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As filed with the Securities and Exchange Commission on August 11, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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Form S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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INFONAUTICS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2707366
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 West Valley Road
Suite 1000
Wayne, Pennsylvania 19087
(610) 971-8840
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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David Van Riper Morris
Chief Executive Officer
Infonautics, Inc.
900 West Valley Road
Suite 1000
Wayne, Pennsylvania 19087
(610) 971-8840
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
David R. King, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103-6993
(215) 963-5000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /______
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Title of Each Class of Proposed Proposed
Securities to be Amount to be Maximum Maximum Aggregate Amount of
Registered Registered Aggregate Price Offering Price(1) Registration Fee
Per Share(2)
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<S> <C> <C> <C> <C>
Class A Common Stock, no
par value ............... 2,098,682 shares (1) $2.640625 $5,541,833 $1,635
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(1) Shares of Common Stock which may be offered pursuant to this Registration
Statement consisting of 1,898,682 shares issuable upon conversion of 3,000
shares of Series A Convertible Preferred Stock ("Series A Preferred Stock")
and 200,000 shares issuable upon exercise of warrants (the "Warrants"). For
purposes of estimating the number of shares of Common Stock to be included
in this Registration Statement, the Company calculated 175% of the number of
shares of Common Stock issuable in connection with the conversion of the
Company's Series A Preferred Stock (based on a conversion price of $2.77
which is 100% of the average of the closing bid prices of the Common Stock
reported on the Nasdaq National Market for the five trading days ending
August 5, 1998) and the exercise of the Warrants. In addition to the shares
set forth in the table, the amount to be registered includes an
indeterminate number of shares issuable upon conversion of or in respect of
the Series A Preferred Stock and the Warrants, as such number may be
adjusted as a result of stock splits, stock dividends and antidilution
provisions (including floating rate conversion prices) in accordance with
Rule 416.
(2) Based on the average of the reported high and low sales prices of the Common
Stock reported on The Nasdaq Stock Market on August 5, 1998 for the purpose
of calculating the registration fee in accordance with Rule 457(c) under the
Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
2,098,682 Shares
Infonautics, Inc.
Class A Common Stock
(No Par Value)
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The shares offered hereby (the "Shares") consist of up to 2,098,682 shares
of Class A Common Stock, no par value per share (the "Common Stock"), of
Infonautics, Inc., a Pennsylvania corporation (the "Company"). The Shares may be
offered from time to time by the selling shareholder as described more fully
herein (the "Selling Shareholder"). See "Selling Shareholder."
The Company will not receive any part of the proceeds from the sale of the
Shares. All expenses of registration incurred in connection herewith are being
borne by the Company.
The Selling Shareholder has not advised the Company of any specific
plans for the distribution of the Shares covered by this Prospectus, but it
is anticipated that the Shares will be sold from time to time in negotiated
transactions and in transactions (which may include short sales and block
transactions) on The Nasdaq Stock Market at the market price then prevailing,
although sales may also be made as described herein under "Plan of
Distribution." The Selling Shareholder and the brokers and dealers through
whom sale of the Shares may be made may be deemed to be "underwriters" within
the meaning of the Securities Act of 1933, as amended, and their commissions
or discounts and other compensation may be regarded as underwriters'
compensation. See "Plan of Distribution."
The Shares offered hereby involve a high degree of risk.
See "Risk Factors" commencing on page 4 of this Prospectus.
The Company's Common Stock is quoted on The Nasdaq Stock Market under the
symbol "INFO." On August 5, 1998, the last reported sale price of the Common
Stock was $2.53 per share.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is ________, 1998.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of any offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
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AVAILABLE INFORMATION
This Prospectus constitutes a part of a registration statement on Form
S-3 (herein, together with all exhibits thereto, referred to as the
"Registration Statement") filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is hereby made to the
Registration Statement and to the exhibits thereto for further information
with respect to the Company and the securities offered hereby. Copies of the
Registration Statement and the exhibits thereto are on file at the offices of
the Commission and may be obtained upon payment of the prescribed fee or may
be examined without charge at the public reference facilities of the
Commission described below. Statements contained herein concerning the
provisions of documents are necessarily summaries of such documents, and each
statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the Commission's regional offices located at Seven World Trade Center, New
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
in person from the Public Reference Section of the Commission at its
principal office located at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. Such material also may be accessed elecronically by
means of the Commission's home page on the Internet (http://www.sec.gov). In
addition reports and proxy statements concerning the Company also may be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed by the Company (File
No. 0-28284) with the Commission are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
(b) The Company's Quarterly Report on Form 10-Q for the quarterly
periods ended March 31, 1998 and June 30, 1998.
(c) Current Report on Form 8-K dated July 23, 1998 (as amended by Form
8-K/A filed on August 10, 1998).
(d) The description of the Company's Common Stock, no par value, set
forth in the Company's Registration Statement on Form 8-A filed with the
Commission under the Exchange Act, on April 23, 1996, including any amendment or
report filed for the purpose of updating such description.
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the filing of a post-effective amendment which indicates
that all securities offered hereby have been sold or which deregisters all
securities remaining unsold, shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of the filing of such reports and
documents. Any statement contained in a document, all or a portion of which is
incorporated by reference herein, shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained or
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Upon request, the Company will provide without charge to each person to
whom this Prospectus is delivered a copy of any or all of such documents which
are incorporated herein by reference (other than exhibits to such
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documents unless such exhibits are specifically incorporated by reference into
the documents that this Prospectus incorporates). Written or oral requests for
copies should be directed to Federica F. O'Brien, 900 West Valley Road, Suite
1000, Wayne, PA 19087.
THE COMPANY
Infonautics provides premium online information services for the
educational and end-user markets, formerly referred to as the institutional and
consumer markets, and provides content management and custom archive services
for publishers of quality content and business information. The Company's
flagship online reference service, Electric Library, is available to end-users
through the Internet and consumer online services, and is marketed to schools,
libraries and other educational institutions. The standard Electric Library
service allows users to search horizontally across the Company's entire content
collection or customize searches to meet specific user requirements. The service
provides the user with a list of full-text documents and images, ranked by
relevancy, from the Company's content collection that contains full-text
documents and images from thousands of diverse publications and data sources.
The Company's content management and custom archive services have been
identified in the past as Electronic Printing Press, EPP and EPP-Direct. These
services combine the Company's core technology, operating environment and
optional services (business and management functions), to provide large custom
digital archives on the Internet and/or intranets. These services will continue
to be part of the Company's content management and custom archive services
The Company was incorporated in Pennsylvania in November 1992 and its
principal executive offices are located at 900 West Valley Road, Suite 1000,
Wayne, PA 19087. The Company's telephone number at that address is
(610) 971-8840.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains, or has incorporated by reference, statements
that are not historical facts or statements of current condition and are
forward-looking statements. Such statements may be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"forecasts," "estimates," "plans," "continues," "may," "will," "should,"
"anticipates," or "intends," or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy or
intentions. Such statements address, among other things, statements under
"Prospectus Summary" and "Risk Factors" as well as in the Prospectus
generally and the documents incorporated by reference herein. Although
Infonautics believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations
will prove to have been correct. Important factors that could cause actual
results to differ materially from the Company's expectations are disclosed
under "Risk Factors" and in this Prospectus generally, as well as in the
documents incorporated by reference herein. Given these uncertainties,
current or prospective investors are cautioned not to place undue reliance on
any such forward-looking statements. The Company disclaims any obligation or
intent to update any such factors or forward-looking statements to reflect
future events or developments.
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RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should consider the following risk factors in evaluating the Company
and its business before purchasing any shares offered hereby. See also
"Disclosure Regarding Forward-Looking Statements."
History of Losses; Anticipation of Future Losses. Since inception, the
Company has incurred significant losses and substantial negative cash flow.
As of June 30, 1998, the Company had cumulative net losses of approximately
$52.1 million, with net losses of approximately $7.5 million, $13.8 million
and $17.4 million, respectively, for each of the years ended December 31,
1995, December 31, 1996 and December 31, 1997 and net losses of approximately
$9.4 million for the six months ended June 30, 1998. There can be no
assurance that the Company will ever achieve profitable operations.
Limited Operating History; Limited Services to Date. The Company commenced
operations in November 1992 and introduced its first online service in early
1995. Online services generated total net revenues of approximately $448,000 in
1995, $1.1 million in 1996 and $5.9 million in 1997, 100%, 81% and 86% of
revenues, respectively, in 1995, 1996 and 1997. The content management and
custom archive services and the licensing of its core technology generated
revenues of $272,000 in 1996 and $937,000 in 1997, or 19% and 13% of revenues,
respectively, in 1996 and 1997. To achieve revenue growth, of which there can be
no assurance, the Company must, among other things, achieve market penetration
of its services, expand distribution of its services, continue to upgrade and
add technologies and commercialize existing and new services and products that
incorporate such upgraded or additional technologies.
