S. from Urban Planning
division of the Graduate School of Architecture at Columbia University. As a
William Kinne Fellow, he spent 1964 and 1965 studying Urban problems in Europe.
He is past president of the Metropolitan Real Estate Square Club, and currently,
an active member of the Associated Owners and Builders of Greater New York, the
National Realty Club and the National Association of Home Builders.
Stanley A. Hirschman is expected to be appointed as a director by the
Board of Directors in April 2000. He is also expected to become a member of the
Audit and Compensation Committees of the Company. Mr. Hirschman has been an
independent consultant specializing in solutions for emerging companies with
technology based products, since June, 1996. Mr. Hirschman is currently the
Chairman of Mustang.com (formerly Mustang Software), the leading provider of
e-mail management solutions. Mr. Hirschman has also served as a member of
various city boards of the Salvation Army, including the Denver, Minneapolis and
Dallas boards, since 1984. From February 1989 to June, 1996 Mr. Hirschman was
Vice President of Store Operations for Software, Etc., where he was responsible
for 390 retail store locations. Prior to working at Software, Etc., Mr.
Hirschman held senior management positions with T.J. Maxx, the Gap, and Banana
Republic.
-16-
<PAGE>
COMMITTEES
The Compensation Committee, composed of Mr. Burak and Mr. Ryan, has
authority over the salaries, bonuses and other compensation arrangements of the
executive officers of the Company, and it also has the authority to examine,
administer and make recommendations to the Board of Directors with respect to
benefit plans and arrangements (other than the stock option plans which are
administered by the Stock Option Committee) of the Company. The Compensation
Committee met once during fiscal 1999 and took certain actions on one other
occasion.
The Audit Committee is currently composed of Mr. Ryan and Mr. Burak.
The Audit Committee's function is to nominate independent auditors, subject to
approval by the Board of Directors, and to examine and consider matters related
to the audit of the Company's accounts, the financial affairs and accounts of
the Company, the scope of the independent auditors' engagement and their
compensation, the effect on the Company's financial statements of any proposed
changes in generally accepted accounting principles, disagreements, if any,
between the Company's independent auditors and management, and matters of
concern to the independent auditors resulting from the audit, including the
results of the independent auditors' review of internal accounting controls. The
Audit Committee met once during fiscal 1999.
The Board of Directors has no standing nominating committee.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
The following table sets forth information concerning annual and
long-term compensation, paid or accrued, for the Chief Executive Officers and
for each other executive officer of the Company whose compensation exceeded
$100,000 in fiscal 1999 (the "Named Executive Officers") for services in all
capacities to the Company during the last three fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
---------------------------- ----------------------------------
Other Awards(1) Payouts
Name and Annual Securities All
Principal Compen- Underlying Other
Position Year Salary(2) sation (2) Options/SARs Compensation
-------- ---- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
David E.Y. Sarna, Chairman, 1999 $215,000 -- 531,666 $50,000(3)
Secretary and Co-Chief 1998 $215,000 -- 8,333 --
Executive Officer 1997 $208,000 -- 8,333 --
George J. Febish, President, 1999 $215,000 -- 531,666 $50,000(3)
Treasurer and Co-Chief 1998 $215,000 -- 8,333 --
Executive Officer 1997 $208,000 -- 8,333 --
</TABLE>
- - ----------------
-17-
<PAGE>
(1) None of the Named Executive Officers received any Restricted Stock
Awards or LTIP Payouts in 1997, or 1998. The number of securities
underlying options takes into account the one-for-six consolidation of
the Company's common stock which became effective on October 13, 1999.
(2) As to each individual named, the aggregate amounts of perquisites and
personal benefits not included in the Summary Compensation Table did
not exceed the lesser of either $50,000 or 10% of the total annual
salary and bonus reported for the Named Executive Officer.
(3) The Compensation Committee and the Stock Option Committee authorized
the Company to grant cash bonuses in the aggregate amount of $325,000
to each of Mr. Sarna and Mr. Febish, to vest upon the attainment of
certain milestones as described below. As of December 30, 1999, each of
Mr. Sarna and Mr. Febish received cash bonuses in the amount of
$50,000.
-18-
<PAGE>
STOCK OPTIONS
The following table sets forth information as to all grants of stock
options to the Named Executive Officers during fiscal 1999. All references to
options take into account the Company's one-for-six consolidation of its common
stock completed on October 13, 1999.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1999(1)
Individual Grants (1)
Number of % of Total
Securities Options
Name Underlying Granted to Exercise Expiration
---- Options Employees Price Date
Granted in 1999 ----- ----
------- -------
<S> <C> <C> <C> <C>
David E.Y. Sarna 8,333 0.73% $13.50 February 25, 2004
23,333 (2) 2.04% $1.50 December 8, 2004
500,000 (3) 43.7% $1.50 December 4, 2004
George J. Febish 8,333 0.73% $13.50 February 25, 2004
23,333 (2) 2.04% $1.50 December 8, 2004
500,000 (3) 43.7 % $1.50 December 4, 2004
</TABLE>
- - --------------------------------------
(1) No stock appreciation rights were granted to any of the Named Executive
Officers during fiscal 1999.
(2) The options vested as to 11,667 shares on December 9, 1999, the grant
date, and 11,666 will vest on December 9, 2000.
(3) The performance option (as discussed below under the heading
"Performance Stock Options") is exercisable in tranches upon
achievement of certain performance goals. If any performance goal is
not achieved by December 9, 2002, the portion of the option relating to
that performance goal will expire. As of December 30, 1999, the
performance option was exercisable with respect to 50,000 shares of
common stock, subject to stockholder approval at the Annual Meeting of
Stockholders of the Company scheduled to be held in May 2000.
There were no stock options or stock appreciation right exercises by
Named Executive Officers during fiscal 1999 and no stock appreciation rights
were outstanding at December 31, 1999.
OPTION REPRICING
The following table sets forth information with respect to the
participation by the Company's current and former executive officers in a
repricing of options implemented by the Company on July 9, 1998. Under the
repricing, all outstanding employee stock options (and no non-employee director
options) previously granted under the 1996 Plan were repriced from $3.50 to
$1.45 ($8.70 post the one-for-six stock consolidation)
-19-
<PAGE>
and the vesting periods were extended and revised. There were no option
repricings implemented in fiscal year 1999.
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES MARKET PRICE OF OPTION TERM
UNDERLYING STOCK AT TIME OF EXERCISE PRICE AT NEW REMAINING AT
DATE OPTIONS REPRICING OR TIME OF REPRICING OR EXERCISE DATE OF
---- REPRICED OR AMENDMENT ($)(1) AMENDMENT ($)(1) PRICE (4)(1) REPRICING OR
AMENDED (#)(1) --------------- --------------- ---------- AMENDMENT
--------------- (YEARS)
------
<S> <C> <C> <C> <C> <C>
David E.Y. Sarna, Chairman, July 9, 50,000 1.45 3.50 1.45
Secretary and Co-Chief 1999 (8,333) (8.70) (21) (8.70) 3
Executive Officer
George J. Febish, President, 50,000 1.45 3.50 1.45
Treasurer and Co-Chief July 9, (8,333) (8.70) (21) (8.70) 3
Executive Officer 1999
</TABLE>
(1) The number and prices in parenthesis give effect to the one-for-six
consolidation of the Company's common stock. The vesting period for
these repriced options granted to Mr. Sarna and Mr. Febish was extended
and revised so that options for half of the shares remained vested as
of July 9, 1998 and options for half of the shares vested on July 9,
1999.
COMPENSATION COMMITTEE REPORT ON OPTION REPRICING
The 1996 Stock Option Plan (the "1996 Plan") was established as an
employment incentive to retain the persons necessary for the development and
financial success of the Company. As a result of a decrease in the market price
of the Common Stock and recognizing that previously granted stock options had
lost much of their value in motivating employees, including the Named Executive
Officers, to remain with the Company and share in its overall financial goals,
the Stock Option Committee (the "Committee"), in July 1998, voted to approve the
repricing of 170,000 options, including 100,000 options granted to the executive
officers named above. Such repricing was effected by amending the exercise price
in the option contracts of the employees to an exercise price of $1.45 per
share, which was the fair market value of the Common Stock on the date of
repricing. In exchange, each employee who accepted the repricing amendment
agreed to a revised vesting schedule. By repricing the existing options granted
under the 1996 Plan, the Company intended to reward key employees, including the
Named Executive Officers, holding such options for their contributions to the
Company.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with each of David E. Y.
Sarna and George J. Febish, effective as of July 1, 1996, which expire on
December 31, 2001. These agreements each provide for a current annual base
salary of $215,000 and for a bonus of 5% per annum of the Company's earnings
before depreciation, interest, taxes and amortization. In addition, on an annual
basis, the Board of Directors will consider paying an additional bonus to each
of Messrs. Sarna and Febish based upon the increase in the Company's gross
revenues, taking into account any increase in the Company's expenses. The annual
base salary under the current
-20-
<PAGE>
agreements may be increased at the discretion of the Board of Directors. The
agreements provide for (i) a severance payment of the base compensation and
bonus of the prior full fiscal year and payment of all medical, health,
disability and insurance benefits then payable by the Company for the longer of
(a) the remainder of the term of the employment agreement or (b) 12 months, as
well as (ii) the base compensation and bonus accrued to the date of termination,
upon the occurrence of (x) termination by the Company without cause, (y)
termination by the employee for good reason or (z) a change in control of the
Company, if the employee resigns after the occurrence of the such change in
control. Each of the employment agreements limit the severance payments to an
amount that is less than the amount that would cause an excise tax or loss of
deduction under the rules relating to golden parachutes under the Internal
Revenue Code.
PERFORMANCE STOCK OPTIONS
On December 9, 1999, the Committee and the Compensation Committee of
the Board of Directors authorized the Company to grant 500,000 non-qualified
performance vesting stock options (the "Performance Options") to each of Mr.
Sarna and Mr. Febish, subject to stockholder approval at the 2000 annual meeting
of stockholders scheduled to be held in May 2000.
The Performance Options will be exercisable at an exercise price of
$1.50 per share for a term of five years, vesting upon achievement of certain
milestones (the "Milestones") determined by the Committee and the Compensation
Committee based upon (a) financial statement achievements, (b) acquiring lease
financing for kiosks, (c) placement of kiosks, and (d) other specified
achievements. In the event that any of the Milestones are not achieved by
December 9, 2002, the portion of the Performance Options relating to that
Milestone will expire. The Performance Options will immediately become
exercisable in full upon a "change in control" (as the term is defined in the
performance stock option contracts) of the Company.
The option exercise price may be paid in cash, or certified check, with
previously acquired shares of Common Stock which have been held by Mr. Sarna or
Mr. Febish for at least six months, or a combination of the foregoing. The Board
of Directors (or the Committee or any other designated committee of the Board of
Directors) may permit payment of the option exercise price by delivery by the
optionee of an executed notice, together with a copy of the optionee's
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds sufficient to pay such exercise price.
If the optionee's relationship as an employee of the Company terminates
for any reason (other than as a result of death or disability of the optionee),
he may exercise his Performance Option at any time within three months after the
date of termination, but not after the date the Performance Option would
otherwise have expired; provided that if the relationship is terminated either
(a) by the Company for "Cause" (as that term is defined in the performance stock
option contracts) or (b) by the optionee, except for "Good Reason" (as that term
is defined in the performance stock option contracts) or with the consent of the
Company, the Performance Option terminates immediately.
If the optionee dies (a) while he is an employee of the Company, (b)
within three months after he terminates his relationship with the Company, or
(c) within one year following his termination of employment with the Company
because he is disabled (as the term is defined in the
-21-
<PAGE>
performance stock option contracts), the Performance Option may be exercised, to
the extent exercisable on the date of the optionee's death, by his legal
representative, at any time within one year after his death but not after the
date the Performance Option would otherwise have expired. If the optionee's
relationship as an employee of the Company terminates because he is disabled, he
may exercise his Performance Options at any time within one year after such
date, but not after the date the Performance Option would otherwise have
expired.
In the event of a consolidation, merger, sale of all or substantially
all of the Company's assets, liquidation or dissolution of the Company, then,
upon exercise of the Performance Options, Mr. Sarna and Mr. Febish will be
entitled to receive the stock which they would have been entitled if they had
exercised the Performance Options prior to that event.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth, as of March 16, 2000, information with
respect to the beneficial ownership of the Common Stock by (i) each person known
by the Company to beneficially own more than 5% of the outstanding shares of
Common Stock, (ii) each director and nominee director of the Company, (iii) each
Executive Officer named in the Summary Compensation Table herein titled
"Executive Compensation" and (iv) all directors, nominee director and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of Percent of
Beneficial Owner(1) Beneficial Class(3)
------------------- Owner(2) -------
--------
<S> <C> <C>
David E. Y. Sarna (4) (5) 189,831 4.32%
George J. Febish (4) (6) 229,583 5.23%
Daniel E. Ryan (7) 15,831 *
Michael A. Burak (8) 11,832 *
Stanley A. Hirschman 0 0
All officers, directors and nominee 447,077 9.9 %
director as a group (5 persons) (3)(9)
</TABLE>
- - ----------------------
* Less than 1%.
(1) Unless otherwise indicated, the business address of each of the
officers and directors is c/o ObjectSoft Corporation, Continental Plaza
III, 433 Hackensack Avenue, Hackensack, New Jersey 07601.
(2) Unless otherwise noted, the Company believes that all persons named
have sole voting and investment power with respect to all shares of
Common Stock listed as owned by them.
-22-
<PAGE>
(3) Each person's percentage interest is determined assuming that all
options, warrants and convertible securities that are held by such
person (but not by anyone else) and which are exercisable or
convertible within 60 days have been exercised for or converted into
Common Stock.
(4) Includes, for each of Messrs. Sarna and Febish, immediately exercisable
warrants to purchase 8,333 shares of Common Stock, immediately
exercisable options to purchase 36,666 shares of Common Stock granted
under the 1996 Plan, and immediately exercisable performance options to
purchase 50,000 shares of Common Stock, subject to Stockholder approval
as set forth above under the heading "Performance Stock Options."
(5) Includes 25,000 shares held by The David E. Y. Sarna Family Trust
("Sarna Trust"), of which Rachel Sarna, the wife of Mr. Sarna, and
Melvin Weinberg, Esq. are the trustees. The children of Mr. and Dr.
Sarna are the sole beneficiaries. Mr. Sarna disclaims beneficial
ownership of the shares held by the Sarna Trust. Mr. Weinberg and Dr.
Sarna are trustees of the Sarna Trust and share dispositive power with
respect to the shares of Common Stock owned by the Sarna Trust, but Dr.
Sarna has the sole voting power with respect to such shares. Mr.
Weinberg disclaims beneficial ownership of the shares held by the Sarna
Trust.
(6) Includes 25,000 shares held by The George J. Febish Family Trust
("Febish Trust"), of which Janis Febish, the wife of Mr. Febish, and
Melvin Weinberg, Esq. are the trustees. The children of Mr. and Mrs.
Febish are the sole beneficiaries. Mr. Febish disclaims beneficial
ownership of the shares held by the Febish Trust. Mr. Weinberg and Mrs.
Febish are trustees of the Febish Trust and share dispositive power
with respect to the shares of Common Stock owned by the Febish Trust,
but Mrs. Febish has the sole voting power with respect to such shares.
Mr. Weinberg disclaims beneficial ownership of the shares of Common
Stock held by the Febish Trust.
(7) Includes immediately exercisable stock options to purchase 15,831
shares of Common Stock granted under the 1996 Plan.
(8) Includes immediately exercisable stock options to purchase 11,666
shares of Common Stock granted under the 1996 Plan and 166 shares of
Common Stock purchased on the open market in the name of Lois Burak,
Mr. Burak's wife. Mr. Burak disclaims beneficial ownership of the
shares of Common Stock held by his wife.
(9) Includes 200,829 shares of Common Stock which certain of the current
Executive Officers and Directors have a right to acquire pursuant to
presently exercisable stock options and 16,666 shares of Common Stock
which certain of the current Executive Officers and Directors have a
right to acquire pursuant to presently exercisable warrants.