Developing Market. The Company's services are in markets that have only
recently begun to develop, are rapidly evolving and are characterized by an
increasing number of market entrants that have introduced or developed services
and products addressing information search and retrieval requirements over
private and public networks, online services and the Internet. Because the
markets for the Company's services are new and evolving and because the Company
has limited operating experience, it is difficult to assess or predict with any
assurance the growth rate, if any, and the size of these markets. There can be
no assurance that the markets for the Company's services will develop. If these
markets fail to develop or develop more slowly than expected, the Company will
be materially adversely affected.
Need for Additional Funds. At June 30, 1998, the Company had available
cash, cash equivalents and investments of approximately $3.3 million and working
capital deficiency of approximately $1.8 million. The Company raised an
additional $3 million in July 1998 in a private placement for the issuance of
3,000 shares of Series A Convertible Preferred Stock with a stated value of
$1,000 per share to supplement its working capital. An additional $2 million in
equity capital may be secured from the same investor under certain conditions
and the same terms. Based on current levels of operations and commitments, the
Company anticipates that its existing capital resources and its expected cash
flow generated in 1998 and 1999 will enable it to maintain its operations for at
least twelve months. However, the Company may require additional funds to
sustain and expand its product development and sales and marketing activities,
particularly if a well-financed competitor emerges or if there is a shift in the
type of online or Internet information services that receive customer
acceptance. Adequate funds for these and other purposes on terms acceptable to
the Company, whether through additional equity financing, debt financing or
other sources, may not be available when needed or may result in significant
dilution to existing shareholders. The inability to obtain sufficient funds from
operations or external sources would have a material adverse effect on the
Company.
Further, as a strategic response to changes in the industry, the Company
may from time to time make certain marketing or other decisions that could have
a material adverse effect on the Company. In March 1998, the Company entered
into a multi-year, multi-million dollar interactive marketing agreement (the
"AOL Agreement") with America Online, Inc. ("AOL"). For example, pursuant to the
terms of the AOL Agreement, the Company is required to pay AOL $4 million in
placement fees. There can be no assurance that the Company's arrangement with
AOL or any other arrangement it may enter into will generate adequate revenues
to cover the associated expenditures, and any significant shortfall would have a
material adverse effect on the Company.
Potential for Dilution. As of August 5, 1998, 3,000 shares of the Company's
Series A Preferred Stock were issued and outstanding. Each share of the Series A
Preferred Stock is convertible into such number of shares of
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Common Stock as is determined by dividing the stated value ($1,000) of the share
of Series A Preferred Stock (as such value is increased by a premium based on
the number of days the Series A Preferred Stock is held) by the then current
Conversion Price (which is determined by reference to the then current market
price). If converted on August 5, 1998, the Series A Preferred Stock would have
been convertible into approximately 1,084,961 shares of Common Stock, but this
number of shares could prove to be significantly greater in the event of a
decrease in the trading price of the Common Stock. Purchasers of Common Stock
could therefore experience substantial dilution of their investment upon
conversion of the Series A Preferred Stock. The shares of Series A Preferred
Stock are not registered and may be sold only if registered under the Securities
Act or sold in accordance with an applicable exemption from registration, such
as Rule 144. The shares of Common Stock into which the Series A Preferred Stock
may be converted are being registered pursuant to this Registration Statement.
As of August 5, 1998, 2,600,000 shares of Common Stock were reserved for
issuance upon exercise of the Company's outstanding options and an additional
2,780,646 shares of Common Stock were reserved for issuance upon conversion
of the Series A Preferred Stock and exercise of the Warrants. At August 5,
1998, there were 9,639,327 shares of Common Stock outstanding. Of these
outstanding shares, 9,514,327 were freely tradeable without restriction under
the Securities Act unless held by affiliates.
Trading Market For the Company's Shares. The Company's Common Stock is
included for quotation on the Nasdaq National Market. The NASD By-laws
require the Company to maintain certain quantitative standards for continued
listing on the Nasdaq National Market. There can be no assurance that the
Company will continue to meet these standards.
In addition, the NASD By-laws require the Company to seek shareholder
approval for issuance of Common Stock, under certain circumstances, if the
number of shares of Common Stock to be issued exceeds 20% of the then
outstanding number of common shares. Each share of the Series A Preferred
Stock is convertible into such number of shares of Common Stock as is
determined by dividing the stated value of the shares of Series A Preferred
Stock (as such value is increased by a premium based on the number of days
the Series A Preferred Stock is held) by the then current conversion price
(which is determined by reference to the then current market price). If
converted on August 6, 1998, the Series A Preferred Stock would have been
convertible into 1,084,961 shares of Common Stock, or approximately 11.2% of
the Company's outstanding Common Stock, but this number of shares will
increase in the event of a decrease in the trading price of the Common Stock.
In the event that the number of shares issued exceeds the 20% threshold
established in the NASD By-laws, then the Company would be required to seek
shareholder approval within a specified period of time. In the event that
such shareholder approval is not promptly obtained, the Company would be
required to redeem the remaining shares of Series A Preferred Stock then
outstanding at the initial purchase price plus a specified premium. Such
redemption could cause a substantial adverse financial impact on the Company
at a time when it may not be able to pay the redemption price. Furthermore,
if the redemption is not permitted under applicable law, the Company would be
required to take other steps, including applying for a listing of the Common
Stock on the Nasdaq Small Cap market. Approval of the Company's application
to list on the Nasdaq Small Cap market would be subject to the discretion of
the staff of the Nasdaq at that time, and to compliance by the Company with
applicable listing standards. There can be no assurance that the Company's
Common Stock would satisfy such criteria or that, even if such criteria are
satisfied, that the staff of Nasdaq would authorize the inclusion of the
Company's Common Stock on the Nasdaq Small Cap market.
If the Company's Common Stock is not included on the Nasdaq Small Cap
market under such circumstance, the Company's Common Stock may become traded on
the over-the-counter market. Whether traded in such over-the-counter market or
available for trading under the Nasdaq Small Cap market, holders of the
Company's Common Stock would likely have much less liquidity, and the Company
would be much less visible in the public markets, than would be the case if
the Company's Common Stock were included in the Nasdaq National Market.
Competition. Many of the Company's current and potential competitors
have longer operating histories, significantly greater financial, technical
and marketing resources, greater name recognition and larger existing
customer bases than the Company. In addition, these competitors may be able
to respond more quickly to new or emerging technologies and changes in
customer requirements, devote greater resources to the development, promotion
and sale of their products or services than the Company and establish
relationships with content providers that have not entered into agreements
with the Company. No assurance can be given that a competitor or competitors
will not develop services and products which are comparable or superior to
the Company's services; nor can any assurance be given that a competitor or
competitors will not seek to obtain agreements with the Company's content
providers or to market their services to the same customers to whom the
Company intends to market its services. Moreover, because the success of the
Company's strategy is dependent in part upon the success of the Company's
relationships with its strategic partners, including the Company's suppliers,
content providers, resellers and distributors, any failure of the products of
the Company's strategic partners to achieve or maintain market acceptance or
compete successfully in their markets could have a material adverse effect on
the Company.
Dependence on AOL. In March 1998, the Company entered into the AOL
Agreement, pursuant to which the Electric Library service is accessible to
AOL members through placement and distribution on AOL's "Research and Learn
Channel" and "WorkPlace Channel" and on AOL's "WorkPlace Channel Business
Research" screen. The Electric Library Personal Edition became available on
the Research and Learn Channel in May 1998 and the Electric Library Business
Edition became available on the Workplace Channel in June 1998. The Company
is required to pay AOL $4 million in placement fees, with $500,000 paid in
March 1998, $500,000 paid in April 1998, and $500,000 due each quarter
commencing approximately six months after the commercial launch, which
occurred in May 1998. In addition, AOL will receive additional fees based on
a sliding scale of end-user revenues. The Company cannot anticipate the
impact on visits to its Electric Library Web site due to the AOL Agreement,
nor can the Company anticipate the effect on subscriptions that may be
generated from such visits or the impact of any changes AOL may make to its
Web site design (channels, screen) or browser in the future. There can be no
assurance that the AOL Agreement will generate adequate revenues to cover the
associated expenditures, and any significant shortfall would have a material
adverse effect on the Company. Further, there can be no assurance that the
AOL Agreement will be renewed, and the Company anticipates that the
termination of its relationship with AOL would significantly reduce new
individual end-user or business site acquisition rates for the Company's
Electric Library service.
Dependence on Netscape. In April 1996, the Company entered into a one year
Distinguished Provider Services Agreement with Netscape Communications
Corporation ("Netscape") pursuant to which the Company was designated one of
fourteen "Distinguished Providers" of search and navigation services accessible
from the "Search" button on the Netscape browser software program that directed
users to the "Net Search" page on Netscape's Web site. In 1997, the Company
renewed a modified version of the Distinguished Provider Services Agreement with
Netscape for an additional one year period until April 30, 1998 which was
extended for one month pending renewal of the agreement for the 1998- 1999
period. In 1998, the Company renewed a modified version of the Distinguished
Provider Services Agreement with
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Netscape for a one year period beginning June 1, 1998 and ending May 31, 1999.
This renewed Distinguished Provider Agreement may be terminated by either party
in certain circumstances, including an uncured material breach by a party and
for either party's convenience upon ninety (90) days written notice. For the
year ended December 31, 1997, a significant portion of visits by individual
consumers to the Company's Electric Library Web site was derived through the
Netscape Distinguished Provider program. The Company cannot anticipate the
impact on visits to its Electric Library Web site due to any changes Netscape
may make to its Web site or browser or the effect on individual consumer
subscriptions that may be generated from such visits. There can be no assurance
that the Distinguished Provider Services Agreement will be renewed, and the
termination of the Company's relationship with Netscape could significantly
reduce new individual consumer acquisition rates for the Company's Electric
Library service.
Dependence on Content Providers; Significant Payments Required to be Made
to Content Providers. The Company's relationships with its content providers are
fundamental to its goal of becoming a leading online reference service. To date,
various content providers, including publishers, have entered into supply
agreements with the Company to provide information for use in the Company's
reference services. Certain of these agreements contain limits on the use of the
content, including limits in certain distribution channels or in certain
geographic locations and generally may be terminated by either party upon: (i)
breach of any material obligation, if such breach remains uncured within a
specified number of days after written notice; or (ii) a bankruptcy, insolvency
or similar filing, if such filing is not withdrawn within a specified number of
days. Certain of the agreements may also be terminated by the content providers
under certain circumstances, including the failure of the Company to make
certain minimum payments. In addition, the agreements are typically
non-exclusive and vary in length of term, ranging from one to five years.
Finally, the Company also obtains representations from its publishers and
content providers in these agreements as to the ownership of licensed
informational content and obtains indemnification to cover any breach of any
such representations.
The Company believes it may be necessary in the future to license
additional content from content providers such as major daily newspapers,
financial publications and weekly or monthly magazines and currently intends to
devote significant resources to licensing content for the business and corporate
markets. Further, users of online services and the Internet will in addition to
diversity also seek access to content from well known sources that are familiar
to users, such as major daily newspapers, financial publications and weekly or
monthly magazines. While the Company intends to continue adding new content,
including additional graphical material, there can be no assurance the Company
will be able to enter into agreements with additional content providers or on
terms similar to its existing content contracts. Failure to enter into new
agreements or to enter into agreements with similar terms may have a material
adverse effect on the Company.
The Company's future success also depends, in part, on its ability to
maintain its existing relationships with its content providers, of which there
can be no assurance. The Company is reducing its reliance on content aggregators
and concurrently is contracting directly with the publishers represented in the
content collections of such aggregators, as well as other publishers. As a
result, from time to time, there may be changes in the number of publications
available on the services. Nevertheless, the Company may, on a case-by-case
basis, enter into relationships with third-party content aggregators to fill
specific needs of the Company. In addition, the combination of contracting
directly with publishers and the Company's overall effort to increase the
content available under its Electric Library service will result in an increase
in data preparation costs. The Company believes that the possible reduction of
content or the increase in data preparation costs will not have a material
adverse effect on the Company. However, there can be no assurance that there
will not be a material adverse effect on the Company.
In addition, while fees payable to the Company's content providers
constitute a significant portion of the Company's cost of revenues, there can be
no assurance that the content providers will be satisfied with the revenue
received through arrangements with the Company or that content providers will
enter into prospective agreements with the Company. If the Company is required
to increase the fees payable to its content providers, such increased payments
may have a material adverse effect on the Company.
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Retention; Pricing Uncertainty. The Company's marketing strategy for
Electric Library depends in part upon retaining customers and renewing customers
after the subscriber period has ended. Even if customers do not cancel after the
first thirty day free subscription period, there can be no assurance that the
Company will retain them as paying customers, or that they will renew, and
industry experience suggests that each month a significant number of subscribers
to the Company's services will terminate their subscriptions. In addition, the
Company may reduce the selling price of its online reference services due to,
among other things, increased competition in the marketplace or loss of
customers. If the Company's retention and renewal rates change significantly or
if the Company reduces the selling price of its services, such changes may have
a material adverse effect on the Company.
Risk of System, Service Failure or Inadequacy. From time to time the
Company has suffered failures of the computer hardware and software and
telecommunications systems (the "Systems") it uses to deliver its services to
its customers, and these failures have resulted in interruptions in the delivery
of the Company's services to its customers. In addition, the growth of the
Company's customer base and/or content base may strain or exceed all or portions
of the capacity of its Systems and lead to degradation in performance or Systems
failure. Such growth of the Company's customer base and/or content base may also
strain or exceed the capacity of certain portions of its Systems dedicated to
performing specific functions such as customer enrollment and billing. Any
damage, failure or delay that causes interruptions in all or any part of the
Company's Systems could have a material adverse effect on the Company. The
Company's operations are also dependent on its ability to maintain its Systems
in effective working order and to protect its Systems against damage from fire,
natural disaster, power loss, telecommunications failure or similar events. All
of the Company's Systems (except for external telecommunications systems) are
located at its headquarters facilities in Wayne, Pennsylvania. While the Company
maintains property insurance, such insurance may not be adequate to compensate
the Company for all losses that may occur or to provide for costs associated
with business interruption.
There can be no assurance that, despite testing and quality assurance
efforts by the Company and by current and potential customers, errors will not
be found in the Company's services or in upgrades to its services resulting in
loss of or delay in market acceptance and sales, diversion of development
resources, injury to the Company's reputation or increased service and support
costs, any of which could have a material adverse effect on the Company.
Potential Fluctuations in Quarterly Results. The Company expects to
experience significant fluctuations in future quarterly operating results that
may be caused by many factors, including demand for the Company's services,
introduction or enhancement of services and products by the Company and its
competitors, market acceptance of new services, the mix of distribution channels
through which services are sold, the mix of services sold, seasonality of the
online services and institutional markets and general economic conditions. As a
result, the Company believes that quarter-to-quarter comparisons of its results
of operations are not and will not necessarily be meaningful and should not be
relied upon as an indication of future performance.
Dependence on Proprietary Technology. The Company's success remains heavily
dependent upon a combination of proprietary software technology and software
developed by Infonautics and licensed from third parties. Although the Company
has lessened its dependence on certain third party technology and software and
has, in some cases, reasonable alternatives available to it for certain third
party technology and software, there can be no assurance that the Company will
be able to license similar technology at a comparable cost and, therefore, any
changes in third party licenses may have a material adverse effect on the
Company.
The Company relies on a combination of the intellectual property laws of
patents, trademarks, copyrights and trade secrets as well as confidentiality and
non-disclosure agreements and other contractual agreements and provisions to
establish and protect its proprietary rights in its services. Despite the
Company's efforts to establish and protect its proprietary rights there can be
no assurance that such steps taken by the Company will be adequate or effective.
There also can be no assurance that unauthorized parties will not attempt to
copy aspects of the Company's services or to obtain and use information that the
Company regards as proprietary. Further, there can be no assurance that the
Company's competitors will not independently develop substantially equivalent or
superior technology or duplicate the Company's services or design around patents
issued or licensed to the Company or circumvent any other intellectual property
rights of the Company. Although the Company believes that its services and the
proprietary rights developed
7
<PAGE>
by or licensed to it do not infringe the patents and proprietary rights of other
parties, there can be no assurance that infringement claims, regardless of
merit, will not be asserted against the Company or its licensors in the future.
There can be no assurance that any patent applications now pending or filed in
the future will result in patents being issued or, if patents are issued, that
the claims allowed will be sufficiently broad to protect what the Company
believes to be its proprietary rights. In addition, there can be no assurance
that pending applications or any patents licensed to the Company or issued or
licensed to the Company in the future will afford any competitive advantages to
the Company or will not be challenged by third parties. There can be no
assurance that the services the Company markets or will seek to market do not or
will not infringe patents or other intellectual property rights owned by others,
or that licenses for certain technologies or services will be available to the
Company on reasonable terms. Litigation may be necessary to enforce or defend
the Company's proprietary technology, contractual agreements and intellectual
property. Any such litigation may be time-consuming and costly.
In addition, the laws of some foreign countries do not protect proprietary
rights to as great an extent as do the laws of the United States, and the global
nature of online services and the Internet makes it impossible to control the
ultimate destination of the Company's services. Policing the unauthorized use of
the Company's technology and proprietary rights is often difficult and expensive
both in the United States and abroad.
Rapid Technological Change. The information services, software and
communications industries are characterized by rapid technological change,
changes in customer requirements, frequent new product and service introductions
and enhancements and emerging industry standards. The introduction of products
and services embodying new technologies and the emergence of new industry
standards and practices can render existing products and services obsolete and
unmarketable or require significant unanticipated investments in research and
development. The Company's future success will depend, in part, upon its ability
to keep abreast of, and to obtain rights to, the latest technologies in order to
enhance Electric Library, license its technology, introduce new services and
products and keep pace with technological developments, changing customer
requirements and frequent new product introductions.