-23-
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOANS TO OFFICER
On January 2, 1997 the Company extended to Mr. Sarna a loan in the
amount of $440,000 (the "1997 Loan "). The maturity date of the 1997 Loan was
extended from November 30, 1997 to May 31, 2000. Mr. Sarna utilized the funds
for a block purchase of 80,000 shares of the Common Stock from the market maker,
who was also the underwriter of the Company's public offering, in an open market
transaction. In March 1998, Mr. Sarna executed a Security Agreement in favor of
the Company in which he pledged as collateral for the 1997 Loan certain contract
rights to receive an option to acquire certain marketable securities. The
individual who was to transfer this option failed to transfer the option and
thereafter, in May 1999, filed for bankruptcy protection. Mr. Sarna and the
Company have filed claims in bankruptcy court based upon the failure to deliver
the option and have sued such individual in bankruptcy court to prevent their
claims against him from being discharged in bankruptcy. The costs of such
lawsuit are being borne by the Company. The Company has provided an allowance
for loan loss aggregating $270,000 with respect to the 1997 Loan.
During 1999, the Company made a personal interest-free loan to Mr.
Sarna in the amount of $105,054.84. In August 1999, Mr. Sarna executed a
promissory note in favor of the Company, which note is secured by Mr.
Sarna's pledge of 10,000 shares of Common Stock.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a. EXHIBITS
2.1(1) Certificate of Ownership and Merger of ObjectSoft
Corporation (a New Jersey corporation) into the Company
2.2(1) Plan of Merger of ObjectSoft Corporation (a New Jersey
corporation) into the Company
3.1(a)(1) Certificate of Incorporation of the Company
3.1(b)(2) Amendment to Certificate of Incorporation of the
Company, dated November 14, 1996
3.1(c)(12) Amendment to Certificate of Incorporation of the
Company, dated June 3, 1999
3.1(d)(12) Amendment to Certificate of Incorporation of the
Company, dated October 12, 1999
3.2(2) Amended and Restated By-laws of the Company
4.1(2) Form of Representative's Unit Purchase Option Agreement
4.2(2) Specimen Certificate of the Company's Common Stock
4.3(1) Form of Class A Warrant Agreement
4.4(3) Private Equity Line of Credit Agreement, dated as of May
13, 1998
4.5(4) Agreement of Amendment and Modification, dated as of
September 29, 1998
4.6(10) Certificate of Designation of Series C Convertible
Preferred Stock
4.7(3) Form of Warrant A
4.8(3) Form of Warrant B
4.9(3) Registration Rights Agreement, dated as of May 13, 1998
4.10(5) Amended and Restated 6% Series D Convertible Preferred
Stock.
-24-
<PAGE>
Subscription Agreement, dated as of December 30, 1998
4.11(5) Certificate of Designation of Series D Preferred Stock
4.12(5) Amended Certificate of Designation of Series D Preferred
Stock
4.13(5) Form of Investor's Warrant for December 1998 financing
4.14(5) Registration Rights Agreement, dated as of December 30,
1998
4.15(6) 6% Series E Convertible Preferred Stock Subscription
Agreement, dated as of March 17, 1999
4.16(6) Certificate of Designation of Series E Preferred Stock
4.17(6) Amended Certificate of Designation of Series E Preferred
Stock
4.18(6) Form of Investor's Warrant for March 1999 financing
4.19(6) Registration Rights Agreement, dated as of March 17,
1999
4.20(7) 6% Series F Convertible Preferred Stock Subscription
Agreement, dated as of August 13, 1999
4.21(7) Amendment Agreement, dated as of August 19, 1999
4.22(7) Certificate of Designation of Series F Preferred Stock
4.23(7) Form of Warrant issued pursuant to the August 13, 1999
Subscription Agreement
4.24(7) Registration Rights Agreement, dated as of August 13,
1999
4.25(8) 6% Series G Convertible Preferred Stock Subscription
Agreement, dated as of December 30, 1999
4.26(8) Certificate of Designation of Series G Preferred Stock
4.27(8) Form of Investor's Warrant for December 1999 financing
4.28(8) Registration Rights Agreement, dated December 30, 1999
10.1(2) Employment Agreement, dated as of July 1, 1996, between
the Company and David E. Y. Sarna
10.2(2) Employment Agreement dated as of July 1, 1996, between
the Company and George J. Febish
10.3(a)(11) 1996 Stock Option Plan, as amended as of March 15, 1999
10.3(b)(12) 1996 Stock Option Plan, as amended as of January 18,
2000 (subject to stockholder approval)
10.4(1) Form of Bridge Loan Promissory Note
10.5(1) Form of Bridge Loan Warrant
10.6(1) Form of Warrant Agreement with placement agent for
Bridge Loan Offering
10.7(1) Form of Subscription Agreement and Investment
Representation of Investor with each of the investors in
the July 1996 Offering
10.8(1) Form of July 1996 Warrant Agreement
10.9(1) Form of Warrant Agreement with placement agent for July
1996 Offering
10.10(1) Agreement, dated January 11, 1996, as amended, with the
City of New York (Department of Information Technology
and Telecommunications)
10.13(2) Form of Investor Warrant
10.14(2) Form of Officer Warrant
10.15(2) Cyndel Warrant
10.16(9) Promissory Note between David E. Y. Sarna and the
Company, dated January 2, 1997
10.17(9) Security Agreement between David E. Y. Sarna and the
Company, dated March 18, 1998
10.18(12) Performance Stock Option Agreement between the Company
and David E. Y. Sarna, dated as of December 9, 1999
-25-
<PAGE>
10.19(12) Performance Stock Option Agreement between the Company
and George J. Febish, dated as of December 9, 1999
23.1(12) Consent of Richard A. Eisner & Company, LLP
27.1(12) Financial Data Schedule
b. REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the last
quarter of fiscal 1999. The Company filed a report on Form 8-K on January 4,
2000 in connection with the Company's entering into a 6% Series G Convertible
Preferred Stock Subscription Agreement dated December 30, 1999 among the Company
and certain investors.
- - ---------------------
(1) Denotes exhibits incorporated by reference to the Company's
Registration Statement on Form SB-2 (Registration No. 333-10519).
(2) Denotes exhibits incorporated by reference to the Company's Amendment
No. 1 to Registration Statement on Form SB-2 (Registration No.
333-10519).
(3) Denotes exhibits incorporated by reference to the Company's
Registration Statement on Form S-3 (Registration No. 333-57753).
(4) Denotes an exhibit incorporated by reference to the Company's Amendment
No. 2 to Registration Statement on Form S-3 (Registration No.
333-57753).
(5) Denotes exhibits incorporated by reference to the Company's Current
Report on Form 8-K filed on January 15, 1999.
(6) Denotes exhibits incorporated by reference to the Company's Current
Report on Form 8-K filed on March 23, 1999.
(7) Denotes exhibits incorporated by reference to the Company's
Registration Statement on Form S-3 (Registration No. 333-86887).
(8) Denotes exhibits incorporated by reference to the Company's Current
Report on Form 8-K filed on January 4, 2000.
(9) Denotes exhibits incorporated by reference to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1997.
(10) Denotes an exhibit incorporated by reference to the Company's
Registration Statement on Form S-8 (Registration No. 333-69985).
(11) Denotes an exhibit incorporated by reference to the Company's
Registration Statement on Form S-8 (Registration No. 333-90303).
(12) Filed herewith.
-26-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: March 29, 2000 OBJECTSOFT CORPORATION
By: /s/ David E. Y. Sarna
---------------------------
David E. Y. Sarna, Chairman
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dated indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David E. Y. Sarna Chairman, Co-Chief Executive Officer, March 29, 2000
- - ------------------------------- Secretary and Director (Principal
David E.Y. Sarna Executive Officer, Principal Financial
Officer and Principal Accounting Officer)
/s/ George J. Febish President, Co-Chief Executive Officer, March 29, 2000
- - -------------------------------- Treasurer and Director (Principal Executive
George J. Febish Officer)
Director March __, 2000
- - --------------------------------
Daniel E. Ryan
/s/ Michael A. Burak Director March 29, 2000
- - -------------------------------
Michael A. Burak
</TABLE>
<PAGE>
OBJECTSOFT CORPORATION
CONTENTS
PAGE
----
FINANCIAL STATEMENTS
Independent auditors' report F-2
Balance sheet as of December 31, 1999 F-3
Statements of operations for the years ended
December 31, 1999 and 1998 F-4
Statements of changes in stockholders' equity
for the years ended December 31, 1999 and 1998 F-5
Statements of cash flows for the years ended
December 31, 1999 and 1998 F-6
Notes to financial statements F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
ObjectSoft Corporation
Hackensack, New Jersey
We have audited the accompanying balance sheet of ObjectSoft Corporation as of
December 31, 1999 and the related statements of operations, changes in
stockholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of ObjectSoft Corporation as of
December 31, 1999 and the results of its operations and cash flows for each of
the years in the two-year period ended December 31, 1999, in conformity with
generally accepted accounting principles.
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
Florham Park, New Jersey
February 23, 2000
F-2
<PAGE>
OBJECTSOFT CORPORATION
BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $2,311,000
Marketable securities 323,000
Accounts receivable, less allowance for doubtful accounts of $130,000 29,000
Prepaid expenses and other current assets 338,000
Deferred tax asset 258,000
---------------
Total current assets 3,259,000
Furniture and equipment, at cost, net of accumulated depreciation 1,584,000
Capitalized software 215,000
Notes receivable - officer/shareholder, less allowance for loan loss of $270,000 275,000
Other assets 94,000
Deferred tax asset - noncurrent 200,000
---------------
$5,627,000
================
LIABILITIES
Current liabilities:
Current portion of long-term debt $12,000
Current portion of obligations under capital lease 137,000
Accounts payable 345,000
Accrued expenses 173,000
Other liabilities 3,000
---------------
Total current liabilities 670,000
Long-term debt 1,000
Obligations under capital lease 375,000
---------------
Total liabilities 1,046,000
---------------
Commitments
STOCKHOLDERS' EQUITY
6% non-voting convertible Series E preferred stock, $100 par, authorized 25,000
shares;
issued and outstanding 1,000 shares 100,000
6% non-voting convertible Series G preferred stock, $.0001 par, authorized 30,000 shares,
issued and outstanding 21,200 shares, at stated value 2,120,000
Common stock, $.0001 par, authorized 50,000,000 shares, issued and outstanding
4,257,895 shares
Additional paid-in capital 14,519,000
Accumulated deficit (12,158,000)
---------------
Total stockholders' equity 4,581,000
---------------
$5,627,000
================
</TABLE>
See Notes to financial statements F-3
<PAGE>
OBJECTSOFT CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1999 1998
------------- -------------
Revenues:
<S> <C> <C>
Development and training $ $ 44,000
Rental and kiosk related income 136,000 117,000
------------- -------------
Total revenues 136,000 161,000
------------- -------------
Expenses:
Cost of services 835,000 583,000
Research and development 410,000 491,000
General and administrative 3,204,000 2,014,000
------------- -------------
Total expenses 4,449,000 3,088,000
------------- -------------
Loss from operations (4,313,000) (2,927,000)
------------- -------------
Other income (expense):
Realized and unrealized gain (loss) on marketable securities (12,000) (7,000)
Interest and dividend income 62,000 73,000
Interest expense (68,000) (14,000)
------------- -------------
Total other income (expense) (18,000) 52,000
------------- -------------
(LOSS) BEFORE INCOME TAX BENEFIT (4,331,000) (2,875,000)
Income tax benefit 411,000 360,000
------------- -------------
NET (LOSS) $ (3,920,000) $ (2,515,000)
============== =============
Net (loss) available to common stockholders $ (4,973,000) $ (2,515,000)
============ =============
Basic and diluted net loss per share $(3.20) $(3.32)
====== ======
</TABLE>
See Notes to financial statements F-4
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED
STOCK COMMON STOCK ADDITIONAL
----- ------------ PAID-IN
AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 4,082,676 $ 0 $6,942,000 $(4,670,000) $2,272,000
Consolidation of common
stock on the basis of
1 for 6 (3,402,230)
------------ ----------- -------- ------------- -------------- --------------
BALANCE, JANUARY 1, 1998,
RESTATED 680,446 6,942,000 (4,670,000) 2,272,000
Common stock, net of costs 119,907 337,000 337,000
Issuance of preferred stock $ 2,298,000 9,630 (212,000) 2,086,000
Compensatory warrants and
common stock 8,333 13,000 13,000
Conversion of preferred stock
to common stock (1,248,000) 323,479 1,248,000 0
Net loss (2,515,000) (2,515,000)
------------ ----------- -------- ------------- -------------- --------------
BALANCE, DECEMBER 31, 1998 1,050,000 1,141,795 0 8,328,000 (7,185,000) 2,193,000
Issuance of preferred stock 6,570,000 (706,000) 5,864,000
Compensatory warrants, options
and common stock 58,333 399,000 399,000
Conversion of preferred stock
to common stock (5,400,000) 3,021,221 5,400,000
Exercise of options and
warrants 9,894 45,000 45,000
Discount on preferred stock
accounted for as a dividend 993,000 (993,000)
Dividends paid in common stock 26,652 60,000 (60,000)
Net loss (3,920,000) (3,920,000)
------------ ----------- -------- ------------- -------------- --------------
BALANCE, DECEMBER 31, 1999 $ 2,220,000 4,257,895 $ 0 $14,519,000 $(12,158,000) $4,581,000
============ =========== ======== =========== ============= ==========
</TABLE>
See Notes to financial statements F-5
<PAGE>
OBJECTSOFT CORPORATION
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(3,920,000) $(2,515,000)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization 522,000 362,000
Deferred tax benefit (98,000) (360,000)
Warrants and common stock issued for services rendered 277,000 13,000
Provision for uncollectible accounts and officer/shareholder notes 325,000 75,000
Unrealized (gain) loss on marketable securities (30,000) 66,000
Changes in:
Marketable securities (293,000) 850,000
Accounts receivable (7,000) 212,000
Prepaid expenses and other current assets (21,000) 40,000
Other assets 62,000 (85,000)
Accounts payable (177,000) 226,000
Accrued expenses 55,000 34,000
Other liabilities (1,000) 2,000
----------- -----------
Net cash used in operating activities (3,306,000) (1,080,000)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (925,000) (476,000)
Capitalized software (251,000) (72,000)
Note receivable - other 25,000
Notes receivable - officer/shareholder (105,000)
----------- -----------
Net cash used in investing activities (1,281,000) (523,000)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment of note payable (15,000) (16,000)
Proceeds from sale - leaseback 123,000 337,000
Proceeds from exercise of warrants and nonemployee options 45,000
Principal payments on obligations under capital leases (101,000) (30,000)
Net proceeds from issuance of preferred stock 5,864,000 2,085,000
----------- -----------
Net cash provided by financing activities 5,916,000 2,376,000
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,329,000 773,000
Cash and cash equivalents, beginning of period 982,000 209,000
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,311,000 $ 982,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
Cash paid for:
Interest $ 58,000 $ 12,000
=========== ===========
</TABLE>
F-6
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] THE COMPANY:
ObjectSoft Corporation (the "Company") is currently engaged in the
business of providing transaction based and advertising supported
services over the Internet and through public access kiosks primarily in
video stores and in various public buildings. Its kiosks may be sold to
others or operated by the Company for operating income.
[2] CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include cash on hand, demand deposits and all
highly-liquid investments with a maturity of three months or less at the
time of purchase.
[3] FURNITURE AND EQUIPMENT:
Furniture and equipment is carried at cost, less accumulated
depreciation. Depreciation is provided using the straight-line method
over estimated useful lives of the assets (three to seven years).
[4] SOFTWARE DEVELOPMENT COSTS:
The Company capitalizes software development costs when the preliminary
project stage is completed. All other software development costs are
expensed as research and development as incurred.