Dependence on Personnel; Management of Growth. The Company's performance is
substantially dependent on the performance of its executive officers and key
employees, some of whom do not have employment agreements with the Company. The
loss of any such personnel could have an adverse effect on the operations of the
Company. The Company is dependent upon its ability to attract, retain and
motivate skilled technical, managerial and sales personnel. Competition for
qualified personnel is intense and there can be no assurance that the Company
will be able to attract, assimilate or retain additional highly qualified
employees. Furthermore, the expenses associated with hiring and retaining
employees may be incurred prior to the generation of any associated revenues.
The Company's future growth will require it to manage its operations
effectively while responding to constant changes in both technology and the
markets in which the Company intends to compete. If the Company's management is
unable to manage growth effectively, the Company may be materially adversely
effected.
Dependence on Limited Sources of Supply. Components of the basic search
software used by the Company are licensed on a non-exclusive basis from
Excalibur Technologies Corporation ("Excalibur") (parent of and successor to
Conquest Software Corp.). No assurance can be given that Excalibur will continue
to support or maintain the software adequately or that the arrangement will not
be terminated. The Company's agreement with Excalibur was amended in January
1998 and provides for a term of 12 years, ending January 31, 2010. The agreement
may be terminated earlier, after a notice period, by either party upon breach of
any material obligation. However, the Company believes that if Excalibur were
unable to adequately support or maintain the software, additional or replacement
suppliers could provide the Company with comparable software within a reasonable
time frame. Nevertheless, there can be no assurance that the Company could find
alternative suppliers or that any such suppliers could provide comparable
software on a timely basis or on similar terms.
Dependence on the Internet. Although the Company provides access to its
services across multiple delivery channels, including commercial online
services, the success of the Company's services depends on, among other things,
the continued expansion of the Internet and its network infrastructure. The
Internet may not prove to be a viable
8
<PAGE>
commercial marketplace because of, among other things, inadequate development of
the necessary infrastructure such as a reliable network backbone, delayed
development of complementary products and technologies such as high speed modems
and security procedures for financial transactions or delays in the development
or adoption of new standards and protocols such as the next-generation Internet
Protocol, all of which would inhibit the Internet's ability to handle increased
levels of activity. There can be no assurance that the infrastructure,
complementary products or protocols necessary to make the Internet a viable
commercial marketplace will be developed. If they are not developed or if the
Internet does not become a viable commercial marketplace for any other reason,
the Company may be materially adversely affected. Moreover, critical issues
concerning the commercial use of, distribution on and government regulation of
online services and the Internet (including security, cost, ease of use and
access, property ownership and other legal liability issues) remain unresolved
and may impact both the growth of online services and the Internet and the
Company's financial results.
Government Regulation and Legal Uncertainties. The Company is not currently
subject to direct regulation by any government agency in the United States,
other than the laws and regulations applicable to businesses generally, and
there are currently few laws or regulations directly applicable to access to or
commerce on the Internet. The Company believes it is currently in compliance
with such laws and regulations and that they do not have a material impact on
its operations. Due to the increasing popularity and use of commercial online
services and the Internet, it is possible that a number of such laws and
regulations may be adopted with respect to commercial online services and the
Internet, which may cover issues such as user privacy, pricing, taxation and the
characteristics and quality of products and services. For example, the Company
may be subject to the provisions of the Communications Decency Act of 1996 (the
"CDA"). Although portions of the CDA were struck down as unconstitutional by the
United States Supreme Court in a ruling dated June 26, 1997, other portions of
the CDA remain in effect, and the manner in which the CDA will be interpreted
and enforced and its effect on the Company's operations cannot be determined;
however, it is possible that the CDA could expose the Company to substantial
liability. The CDA or other laws and regulations could decrease the growth of
commercial online services and the Internet, which could in turn decrease the
demand for the Company's services and increase the Company's cost of doing
business or otherwise have a material adverse effect on the Company. A number of
other countries also have enacted or may enact laws and regulations that
regulate online services and Internet content and activity. The adoption of such
laws or regulations may decrease the growth of online services and the Internet,
which could in turn decrease the demand for the Company's products and services.
Such laws and regulations also could increase the Company's cost of doing
business and may have a material adverse effect on the Company.
In addition, due to the global nature of the Web, it is possible that,
although transmissions of the Company's services primarily originate in the
Commonwealth of Pennsylvania, the governments of other states and foreign
countries might attempt to regulate the Company's transmissions or prosecute the
Company for violations of their laws. There can be no assurance that violations
of local laws will not be alleged or charged by state or foreign governments,
that the Company might not unintentionally violate such law or that such laws
will not be modified, or new laws enacted, in the future. Any of the foregoing
developments could have a material adverse effect on the Company.
Moreover, the applicability to commercial online services and the Internet
of existing United States and foreign laws and regulations governing issues such
as intellectual property ownership, defamation, personal privacy, obscenity and
export restrictions is uncertain and could expose the Company to substantial
liability for which the Company might not be indemnified by content providers,
its other licensors or its insurance. For example, there is a potential that
claims will be made against the Company for copyright or trademark infringement,
defamation or negligence, or based on other theories regarding the nature and
content of materials made available in connection with the Company's services,
including claims based on the Company's providing access to obscene or indecent
information. Although the Company carries general liability insurance, the
Company's insurance may not cover potential claims of this type or may not be
adequate to indemnify the Company for all liability that may be imposed. In
addition, the Company obtains representations from its publishers and content
providers as to the ownership of licensed informational content and obtains
indemnification to cover any breach of any such representations. Still, there
can be no assurance that such representations will be accurate or that such
indemnification will provide adequate compensation for any breach of such
9
<PAGE>
representations. Finally, any imposition of liability that is not covered by
indemnification or insurance, or is in excess of insurance coverage or any
indemnification limits, could have a material adverse effect on the Company.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by
the Selling Shareholder. The offering is made to fulfill the Company's
contractual obligations to the Selling Shareholder to register certain Shares
held by the Selling Shareholder. However, certain of the Shares offered hereby
are issuable in the future upon the exercise of outstanding or issuable
Warrants, and the Company will receive the exercise prices payable upon any
exercise of Warrants. There can be no assurance that all or any part of the
Warrants will be exercised.
SELLING SHAREHOLDER
The following table sets forth certain information regarding the beneficial
ownership of the Shares as of August 5,1998 by the Selling Shareholder. Unless
otherwise indicated below, to the knowledge of the Company, the Selling
Shareholder listed below has sole voting and investment power with respect to
the Shares. To the knowledge of the Company, the Selling Shareholder has not had
a material relationship with the Company during the last three years, other than
as a result of the ownership of the Common Stock or other securities of the
Company.
The information included below is based upon information provided by the
Selling Shareholder. Because the Selling Shareholder may offer all, some or none
of its Shares, no definitive estimate as to the number of Shares thereof that
will be held by the Selling Shareholder after such offering can be provided and
the following table has been prepared on the assumption that all offered under
this Prospectus will be sold.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
of Common Stock of Common Stock
Prior to the Offering After Offering(1)
--------------------- --------------------
Number of Shares to
Name Number Percent of be Sold Under this Number Percent of
of Shares Class(1) Prospectus of Shares Class
--------- -------- ---------- --------- -----
<S> <C> <C> <C> <C> <C>
RGC International 2,098,682(1) 17.9 2,098,682 0 (2)(3) 0
Investors
</TABLE>
- ---------------
(1) The number of shares set forth in the table represents an estimate of the
number of shares of Common Stock to be offered by the Selling Stockholder.
The actual number of shares of Common Stock issuable upon conversion of
Series A Preferred Stock and exercise of the Warrants is indeterminate, is
subject to adjustment and could be materially less or more than such
estimated number depending on factors which cannot be predicted by the
Company at this time, including, among other factors, the future market
price of the Common Stock. The actual number of shares of Common Stock
offered hereby, and included in the Registration Statement of which this
Prospectus is a part, includes such additional number of shares of Common
Stock as may be issued or issuable upon conversion of the Series A
Preferred Stock and exercise of the Warrants by reason of the floating rate
conversion price mechanism or other adjustment mechanisms described
therein, or by reason of any stock split, stock dividend or similar
transaction involving the Common Stock, in order to prevent dilution, in
accordance with Rule 416 under the Securities Act. Pursuant to the terms of
the Series A Preferred Stock, if the Series A Preferred Stock had been
actually converted on August 6, 1998, the conversion price would have been
$2.77 (100% of the average of the daily low trading price of the Common
Stock for the five trading days immediately preceding such date) at which
price the Series A Preferred Stock would have been converted into
1,084,961 shares of Common Stock. The Warrants are exercisable into 200,000
shares of Common Stock at varying exercise prices. Pursuant to the terms
of the Series A Preferred Stock and the Warrants, the shares of Series A
Preferred Stock are convertible and the Warrants are exercisable by any
holder only to the extent that the number of shares of Common Stock thereby
issuable, together with the number of shares of Common Stock owned by such
holder and its affiliates (but not including shares of Common Stock
underlying unconverted shares of Series
10
<PAGE>
A Preferred Stock or unexercised portions of the Warrants) would not exceed
4.9% of the then outstanding Common Stock as determined in accordance with
Section 13 (d) of the Exchange Act. Accordingly, the number of shares of
Common Stock set forth in the table for this Selling Stockholder exceeds
the number of shares of Common Stock that this Selling Shareholder could
own beneficially at any given time through their ownership of the Series A
Preferred Stock and Warrants. In that regard, beneficial ownership of this
Selling Stockholder set forth in the table is not determined in accordance
with Rule 13d-3 under the Exchange Act.
(2) Based on the aggregate of the shares outstanding as of August 5, 1998
(9,639,327 shares).
(3) Assumes the sale of all of the Shares offered hereby.
11
<PAGE>
PLAN OF DISTRIBUTION
The Shares being offered by the Selling Shareholder or its respective
pledgees, donees, transferees or other successors in interest, will be sold in
one or more transactions (which may involve block transactions) on the Nasdaq
National Market or on such other market on which the Common Stock may from time
to time be trading, in privately negotiated transactions, through the writing of
options on the Shares, short sales or any combination thereof. The sale price to
the public may be the market price prevailing at the time of sale, a price
related to such prevailing market price or such other price as the Selling
Shareholder determines from time to time. The Shares may also be sold pursuant
to Rule 144. The Selling Shareholder shall have the sole and absolute discretion
not to accept any purchase offer or make any sale of Shares if they deem the
purchase price to be unsatisfactory at any particular time.
The Selling Shareholder or its respective pledgees, donees, transferee or
other successors in interest, may also sell the Shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves or
their customers. Brokers acting as agents for the Selling Shareholder will
receive usual and customary commissions for brokerage transactions, and market
makers and block purchasers purchasing the Shares will do so for their own
account and at their own risk. It is possible that the Selling Shareholder will
attempt to sell shares of Common Stock in block transactions to market makers or
other purchasers at a price per share which may be below the then market price.
There can be no assurance with all or any of the Shares offered hereby will be
issued to, or sold by , the Selling Shareholder. The Selling Shareholder and any
brokers, dealers or agents, upon effecting the sale of any of the Shares offered
hereby, may be deemed "underwriters" as that term is defined under the
Securities Act or the Exchange Act, or the rules and regulations thereunder.
The Selling Shareholder, alternatively, may sell all or any part of the
Shares offered hereby through an underwriter. The Selling Shareholder has not
entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into. If the Selling
Shareholder enters into such an agreement or agreements, the relevant details
will be set forth in a supplement or revisions to this Prospectus.
Upon the Company being notified by the Selling Shareholder that any
material arrangement has been entered into with a broker or dealer for the sale
of Shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplemented
Prospectus will be filed, if required, pursuant to Rule 424(c) under the
Securities Act, disclosing (a) the name of each such broker-dealer, (b) the
number of Shares involved, (c) the price at which such Shares were sold, (d) the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (e) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference in
this Prospectus, as supplemented, and (f) other facts material to the
transaction.
The Selling Shareholder and any other persons participating in the sale or
distribution of the Shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Shares by the Selling
Shareholder or any other such person. The foregoing may affect the marketability
of the Shares.
The Company has agreed to indemnify the Selling Shareholder, or its
transferees or assignees, against certain liabilities, including liabilities
under the Securities Act, or to contribute to payments the Selling Shareholder
or its respective pledgees, donees, transferees or other successors in interest,
may be required to make in respect thereof.
The Company is bearing all costs relating to the registration of the Shares
(other than fees and expenses, if any, of counsel or other advisers to the
Selling Shareholder). Any commissions, discounts or other fees payable to
broker-dealers in connection with any sale of the Shares will be borne by the
Selling Shareholder.
12
<PAGE>
LEGAL OPINION
The validity of the Shares offered hereby will be passed upon for the
Company by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1997 and the
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1997, and the
related financial statement schedule, all incorporated by reference herein and
in the registration statement, have been incorporated herein in reliance on the
report of PricewaterhouseCoopers LLP (formerly Coopers & Lybrand L.L.P.),
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
13
<PAGE>
- ------------------------------------ -------------------------------------
- ------------------------------------ -------------------------------------
No dealer, salesperson or other person has
been authorized to give any information or to make
any representations other than those contained in
this Prospectus and, if given or made, such
information or representations must not be relied
upon as having been authorized by the Company or
the Selling Shareholder or by any other person.
This Prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy a security
other than the shares of Common Stock offered hereby,
nor does it constitute an offer to sell or a solicitation
of an offer to buy any of the securities offered
hereby to any person in any jurisdiction in which
such offer or solicitation would be unlawful.
Neither the delivery of this Prospectus nor any offer
or sale made hereunder shall, under any
circumstances, create any implication that there has
been no change in the affairs of the Company or
that information contained herein is correct as of
any time subsequent to the date hereof.
---------------
TABLE OF CONTENTS
Page
Available Information 2
Incorporation of Certain Documents
by Reference 2
The Company 3
Disclosure Regarding Forward-Looking
Statements 3
Risk Factors 4
Use of Proceeds 10
Selling Shareholder 10
Plan of Distribution 12
Legal Opinion 13
Experts 13
2,098,682 Shares
Infonautics, Inc.
Class A
Common Stock
(No Par Value)
- ---------------
PROSPECTUS
- ---------------
________, 1998
- ------------------------------------ -------------------------------------
- ------------------------------------ -------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table shows the estimated expenses of the issuance and
distribution of the securities offered hereby, all of which will be paid by the
Company:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration fee..................................... $ 1,635
Accounting service...................................................................... $ 5,000
Legal fees.............................................................................. $25,000
Miscellaneous, including Nasdaq listing fees............................................ $20,000
Total.......................................................................... $51,635
---------
</TABLE>
Item 15. Indemnification of Directors and Officers.
Sections 1741 and 172 of the Pennsylvania Business Corporation Law of
1988, as amended (the "BCL"), provide that a business corporation may indemnify
directors and officers against liabilities they may incur as such provided that
the particular person acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and, with respect to any criminal proceeding, had no reasonable cause to believe
his or her conduct was unlawful. In general, the power to indemnify under these
sections does not exist in the case of actions against a director or officer by
or in the right of the corporation if the person otherwise entitled to
indemnification shall have been adjudged to be liable to the corporation unless
it is judicially determined that, despite the adjudication of liability but in
view of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnification for specified expenses. The corporation is required
to indemnify directors and officers against expenses they may incur in defending
actions against them in such capacities if they are successful on the merits or
otherwise in the defense of such actions.
Section 1713 of the BCL permits the Shareholders to adopt a bylaw
provision relieving a director (but not an officer) of personal liability for
monetary damages except where (i) the director has breached the applicable
standard of care, and (ii) such conduct constitutes self-dealing, willful
misconduct or recklessness. The statute provides that a director may not be
relieved of liability for the payment of taxes pursuant to any federal, state or
local law or responsibility under a criminal statute. Section 8.2 of the
Company's Bylaws limits the liability of any director of the Company to the
fullest extent permitted by Section 1713 of the BCL.
Section 1746 of the BCL grants a corporation broad authority to
indemnify its directors, officers and other agents for liabilities and expenses
incurred in such capacity, except in circumstances where the act or failure to
act giving rise to the claim for indemnification is determined by a court to
have constituted willful misconduct or recklessness. Article VIII of the
Company's Bylaws provides indemnification of directors, officers and other
agents of the Company to the extent not otherwise permitted by Section 1741 of
the BCL and pursuant to the authority of Section 1746 of the BCL.
Article VIII of the Bylaws provides, except as expressly prohibited by
law, an unconditional right to indemnification for expenses and any liability
paid or incurred by any director or officer of the Company, or any other person
designated by the Board of Directors as an indemnified representative, in
connection with any actual or threatened claim action, suit or proceeding
(including derivative suits) in which he or she may be involved by reason of
being or having been a director, officer, employee or agent of the Company or,
at the request of the Company, of another corporation, partnership, joint
venture, trust, employee benefit plan or other entity. The Bylaws specifically
authorize indemnification against both judgments and amounts paid in settlement
of derivative suits, unlike Section 1742 of the BCL which authorized
indemnification only of expenses incurred in defending a
II-1
<PAGE>
derivative action. Article VIII of the Bylaws also allows indemnification for
punitive damages and liabilities incurred under the federal securities laws.