The Company amortizes the capitalized software development costs over
their estimated useful life, generally two years. It is reasonably
possible that the remaining economic useful life of the software may vary
in the near term.
[5] MARKETABLE SECURITIES
The Company's marketable securities, primarily equity securities, are
bought and held principally for the purpose of selling them in the near
term and are classified as trading securities. Trading securities are
recorded at fair value on the balance sheet in current assets, with the
changes in fair value during the period reported in earnings.
[6] PROVISION FOR INCOME TAXES:
Deferred income taxes arise from net operating loss carryforwards and
temporary differences, primarily from income and expense items being
reported on an accrual basis for financial statement purposes and cash
basis for tax purposes and capitalized software.
F-7
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[7] STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") allows companies to either
expense the estimated fair value of stock options granted to employees or
to continue to follow the intrinsic value method set forth in APB Opinion
25, "Accounting for Stock Issued to Employees" ("APB 25") but disclose
the pro forma effects on net (loss) had the fair value of the options
been expensed. The Company has elected to continue to apply APB 25 in
accounting for its stock option incentive plans.
[8] PER SHARE DATA:
The basic and diluted per share data has been computed on the basis of
the loss applicable to common stockholders for each year divided by the
weighted average number of shares of common stock outstanding.
The following summarizes the basic and diluted loss per share for the
years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
----------------------------------------- -----------------------------------------
1 9 9 9 1 9 9 8
BASIC AND BASIC AND
WEIGHTED DILUTED WEIGHTED DILUTED
AVERAGE PER SHARE AVERAGE PER SHARE
NET LOSS SHARES AMOUNT NET LOSS SHARES AMOUNT
---------- ------- ---------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net loss $(3,920,000) $ (2,515,000)
Preferred stock
dividends (1,053,000)
----------- ------------
Net loss applicable
to common
stockholders $(4,973,000) 1,553,302 $(3.20) $ (2,515,000) 758,116 $(3.32)
=========== ========= ======= ============= ======= ======
</TABLE>
[9] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE B - NOTES RECEIVABLE OFFICER/SHAREHOLDER
The note receivable is due from the chairman of the Company's board of directors
and was collateralized by contract rights to receive from an individual an
option exercisable for marketable securities which the individual failed to
deliver. This note was initially due November 1997 and was extended to May 1999
and further extended to May 31, 2000 and bears interest at 8 percent per annum.
While the chairman and the Company are pursuing legal remedies against the
individual, the collectibility of this note cannot be determined. Accordingly,
the Company has provided an allowance for loan loss aggregating $270,000.
During 1999, the Company loaned the chairman an additional $105,000 which is
partially collateralized by 10,000 shares of the Company's common stock, is
non-interest bearing and due on demand.
F-8
<PAGE>
NOTE C - FURNITURE AND EQUIPMENT
As of December 31, 1999, furniture and equipment consists of:
Kiosks $2,132,000
Furniture and other equipment 479,000
---------
2,611,000
Accumulated depreciation 1,027,000
---------
$1,584,000
==========
Depreciation expense aggregated $428,000 and $271,000 for the years ended
December 31, 1999 and 1998, respectively. Included in furniture and other
equipment are assets under capital leases with costs of $593,000. Accumulated
depreciation on these assets aggregated $196,000. Depreciation expense on
equipment under capital lease aggregated $120,000 and $33,000, for the years
ended December 31, 1999 and 1998, respectively.
During 1999 and 1998, the Company acquired equipment under capital lease
aggregating $427,000 and $47,000, respectively.
NOTE D - CAPITALIZED SOFTWARE
During the years ended December 31, 1999 and 1998, the Company capitalized
software development costs which aggregated $251,000 and $72,000, respectively.
Amortization of capitalized software costs aggregated $95,000 and $91,000 for
the years ended December 31, 1999 and December 31, 1998, respectively.
NOTE E - OBLIGATIONS UNDER CAPITAL LEASE
Minimum future lease payments under capital leases expiring through 2004, as of
December 31, 1999 are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
2000 $263,000
2001 253,000
2002 153,000
2003 37,000
2004 3,000
-------------
709,000
Less amount representing interest 197,000
------------
Present value of net minimum lease payments 512,000
Due within one year 137,000
------------
Due after one year $375,000
============
F-9
<PAGE>
OBJECTSOFT CORPORATION
NOTE F - LONG-TERM DEBT
Long-term debt as of December 31, 1999 consists of:
Note payable collaterlized by equipment,
interest at 15.44%, principal and interest
of $1,077, due in monthly installments
through January 2001 $13,000
Current portion of long-term debt 12,000
------
Long-term debt $1,000
======
As of December 31, 1999, annual maturities of long-term debt outstanding are
$12,000 in 2000 and $1,000 in 2001.
NOTE G - ACCRUED EXPENSES:
Accrued expenses are:
Accrued interest $11,000
Accrued rents 10,000
Accrued legal fees 79,000
Other 73,000
------------
$173,000
============
NOTE H - STOCKHOLDERS' EQUITY
COMMON STOCK:
In June 1999, the Company increased the authorized shares of common stock from
20 million to 50 million.
In September 1999, the Company declared a consolidation of its common stock on a
1 for 6 basis. This has been reflected retroactively in the financial
statements. Therefore, all per share and share amounts have been adjusted to
reflect the consolidation of shares.
PREFERRED STOCK:
From April 1999 through July 1999, all of the then outstanding Series D
preferred stock were converted into 174,176 shares of common stock.
In March 1999, the Company issued 20,000 shares of Series E 6% convertible
preferred stock and warrants to purchase 8,333 shares of common stock at
$19.0125 per share for $1,866,000, net of costs. Additionally, the placement
agent received 1,000 shares of the Series E preferred stock and aforementioned
warrant to purchase 8,333 shares of common stock. From July 1999 through
December 1999, 20,000 shares of the outstanding Series E preferred stock were
converted into 635,925 shares of common stock. The warrants expire in March
2004.
F-10
<PAGE>
NOTE H - STOCKHOLDERS' EQUITY (CONTINUED)
In August 1999, the Company issued for $2,062,000, net of costs, 21,000 shares
of Series F 6% cumulative convertible preferred stock and warrants to purchase
39,167 shares at $6.42 per share expiring August 2004. Additionally, the
placement agent received 2,500 shares of Series F preferred stock. In December
1999, all of the outstanding Series F preferred stock were converted into
2,211,120 shares of common stock.
In December 1999, the Company issued for $1,936,000, net of costs, 20,000 shares
of Series G 6% cumulative convertible preferred stock and warrants to purchase
200,000 shares at $2.95625 per share expiring December 2004. Additionally, the
placement agent received 1,200 shares of Series G preferred stock and
aforementioned warrants to purchase 50,000 shares. The number of shares of
common stock to be issued upon conversion shall be determined by dividing the
purchase price of the shares to be converted by the lesser of $2.6875 or the
average of the two lowest closing bid prices during the 20 business days ending
one day prior to the conversion ("look back period"). If the preferred stock has
not been converted into common stock by March 31, 2000, the look back period
will increase by two business days on the first day of each month through August
2000.
Additionally, in February 2000, the Company issued for $500,000 , 5,000 shares
of Series G preferred stock and warrants to purchase 50,000 shares of common
stock. The placement agent received 300 shares of the preferred stock and
warrants to purchase 12,500 shares of common stock.
The following summarizes the changes in non-voting convertible preferred stock
for the two years ended December 31, 1999:
<TABLE>
<CAPTION>
BALANCE, CONVERSION BALANCE. CONVERSION BALANCE,
JANUARY 1, INTO COMMON DECEMBER 31, INTO COMMON DECEMBER 31,
1997 ISSUANCES STOCK 1998 ISSUANCES STOCK 1999
---- --------- ----- ---- --------- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Series C:
Shares 12,480 (12,480)
Amounts $ 1,248,000 (1,248,000)
Series D:
Shares 10,500 10,500 (10,500)
Amounts $ 1,050,000 $ 1,050,000 $(1,050,000)
Series E:
Shares 21,000 (20,000) 1,000
Amounts $ 2,100,000 $(2,000,000) $100,000
Series F:
Shares 23,500 (23,500)
Amounts $ 2,350,000 $(2,350,000)
Series G:
Shares 21,200 21,200
Amounts $ 2,120,000 $2,120,000
</TABLE>
STOCK OPTIONS AND WARRANTS:
The Company has warrants outstanding, expiring in April 2000, for the purchase
of 16,667 shares of common stock at an exercise price of $3.00. Additionally, a
warrant to purchase 20,000 shares expired in 1999.
In November 1998, the Company issued warrants to purchase 112,500 shares of
common stock at prices ranging from $6.00 to $30.00 per share and 8,333 shares
of common stock in exchange for professional services to be performed
substantially over a 24 month period. The estimated fair value of the warrants
and stock at date of issue aggregated $248,000 and is being amortized over 24
months. During the years ended December 31, 1999 and 1998, the Company
recognized an expense of $104,000 and $13,000, respectively.
NOTE H-STOCKHOLDERS' EQUITY (CONTINUED)
F-11
<PAGE>
OBJECTSOFT CORPORATION
NOTES TO FINANCIAL STATEMENTS
During 1999, the Company issued warrants exercisable into 55,540 shares of
common stock for services rendered by a financial advisor and a leasing company,
including 33,333 that vest upon completion of certain financings. The exercise
prices range from $2.92 to $13.00 and the warrants expire in 2004. For the year
ended December 31, 1999, the Company recognized an expense of $173,000.
In December 1999, the Company issued to each of the co-chief executives options
on 500,000 shares at $1.50 per share subject to the Company meeting certain
milestones including the completion of certain financings, lease financing of
kiosks, completion and advertising agreements, reduction of the quarterly
losses, certain kiosk enhancements and the completion of an offering of at least
$10 million. The options expire in 2004 and options for any milestones not met
by December 10, 2002 are cancelled. The Company has estimated when each
milestone will most likely be met. However, these options require stockholder
approval which has not been received yet; charges to operations will commence
upon receipt of stockholder approval.
The Company maintains a stock option plan ("Plan") pursuant to which 208,333
shares of common stock are reserved for issuance upon exercise of either
incentive or nonincentive stock options which may be granted from time to time
by the Board of Directors to employees and others. In June 1999, the
stockholders approved increasing the shares reserved under the Plan from 125,000
shares to 208,333 shares.
The Company recognizes compensation expense for the difference between the fair
value of the underlying common stock and the grant price of the option at the
date of grant. The effect of valuing the options, on 1999 and 1998 net loss is
not necessarily representative of the effects on reported net earnings or loss
for future years due to, among other things, (1) the vesting period of the stock
options and (2) the fair value of additional stock options in future years. Had
compensation cost for the Company's stock option plans been determined based
upon the fair value of the options at the grant date for awards under the plans
consistent with the methodology prescribed under SFAS No. 123, the Company's pro
forma net loss in 1999 would have been approximately $4.0 million or $(3.26) per
share and the pro forma net loss in 1998 would have been approximately $2.6
million or $(3.42) per share.
The fair value of each option granted in 1999 and 1998 has been estimated on the
date of grant using the Black-Scholes options pricing model with the following
assumption: no dividends yield, expected volatility of 90% in 1999 and 40% in
1998, risk free interest rates of 4.84% and 6.03% in 1999 and 5.50% in 1998 and
expected lives of approximately five years for the 1999 options and three years
for the 1998 options. The weighted average fair value of options granted were
$1.81 per share during 1999 and $2.18 per share during 1998.
As of December 31, 1999, 2,190,598 shares were reserved for issuance of shares
for outstanding warrants and options.
The following summarizes stock option transactions under the Plan:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1999 1998
---------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
Shares PRICE SHARES PRICE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding options at the beginning
of year 65,278 $8.70 41,667 $23.76
Options granted 147,500 3.29 72,500 8.70
Options expired or canceled (4,445) 8.70 (48,889) 21.54
Options exercised (2,673) 8.70
-------- --------
Outstanding options at the end of
year 205,660 $4.82 65,278 $ 8.70
============ ===========
</TABLE>
F-12
<PAGE>
OBJECTSOFT CORPORATION
NOTE H - STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about the plan's options outstanding
as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- -----------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE NUMBER LIFE EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
------ ----------- ---------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$1.50 124,166 4.9 $1.50 63,000 $1.50
8.70 61,494 3.5 8.70 51,000 8.70
13.50 20,000 4.1 13.50 12,000 13.50
</TABLE>
NOTE I - INCOME TAXES
The significant components of the Company's deferred tax assets and liabilities
as of December 31, 1999 is as follows:
Net operating losses carryforward $ 3,925,000
Research and development credit 168,000
Allowance for loan loss 108,000
Other 32,000
-------------
Deferred tax asset 4,233,000
-------------
Capitalized software 86,000
Accrual to cash adjustment 119,000
Depreciation 29,000
-------------
Deferred tax liability 234,000
Valuation allowance (3,541,000)
-------------
Net deferred tax asset $ 458,000
=============
Income tax benefit as of December 31, 1999 and 1998 consists of the following:
1999 1998
---- ----
Current:
State $ 313,000
Deferred:
State 98,000 $360,000
---------- --------
$411,000 $360,000
======== ========
The change in the valuation allowances for the years ended December 31, 1999 and
1998 was $735,000 and $507,000, respectively.
As permitted by New Jersey statutes, the Company has entered into an agreement
to sell certain New Jersey net operating losses and research and development
credits accordingly, state income tax benefits and deferred tax assets have been
recognized in 1999 and 1998.
F-13
<PAGE>
NOTE I - INCOME TAXES (CONTINUED)
The difference between the statutory federal income tax rate and the effective
rate for the Company's income tax benefit for each of the years ended December
31, 1999 and 1998, respectively, is summarized as follows:
1999 1998
---- ----
Statutory federal income tax rate 34.0% 34.0%
State income tax benefit, net of federal tax effect 6.9 9.5
Increase in valuation allowance (30.8) (31.4)
Miscellaneous 0.4 2.3
--- ---
Effective income tax rate 10.5% 14.4%
===== ======
As of December 31, 1999, the Company had a net operating loss carryforward of
$10,924,000 for federal income tax purposes, which expires through 2019.
NOTE J - EMPLOYEE BENEFIT PLAN
The Company maintains a noncontributory Employee Savings Plan, in accordance
with the provisions of Section 401(k) of the Internal Revenue Code. Pursuant to
the terms of the plan, participants can defer a portion of their income through
contributions to the Plan.
NOTE K - FINANCIAL INSTRUMENTS, REVENUES AND OTHER MATTERS
[1] CASH AND CASH EQUIVALENTS:
The Company places its cash and cash equivalents in a commercial bank. At
times, the cash balances exceed federally insured limits.
[2] REVENUES:
For the years ended December 31, 1999 and 1998, 86 percent and 73 percent
of revenues were derived from one customer, respectively.
[3] MICROSOFT CORPORATION:
The Company's software is generally based upon Microsoft Windows
technology. Additionally, it has established a strategic relationship
with Microsoft that management believes is important to its sales,
marketing and support and product development activities. Accordingly,
any change in this relationship or any factor adversely affecting the
demand for, or the use of Microsoft's Windows operating system could have
a negative impact on demand for the Company's products and services.
Additionally, changes to the underlying components of the Windows
operating system would require changes to the Company's products and
could result in the loss of sales if the Company did not implement
changes in a timely manner.
F-14
<PAGE>
NOTE L - COMMITMENTS
[1] LEASE INCOME:
The Company leases five kiosks, hardware and software to the City of New
York. All rental income relates to this agreement. Additionally, the
Company can earn fees based upon the number of transactions effectuated
in the kiosks. The Company extended its agreement with the City of New
York through January 1, 2001. Under the terms of this agreement, the
annual rental income is $135,000.
[2] LEASE:
The Company leases office space and equipment under operating leases with
initial or remaining terms of one year or more through 2007. Minimum
annual rentals are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
2000 $ 182,000
2001 177,000
2002 178,000
2003 185,000
2004 199,000
Thereafter 329,000
------------
$ 1,250,000
===========
Rent expense approximated $129,000 and $100,000 for the years ended
December 31, 1999 and 1998, respectively.