Unlike the provisions of BCL Sections 1741 and 1742, Article VIII does
not require the Company to determine the availability of indemnification by the
procedures or the standard of conduct specified in Sections 1741 and 1742 of the
BCL. A person who has incurred an indemnifiable expense or liability has a right
to be indemnified independent of any procedures or determinations that would be
otherwise be required, and that right is enforceable against the Company as long
as indemnification is not prohibited by law. To the extent indemnification is
permitted only for a portion of a liability, the Bylaw provisions require the
Company to indemnify such portion. If the indemnification provided for in
Article VIII is unavailable for any reason in respect of any liability or
portion thereof, the Bylaws require the Company to make a contribution toward
the liability. Indemnification rights under the Bylaws do not depend upon the
approval of any future Board of Directors.
Section 7.04 of the Company's Bylaws also authorizes the Company to
further effect or secure its indemnification obligations by entering into
indemnification agreements, maintaining insurance, creating a trust fund,
granting a security interest in its assets or property, establishing a letter of
credit, or using any other means that may be available from time to time.
The Company maintains, on behalf of its directors and officers,
insurance protection against certain liabilities arising out of the discharge of
their duties, as well as insurance covering the Company for indemnification
payments made to its directors and officers for certain liabilities. The
premiums for such insurance are paid by the Company.
II-2
<PAGE>
Item 16. Exhibits.
The following is a list of exhibits filed as part of this Registration
Statement.
<TABLE>
<CAPTION>
Exhibit
Number Document
------- --------
<S> <C>
4.1 Certificate of Designation of Series A Convertible Preferred
Stock.*
4.2 Securities Purchase Agreement, dated as of July 22, 1998
between the Company and RGC International Investors, LDC.*
4.3 Registration Rights Agreement dated as of July 22, 1998 between the
Company and RGC International Investors, LDC.*
4.4 Warrant to Purchase Common Stock issued July 22, 1998 to RGC
International Investors, LDC.
4.5 Warrant to Purchase Common Stock issued July 22, 1998 to RGC
International Investors, LDC.
5 Opinion of Morgan, Lewis & Bockius LLP.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 5.1).
24 Power of Attorney (included on signature pages to this Registration
Statement).
</TABLE>
*Incorporated by reference to the Company's Form 8-K dated July 23,1998.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
registration statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by
II-3
<PAGE>
the registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relative to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered hereby which remain unsold at
the termination of the offering.
The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Wayne, state of Pennsylvania on the 11th day of
August, 1998.
INFONAUTICS, INC.
By: /s/ David Van Riper Morris
---------------------------------------
David Van Riper Morris
Chief Executive Officer and President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gerard J. Lewis, Jr. true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration Statement, and
to file the same, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signatures Title Date
- ---------- ----- ----
\s\ David Van Riper Morris Principal Executive Officer and August 11, 1998
- ----------------------------- Director
David Van Riper Morris
\s\Federica F. O'Brien Principal Financial and August 11, 1998
- ----------------------------- Accounting Officer
Federica F. O'Brien
\s\Israel J. Melman Director August 11, 1998
- -----------------------------
Israel J. Melman
\s\Howard L. Morgan Director August 11, 1998
- -----------------------------
Howard L. Morgan
Director
- -----------------------------
Lloyd N. Morrisett
II-5
<PAGE>
Signatures Title Date
- ---------- ----- ----
\s\Barry Rubenstein Director August 11, 1998
- -----------------------------
Barry Rubenstein
\s\Marvin I. Weinberger Director August 11, 1998
- -----------------------------
Marvin I. Weinberger
\s\Brian Segal Director August 11, 1998
- -----------------------------
Brian Segal
\s\Lester D. Wunderman Director August 11, 1998
- -----------------------------
Lester D. Wunderman
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Document
- ------ ---------
<S> <C>
4.1 Certificate of Designation of Series A Convertible Preferred
Stock.*
4.2 Securities Purchase Agreement, dated as of July 22, 1998
between the Company and RGC International Investors, LDC.*
4.3 Registration Rights Agreement dated as of July 22, 1998 between
the Company and RGC International Investors, LDC.*
4.4 Warrant to Purchase Common Stock issued July 22, 1998 to RGC
International Investors, LDC.
4.5 Warrant to Purchase Common Stock issued July 22, 1998 to RGC
International Investors, LDC.
5 Opinion of Morgan, Lewis & Bockius LLP.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 5.1).
24 Power of Attorney (included on signature pages to this
Registration Statement).
</TABLE>
*Incorporated by reference to the Company's Form 8-K dated July 23,1998.
II-7
<PAGE>
Exhibit 4.4
EXHIBIT B-1
TO
SECURITIES
PURCHASE
AGREEMENT
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT AS
OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT DATED AS
OF JULY 22, 1998, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
OFFERED FOR SALE, ASSIGNED, TRANSFERRED, OR OTHER WISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION UNDER SUCH ACT OR AN OPINION OF COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SUCH ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY
WITH APPLICABLE STATE SECURITIES LAWS.
Right to
Purchase
100,000
Shares of
Common
Stock, no par
value
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC INTERNATIONAL INVESTORS, LDC
or its registered assigns, is entitled to purchase from INFONAUTICS, INC., a
Pennsylvania corporation (the "Company"), at any time or from time to time
during the period specified in Paragraph 2 hereof, One Hundred Thousand
(100,000) fully paid and nonassessable shares of the Company's Class A Common
Stock, no par value (the "Common Stock"), at an exercise price per share equal
to 150% of the average closing bid price of the Common Stock during the ten (10)
consecutive trading days beginning July 16, 1998 (the "Exercise Price"). The
term "Warrant Shares," as used herein, refers to the shares of Common Stock
purchasable hereunder. The Warrant Shares and the Exercise Price are subject to
adjustment as provided in Paragraph 4 hereof. The term Warrants means this
Warrant and the other warrants issued pursuant to that certain Securities
Purchase Agreement, dated July 22, 1998, by and among the Company and the Buyers
listed on the execution page thereof (the "Securities Purchase Agreement").
<PAGE>
This Warrant is subject to the following terms, provisions, and conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee, as
the record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise Agreement
shall have been delivered, and payment shall have been made for such shares as
set forth above. Certificates for the Warrant Shares so purchased, representing
the aggregate number of shares specified in the Exercise Agreement, shall be
delivered to the holder hereof within a reasonable time, not exceeding three (3)
business days, after this Warrant shall have been so exercised. The certificates
so delivered shall be in such denominations as may be requested by the holder
hereof and shall be registered in the name of such holder or, upon payment of
any applicable transfer taxes, such other name as shall be designated by such
holder. If this Warrant shall have been exercised only in part, then, unless
this Warrant has expired, the Company shall, at its expense, at the time of
delivery of such certificates, deliver to the holder a new Warrant representing
the number of shares with respect to which this Warrant shall not then have been
exercised.
Notwithstanding anything in this Warrant to the contrary, in no event shall
the Holder of this Warrant be entitled to exercise a number of Warrants (or
portions thereof) in excess of the number of Warrants (or portions thereof) upon
exercise of which the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and unconverted shares of Series A Preferred Stock (as
defined in the Securities Purchase Agreement) and (ii) the number of shares of
Common Stock issuable upon exercise of the Warrants (or portions thereof) with
respect to which the determination described herein is being made, would result
in beneficial ownership by the Holder and its affiliates of more than 4.9% of
the outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D-G thereunder, except as otherwise provided in clause (i) hereof.
2. Period of Exercise. This Warrant is exercisable at any time or from time
to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities
2
<PAGE>
Purchase Agreement and before 5:00 p.m., New York City time on the fifth (5th)
anniversary of the date of issuance (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof.
(b) Reservation of Shares. During the Exercise Period, the Company shall
at all times have authorized, and reserved for the purpose of issuance upon
exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of the shares
of Common Stock issuable upon exercise of the Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment of
its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon any entity
succeeding to the Company by merger, consolidation, or acquisition of all or
substantially all the Company's assets.
3
<PAGE>
4. Antidilution Provisions. During the Exercise Period, the Exercise Price
and the number of Warrant Shares shall be subject to adjustment from time to
time as provided in this Paragraph 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such Exercise
Price shall be rounded up to the nearest cent.
(a) Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any
time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.
(b) Adjustment in Number of Shares. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Paragraph 4, the number of shares of
Common Stock issuable upon exercise of this Warrant shall be adjusted by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of shares of Common Stock issuable upon exercise
of this Warrant immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
(c) Consolidation, Merger or Sale. In case of any consolidation of the
Company with, or merger of the Company into any other corporation, or in case of
any sale or conveyance of all or substantially all of the assets of the Company
other than in connection with a plan of complete liquidation of the Company,
then as a condition of such consolidation, merger or sale or conveyance,
adequate provision will be made whereby the holder of this Warrant will have the
right to acquire and receive upon exercise of this Warrant in lieu of the shares
of Common Stock immediately theretofore acquirable upon the exercise of this
Warrant, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this Warrant
had such consolidation, merger or sale or conveyance not taken place. In any
such case, the Company will make appropriate provision to insure that the
provisions of this Paragraph 4 hereof will thereafter be applicable as nearly as
may be in relation to any shares of stock or securities thereafter deliverable
upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Paragraph 4 and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled to
acquire.
(d) Distribution of Assets. In case the Company shall declare or make
any distribution of its assets (including cash) to holders of Common Stock as a
partial liquidating dividend, by way of return of capital or otherwise, then,
after the date of record for determining stockholders entitled to such
distribution, but prior to the date of distribution, the holder of this
4
<PAGE>
Warrant shall be entitled upon exercise of this Warrant for the purchase of any
or all of the shares of Common Stock subject hereto, to receive the amount of
such assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of stockholders entitled to such distribution.
(e) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(f) Minimum Adjustment of Exercise Price. No adjustment of the Exercise
Price shall be made in an amount of less than 1% of the Exercise Price in effect
at the time such adjustment is otherwise required to be made, but any such
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(g) No Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.
(h) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger of the Company
with or into, or sale of all or substantially all its assets to, another
corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up
5
<PAGE>
and (b) in the case of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up, notice of the date (or, if
not then known, a reasonable approximation thereof by the Company) when the same
shall take place. Such notice shall also specify the date on which the holders
of Common Stock shall be entitled to receive such dividend, distribution, or
subscription rights or to exchange their Common Stock for stock or other
securities or property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, as the
case may be. Such notice shall be given at least 30 days prior to the record
date or the date on which the Company's books are closed in respect thereto.
Failure to give any such notice or any defect therein shall not affect the
validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv)
above.
(i) Certain Events. If any event occurs of the type contemplated by
the adjustment provisions of this Paragraph 4 but not expressly provided for by
such provisions, the Company will give notice of such event as provided in
Paragraph 4(g) hereof, and the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of the Holder
shall be neither enhanced nor diminished by such event.
(j) "Market Price" Definition.
"Market Price," as of any date, (i) means the average of the
last reported sale prices for the shares of Common Stock on the Nasdaq National
Market ("Nasdaq") for the five (5) trading days immediately preceding such date
as reported by Bloomberg, L.P. ("Bloomberg"), or (ii) if Nasdaq is not the
principal trading market for the shares of Common Stock, the average of the last
reported sale prices on the principal trading market for the Common Stock during
the same period as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price shall
be the fair market value as reasonably determined in good faith by (a) the Board
of Directors of the Corporation or, at the option of a majority-in-interest of
the holders of the outstanding Warrants by (b) an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the corporation. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply with respect to
any other security in respect of which a determination as to market value must
be made hereunder.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
6
<PAGE>
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights granted to the
holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Paragraph 7(f) hereof and to the applicable
provisions of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary. Notwithstanding
anything to the contrary contained herein, the registration rights described in
Paragraph 8 are assignable only in accordance with the provisions of that
certain Registration Rights Agreement, dated as of July 22, 1998, by and among
the Company and the other signatories thereto (the "Registration Rights
Agreement").
(b) Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Paragraph 7.
(e) Register. The Company shall maintain, at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee and each prior
owner of this Warrant.
7
<PAGE>
(f) Exercise or Transfer Without Registration. If, at the time of the
surrender of this Warrant in connection with any exercise, transfer, or exchange
of this Warrant, this Warrant (or, in the case of any exercise, the Warrant
Shares issuable hereunder), shall not be registered under the Securities Act of
1933, as amended (the "Securities Act") and under applicable state securities or
blue sky laws, the Company may require, as a condition of allowing such
exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without registration under
said Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the Securities
Act; provided that no such opinion, letter or status as an "accredited investor"
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act. The first holder of this Warrant, by taking and holding the
same, represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof.
8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in Section 2 of the Registration
Rights Agreement.
9. Notices. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 900 West Valley Road,
Suite 400, Wayne, Pennsylvania 19087 Attention: President and Chief Executive
Officer, or at such other address as shall have been furnished to the holder of
this Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by facsimile, but shall in such case be subsequently
confirmed by a writing personally delivered or sent by certified or registered
mail or by recognized overnight mail courier as provided above. All notices,
requests, and other communications shall be deemed to have been given either at
the time of the receipt thereof by the person entitled to receive such notice at
the address of such person for purposes of this Paragraph 9, or, if mailed by
registered or certified mail or with a recognized overnight mail courier upon
deposit with the United States Post Office or such overnight mail courier, if
postage is prepaid and the mailing is properly addressed, as the case may be.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA WITHOUT REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW.
8
<PAGE>
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised by presentation and surrender of
this Warrant to the Company at its principal executive offices with a written
notice of the holder's intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a "Cashless Exercise"). In the
event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the
holder shall surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
INFONAUTICS, INC.
By: /s/David Van Riper Morris
-------------------------------------
David Van Riper Morris
President and Chief Executive Officer
Dated as of July 22, 1998
10
10
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: ________, ____.
To: Infonautics, Inc.
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name:
------------------------------------
Signature:
------------------------------------
Address:
------------------------------------
------------------------------------
------------------------------------
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth herein below, to:
Name of Assignee Address No of Shares
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints
_______________________________ as agent and attorney-in-fact to transfer said
Warrant on the books of the within-named corporation, with full power of
substitution in the premises.
Dated: _____________________, ____,
In the presence of
- ------------------
Name:
------------------------------------
Signature:
------------------------------------
Title of Signing Officer or Agent (if any):
Address:
------------------------------------
------------------------------------
------------------------------------
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
<PAGE>
EXHIBIT 4.5
TO
SECURITIES
PURCHASE
AGREEMENT
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT AS
OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT DATED AS
OF JULY 22, 1998, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
OFFERED FOR SALE, ASSIGNED, TRANSFERRED, OR OTHER WISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION UNDER SUCH ACT OR AN OPINION OF COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SUCH ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY
WITH APPLICABLE STATE SECURITIES LAWS.
Right to
Purchase
100,000
Shares of
Common
Stock, no par
value
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC INTERNATIONAL INVESTORS, LDC
or its registered assigns, is entitled to purchase from INFONAUTICS, INC., a
Pennsylvania corporation (the "Company"), at any time or from time to time
during the period specified in Paragraph 2 hereof, One Hundred Thousand
(100,000) fully paid and nonassessable shares of the Company's Class A Common
Stock, no par value (the "Common Stock"), at an exercise price per share equal
to 130% of the average closing bid price of the Common Stock during the five (5)
consecutive trading days ending February 16, 1999 (the "Exercise Price"). The
term "Warrant Shares," as used herein, refers to the shares of Common Stock
purchasable hereunder. The Warrant Shares and the Exercise Price are subject to
adjustment as provided in Paragraph 4 hereof. The term Warrants means this
Warrant and the other warrants issued pursuant to that certain Securities
Purchase Agreement, dated July 22, 1998, by and among the Company and the Buyers
listed on the execution page thereof (the "Securities Purchase Agreement").
<PAGE>
This Warrant is subject to the following terms, provisions, and conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee, as
the record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise Agreement
shall have been delivered, and payment shall have been made for such shares as
set forth above. Certificates for the Warrant Shares so purchased, representing
the aggregate number of shares specified in the Exercise Agreement, shall be
delivered to the holder hereof within a reasonable time, not exceeding three (3)
business days, after this Warrant shall have been so exercised. The certificates
so delivered shall be in such denominations as may be requested by the holder
hereof and shall be registered in the name of such holder or, upon payment of
any applicable transfer taxes, such other name as shall be designated by such
holder. If this Warrant shall have been exercised only in part, then, unless
this Warrant has expired, the Company shall, at its expense, at the time of
delivery of such certificates, deliver to the holder a new Warrant representing
the number of shares with respect to which this Warrant shall not then have been
exercised.
Notwithstanding anything in this Warrant to the contrary, in no event shall
the Holder of this Warrant be entitled to exercise a number of Warrants (or
portions thereof) in excess of the number of Warrants (or portions thereof) upon
exercise of which the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and unconverted shares of Series A Preferred Stock (as
defined in the Securities Purchase Agreement) and (ii) the number of shares of
Common Stock issuable upon exercise of the Warrants (or portions thereof) with
respect to which the determination described herein is being made, would result
in beneficial ownership by the Holder and its affiliates of more than 4.9% of
the outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D-G thereunder, except as otherwise provided in clause (i) hereof.
2
<PAGE>
2. Period of Exercise. This Warrant is exercisable at any time or from time
to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement and before 5:00 p.m.,
New York City time on the fifth (5th) anniversary of the date of issuance (the
"Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in
accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof.
(b) Reservation of Shares. During the Exercise Period, the Company shall
at all times have authorized, and reserved for the purpose of issuance upon
exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of the shares
of Common Stock issuable upon exercise of the Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment of
its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon any entity
succeeding to the Company by merger, consolidation, or acquisition of all or
substantially all the Company's assets.
3
<PAGE>
4. Antidilution Provisions. During the Exercise Period, the Exercise Price
and the number of Warrant Shares shall be subject to adjustment from time to
time as provided in this Paragraph 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such Exercise
Price shall be rounded up to the nearest cent.