[3] EMPLOYMENT AGREEMENTS:
The Company previously entered into employment agreements with two key
executives expiring in December 2001. Under the terms of the agreements,
the aggregate current annual compensation is $215,000 per executive.
Additionally, the agreements include provisions for bonuses (aggregating
the sum of 5 percent of earnings before depreciation, interest, taxes and
amortization and other amounts, if any, to be determined by the board of
directors), increases in compensation and severance payment based upon
certain events.
NOTE M - ADVERTISING COSTS
Advertising costs are charged to operations in the year incurred and aggregated
$63,000 and $41,000 for the years ended December 31, 1999 and 1998,
respectively.
F-16
<PAGE>
EXHIBITS INDEX
--------------
2.1(1) Certificate of Ownership and Merger of ObjectSoft
Corporation (a New Jersey corporation) into the Company
2.2(1) Plan of Merger of ObjectSoft Corporation (a New Jersey
corporation) into the Company
3.1(a)(1) Certificate of Incorporation of the Company
3.1(b)(2) Amendment to Certificate of Incorporation of the
Company, dated November 14, 1996
3.1(c)(12) Amendment to Certificate of Incorporation of the
Company, dated June 3, 1999
3.1(d)(12) Amendment to Certificate of Incorporation of the
Company, dated October 12, 1999
3.2(2) Amended and Restated By-laws of the Company
4.1(2) Form of Representative's Unit Purchase Option Agreement
4.2(2) Specimen Certificate of the Company's Common Stock
4.3(1) Form of Class A Warrant Agreement
4.4(3) Private Equity Line of Credit Agreement, dated as of May
13, 1998
4.5(4) Agreement of Amendment and Modification, dated as of
September 29, 1998
4.6(10) Certificate of Designation of Series C Convertible
Preferred Stock
4.7(3) Form of Warrant A
4.8(3) Form of Warrant B
4.9(3) Registration Rights Agreement, dated as of May 13, 1998
4.10(5) Amended and Restated 6% Series D Convertible Preferred
Stock.
<PAGE>
Subscription Agreement, dated as of December 30, 1998
4.11(5) Certificate of Designation of Series D Preferred Stock
4.12(5) Amended Certificate of Designation of Series D Preferred
Stock
4.13(5) Form of Investor's Warrant for December 1998 financing
4.14(5) Registration Rights Agreement, dated as of December 30,
1998
4.15(6) 6% Series E Convertible Preferred Stock Subscription
Agreement, dated as of March 17, 1999
4.16(6) Certificate of Designation of Series E Preferred Stock
4.17(6) Amended Certificate of Designation of Series E Preferred
Stock
4.18(6) Form of Investor's Warrant for March 1999 financing
4.19(6) Registration Rights Agreement, dated as of March 17,
1999
4.20(7) 6% Series F Convertible Preferred Stock Subscription
Agreement, dated as of August 13, 1999
4.21(7) Amendment Agreement, dated as of August 19, 1999
4.22(7) Certificate of Designation of Series F Preferred Stock
4.23(7) Form of Warrant issued pursuant to the August 13, 1999
Subscription Agreement
4.24(7) Registration Rights Agreement, dated as of August 13,
1999
4.25(8) 6% Series G Convertible Preferred Stock Subscription
Agreement, dated as of December 30, 1999
4.26(8) Certificate of Designation of Series G Preferred Stock
4.27(8) Form of Investor's Warrant for December 1999 financing
4.28(8) Registration Rights Agreement, dated December 30, 1999
10.1(2) Employment Agreement, dated as of July 1, 1996, between
the Company and David E. Y. Sarna
10.2(2) Employment Agreement dated as of July 1, 1996, between
the Company and George J. Febish
10.3(a)(11) 1996 Stock Option Plan, as amended as of March 15, 1999
10.3(b)(12) 1996 Stock Option Plan, as amended as of January 18,
2000 (subject to stockholder approval)
10.4(1) Form of Bridge Loan Promissory Note
10.5(1) Form of Bridge Loan Warrant
10.6(1) Form of Warrant Agreement with placement agent for
Bridge Loan Offering
10.7(1) Form of Subscription Agreement and Investment
Representation of Investor with each of the investors in
the July 1996 Offering
10.8(1) Form of July 1996 Warrant Agreement
10.9(1) Form of Warrant Agreement with placement agent for July
1996 Offering
10.10(1) Agreement, dated January 11, 1996, as amended, with the
City of New York (Department of Information Technology
and Telecommunications)
10.13(2) Form of Investor Warrant
10.14(2) Form of Officer Warrant
10.15(2) Cyndel Warrant
10.16(9) Promissory Note between David E. Y. Sarna and the
Company, dated January 2, 1997
10.17(9) Security Agreement between David E. Y. Sarna and the
Company, dated March 18, 1998
10.18(12) Performance Stock Option Agreement between the Company
and David E. Y. Sarna, dated as of December 9, 1999
<PAGE>
10.19(12) Performance Stock Option Agreement between the Company
and George J. Febish, dated as of December 9, 1999
23.1(12) Consent of Richard A. Eisner & Company, LLP
27.1(12) Financial Data Schedule
EXHIBIT 3.1(c)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
OBJECTSOFT CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is ObjectSoft Corporation.
2. The Certificate of Incorporation of the Corporation
(hereinafter called the "Certificate of Incorporation") is hereby amended by
deleting the entire Fourth Article and replacing it with the following:
"FOURTH: The aggregate number of shares of stock which the
Corporation shall have authority to issue is 55,000,000 shares divided into two
classes; 50,000,000 shares of which shall be designated as Common Stock, $.0001
par value per share, and 5,000,000 shares of which shall be designated as
Preferred Stock, with $.0001 par value per share. There shall be no preemptive
rights with respect to any shares of capital stock of the Corporation."
3. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.
Dated: June 3, 1999
/s/ David E.Y. Sarna
----------------------------------------
David E.Y. Sarna, Chairman and Secretary
Attest:
/s/ Janis Barsuk
- - ---------------------------------
Janis Barsuk, Assistant Secretary
EXHIBIT 3.1(d)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
OBJECTSOFT CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is ObjectSoft Corporation.
2. The Certificate of Incorporation of the Corporation
(hereinafter called the "Certificate of Incorporation") is hereby further
amended by deleting the current first paragraph of the Fourth Article and
replacing it with the following:
"FOURTH: The aggregate number of shares of stock which the
Corporation shall have authority to issue is 55,000,000 shares divided into two
classes; 50,000,000 shares of which shall be designated as Common Stock, $.0001
par value per share, and 5,000,000 shares of which shall be designated as
Preferred Stock, with $.0001 par value per share. There shall be no preemptive
rights with respect to any shares of capital stock of the Corporation.
Effective 12:01 a.m. on October 13, 1999 (the "Effective
Time"), each six shares of Common Stock then issued shall be automatically
combined into one share of Common Stock of the Corporation. Each of the "Closing
Price" as defined in the Certificate of Designation of Series E Convertible
Preferred Stock, as amended, and the "Maximum Price" as defined in the
Certificate of Designation of Series F Convertible Preferred Stock shall be
automatically increased to a dollar amount which is six times the previous
amount. No fractional shares or scrip representing fractions of a share shall be
issued, but in lieu thereof, each fraction of a share that any stockholder would
otherwise be entitled to receive shall be rounded up to the nearest whole
share."
3. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.
Dated: October 12, 1999
/s/ David E.Y. Sarna
----------------------------------------
David E.Y. Sarna, Chairman and Secretary
EXHIBIT 10.3(b)
1996 STOCK OPTION PLAN
OF
OBJECTSOFT CORPORATION
(AS AMENDED AS OF JANUARY 18, 2000,
SUBJECT TO STOCKHOLDER APPROVAL)
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan")
is designed to provide an incentive to key employees (including directors and
officers who are key employees) and to consultants and advisors and directors
who are not employees of ObjectSoft Corporation, a Delaware corporation (the
"Company"), or its present and future Subsidiaries or a Parent (as each such
term is defined in Paragraph 19), and to offer an additional inducement in
obtaining the services of such persons. The Plan provides for the grant of
"incentive stock options" ("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock
options which do not qualify as ISOs ("NQSOs"), but the Company makes no
representation or warranty, express or implied, as to the qualification of any
option as an "incentive stock option" under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Paragraph 12, the aggregate number of shares of common stock, $.0001 par value
per share, of the Company ("Common Stock") for which options may be granted
under the Plan shall not exceed 1,000,000. Such shares of Common Stock may, in
the discretion of the Board of Directors of the Company (the "Board of
Directors"), consist either in whole or in part of authorized but unissued
shares of Common Stock or shares of Common Stock held in the treasury of the
Company. Subject to the provisions of Paragraph 13, any shares of Common Stock
subject to an option which for any reason expires, is canceled or is terminated
unexercised or which ceases for any reason to be exercisable shall again become
available for the granting of options under the Plan. The Company shall at all
times during the term of the Plan reserve and keep available such number of
shares of Common Stock as will be sufficient to satisfy the requirements of the
Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered
by a committee of the Board of Directors consisting of not less than two
directors (the "Committee"). During such time as the Company has a class of
equity securities registered under Section 12 of the Securities Exchange Act of
1934 (the "Exchange Act"), to the extent necessary to preserve any deduction
under Section 162(m) of the Code or to comply with Rule 16b-3 promulgated under
the Exchange Act, or any successor rule ("Rule 16b-3"), any Committee appointed
by the Board of Directors to administer the Plan shall be comprised of two or
more directors, each of whom shall be a "non-employee director," within the
meaning of Rule 16b-3,
<PAGE>
and an "outside director," within the meaning of Treasury Regulation Section
1.162-27(e)(3), and the delegation of powers to the Committee shall be
consistent with applicable laws and regulations (including, without limitation,
applicable state laws and Rule 16b-3). A majority of the members of the
Committee shall constitute a quorum, and the acts of a majority of the members
present at any meeting at which a quorum is present, and any acts approved in
writing by all members without a meeting, shall be the acts of the Committee.
Subject to the express provisions of the Plan, the Committee
shall have the authority, in its sole discretion, to determine the key
employees, consultants and directors who shall be granted options; the times
when options shall be granted; whether an Employee Option shall be an ISO or a
NQSO; the number of shares of Common Stock to be subject to each option; the
term of each option; the date each option shall become exercisable; whether an
option shall be exercisable in whole, in part or in installments and, if in
installments, the number of shares of Common Stock to be subject to each
installment, whether the installments shall be cumulative, the date each
installment shall become exercisable and the term of each installment; whether
to accelerate the date of exercise of any option or installment; whether shares
of Common Stock may be issued upon the exercise of an option as partly paid and,
if so, the dates when future installments of the exercise price shall become due
and the amounts of such installments; the exercise price of each option; the
form of payment of the exercise price; whether to restrict the sale or other
disposition of the shares of Common Stock acquired upon the exercise of an
option and, if so, whether to waive any such restriction; whether to subject the
exercise of all or any portion of an option to the fulfillment of contingencies
as specified in the contract referred to in Paragraph 11 (the "Contract"),
including without limitation, contingencies relating to entering into a covenant
not to compete with the Company, any of its Subsidiaries or a Parent (as defined
in Paragraph 19), to financial objectives for the Company, any of its
Subsidiaries or a Parent, a division of any of the foregoing, a product line or
other category, and/or the period of continued employment of the optionee with
the Company, any of its Subsidiaries or a Parent, and to determine whether such
contingencies have been met; whether an optionee is Disabled (as defined in
Paragraph 19); and, the amount, if any, necessary to satisfy the obligation of
the Company, a Subsidiary or a Parent to withhold taxes or other amounts; the
fair market value of a share of Common Stock; to construe the respective
Contracts and the Plan; with the consent of the optionee, to cancel or modify an
option, provided, that the modified provision is permitted to be included in an
option granted under the Plan on the date of the modification, and further,
provided, that in the case of a modification (within the meaning of Section
424(h) of the Code) of an ISO, such option as modified would be permitted to be
granted on the date of such modification under the terms of the Plan; to
prescribe, amend and rescind rules and regulations relating to the Plan; to
approve any provision of the Plan or any option granted under the Plan or any
amendment to either which, under Rule 16b-3 or Section 162(m) of the Code,
requires approval by the Board of Directors, a committee of Non-Employee
Directors or the stockholders to be exempt under Section 16(b) of the Exchange
Act (unless otherwise specifically provided herein) or to preserve any deduction
under Section 162(m) of the Code; and to make all other determinations necessary
or advisable for administering the Plan. Any controversy or claim arising out of
or relating to the Plan, any option granted under the Plan or any Contract shall
be determined unilaterally by the Committee in its sole discretion. The
determinations of the
-2-
<PAGE>
Committee on the matters referred to in this Paragraph 3 shall be conclusive and
binding on the parties.
No member or former member of the Committee shall be liable
for any action or determination made in good faith with respect to the Plan or
any option granted hereunder. In addition to any other rights of indemnification
they may have as directors or as members or former members of the Committee,
each such member and former member shall be indemnified and held harmless by the
Company from and against any reasonable expenses (including reasonable
attorneys' fees) actually and necessarily incurred in connection with the
defense, of any claim, action, suit, proceeding or appeal (collectively, "Case")
to which he is a party by reason of an action or failure to act under or in
connection with the Plan or any option granted hereunder, and against all
amounts paid by him in settlement of such Case (provided such settlement is
approved by the Company) or paid in satisfaction of a judgment in such Case;
provided, however, that such member or former member shall not be entitled to
indemnification (a) if he did not within 60 days after the institution of such
Case offer to the Company in writing the opportunity to handle and defend the
Case at its own expense, or (b) to the extend the Case resulted from his gross
negligence or willful misconduct.
4. ELIGIBILITY; GRANTS. The Committee may from time to time,
in its sole discretion, consistent with the purposes of the Plan, grant Employee
Options to key employees (including officers and directors who are key
employees) of, Consultant Options to consultants and advisors to, the Company or
any of its Subsidiaries or a Parent and Non-Employee Director Options to
Non-Employee Directors. Such options granted shall cover such number of shares
of Common Stock as the Committee may determine, in its sole discretion;
provided, however, that, if on the date of grant of an option, any class of
equity securities is required to be registered under Section 12 of the Exchange
Act, the maximum number of shares subject to Employee Options that may be
granted to any individual during any calendar year under the Plan (the "162(m)
Maximum") shall not exceed 500,000 shares; and further, provided, that the
aggregate market value (determined at the time the option is granted in
accordance with Paragraph 5) of the shares of Common Stock for which any
eligible employee may be granted ISOs under the Plan or any other plan of the
Company, or of a Parent or a Subsidiary of the Company, which are exercisable
for the first time by such optionee during any calendar year shall not exceed
$100,000. Such limitation shall be applied by taking ISOs into account in the
order in which they were granted. Any option (or the portion thereof) granted in
excess of such amount shall be treated as a NQSO.
5. EXERCISE PRICE. The exercise price of the shares of Common
Stock under each option shall be determined by the Committee in its sole
discretion; provided, however, that the exercise price of an ISO shall not be
less than the fair market value of the Common Stock subject to such option on
the date of grant; and further, provided, that if, at the time an ISO is
granted, the optionee owns (or is deemed to own under Section 424(d) of the
Code) stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, of any of its Subsidiaries or of a Parent, the
exercise price of such ISO shall not be less than 110% of the fair market value
of the Common Stock subject to such ISO on the date of grant.
-3-
<PAGE>
The fair market value of a share of Common Stock on any day
shall be (a) if the principal market for the Common Stock is a national
securities exchange, the average between the high and low sales prices per share
of Common Stock on such day as reported by such exchange or on a composite tape
reflecting transactions on such exchange, (b) if the principal market for the
Common Stock is not a national securities exchange and the Common Stock is
quoted on The Nasdaq Stock Market ("Nasdaq"), and (i) if actual sales price
information is available with respect to the Common Stock, the average between
the high and low sales prices per share of Common Stock on such day on Nasdaq,
or (ii) if such information is not available, the average between the highest
bid and lowest asked prices per share of Common Stock on such day on Nasdaq, or
(c) if the principal market for the Common Stock is not a national securities
exchange and the Common Stock is not quoted on Nasdaq, the average between the
highest bid and lowest asked prices per share of Common Stock on such day as
reported on the OTC Bulletin Board Service or by National Quotation Bureau,
Incorporated or a comparable service; provided, however, that if clauses (a),
(b) and (c) of this Paragraph are all inapplicable, or if no trades have been
made or no quotes are available for such day, the fair market value of the
Common Stock shall be determined by the Board by any method consistent with
applicable regulations adopted by the Treasury Department relating to stock
options. The determination of the Committee shall be exclusive in determining
the fair market value of the stock.
6. TERM. The term of each option granted pursuant to the Plan
shall be such term as is established by the Committee, in its sole discretion;
provided, however, that the term of each ISO granted pursuant to the Plan shall
be for a period not exceeding ten years from the date of grant thereof; and
further, provided, that if, at the time an ISO is granted, the optionee owns (or
is deemed to own under Section 424(d) of the Code) stock possessing more than
10% of the total combined voting power of all classes of stock of the Company,
of any of its Subsidiaries or of a Parent, the term of the ISO shall be for a
period not exceeding five years from the date of grant. Options shall be subject
to earlier termination as hereinafter provided.
7. EXERCISE. An option (or any part or installment thereof),
to the extent then exercisable, shall be exercised by giving written notice to
the Company at its principal office (at present 50 East Palisade Avenue, Suite
411, Englewood, New Jersey 07631) stating which ISO or NQSO is being exercised,
specifying the number of shares of Common Stock as to which such option is being
exercised and accompanied by payment in full of the aggregate exercise price
therefor (or the amount due on exercise if the Contract with respect to an
Employee Option permits installment payments) (a) in cash or by certified check
or (b) if the applicable Contract permits, with previously acquired shares of
Common Stock having an aggregate fair market value on the date of exercise
(determined in accordance with Paragraph 5) equal to the aggregate exercise
price of all options being exercised, or with any combination of cash, certified
check or shares of Common Stock; provided, however, that in no case without the
consent of the Committee may shares be tendered if such tender would require the
Company to incur a charge against its earnings for financial accounting
purposes. The Company shall not be required to issue any shares of Common Stock
pursuant to the exercise of any option until all required payments with respect
thereto, including payments for any required withholding amounts, have been
made. The Committee may, in its sole discretion, permit payment of the exercise
price of
-4-
<PAGE>
an option by delivery by the optionee of a properly executed notice, together
with a copy of his irrevocable instructions to a broker acceptable to the
Committee to deliver promptly to the Company the amount of sale or loan proceeds
sufficient to pay such exercise price. In connection therewith, the Company may
enter into agreements for coordinated procedures with one or more brokerage
firms.
A person entitled to receive Common Stock upon the exercise of
an option shall not have the rights of a stockholder with respect to such shares
of Common Stock until the date of issuance of a stock certificate to him for
such shares; provided, however, that until such stock certificate is issued, any
optionee using previously acquired shares of Common Stock in payment of an
option exercise price shall continue to have the rights of a stockholder with
respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be
purchased or issued under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be
expressly provided in the applicable Contract, any holder of an Employee Option
or Consultant Option whose relationship with the Company, its Parent and
Subsidiaries as an employee, a consultant or an advisor has terminated for any
reason other than in the case of an individual optionee his death or Disability
(as defined in Paragraph 19) may exercise such option, to the extent exercisable
on the date of such termination, at any time within three months after the date
of termination, but not thereafter and in no event after the date the option
would otherwise have expired; provided, however, that if such relationship is
terminated either (a) for cause, or (b) without the consent of the Company, such
option shall terminate immediately. Except as may otherwise be expressly
provided in the applicable Contract, Employee Options and Consultant Options
granted under the Plan shall not be affected by any change in the status of the
optionee so long as the optionee continues to be an employee of, or a consultant
or an advisor to, the Company, or any of the Subsidiaries or a Parent
(regardless of having changed from one to the other or having been transferred
from one corporation to another).
For the purposes of the Plan, an employment relationship shall
be deemed to exist between an individual and a corporation if, at the time of
the determination, the individual was an employee of such corporation for
purposes of Section 422(a) of the Code. As a result, an individual on military,
sick leave or other bona fide leave of absence shall continue to be considered
an employee for purposes of the Plan during such leave if the period of the
leave does not exceed 90 days, or, if longer, so long as the individual's right
to reemployment with the Company (or a related corporation) is guaranteed either
by statute or by contract. If the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed by statute or by contract,
the employment relationship shall be deemed to have terminated on the 91st day
of such leave.
The holder of a Consultant Option whose consulting or advisory
relationship with the Company (and its Parent and Subsidiaries) has terminated
for any reason may exercise such option to the extent exercisable on the date of
such termination, but not thereafter and in no event
-5-
<PAGE>
after the date the option would otherwise have expired; provided, however, that
if such relationship was terminated either (a) for cause or (b) without the
consent of the Company (other than as a result of the death or Disability of the
holder or a key employee of the holder) the option shall terminate immediately.
Except as may otherwise be expressly provided in the
applicable Contract, the Non-Employee Director Option shall not be affected by
the optionee's ceasing to be a director of the Company or becoming an employee
of the Company, any of its Subsidiaries or a Parent; provided, however, that if
the optionee is terminated for cause, such option shall terminate immediately.
Nothing in the Plan or in any option granted under the Plan
shall confer on any optionee any right to continue in the employ of, or as a
consultant or advisor to, the Company, any of its Subsidiaries or a Parent, or
as a director of the Company, or interfere in any way with any right of the
Company, any of its Subsidiaries or a Parent to terminate the optionee's
relationship at any time for any reason whatsoever without liability to the
Company, any of its Subsidiaries or a Parent.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise
be expressly provided in the applicable Contract, if an optionee dies (a) while
he is an employee of, or consultant or advisor to, the Company, any of its
Subsidiaries or a Parent, (b) within three months after the termination of such
relationship (unless such termination was for cause or without the consent of
the Company) or (c) within one year following the termination of such
relationship by reason of his Disability, his Employee Option or Consultant
Option may be exercised, to the extent exercisable on the date of his death, by
his Legal Representative (as defined in Paragraph 19) at any time within one
year after death, but not thereafter and in no event after the date the option
would otherwise have expired.
Except as may otherwise be expressly provided in the
applicable Contract, any optionee whose relationship as an employee of, or
consultant or advisor to, the Company, its Parent and Subsidiaries has
terminated by reason of such optionee's Disability may exercise his Employee
Option or Consultant Option, to the extent exercisable upon the effective date
of such termination, at any time within one year after such date, but not
thereafter and in no event after the date the option would otherwise have
expired.
The term of a Non-Employee Director Option shall not be
affected by the death or Disability of the optionee. If an optionee holding a
Non-Employee Director Option dies during the term of such option, the option may
be exercised at any time during its term by his Legal Representative.
10. COMPLIANCE WITH SECURITIES LAWS. The Committee may
require, in its sole discretion, as a condition to the exercise of any option
that either (a) a Registration Statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the shares of Common Stock to be
issued upon such exercise shall be effective and current at the time of
exercise, or (b) there is an exemption from registration under the Securities
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<PAGE>
Act for the issuance of the shares of Common Stock upon such exercise. Nothing
herein shall be construed as requiring the Company to register shares subject to
any option under the Securities Act or to keep any Registration Statement
effective or current.
The Committee may require, in its sole discretion, as a
condition to the exercise of any option that the optionee execute and deliver to
the Company the optionee's representations and warranties, in form, substance
and scope satisfactory to the Committee which the Committee determines is
necessary or convenient to facilitate the perfection of an exemption from the
registration requirements of the Securities Act, applicable state securities
laws or other legal requirements, including without limitation, that (a) the
shares of Common Stock to be issued upon the exercise of the option are being
acquired by the optionee for the optionee's own account, for investment only and
not with a view to the resale or distribution thereof, and (b) any subsequent
resale or distribution of shares of Common Stock by such optionee will be made
only pursuant to (i) a Registration Statement under the Securities Act which is
effective and current with respect to the shares of Common Stock being sold, or
(ii) a specific exemption from the registration requirements of the Securities
Act, but in claiming such exemption, the optionee shall prior to any offer of
sale or sale of such shares of Common Stock provide the Company with a favorable
written opinion of counsel satisfactory to the Company, in form, substance and
scope satisfactory to the Company, as to the applicability of such exemption to
the proposed sale or distribution.
In addition, if at any time the Committee shall determine, in
its sole discretion, that the listing or qualification of the shares of Common
Stock subject to such option on any securities exchange, Nasdaq or under any
applicable law, or the consent or approval of any governmental agency or
regulatory body, is necessary or desirable as a condition to, or in connection
with, the granting of an option or the issue of shares of Common Stock
thereunder, such option may not be granted or exercised in whole or in part
unless such listing, qualification, consent or approval shall have been effected
or obtained free of any conditions not acceptable to the Committee.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by
an appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Committee.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding
any other provisions of the Plan, in the event of any change in the outstanding
Common Stock by reason of a stock dividend, recapitalization, merger in which
the Company is the surviving corporation, split-up, combination or exchange of
shares or the like which results in a change in the number or kind of shares of
Common Stock which are outstanding immediately prior to such event, the
aggregate number and kind of shares subject to the Plan, the aggregate number
and kind of shares subject to each outstanding option, the 162(m) Maximum, and
the exercise price thereof shall be appropriately adjusted by the Board of
Directors, whose determination shall be conclusive. Such adjustments may provide
for the elimination of fractional shares that might otherwise be subject to
options without payment therefor.
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<PAGE>
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Paragraph 12 if such adjustment (a) would cause the Plan to fail to comply with
Section 422 of the Code or with Rule 16b-3 of the Exchange Act (if applicable to
such option), or (b) would be considered as the adoption of a new plan requiring
Stockholder approval.
In the event of (a) the liquidation or dissolution of the
Company, or (b) a merger in which the Company is not the surviving corporation
or a consolidation, or (c) a merger (or similar transaction) in which the
Company is the surviving corporation but more than 50% of the outstanding Common
Stock is transferred or exchanged for other consideration or in which shares of
Common Stock are issued in an amount in excess of the number of shares of Common
Stock outstanding immediately preceding the merger (or similar transaction), any
outstanding options shall terminate upon the earliest of any such event, unless
other provision is made therefor in the transaction under the Contract otherwise
provided.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was
adopted by the Board of Directors on March 15, 1996 and amended on March 3,
1998, on March 15, 1999 and on January 18, 2000. No ISO may be granted under the
Plan after March 14, 2006. The Board of Directors, without further approval of
the Company's stockholders, may at any time suspend or terminate the Plan, in
whole or in part, or amend it from time to time in such respects as it may deem
advisable, including, without limitation, in order that ISOs granted hereunder
meet the requirements for "incentive stock options" under the Code, to comply
with the provisions of Rule 16b-3, Section 162(m) of the Code, or any change in
applicable law, regulations, rulings or interpretations of administrative
agencies; provided, however, that no amendment shall be effective without the
requisite prior or subsequent stockholder approval which would (a) except as
contemplated in Paragraph 12, increase the maximum number of shares of Common
Stock for which options may be granted under the Plan or the 162(m) Maximum, (b)
materially increase the benefits accruing to participants under the Plan, (c)
change the eligibility requirements to receive options hereunder or (d) make any
other change which under applicable law requires approval of the Company's
stockholders. No termination, suspension or amendment of the Plan shall, without
the consent of the holder of an existing and outstanding option affected
thereby, adversely affect his rights under such option. The power of the
Committee to construe and administer any options granted under the Plan prior to
the termination or suspension of the Plan nevertheless shall continue after such
termination or during such suspension.
14. NON-TRANSFERABILITY OF OPTIONS. No option granted under
the Plan shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the optionee,
only by the optionee or his Legal Representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process, and any such attempted
assignment, transfer, pledge, hypothecation or disposition shall be null and
void ab initio and of no force or effect.
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<PAGE>
15. WITHHOLDING TAXES. The Company (and/or its Subsidiary or
Parent, as applicable) may withhold (a) cash, (b) subject to any limitations
under Rule 16b-3, shares of Common Stock to be issued with respect thereto
having an aggregate fair market value on the exercise date (determined in
accordance with Paragraph 5), or (c) any combination thereof, in an amount equal
to the amount which the Committee determines is necessary to satisfy the
obligation of the Company, a Subsidiary or a Parent to withhold Federal, state
and local income taxes or other amounts incurred by reason of the grant or
exercise of an option, its disposition, or the disposition of the underlying
shares of Common Stock. Alternatively, the Company may require the holder to pay
to the Company (or to the Subsidiary or Parent) such amount, in cash, promptly
upon demand. The Company shall not be required to issue any shares of Common
Stock pursuant to any such option until all required payments have been made.
Fair market value of the shares of Common Stock shall be determined in
accordance with Paragraph 5.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such
legend or legends upon the certificates for shares of Common Stock issued upon
exercise of an option under the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act and any applicable state securities laws, (b) implement the provisions of
the Plan or any agreement between the Company and the optionee with respect to
such shares of Common Stock, or (c) permit the Company to determine the
occurrence of a "disqualifying disposition," as described in Section 421(b) of
the Code, of the shares of Common Stock issued or transferred upon the exercise
of an ISO granted under the Plan.
The Company shall pay all issuance taxes with respect to the
issuance of shares of Common Stock upon the exercise of an option granted under
the Plan, as well as all fees and expenses incurred by the Company in connection
with such issuance.
17. USE OF PROCEEDS. The cash proceeds from the sale of shares
of Common Stock pursuant to the exercise of options under the Plan shall be
added to the general funds of the Company and used for such corporate purposes
as the Board of Directors may determine.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN
CONSTITUENT CORPORATIONS. Anything in this Plan to the contrary notwithstanding,
the Board of Directors may, without further approval by the stockholders,
substitute new options for prior options of a Constituent Corporation (as
defined in Paragraph 19) or assume the prior options of such Constituent
Corporation.
19. DEFINITIONS. For purposes of the Plan, the following terms
shall be defined as set forth below:
(1) Constituent Corporation. The term "Constituent
Corporation" shall mean any corporation which engages with the Company, any of
its Subsidiaries or a Parent in a
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<PAGE>
transaction to which Section 424(a) of the Code applies (or would apply if the
option assumed or substituted were an ISO), or any Parent or any Subsidiary of
such corporation.
(2) Consultant Option. The term "Consultant Option" shall
mean a NQSO granted pursuant to the Plan to a person who, at the time of grant,
is a consultant to the Company or a Subsidiary of the Company, and at such time
is neither a common law employee of the Company or any of its Subsidiaries nor a
director of the Company.
(3) Disability. The term "Disability" shall mean a
permanent and total disability within the meaning of Section 22(e)(3) of the
Code.
(4) Employee Option. The term "Employee Option" shall mean
an option granted pursuant to the Plan to an individual who, at the time of
grant, is a key employee of the Company or any of its Subsidiaries.
(5) Legal Representative. The term "Legal Representative"
shall mean the executor, administrator or other person who at the time is
entitled by law to exercise the rights of a deceased or incapacitated optionee
with respect to an option granted under the Plan.
(6) Non-Employee Director. The term "Non-Employee Director"
shall mean a person who is a director of the Company, but is not a common law
employee of the Company, any of its Subsidiaries or a Parent.
(7) Non-Employee Director Option. The term "Non-Employee
Director Option" shall mean a NQSO granted pursuant to the Plan to a person who,
at the time of the grant, is a Non-Employee Director.
(8) Parent. The term "Parent" shall have the same
definition as "parent corporation" in Section 424(e) of the Code.
(9) Subsidiary. The term "Subsidiary" shall have the same
definition as "subsidiary corporation" in Section 424(f) of the Code.