(a) Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any
time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.
(b) Adjustment in Number of Shares. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Paragraph 4, the number of shares of
Common Stock issuable upon exercise of this Warrant shall be adjusted by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of shares of Common Stock issuable upon exercise
of this Warrant immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
(c) Consolidation, Merger or Sale. In case of any consolidation of the
Company with, or merger of the Company into any other corporation, or in case of
any sale or conveyance of all or substantially all of the assets of the Company
other than in connection with a plan of complete liquidation of the Company,
then as a condition of such consolidation, merger or sale or conveyance,
adequate provision will be made whereby the holder of this Warrant will have the
right to acquire and receive upon exercise of this Warrant in lieu of the shares
of Common Stock immediately theretofore acquirable upon the exercise of this
Warrant, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this Warrant
had such consolidation, merger or sale or conveyance not taken place. In any
such case, the Company will make appropriate provision to insure that the
provisions of this Paragraph 4 hereof will thereafter be applicable as nearly as
may be in relation to any shares of stock or securities thereafter deliverable
upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Paragraph 4 and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled to
acquire.
(d) Distribution of Assets. In case the Company shall declare or make
any distribution of its assets (including cash) to holders of Common Stock as a
partial liquidating dividend, by way of return of capital or otherwise, then,
after the date of record for determining stockholders entitled to such
distribution, but prior to the date of distribution, the holder of this
4
<PAGE>
Warrant shall be entitled upon exercise of this Warrant for the purchase of any
or all of the shares of Common Stock subject hereto, to receive the amount of
such assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of stockholders entitled to such distribution.
(e) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(f) Minimum Adjustment of Exercise Price. No adjustment of the Exercise
Price shall be made in an amount of less than 1% of the Exercise Price in effect
at the time such adjustment is otherwise required to be made, but any such
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(g) No Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.
(h) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger of the Company
with or into, or sale of all or substantially all its assets to, another
corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up
5
<PAGE>
and (b) in the case of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up, notice of the date (or, if
not then known, a reasonable approximation thereof by the Company) when the same
shall take place. Such notice shall also specify the date on which the holders
of Common Stock shall be entitled to receive such dividend, distribution, or
subscription rights or to exchange their Common Stock for stock or other
securities or property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, as the
case may be. Such notice shall be given at least 30 days prior to the record
date or the date on which the Company's books are closed in respect thereto.
Failure to give any such notice or any defect therein shall not affect the
validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv)
above.
(i) Certain Events. If any event occurs of the type contemplated by the
adjustment provisions of this Paragraph 4 but not expressly provided for by such
provisions, the Company will give notice of such event as provided in Paragraph
4(g) hereof, and the Company's Board of Directors will make an appropriate
adjustment in the Exercise Price and the number of shares of Common Stock
acquirable upon exercise of this Warrant so that the rights of the Holder shall
be neither enhanced nor diminished by such event.
(j) "Market Price" Definition. "Market Price," as of any date, (i) means
the average of the last reported sale prices for the shares of Common Stock on
the Nasdaq National Market ("Nasdaq") for the five (5) trading days immediately
preceding such date as reported by Bloomberg, L.P. ("Bloomberg"), or (ii) if
Nasdaq is not the principal trading market for the shares of Common Stock, the
average of the last reported sale prices on the principal trading market for the
Common Stock during the same period as reported by Bloomberg, or (iii) if market
value cannot be calculated as of such date on any of the foregoing bases, the
Market Price shall be the fair market value as reasonably determined in good
faith by (a) the Board of Directors of the Corporation or, at the option of a
majority-in-interest of the holders of the outstanding Warrants by (b) an
independent investment bank of nationally recognized standing in the valuation
of businesses similar to the business of the corporation. The manner of
determining the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
6
<PAGE>
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights granted to the
holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Paragraph 7(f) hereof and to the applicable
provisions of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary. Notwithstanding
anything to the contrary contained herein, the registration rights described in
Paragraph 8 are assignable only in accordance with the provisions of that
certain Registration Rights Agreement, dated as of July 22, 1998, by and among
the Company and the other signatories thereto (the "Registration Rights
Agreement").
(b) Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Paragraph 7.
(e) Register. The Company shall maintain, at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee and each prior
owner of this Warrant.
7
<PAGE>
(f) Exercise or Transfer Without Registration. If, at the time of the
surrender of this Warrant in connection with any exercise, transfer, or exchange
of this Warrant, this Warrant (or, in the case of any exercise, the Warrant
Shares issuable hereunder), shall not be registered under the Securities Act of
1933, as amended (the "Securities Act") and under applicable state securities or
blue sky laws, the Company may require, as a condition of allowing such
exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without registration under
said Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the Securities
Act; provided that no such opinion, letter or status as an "accredited investor"
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act. The first holder of this Warrant, by taking and holding the
same, represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof.
8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in Section 2 of the Registration
Rights Agreement.
9. Notices. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 900 West Valley Road,
Suite 400, Wayne, Pennsylvania 19087 Attention: President and Chief Executive
Officer, or at such other address as shall have been furnished to the holder of
this Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by facsimile, but shall in such case be subsequently
confirmed by a writing personally delivered or sent by certified or registered
mail or by recognized overnight mail courier as provided above. All notices,
requests, and other communications shall be deemed to have been given either at
the time of the receipt thereof by the person entitled to receive such notice at
the address of such person for purposes of this Paragraph 9, or, if mailed by
registered or certified mail or with a recognized overnight mail courier upon
deposit with the United States Post Office or such overnight mail courier, if
postage is prepaid and the mailing is properly addressed, as the case may be.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA WITHOUT REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW.
8
<PAGE>
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised by presentation and surrender of
this Warrant to the Company at its principal executive offices with a written
notice of the holder's intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a "Cashless Exercise"). In the
event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the
holder shall surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
INFONAUTICS, INC.
By: /s/David Van Riper Morris
--------------------------------------
David Van Riper Morris
President and Chief Executive Officer
Dated as of July 22, 1998
10
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: ________, ____.
To: Infonautics, Inc.
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name:
------------------------------------
Signature:
------------------------------------
Address:
------------------------------------
------------------------------------
------------------------------------
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth herein below, to:
Name of Assignee Address No of Shares
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints
_______________________________ as agent and attorney-in-fact to transfer said
Warrant on the books of the within-named corporation, with full power of
substitution in the premises.
Dated: _____________________, ____,
In the presence of
- ------------------
Name:
------------------------------------
Signature:
------------------------------------
Title of Signing Officer or Agent (if any):
Address:
------------------------------------
------------------------------------
------------------------------------
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
<PAGE>
Exhibit 5
August 11, 1998
Infonautics, Inc.
900 West Valley Road
Suite 100
Wayne, Pennsylvania 19087
Re: Infonautics, Inc.
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
As counsel to Infonautics, Inc., a Pennsylvania corporation (the "Company"), we
have assisted in the preparation of the subject Registration Statement on Form
S-3, as amended (the "Registration Statement"), to be filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Act"), relating to the issuance of 2,098,682 shares of the Company's Class A
Common Stock, no par value (the "Shares").
In rendering the opinion set forth below, we have reviewed (a) the Registration
Statement; (b) the Company's Amended and Restated Articles of Incorporation and
Bylaws; (c) certain records of the Company's corporate proceedings as reflected
in its minute books; (d) the Certificate of Determination of Series A
Convertible Preferred Stock (the "Certificate"); (e) the Warrants; and (f) such
records, documents, statutes and decisions as we have deemed relevant. In our
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals and the conformity with the
original of all documents submitted to us as copies thereof.
Our opinion set forth below is limited to the Pennsylvania Business Corporation
Law.
Based upon the foregoing, we are of the opinion that the Shares, when and to the
extent issued by the Company upon the conversion of the Series A Convertible
Preferred Stock and upon the exercise of the Warrants in the manner contemplated
in the Certificate and the Warrants, respectively, will be duly authorized,
validly issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5 to the Registration
Statement and to the reference to our firm under the heading "Legal Matters" in
the Registration Statement. In giving such opinion, we do not thereby admit that
we are acting within the category of persons whose consent is required under
Section 7 of the Act or the rules or regulations of the Securities and Exchange
Commission thereunder.
Very truly yours.
/s/ Morgan, Lewis & Bockius LLP
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
To Infonautics, Inc.
We consent to the incorporation by reference in this Registration Statement
of Infonautics, Inc. on Form S-3 of our report dated February 13, 1998, on
our audits of the consolidated financial statements and financial statement
schedule of Infonautics, Inc. and its subsidiaries as of December 31, 1996
and 1997 and for each of the three years in the period ended December 31,
1997, which report is included in the Annual Report on Form 10-K of
Infonautics, Inc. for the year ended December 31, 1997. We also consent to
the reference to our firm under the caption "Experts" in this Registration
Statement.
PricewaterhouseCoopers LLP
Philadelphia, PA 19103
August 11, 1998