20. GOVERNING LAW; CONSTRUCTION. The Plan, such options as may
be granted hereunder and all related matters shall be governed by, and construed
in accordance with, the laws of the State of Delaware, without regard to
conflict of law provisions.
Neither the Plan nor any Contract shall be construed or
interpreted with any presumption against the Company by reason of the Company
causing the Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or plural shall include the
singular and plural, and any term stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter.
21. PARTIAL INVALIDITY. The invalidity, illegality or
unenforceability of any provision in the Plan or any Contract shall not affect
the validity, legality or enforceability
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<PAGE>
of any other provision, all of which shall be valid, legal and enforceable to
the fullest extent permitted by applicable law.
22. STOCKHOLDER APPROVAL. The amendments to the provisions of
the Plan contained in Section 2 whereby the number of options that may be
granted is increased to 1,000,000 and cotained in Section 4 whereby the 162(m)
Maximum is increased shall be subject to approval by a majority of the votes
cast at the next duly held meeting of the Company's stockholders at which a
majority of the outstanding voting shares are present, in person or by proxy,
and entitled to vote. No options granted pursuant to such amendments may be
exercised prior to such approval, provided that the date of grant of any options
granted hereunder shall be determined as if the Plan had not been subject to
such approval unless otherwise specified by the Committee. Notwithstanding the
foregoing, if the amendments to the Plan are not approved by a vote of the
stockholders of the Company on or before January 1, 2001, any options granted
thereunder shall terminate, but the Plan shall continue in full force and effect
as it existed immediately prior to the adoption of such amendments.
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EXHIBIT 10.18
PERFORMANCE STOCK OPTION CONTRACT
---------------------------------
THIS PERFORMANCE STOCK OPTION CONTRACT entered into as of
December 9, 1999, between OBJECTSOFT CORPORATION, a Delaware corporation (the
"Company"), and DAVID E.Y. SARNA (the "Optionee").
W I T N E S S E T H:
- - - - - - - - - -
1. Grant; Exercise Price.
(a) Subject to the terms and conditions set forth herein, the Company
grants to the Optionee an option to purchase an aggregate of 500,000 shares (the
"Shares") of the Common Stock, $.0001 par value per share, of the Company at an
exercise price of $1.50 per share (the "Option"), being at least equal to the
fair market value of each Share as of the date hereof. The Option is not an
incentive stock option within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code").
(b) The Optionee shall not have the rights of a stockholder with
respect to any Share until the date of issuance of a stock certificate to the
Optionee for the share; provided, however, that until such stock certificate is
issued, the Optionee, if using previously acquired shares of Common Stock in
payment of the exercise price, shall continue to have the rights of a
stockholder with respect to such previously acquired shares.
2. Vesting.
(a) On any date before December 10, 2002, on which the Company
satisfies any of the performance goals (each, a "Goal") set forth on Exhibit A
annexed hereto, the Option will become exercisable for the number of Shares set
forth opposite such Goal on Exhibit A. In the event that that any Goal has not
been accomplished before December 10, 2002, the portion of the Performance Stock
Option relating to such Goal, as reflected on Exhibit A, shall expire. The right
to purchase Shares under the Option shall be cumulative, so that if the full
number of Shares purchasable upon the meeting of any Goal shall not be
purchased, the balance may be purchased at any time or from time to time
thereafter (regardless of whether the Company continues to meet such Goal) but
not after the expiration of the Option. Notwithstanding any of the foregoing, in
no event may a fraction of a Share be purchased under the Option. The Company
shall at all times during the term of this Contract reserve and keep available
such number of shares of Common Stock as will be sufficient to satisfy the
requirements of this Contract.
(b) The Board (or the Stock Option Committee or any other designated
committee of the Board) shall, in its reasonable judgment, determine whether any
Goal has been satisfied or otherwise fulfilled. Any such determination of the
Board (or the Stock Option Committee or any other designated committee of the
Board) shall be conclusive and binding upon the Optionee without any right of
approval or review.
<PAGE>
(c) This Option shall become immediately exercisable in full upon the
occurrence of a Change in Control (as defined below). A Change in Control shall
be deemed to have occurred if (1) there has occurred a change in control as the
term "control" is defined in Rule 12b-2 promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act"); (2) when any "person" (as such term
is defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act), except for an
employee stock ownership trust (or any of the trustees thereof), becomes a
beneficial owner, directly or indirectly, of securities of the Company
representing fifteen percent (15%) or more of the Company's then outstanding
securities having the right to vote on the election of directors, unless the
transaction in which such person becomes such a beneficial owner was approved by
a vote of at least two-thirds of the directors then still in office who were
directors before such transaction was consummated; (3) during any period of not
more than two (2) consecutive years, individuals who at the beginning of such
period constitute the Company's Board (the "Board"), and any new director whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who were either directors at the beginning of the period or whose
election or nomination for election was previously approved, cease for any
reason to constitute at least fifty-one percent (51%) of the entire Board; (4)
when a majority of the directors elected at any annual or special meeting of
stockholders (or by written consent in lieu of a meeting) are not individuals
nominated by the Company's incumbent Board; (5) if the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
holders of voting securities of the Company outstanding immediately prior
thereto being the holders of at least eighty percent (80%) of the voting
securities of the surviving entity outstanding immediately after such merger or
consolidation; (6) if the stockholders of the Company approve a plan of complete
liquidation of the Company; or (7) if the stockholders of the Company approve an
agreement for the sale or disposition of all or substantially all of the
Company's assets.
3. Exercise. The Option shall be exercised by giving written notice to the
Company at its then principal office, presently 433 Hackensack Avenue,
Hackensack, New Jersey 07601, Attn: Chief Executive Officer, stating that the
Optionee is exercising the Option, specifying the number of Shares being
purchased and accompanied by payment in full of the aggregate purchase price and
any tax payment required by the Company under section 4 therefor (a) in cash or
by certified check, (b) with previously acquired shares of Common Stock which
have been held by the Optionee for at least six months, or (c) a combination of
the foregoing. The Board (or the Stock Option Committee or any other designated
committee of the Board) may, in its sole discretion, permit payment of the
exercise price of this Option by delivery by the Optionee of a properly executed
notice, together with a copy of the Optionee's irrevocable instructions to a
broker acceptable to the Board (or the Stock Option Committee or any other
designated committee of the Board) to deliver promptly to the Company the amount
of sale or loan proceeds sufficient to pay such exercise price. In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms. The Company shall not be required to issue any
Shares pursuant to the Option until all payments required under this section 3
have been made.
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<PAGE>
4. Withholding Taxes. The Company may withhold (a) cash, (b)
subject to any limitations under Rule 16b-3, shares of Common Stock to be issued
with respect thereto having an aggregate fair market value on the exercise date,
or (c) any combination thereof, in an amount equal to the amount which the
Committees determines is necessary to satisfy the Company's obligation to
withhold federal, state and local income taxes or other amounts incurred by
reason of the grant or exercise of the Option, its disposition, or the
disposition of the underlying shares of Common Stock. Alternatively, the Company
may require the Optionee to pay the Company such amount in cash promptly upon
demand.
5. Underwriting Restrictions. The Optionee agrees that an underwriter
for a public offering of the Company's stock or securities, or the Company,
shall each have the right, in the sole discretion of the Company or the
underwriter, to prohibit the sale, without prior written consent, of all or any
portion of the Shares for a period not to exceed 180 days from the closing of a
public offering of the Company's stock or securities. The provisions of this
section 5 shall apply to any public offering of the Company's stock or
securities, regardless of whether any Shares of the Optionee are included in or
registered concurrently with such offering.
6. Compliance With Securities Laws.
(a) Notwithstanding anything herein to the contrary, the Option shall
not be exercisable by the Optionee unless a registration statement (a
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the Shares shall be effective and current at
the time of exercise or there is an exemption from registration under the
Securities Act for the issuance of the shares of Common Stock upon such
exercise. The Optionee hereby represents and warrants to the Company that,
unless such a Registration Statement is effective and current at the time of
exercise of the Option, any Shares will be acquired by the Optionee for his own
account, for investment only and not with a view to the resale or distribution
thereof. In any event, the Optionee shall notify the Company of any proposed
resale of the Shares. Any subsequent resale or distribution of shares of Common
Stock by the Optionee shall be made only pursuant to a Registration Statement
under the Securities Act which is effective and current with respect to the sale
of shares of Common Stock being sold, or a specific exemption from the
registration requirements of the Securities Act, but in claiming such exemption,
the Optionee shall, prior to any offer of sale or sale of the Shares, provide
the Company (unless waived by the Company) with a favorable written opinion of
counsel, in form and substance satisfactory to the Company, as to the
applicability of such exemption to the proposed sale or distribution. Such
representations and warranties shall also be deemed to be made by the Optionee
upon each exercise of the Option. The Company agrees to use its commercially
reasonable efforts to register the Shares under the Securities Act pursuant to a
Registration Statement on Form S-8, if available, or such other "short form"
which may reasonably be available.
(b) The Shares may be sold only in compliance with applicable laws
respecting the sale of stock or securities of the Company by officers, directors
and control persons, including applicable provisions of Rule 144 promulgated
under the Securities Act of 1933.
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<PAGE>
(c) The Optionee represents and agrees that the Optionee will comply
with all applicable laws relating to this Contract and the grant and exercise of
the Option and the disposition of the Shares, including without limitation,
federal and state securities and "blue sky" laws.
(d) Notwithstanding anything herein to the contrary, if at any time the
Board (or the Stock Option Committee or any other designated committee of the
Board) shall determine, in its discretion, that the listing or qualification of
the Shares on any securities exchange or under any applicable law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition to, or in connection with, the issuance of any Shares
hereunder, the Option may not be exercised in whole or in part unless such
listing, qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Board (or the Stock Option
Committee or any other designated committee of the Board).
7. Legends; Payment of Expenses.
-----------------------------
(a) The Company may affix appropriate legends upon the certificates
for the Shares and may issue such "stop transfer" instructions to its transfer
agent in respect of such Shares as it determines, in its discretion, to be
necessary or appropriate to (1) prevent a violation of, or to perfect an
exemption from, the registration requirements of the Securities Act and any
applicable state securities laws or (2) implement the provisions of this
Contract or any other agreement between the Company and the Optionee with
respect to the Shares.
(b) The Company shall pay all issuance taxes with respect to the
issuance of the Shares, as well as all fees and expenses incurred by the Company
in connection with such issuance.
8. Term. Except as provided in section 9 or section 10, this Option
shall expire at the close of business on the date that is the fifth (5th)
anniversary hereof. In the event the Option expires pursuant to this section 8,
section 9 or section 10 during a period in which an underwriter has prohibited a
sale of the Shares as provided in section 5, then the date of expiration shall
be extended to the forty-fifth (45th) day following the end of the period during
which such sales are prohibited.
9. Termination of Relationship.
----------------------------
(a) If the Optionee's relationship with the Company, its Parent and
Subsidiaries (as defined in section 15) as an employee has terminated for any
reason (other than as a result of the death or Disability of the Optionee), the
Optionee may exercise this Option, to the extent exercisable on the date of such
termination, at any time within three (3) months after the date of termination,
but not thereafter and in no event after the date the Option would otherwise
have expired; provided, however, that if such relationship is terminated either
(1) by the Company for "Cause" (as defined in section 15), or (2) by the
Optionee, except for "Good Reason" (as defined in section 15) or with the
consent of the Company, the Option shall terminate immediately.
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<PAGE>
(b) For the purposes of this Contract, an employment relationship
shall be deemed to exist between the Optionee and the Company if, at the time of
the determination, the Optionee was an employee of the Company for purposes of
Section 422(a) of the Code. As a result, if the Optionee is on military, sick
leave or other bona fide leave of absence, he shall continue to be considered an
employee for purposes of this Contract during such leave if the period of the
leave does not exceed ninety (90) days, or, if longer, so long as the Optionee's
right to reemployment with the Company (or a related corporation) is guaranteed
either by statute or by contract. If the period of leave exceeds ninety (90)
days and the Optionee's right to reemployment is not guaranteed by statute or by
contract, the employment relationship shall be deemed to have terminated on the
ninety-first (91st) day of such leave.
(c) Except as may otherwise be expressly provided herein, the Option
shall not be affected by any change in the status of the Optionee so long as the
Optionee continues to be an employee of the Company, any of its Subsidiaries or
a Parent (regardless of having changed from one to the other or having been
transferred from one company to another).
(d) Nothing herein shall confer upon the Optionee any right to
continue in the employ of the Company, any Parent or any of its Subsidiaries, or
interfere in any way with any right of the Company, any Parent or its
Subsidiaries to terminate such employment at any time for any reason whatsoever
without liability to the Company, any Parent or any of its Subsidiaries.
10. Death or Disability of Optionee.
--------------------------------
(a) If the Optionee dies (1) while the Optionee is an employee of
the Company, any of its Subsidiaries or a Parent, (2) within three (3) months
after the termination of such relationship (unless such termination was by the
Company for Cause or by the Optionee other than for Good Reason or with the
consent of the Company), or (3) within one (1) year following the termination of
such relationship by reason of the Optionee's Disability, the Option may be
exercised, to the extent exercisable on the date of the Optionee's death, by the
Optionee's Legal Representative (as defined in section 15), at any time within
one year after death, but not thereafter and in no event after the date the
Option would otherwise have expired.
(b) If the Optionee's relationship as an employee of the Company,
its Parent and Subsidiaries has terminated by reason of the Optionee's
Disability, the Optionee may exercise the Option to the extent exercisable upon
the effective date of such termination, at any time within one year after such
date, but not thereafter and in no event after the date the Option would
otherwise have expired.
11. Mergers and Other Similar Transactions.
---------------------------------------
(a) Notwithstanding any other provision of this Contract, in the
event of a stock dividend, recapitalization, spin-off, split-up, stock split,
reverse stock split, combination or exchange of shares or the like which results
in a change in the number or kind of shares of Common Stock which are
outstanding immediately prior to such event, the aggregate number and
5
<PAGE>
kind of Shares and the exercise price thereof shall be appropriately adjusted by
the Board, in its reasonable judgment, whose determination shall be conclusive
and binding on all parties. Such adjustment may provide for the elimination of
fractional shares which might otherwise be subject to the Option without payment
therefor.
(b) In the event of (i) a consolidation, (ii) a merger in which the
Company is not the surviving corporation, (iii) a merger in which the Company is
the surviving corporation, but more than fifty percent (50 %) of the outstanding
shares are transferred or exchanged for other consideration, or in which shares
are issued in an amount in excess of the number of shares outstanding
immediately preceding the merger, (iv) a sale of all or substantially all of the
Company's assets, or (v) the liquidation or dissolution of the Company, then, in
each such case, the Optionee, upon exercise of this Option at any time after the
consummation of such consolidation, merger, sale, liquidation, or dissolution,
shall be entitled to receive the stock or other securities or property to which
the Optionee would have been entitled upon such consummation if the Optionee had
exercised this Option immediately prior thereto (after giving effect to any
acceleration of exercisability if such transaction involves a Change of Control
or a Change of Control otherwise occurs); and in each such case, the terms of
this Option shall be applicable to the shares of stock or other securities or
property receivable upon exercise of this Option after such consummation.
12. Parachute Payments. It is intended that the "present value" of
the payments and benefits to the Optionee, whether under this agreement or
otherwise, including (without limitation) any value to the Optionee as a result
of the acceleration of the exercise of this Option under section 2, which are
includable in the computation of "parachute payments" shall not, in the
aggregate, exceed 2.99 times the "base amount" (the terms "present value",
"parachute payments" and "base amount" being determined in accordance with
Section 280G of the Internal Revenue Code of 1986, as amended). Accordingly, if
the Optionee receives payments or benefits from the Company which, when added to
the value of the shares issued pursuant to the accelerated exercise of this
Option, would, in the opinion of the independent certified public accountants
regularly employed by the Company immediately prior to the Change of Control
("the Accountants"), subject any of the payments or benefits to the Optionee to
the excise tax imposed by Section 4999 of the Code, the number of shares issued
pursuant to the accelerated exercise of this Option shall be increased by the
amount necessary, in the opinion of the Accountants, to equal the value of the
payment of such tax. All determinations made by the Accountants pursuant to this
section 12 shall be conclusive and binding upon the Optionee and the Company.
13. Amendments; Termination. The Board (or the Stock Option
Committee or any other designated committee of the Board), without further
approval of the Company's stockholders, may amend this Contract from time to
time in such respects as it may deem advisable, including, without limitation,
to comply with the provisions of Rule 16b-3 or any change in applicable law,
regulations, rulings or interpretations of administrative agencies; provided,
however, that no amendment shall be effective without the requisite prior or
subsequent stockholder approval which would make any change for which applicable
law or regulatory authority requires
6
<PAGE>
stockholder approval. No amendment of this Contract shall, without the consent
of the Optionee, adversely affect the Optionee's rights hereunder.
14. Non-transferability of Option.
------------------------------
(a) The Option granted under this Contract shall not be transferable
by the Optionee otherwise than by will or the laws of descent and distribution
and may be exercised, during the lifetime of the Optionee, only by the Optionee
or the Optionee's Legal Representative. Except to the extent provided above, the
Option may not be assigned, transferred, pledged, hypothecated or disposed of in
any way (whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process, and any such attempted assignment,
transfer, pledge, hypothecation or disposition shall be null and void ab initio
and of no force or effect.
(b) This Contract shall be binding upon and inure to the benefit of
any successor or assign of the Company and to any heir, distributee or Legal
Representative entitled to the Optionee's rights hereunder.
15. Definitions. For purposes of this Contract, the following terms
shall be defined as set forth below:
(a) Cause. The term "Cause" shall mean (1) if there is a written
employment agreement between the Optionee and the Company, any of its
Subsidiaries or a Parent which defines termination of such employment for cause,
cause as defined in such agreement, and (2) in all other cases, (i) the failure
by the Optionee to substantially perform the Optionee's duties with the Company
or the material violation of the Company's policies, if the Optionee fails to
cure such failure or violation within 15 days after notice thereof from the
Board of Directors of the Company; (ii) the commission by the Optionee of an act
involving moral turpitude, dishonesty or theft; (iii) the conviction of the
Optionee of a felony under federal or state law; and (iv) the breach by the
Optionee of a fiduciary obligation to the Company, or any of its Subsidiaries or
a Parent or any of their affiliates.
(b) Disability. The term "Disability" shall mean a permanent and
total disability within the meaning of Section 22(e)(3) of the Code.
(c) Good Reason. The term "Good Reason" shall mean (1) if there is a
written employment agreement between the Optionee and the Company, any of its
Subsidiaries or a Parent which defines "Good Reason" for termination by the
Optionee of the Optionee's employment, Good Reason as defined in such agreement,
and (2) in all other cases, (i) the assignment to the Optionee of duties
inconsistent with the Optionee's positions, duties, responsibilities, titles and
offices, or any material reduction of the Optionee's duties or responsibilities
or any removal of the Optionee from or failure to elect or re-elect the Optionee
to any such positions held as of the date hereof, except in connection with the
termination of the Optionee's employment for Cause, as a result of the
Optionee's Disability, as a result of the Optionee's death, or by the Optionee
other than for Good Reason; (ii) a reduction in the Optionee's
7
<PAGE>
base or bonus compensation as of the date hereof, or as the same may be
increased from time to time hereafter; (iii) a relocation of the Company's
principal executive offices to a location outside of Northern New Jersey, the
Company's requiring the Optionee to be based anywhere other than Northern New
Jersey for other than business related travel, or any materially adverse change
in the office assignment or secretarial or other support accorded to the
Optionee as of the date hereof; (iv) a failure by the Company to continue in
effect any benefit or compensation plan or stock option plan in which the
Optionee participates as of the date hereof without providing for or
establishing plans or arrangements providing the Optionee with substantially
similar benefits, or the taking of any action by the Company which would
adversely affect the Optionee's participation in or reduce the Optionee's
benefits under any such plan; or (v) the taking of any action by the Company
which would deprive the Optionee of any material fringe benefit enjoyed by the
Optionee as of the date hereof or the failure of the Company to provide the
Optionee with the number of paid vacation weeks to which the Optionee is
entitled as of the date hereof, or as the same may be increased from time to
time.
(d) Legal Representative. The term "Legal Representative" shall mean
the executor, administrator or other person who at the time is entitled by law
to exercise the rights of a deceased or incapacitated Optionee with respect to
the Option granted under this Contract.
(e) Parent. The term "Parent" shall have the same definition as
"parent company" in Section 424(e) of the Code.
(f) Subsidiary. The term "Subsidiary" shall have the same definition
as "subsidiary corporation" in Section 424(f) of the Code.
16. Stockholder Approval. Notwithstanding anything herein to the contrary,
exercise of this Option, or any part thereof, shall be subject to the approval
on or before December 9, 2000, by a majority of the votes cast at a duly held
meeting of the Company's stockholders at which a majority of the outstanding
voting shares are present, in person or by proxy, and entitled to vote.
17. Governing Law; Construction.
----------------------------
(a) This Contract shall be governed by, and construed and enforced
in accordance with, the laws of the State of Delaware, without regard to the
conflicts of law rules thereof.
(b) This Contract shall not be construed or interpreted with any
presumption against the Company by reason of the Company causing the Contract to
be drafted. Whenever from the context it appears appropriate, any term stated in
either the singular or plural shall include the singular and plural, and any
term stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter.
18. Partial Invalidity. The invalidity, illegality or unenforceability of
any provision herein shall not affect the validity, legality or enforceability
of any other provision.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Contract as of the day and year first above written.
OBJECTSOFT CORPORATION
By:
---------------------------------
Name:
Title:
------------------------------------
DAVID E.Y. SARNA, Optionee
------------------------------------
------------------------------------
Address
<PAGE>
EXHIBIT A
DAVID E.Y. SARNA 1
VESTING SCHEDULE
PERFORMANCE STOCK OPTION
<TABLE>
<CAPTION>
Performance Goal: Number of Shares:
-------------------------------------------------------------------- -------------------------------
<S> <C>
Completion of $2 million in equity financing at a price of 94% or
more of current price (Series G) 25,000
-------------------------------------------------------------------- -------------------------------
Completion of lease financing for 300 kiosks 25,000
-------------------------------------------------------------------- -------------------------------
Completion of placement of 300 kiosks 25,000
-------------------------------------------------------------------- -------------------------------
Completion of national ad representation for kiosks 25,000
-------------------------------------------------------------------- -------------------------------
Attainment of reduction in quarterly loss by $100,000* 35,000
-------------------------------------------------------------------- -------------------------------
Attainment of reduction in quarterly loss by cumulative $200,000* 65,000
-------------------------------------------------------------------- -------------------------------
Attainment of breakeven in any quarterly period 100,000
-------------------------------------------------------------------- -------------------------------
Completion of financing for 1,000 kiosks 50,000
-------------------------------------------------------------------- -------------------------------
Completion of installation of 1,000 kiosks 50,000
-------------------------------------------------------------------- -------------------------------
Completion of secondary public or private offering of $10 million
or more 50,000
-------------------------------------------------------------------- -------------------------------
Addition of coupon printing 20,000
-------------------------------------------------------------------- -------------------------------
Addition of e-commerce 20,000
-------------------------------------------------------------------- -------------------------------
Achievement of $5 million in revenue 10,000
-------------------------------------------------------------------- -------------------------------
-------------------------------------------------------------------- -------------------------------
TOTAL 500,000
-------------------------------------------------------------------- -------------------------------
</TABLE>
- - --------
1 All of the performance goals (each a "Goal") must be accomplished prior to
December 10, 2002. In the event that that any Goal has not been accomplished
before December 10, 2002, the portion of the Performance Stock Option relating
to such Goal, as reflected in this schedule, shall expire.
* Reduction in losses (a) excludes special or extraordinary charges,
including, but not limited to, charges relating to a merger, and (b) is
measured against the loss for the fiscal quarter ended September 30, 1999.
EXHIBIT 10.19
PERFORMANCE STOCK OPTION CONTRACT
---------------------------------
THIS PERFORMANCE STOCK OPTION CONTRACT entered into as of
December 9, 1999, between OBJECTSOFT CORPORATION, a Delaware corporation (the
"Company"), and GEORGE J. FEBISH (the "Optionee").
W I T N E S S E T H:
- - - - - - - - - -
1. Grant; Exercise Price.
----------------------
(a) Subject to the terms and conditions set forth herein, the
Company grants to the Optionee an option to purchase an aggregate of 500,000
shares (the "Shares") of the Common Stock, $.0001 par value per share, of the
Company at an exercise price of $1.50 per share (the "Option"), being at least
equal to the fair market value of each Share as of the date hereof. The Option
is not an incentive stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
(b) The Optionee shall not have the rights of a stockholder with
respect to any Share until the date of issuance of a stock certificate to the
Optionee for the share; provided, however, that until such stock certificate is
issued, the Optionee, if using previously acquired shares of Common Stock in
payment of the exercise price, shall continue to have the rights of a
stockholder with respect to such previously acquired shares.
2. Vesting.
--------
(a) On any date before December 10, 2002, on which the Company
satisfies any of the performance goals (each, a "Goal") set forth on Exhibit A
annexed hereto, the Option will become exercisable for the number of Shares set
forth opposite such Goal on Exhibit A. In the event that that any Goal has not
been accomplished before December 10, 2002, the portion of the Performance Stock
Option relating to such Goal, as reflected on Exhibit A, shall expire. The right
to purchase Shares under the Option shall be cumulative, so that if the full
number of Shares purchasable upon the meeting of any Goal shall not be
purchased, the balance may be purchased at any time or from time to time
thereafter (regardless of whether the Company continues to meet such Goal) but
not after the expiration of the Option. Notwithstanding any of the foregoing, in
no event may a fraction of a Share be purchased under the Option. The Company
shall at all times during the term of this Contract reserve and keep available
such number of shares of Common Stock as will be sufficient to satisfy the
requirements of this Contract.
(b) The Board (or the Stock Option Committee or any other designated
committee of the Board) shall, in its reasonable judgment, determine whether any
Goal has been satisfied or otherwise fulfilled. Any such determination of the
Board (or the Stock Option Committee or any other designated committee of the
Board) shall be conclusive and binding upon the Optionee without any right of
approval or review.
<PAGE>
(c) This Option shall become immediately exercisable in full upon
the occurrence of a Change in Control (as defined below). A Change in Control
shall be deemed to have occurred if (1) there has occurred a change in control
as the term "control" is defined in Rule 12b-2 promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act"); (2) when any "person" (as such term
is defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act), except for an
employee stock ownership trust (or any of the trustees thereof), becomes a
beneficial owner, directly or indirectly, of securities of the Company
representing fifteen percent (15%) or more of the Company's then outstanding
securities having the right to vote on the election of directors, unless the
transaction in which such person becomes such a beneficial owner was approved by
a vote of at least two-thirds of the directors then still in office who were
directors before such transaction was consummated; (3) during any period of not
more than two (2) consecutive years, individuals who at the beginning of such
period constitute the Company's Board (the "Board"), and any new director whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who were either directors at the beginning of the period or whose
election or nomination for election was previously approved, cease for any
reason to constitute at least fifty-one percent (51%) of the entire Board; (4)
when a majority of the directors elected at any annual or special meeting of
stockholders (or by written consent in lieu of a meeting) are not individuals
nominated by the Company's incumbent Board; (5) if the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
holders of voting securities of the Company outstanding immediately prior
thereto being the holders of at least eighty percent (80%) of the voting
securities of the surviving entity outstanding immediately after such merger or
consolidation; (6) if the stockholders of the Company approve a plan of complete
liquidation of the Company; or (7) if the stockholders of the Company approve an
agreement for the sale or disposition of all or substantially all of the
Company's assets.
3. Exercise. The Option shall be exercised by giving written notice to the
Company at its then principal office, presently 433 Hackensack Avenue,
Hackensack, New Jersey 07601, Attn: Chief Executive Officer, stating that the
Optionee is exercising the Option, specifying the number of Shares being
purchased and accompanied by payment in full of the aggregate purchase price and
any tax payment required by the Company under section 4 therefor (a) in cash or
by certified check, (b) with previously acquired shares of Common Stock which
have been held by the Optionee for at least six months, or (c) a combination of
the foregoing. The Board (or the Stock Option Committee or any other designated
committee of the Board) may, in its sole discretion, permit payment of the
exercise price of this Option by delivery by the Optionee of a properly executed
notice, together with a copy of the Optionee's irrevocable instructions to a
broker acceptable to the Board (or the Stock Option Committee or any other
designated committee of the Board) to deliver promptly to the Company the amount
of sale or loan proceeds sufficient to pay such exercise price. In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms. The Company shall not be required to
<PAGE>
issue any Shares pursuant to the Option until all payments required under this
section 3 have been made.
4. Withholding Taxes. The Company may withhold (a) cash, (b)
subject to any limitations under Rule 16b-3, shares of Common Stock to be issued
with respect thereto having an aggregate fair market value on the exercise date,
or (c) any combination thereof, in an amount equal to the amount which the
Committees determines is necessary to satisfy the Company's obligation to
withhold federal, state and local income taxes or other amounts incurred by
reason of the grant or exercise of the Option, its disposition, or the
disposition of the underlying shares of Common Stock. Alternatively, the Company
may require the Optionee to pay the Company such amount in cash promptly upon
demand.
5. Underwriting Restrictions. The Optionee agrees that an underwriter
for a public offering of the Company's stock or securities, or the Company,
shall each have the right, in the sole discretion of the Company or the
underwriter, to prohibit the sale, without prior written consent, of all or any
portion of the Shares for a period not to exceed 180 days from the closing of a
public offering of the Company's stock or securities. The provisions of this
section 5 shall apply to any public offering of the Company's stock or
securities, regardless of whether any Shares of the Optionee are included in or
registered concurrently with such offering.
6. Compliance With Securities Laws.
--------------------------------
(a) Notwithstanding anything herein to the contrary, the Option
shall not be exercisable by the Optionee unless a registration statement (a
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the Shares shall be effective and current at
the time of exercise or there is an exemption from registration under the
Securities Act for the issuance of the shares of Common Stock upon such
exercise. The Optionee hereby represents and warrants to the Company that,
unless such a Registration Statement is effective and current at the time of
exercise of the Option, any Shares will be acquired by the Optionee for his own
account, for investment only and not with a view to the resale or distribution
thereof. In any event, the Optionee shall notify the Company of any proposed
resale of the Shares. Any subsequent resale or distribution of shares of Common
Stock by the Optionee shall be made only pursuant to a Registration Statement
under the Securities Act which is effective and current with respect to the sale
of shares of Common Stock being sold, or a specific exemption from the
registration requirements of the Securities Act, but in claiming such exemption,
the Optionee shall, prior to any offer of sale or sale of the Shares, provide
the Company (unless waived by the Company) with a favorable written opinion of
counsel, in form and substance satisfactory to the Company, as to the
applicability of such exemption to the proposed sale or distribution. Such
representations and warranties shall also be deemed to be made by the Optionee
upon each exercise of the Option. The Company agrees to use its commercially
reasonable efforts to register the Shares under the Securities Act pursuant to a
Registration Statement on Form S-8, if available, or such other "short form"
which may reasonably be available.
<PAGE>
(b) The Shares may be sold only in compliance with applicable laws
respecting the sale of stock or securities of the Company by officers, directors
and control persons, including applicable provisions of Rule 144 promulgated
under the Securities Act of 1933.
(c) The Optionee represents and agrees that the Optionee will comply
with all applicable laws relating to this Contract and the grant and exercise of
the Option and the disposition of the Shares, including without limitation,
federal and state securities and "blue sky" laws.
(d) Notwithstanding anything herein to the contrary, if at any time
the Board (or the Stock Option Committee or any other designated committee of
the Board) shall determine, in its discretion, that the listing or qualification
of the Shares on any securities exchange or under any applicable law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition to, or in connection with, the issuance of any Shares
hereunder, the Option may not be exercised in whole or in part unless such
listing, qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Board (or the Stock Option
Committee or any other designated committee of the Board).
7. Legends; Payment of Expenses.
-----------------------------
(a) The Company may affix appropriate legends upon the certificates
for the Shares and may issue such "stop transfer" instructions to its transfer
agent in respect of such Shares as it determines, in its discretion, to be
necessary or appropriate to (1) prevent a violation of, or to perfect an
exemption from, the registration requirements of the Securities Act and any
applicable state securities laws or (2) implement the provisions of this
Contract or any other agreement between the Company and the Optionee with
respect to the Shares.
(b) The Company shall pay all issuance taxes with respect to the
issuance of the Shares, as well as all fees and expenses incurred by the Company
in connection with such issuance.
8. Term. Except as provided in section 9 or section 10, this Option
shall expire at the close of business on the date that is the fifth (5th)
anniversary hereof. In the event the Option expires pursuant to this section 8,
section 9 or section 10 during a period in which an underwriter has prohibited a
sale of the Shares as provided in section 5, then the date of expiration shall
be extended to the forty-fifth (45th) day following the end of the period during
which such sales are prohibited.
9. Termination of Relationship.
----------------------------
(a) If the Optionee's relationship with the Company, its Parent and
Subsidiaries (as defined in section 15) as an employee has terminated for any
reason (other than as a result of the death or Disability of the Optionee), the
Optionee may exercise this Option, to the extent exercisable on the date of such
termination, at any time within three (3) months after the date of
<PAGE>
termination, but not thereafter and in no event after the date the Option would
otherwise have expired; provided, however, that if such relationship is
terminated either (1) by the Company for "Cause" (as defined in section 15), or
(2) by the Optionee, except for "Good Reason" (as defined in section 15) or with
the consent of the Company, the Option shall terminate immediately.
(b) For the purposes of this Contract, an employment relationship
shall be deemed to exist between the Optionee and the Company if, at the time of
the determination, the Optionee was an employee of the Company for purposes of
Section 422(a) of the Code. As a result, if the Optionee is on military, sick
leave or other bona fide leave of absence, he shall continue to be considered an
employee for purposes of this Contract during such leave if the period of the
leave does not exceed ninety (90) days, or, if longer, so long as the Optionee's
right to reemployment with the Company (or a related corporation) is guaranteed
either by statute or by contract. If the period of leave exceeds ninety (90)
days and the Optionee's right to reemployment is not guaranteed by statute or by
contract, the employment relationship shall be deemed to have terminated on the
ninety-first (91st) day of such leave.
(c) Except as may otherwise be expressly provided herein, the Option
shall not be affected by any change in the status of the Optionee so long as the
Optionee continues to be an employee of the Company, any of its Subsidiaries or
a Parent (regardless of having changed from one to the other or having been
transferred from one company to another).
(d) Nothing herein shall confer upon the Optionee any right to
continue in the employ of the Company, any Parent or any of its Subsidiaries, or
interfere in any way with any right of the Company, any Parent or its
Subsidiaries to terminate such employment at any time for any reason whatsoever
without liability to the Company, any Parent or any of its Subsidiaries.
10. Death or Disability of Optionee.
--------------------------------
(a) If the Optionee dies (1) while the Optionee is an employee of
the Company, any of its Subsidiaries or a Parent, (2) within three (3) months
after the termination of such relationship (unless such termination was by the
Company for Cause or by the Optionee other than for Good Reason or with the
consent of the Company), or (3) within one (1) year following the termination of
such relationship by reason of the Optionee's Disability, the Option may be
exercised, to the extent exercisable on the date of the Optionee's death, by the
Optionee's Legal Representative (as defined in section 15), at any time within
one year after death, but not thereafter and in no event after the date the
Option would otherwise have expired.
(b) If the Optionee's relationship as an employee of the Company,
its Parent and Subsidiaries has terminated by reason of the Optionee's
Disability, the Optionee may exercise the Option to the extent exercisable upon
the effective date of such termination, at any time within one year after such
date, but not thereafter and in no event after the date the Option would
otherwise have expired.
11. Mergers and Other Similar Transactions.
---------------------------------------
<PAGE>
(a) Notwithstanding any other provision of this Contract, in the
event of a stock dividend, recapitalization, spin-off, split-up, stock split,
reverse stock split, combination or exchange of shares or the like which results
in a change in the number or kind of shares of Common Stock which are
outstanding immediately prior to such event, the aggregate number and kind of
Shares and the exercise price thereof shall be appropriately adjusted by the
Board, in its reasonable judgment, whose determination shall be conclusive and
binding on all parties. Such adjustment may provide for the elimination of
fractional shares which might otherwise be subject to the Option without payment
therefor.
(b) In the event of (i) a consolidation, (ii) a merger in which the
Company is not the surviving corporation, (iii) a merger in which the Company is
the surviving corporation, but more than fifty percent (50 %) of the outstanding
shares are transferred or exchanged for other consideration, or in which shares
are issued in an amount in excess of the number of shares outstanding
immediately preceding the merger, (iv) a sale of all or substantially all of the
Company's assets, or (v) the liquidation or dissolution of the Company, then, in
each such case, the Optionee, upon exercise of this Option at any time after the
consummation of such consolidation, merger, sale, liquidation, or dissolution,
shall be entitled to receive the stock or other securities or property to which
the Optionee would have been entitled upon such consummation if the Optionee had
exercised this Option immediately prior thereto (after giving effect to any
acceleration of exercisability if such transaction involves a Change of Control
or a Change of Control otherwise occurs); and in each such case, the terms of
this Option shall be applicable to the shares of stock or other securities or
property receivable upon exercise of this Option after such consummation.
12. Parachute Payments. It is intended that the "present value" of the
payments and benefits to the Optionee, whether under this agreement or
otherwise, including (without limitation) any value to the Optionee as a result
of the acceleration of the exercise of this Option under section 2, which are
includable in the computation of "parachute payments" shall not, in the
aggregate, exceed 2.99 times the "base amount" (the terms "present value",
"parachute payments" and "base amount" being determined in accordance with
Section 280G of the Internal Revenue Code of 1986, as amended). Accordingly, if
the Optionee receives payments or benefits from the Company which, when added to
the value of the shares issued pursuant to the accelerated exercise of this
Option, would, in the opinion of the independent certified public accountants
regularly employed by the Company immediately prior to the Change of Control
("the Accountants"), subject any of the payments or benefits to the Optionee to
the excise tax imposed by Section 4999 of the Code, the number of shares issued
pursuant to the accelerated exercise of this Option shall be increased by the
amount necessary, in the opinion of the Accountants, to equal the value of the
payment of such tax. All determinations made by the Accountants pursuant to this
section 12 shall be conclusive and binding upon the Optionee and the Company.
13. Amendments; Termination. The Board (or the Stock Option Committee
or any other designated committee of the Board), without further approval of the
Company's stockholders, may amend this Contract from time to time in such
respects as it may deem advisable, including, without limitation, to comply with
the provisions of Rule 16b-3 or any change in applicable law,
<PAGE>
regulations, rulings or interpretations of administrative agencies; provided,
however, that no amendment shall be effective without the requisite prior or
subsequent stockholder approval which would make any change for which applicable
law or regulatory authority requires stockholder approval. No amendment of this
Contract shall, without the consent of the Optionee, adversely affect the
Optionee's rights hereunder.
14. Non-transferability of Option.
------------------------------
(a) The Option granted under this Contract shall not be transferable
by the Optionee otherwise than by will or the laws of descent and distribution
and may be exercised, during the lifetime of the Optionee, only by the Optionee
or the Optionee's Legal Representative. Except to the extent provided above, the
Option may not be assigned, transferred, pledged, hypothecated or disposed of in
any way (whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process, and any such attempted assignment,
transfer, pledge, hypothecation or disposition shall be null and void ab initio
and of no force or effect.
(b) This Contract shall be binding upon and inure to the benefit of
any successor or assign of the Company and to any heir, distributee or Legal
Representative entitled to the Optionee's rights hereunder.
15. Definitions. For purposes of this Contract, the following terms shall
be defined as set forth below:
(a) Cause. The term "Cause" shall mean (1) if there is a written
employment agreement between the Optionee and the Company, any of its
Subsidiaries or a Parent which defines termination of such employment for cause,
cause as defined in such agreement, and (2) in all other cases, (i) the failure
by the Optionee to substantially perform the Optionee's duties with the Company
or the material violation of the Company's policies, if the Optionee fails to
cure such failure or violation within 15 days after notice thereof from the
Board of Directors of the Company; (ii) the commission by the Optionee of an act
involving moral turpitude, dishonesty or theft; (iii) the conviction of the
Optionee of a felony under federal or state law; and (iv) the breach by the
Optionee of a fiduciary obligation to the Company, or any of its Subsidiaries or
a Parent or any of their affiliates.
(b) Disability. The term "Disability" shall mean a permanent and
total disability within the meaning of Section 22(e)(3) of the Code.
(c) Good Reason. The term "Good Reason" shall mean (1) if there is a
written employment agreement between the Optionee and the Company, any of its
Subsidiaries or a Parent which defines "Good Reason" for termination by the
Optionee of the Optionee's employment, Good Reason as defined in such agreement,
and (2) in all other cases, (i) the assignment to the Optionee of duties
inconsistent with the Optionee's positions, duties, responsibilities, titles and
offices, or any material reduction of the Optionee's duties or responsibilities
or any removal of the Optionee from or failure to elect or re-elect the Optionee
to
<PAGE>
any such positions held as of the date hereof, except in connection with the
termination of the Optionee's employment for Cause, as a result of the
Optionee's Disability, as a result of the Optionee's death, or by the Optionee
other than for Good Reason; (ii) a reduction in the Optionee's base or bonus
compensation as of the date hereof, or as the same may be increased from time to
time hereafter; (iii) a relocation of the Company's principal executive offices
to a location outside of Northern New Jersey, the Company's requiring the
Optionee to be based anywhere other than Northern New Jersey for other than
business related travel, or any materially adverse change in the office
assignment or secretarial or other support accorded to the Optionee as of the
date hereof; (iv) a failure by the Company to continue in effect any benefit or
compensation plan or stock option plan in which the Optionee participates as of
the date hereof without providing for or establishing plans or arrangements
providing the Optionee with substantially similar benefits, or the taking of any
action by the Company which would adversely affect the Optionee's participation
in or reduce the Optionee's benefits under any such plan; or (v) the taking of
any action by the Company which would deprive the Optionee of any material
fringe benefit enjoyed by the Optionee as of the date hereof or the failure of
the Company to provide the Optionee with the number of paid vacation weeks to
which the Optionee is entitled as of the date hereof, or as the same may be
increased from time to time.
(d) Legal Representative. The term "Legal Representative" shall mean
the executor, administrator or other person who at the time is entitled by law
to exercise the rights of a deceased or incapacitated Optionee with respect to
the Option granted under this Contract.
(e) Parent. The term "Parent" shall have the same definition as
"parent company" in Section 424(e) of the Code.
(f) Subsidiary. The term "Subsidiary" shall have the same definition
as "subsidiary corporation" in Section 424(f) of the Code.
16. Stockholder Approval. Notwithstanding anything herein to the
contrary, exercise of this Option, or any part thereof, shall be subject to the
approval on or before December 9, 2000, by a majority of the votes cast at a
duly held meeting of the Company's stockholders at which a majority of the
outstanding voting shares are present, in person or by proxy, and entitled to
vote.
17. Governing Law; Construction.
----------------------------
(a) This Contract shall be governed by, and construed and enforced
in accordance with, the laws of the State of Delaware, without regard to the
conflicts of law rules thereof.
(b) This Contract shall not be construed or interpreted with any
presumption against the Company by reason of the Company causing the Contract to
be drafted. Whenever from the context it appears appropriate, any term stated in
either the singular or plural shall include the singular and plural, and any
term stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter.
<PAGE>
18. Partial Invalidity. The invalidity, illegality or unenforceability
of any provision herein shall not affect the validity, legality or
enforceability of any other provision.
IN WITNESS WHEREOF, the parties hereto have executed this
Contract as of the day and year first above written.
OBJECTSOFT CORPORATION
By:
------------------------------------
Name:
Title:
------------------------------------
GEORGE J. FEBISH, Optionee
------------------------------------
------------------------------------
Address
<PAGE>
EXHIBIT A
GEORGE J. FEBISH 1
VESTING SCHEDULE
<TABLE>
<CAPTION>
PERFORMANCE STOCK OPTION
Performance Goal: Number of Shares:
-------------------------------------------------------------------- -------------------------------
<S> <C>
Completion of $2 million in equity financing at a price of 94% or
more of current price (Series G) 25,000
-------------------------------------------------------------------- -------------------------------
Completion of lease financing for 300 kiosks 25,000
-------------------------------------------------------------------- -------------------------------
Completion of placement of 300 kiosks in a retail location 25,000
-------------------------------------------------------------------- -------------------------------
Completion of national ad representation for kiosks 25,000
-------------------------------------------------------------------- -------------------------------
Attainment of reduction in quarterly loss by $100,000* 35,000
-------------------------------------------------------------------- -------------------------------
Attainment of reduction in quarterly loss by cumulative $200,000,
as of the commencement of the third quarter of 1999* 65,000
-------------------------------------------------------------------- -------------------------------
Attainment of breakeven in a quarterly period 100,000
-------------------------------------------------------------------- -------------------------------
Completion of financing for 1,000 kiosks 50,000
-------------------------------------------------------------------- -------------------------------
Completion of installation of 1,000 kiosks 50,000
-------------------------------------------------------------------- -------------------------------
Completion of secondary public offering of $10 million or more 50,000
-------------------------------------------------------------------- -------------------------------
Addition of coupon printing 20,000
-------------------------------------------------------------------- -------------------------------
Addition of e-commerce 20,000
-------------------------------------------------------------------- -------------------------------
Achievement of $5 million in revenue 10,000
-------------------------------------------------------------------- -------------------------------
-------------------------------------------------------------------- -------------------------------
TOTAL 500,000
-------------------------------------------------------------------- -------------------------------
</TABLE>
- - --------
1 All of the performance goals (each a "Goal") must be accomplished prior to
December 10, 2002. In the event that that any Goal has not been accomplished
before December 10, 2002, the portion of the Performance Stock Option relating
to such Goal, as reflected in this schedule, shall expire.
* Reduction in losses excludes special or extraordinary charges, including,
but not limited to, charges relating to a merger.
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in Registration
Statements on Form S-3 (Nos. 333-57753, 333-72131, 333-76465, 333-86887,
333-89651, 333-92613, 333-92201, 333-92685 and 333-30724) and Registration
Statements on Form S-8 (Nos. 333-69985 and 333-90303) of our report dated
February 23, 2000, included in the Annual Report on Form 10-KSB of Objectsoft
Corporation for the year ended December 31, 1999.
/s/ Richard A. Eisner & Company, LLP
- - -----------------------------------------------------
RICHARD A. EISNER & COMPANY, LLP
Florham Park, New Jersey
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,311,000
<SECURITIES> 323,000
<RECEIVABLES> 159,000
<ALLOWANCES> 130,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,259,000
<PP&E> 2,611,000
<DEPRECIATION> 1,027,000
<TOTAL-ASSETS> 5,627,000
<CURRENT-LIABILITIES> 670,000
<BONDS> 0
0
2,220,000
<COMMON> 0
<OTHER-SE> 14,519,000
<TOTAL-LIABILITY-AND-EQUITY> 5,627,000
<SALES> 136,000
<TOTAL-REVENUES> 136,000
<CGS> 835,000
<TOTAL-COSTS> 4,449,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,000
<INCOME-PRETAX> (4,331,000)
<INCOME-TAX> 411,000
<INCOME-CONTINUING> (3,920,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,920,000)
<EPS-BASIC> (3.20)
<EPS-DILUTED> (3.20)
</TABLE>
